CA-FOUNDATION

Solution

A-1

a)
i. True: Salary paid in advance relates to the coming accounting period. It has nothing to
do with the current period. Hence it is not taken in the Profit and Loss Account as an
expense. It is shown as a Current Asset in the Balance Sheet.

ii. False: If the effect of errors committed cancel out, the errors will be called
compensating errors and the trial balance will agree.

iii. False: The sale value of the by-product is credited to Manufacturing Account so as to
reduce to that extent, the cost of manufacture of main product.

iv. False: In Consignment sale, ownership of the goods rests with the consignor till they are
sold by the consignee. The consignee does not become the owner of the goods even
though goods are in his possession. He acts only as agent of the consignor.

v. True: No interest is allowed when the due date of a bill falls after the date of closing the
account. However, interest from the date of closing to such due date is written in ‘Red
Ink’ in the appropriate side of account current.

vi. False: Net income is determined by preparing income and expenditure in case of
persons practicing vacation.

(12 marks)
b) Provision and contingent liability

Provision Contingent Liability

1. Provision is a present liability of uncertain A contingent liability is a possible
amount, which can be measured reliably by obligation that may or may not crystallise
using a substantial degree of estimation. depending on the occurrence or non-
occurrence of one or more uncertain
future events.

2. A Provision meets the recognition criteria. A Contingent liability fails to meet the
same.
 3. Provision is recognized when (a) an Contingent liability includes present
enterprise has a present obligation arising obligation that do not meet the
from past events; an outflow of resources recognition criteria because either it is
embodying economic benefits is probable, not probable that settlement of those
and (b) a reliable estimation can be made of obligations will require outflow of
the amount of the obligation. economic benefits, or the amount cannot
be reliably estimated

4. If the management estimates that it is If the management estimates, that it is

probable that the settlement of an less likely that any economic benefit will
obligation will result in outflow of economic outflow from the firm to settle the
benefits, it recognises a provision in the obligation, it discloses the obligation as a
balance sheet. contingent liability.

(4 marks)

c) In the books of Kewal

Journal entries
Particulars Dr Cr
Amount Amount

Rs. Rs.
i. Bank A/c Dr. 9,000
Discount allowed A/c Dr. 1,000
To Hari Krishan A/c 10,000
(Amount received from Hari Krishan after
allowing discount of 1,000).
ii. Drawings Dr. 7,000
To Purchases A/c 6,000
To Cash A/c 1,000
(Goods and cash withdrawn for personal use)
iii. Free Samples/Sales promotion A/c Dr. 3,000
 To Purchases A/c 3,000
(Being the goods distributes as free samples).
iv. Bank A/c Dr 10,000
To Commission A/c 10,000
(Commission received).
Commission A/c Dr. 5,000
To Commission received in Advance A/c 5,000
(Commission received in advance adjusted).
v. Machinery A/c Dr. 30,000
To Bank A/c 30,000
(Machinery purchased from Jawahar)
Machinery A/c Dr. 9,000
To Purchases A/c 9,000
(Goods used in repairs of Machinery).
(4 marks)
A-2

a) Profit and Loss Adjustment Account

Rs. Rs.
To Advertisement (samples) 3,20,000 By Net profit 32,00,000
To Sales (goods approved in 8,00,000 By Electric fittings 1,20,000
April to be taken as April
sales)

To Adjusted net profit 67,20,000 By Samples 3,20,000

By Stock (Purchases of March 20,00,000
not included in stock)
By Sales (goods sold in March 16,00,000
wrongly taken in April sales)
 By Stock (goods sent on 6,00,000
approval basis not included in
stock)

78,40,000 78,40,000

Calculation of value of inventory on 31st March, 2022

Rs.
Stock on 31st March, 2022 (given) 30,00,000
Add: Purchases of March, 2022 not included in the stock 20,00,000
Goods lying with customers on approval basis 6,00,000
56,00,000
(10 marks)
b) Journal Entries in the Books of Mr. X

Date Particulars Dr. Cr

2021 Bills receivable A/c Dr. 50,000
1 August
To Y 50,000
(Being the acceptance received from B to settle
his account)
1 August Bank A/c Dr. 49,000
Discount A/c Dr. 1,000
To Bills receivable A/c 50,000
(Being the bill discounted for Rs. 49,000 from
Bank)

4 Y A/c Dr. 50,000

November
To Bank A/c 50,000
(Being the Y’s acceptance is to be renewed)
 4 Y A/c Dr. 1,200
November
To Interest A/c 1,200
(Being the interest due from Y for 3 months i.e.,
40,000 x 3/12  12% = 1,200)
4 Bank A/c Dr. 11,200
November
Bills Receivable A/c Dr. 40,000
To Y A/c 51,200
(Being amount and acceptance of new bill
received from Y)
31 Y A/c Dr. 40,000
December
To Bills receivable A/c 40,000
(Being Y became insolvent)
31 Bank A/c Dr. 16,000
December
Bad debts A/c Dr. 24,000
To Y A/c 40,000
(Being the amount received and written off on
Y’s insolvency)
(10 marks)

A-3
a) In the books of Y Company Ltd.
Journal entries
Date Particulars Dr. Cr.
Rs. Rs.
(i) (a) Fixed assets a/c Dr. 13,00,000
To Vendor a/c 13,00,000
(Being purchase of fixed assets from vendor)
 (b) Vendor a/c Dr. 13,00,000
Discount on issue of debenture a/c Dr. 2,00,000
To 12% Debentures a/c 15,00,000
(Being issue of debentures of Rs. 15,00,000 to
vendor in purchase consideration of fixed assets)
(ii) (a) Bank a/c Dr. 27,00,000
To Debentures application & allotment a/c 27,00,000
(Being application & allotment money received on
5000 debentures @Rs.540 each)
(b) Debentures application & allotment a/c Dr. 27,00,000
Discount on issue of debentures a/c Dr. 3,00,000
To 12% Debentures a/c 30,00,000
(being issue of 5,000, 12% Debentures @ Rs. 540
per debenture)
(iii)(a) Bank a/c Dr. 14,00,000
To Bank loan a/c 14,00,000
(being loan of Rs. 14,00,000 taken from bank by
issuing debentures of Rs. 15,00,000 as collateral
security)

(b) 12% Debenture Suspense a/c Dr. 15,00,000

To 12% Debenture a/c 15,00,000
(being 12% Debenture of Rs. 15,00,000 issued as
collateral security)
(5 marks)

b) Bank Reconciliation Statement on 31st March, 2022

 Rs. Rs.
Bank Balance as per Cash Book 1,10,280
Add (i) Subsidy from government received directly by the 41,000
bank not recorded in the Cash Book
(iii) Debit balance of Rs.8624 brought forward as credit 17,248
balance on 20th March, 2022 in the Cash Book
(vi) Cheque issued returned marked ‘out of date’ 6,900 65,148
1,75,428
Less: (ii) Cash Book under cast on 15th March, 2022 1,400
(iv) Discount allowed to a customer, however entry made 400
at gross amount in the Cash Book
(v) Commission charged by bank on discounting of bill, 800
not considered in Cash Book
(vii) Insurance Premium paid directly by bank 3,024
understanding instructions
(viii) Discounted B/R dishonoured; not entered in Cash 6,120
Book
(ix) Bank recorded short cash deposit 45
11,789
Balance as per Bank Statement 1,63,639
(10 marks)

c) Product of Transaction Method

Y’s in Account current with X’s
Date Particulars Rs. Due Days Product Date Particulars Rs. Due Days Product
Date date
Days

7.4 To bills 5,000 10.6 -- -- 1.4 By bal b/d 10,000 1.4 30 3,00,000
payable a/c
10.4 To Sales a/c 5,000 10.5 -- -- 12.4 By bank a/c 7,500 15.5 --
20.4 To Purchase 1,000 15.5 -- -- 15.4 by purchase 6,000 15.5 --
return a/c a/c
20.4 To Bills 5,000 20.4 10 50,000
receivable
a/c

Contra Contra
Product Product
12.4 To Bank 7,500 -- 15.5 15 1,12,500 B.P 5,000 -- 10.6 41 2,05,000
15.4 To Purchase 6,000 -- 15.5 15 90,000 Sales 5,000 -- 10.5 10 50,000
30.4 To Balance 7,587 30.4 Purchase 1,000 -- 15.5 15 15,000
c/f
by Interest 87
a/c
23,587 2,52,500 23,587 5,70,000

Interest Payable on 5,70,000 – 2,52,500 = 3,17,500

Interest = 3,17,500 x 10/100 x 1/365 = Rs. 87
Special note: In case of transactions where invoice date is given, but no credit period specified,
take date of invoice as the due date.

(5 marks)
A-4

a) M/s. S. Singh

Manufacturing Account for the year ended on 31st December, 2015

Particulars Rs. Particulars Rs.

To opening stock 3,340 By cost of F.G. produce 1,30,928
transfer to trading a/c
To raw material 67,336 By closing stock of WIP 3,480
purchases
Add: addition 10,460
77,796
Less: Closing stock 7,120 70,676
To power 7,228
Add: Outstanding 1,124 8,352
To general expenses 410
Add: outstanding 50 460
To repairs to plant 1,570
To wages 41,400
To depreciation on 3,200
machinery
To insurance 1,220
To heat and light 1,070
To rent 3,120
1,34,408 1,34,408

Trading and P& L a/c for the year ended on 31st December, 2015

Particulars Amount Particulars Amount

To opening stock a/c 14,760 By sales a/c 1,58,348
To F.G. produced 1,30,928 By closing finished goods 19,300
transfer from
manufacturing a/c

To Gross Profit A/c 31,960

1,77,648 1,77,648
To advertising a/c 1,660 By gross profit a/c 31,960
To bad debts a/c 1,210 By discount a/c 824
Add: Provisions 1,000 2,210
To bank charges a/c 240
To general expenses a/c 692
Add: outstanding 80 772
To packing and 2,170
transaction a/c
Less: Closing stock 250 1,920
To salaries a/c 7,380
To depreciation a/c 90
To insurance a/c 244
To light and heat a/c 214
To rent a/c 624
To net profit 17,430
32,784 32,784

Balance sheet as on 31st December, 2015

Liabilities Rs. Assets Rs.

Capital 70,000 Furniture 1,800
Current 3,246 (-) Depreciation 90 1,710
(+) net profit 17,430 Plant and Machinery 30,000
(-) drawings 16,000 (+) Addition 4,000
Creditors 12,300 34,000
Outstanding (1124 + 2,346 (-)depreciation 3,200 30800
772 + 320+50+80)
Prepaid insurance 340
Debtor 21,120
(-) Provision 2000
(-) provision 1000 18,120
Bank 7,852
Cash 350
Stock 30,150
(7120+3480+19300+250)
89,322 89,322
(10 marks)
b) Calculation & Adjustment for Goodwill

Year 31-3-2014 31-3-2015 31-3-2016

Profit as given Cr. 20,000 Dr. 80,000 Cr. 1,05,000
Reversal of abnormal/non-recurring
items:
Insurance claim received Dr. 40,000
Retirement compensation paid Cr. 1,10,000
Profit on sale of assets Dr. 25,000
Normal Profit Dr. 20,000 Cr. 30,000 Cr. 80,000

Average future maintainable profit = - 20,000 + 30,000 + 80,000 = 90,000 /3 = 30,000

Goodwill = 30,000 x 2 = 60,000

Adjustment of Goodwill:

Profit on account of goodwill Gopal Govind Guru

Credit in old ratio (Raise the goodwill) Cr. 36,000 Cr. 24,000 -
Debit in new ratio (Reverse the Dr. 21,000 Dr. 15,000 Dr. 24,000
goodwill)
Difference (Cr. : Sacrifice and Dr. : Gain) Cr. 15,000 Cr. 9000 Dr. 24,000
Entry:

Cash A/c Dr 24,000

To Gopal a/c 15,000
To Govind a/c 9,000

Capital Account

Particulars Gopal Govind Guru Particulars Gopal Govind Guru

To Balance 1,53,000 1,01,000 1,00,000 By Balance b/f 1,20,000 80,000 --
c/f
By Cash a/c -- -- 1,00,000
by Cash 15,000 9,000 --
(Goodwill
adjustment)a/c

By Revaluation 18,000 12,000 --

a/c
1,53,000 1,01,000 1,00,000 1,53,000 1,01,000 1,00,000

Revaluation A/c

Particulars Rs. Particulars Rs.

To Investment a/c 50,000 By Fixed a/c 1,00,000
To Current assets a/c 20,000
To Profit a/c
Gopal 18,000
Govind 12,000 30,000
1,00,000 1,00,000

Balance sheet as on 1st April 2016

Liabilities Rs. Assets Rs.

Capital: Fixed assets 4,00,000
Gopal 1,53,000 Current Assets 1,80,000
Govind 1,01,000 Cash /bank 1,24,000
Guru 1,00,000 3,54,000 Loans and advances 1,00,000
Long term loan 2,00,000
Liabilities 2,50,000
 8,04,000 8,04,000
(10 marks)
A-5

a) Corrected Receipts and Payments Account of Peppapig Club for the year ended 31 st
March, 2021

Receipts Rs. Amount Payments Rs. Amount

To bal b/d 900 By Expenses (Rs. 12,600 – 7,200
Rs. 5,400)
To Subscription Annual 9,180 By Sports Material 5,400
Income
Less: Receivable as on 540 By Balance c/d (Cash in 1,81,440
31.3.2020 Hand and at Bank)
Add: Advance received 180
for the year 2020–
2021

Add: Receivable as on 360

31.3.2020
Less: Advance received 180 9,000
as on 31.3.2020
To Other Fees 3,600
To Donation for 1,80,000
Building
To Sale of Furniture 540
1,94,040 1,94,040
 Income and Expenditure Account of Peppapig club
for the year ended 31st March, 2021

Expenditure Amount Income Amount

Rs. Rs.
To Sundry Expenses 7,200 By Subscription 9,180
To Sports Material 13,320 By Other fees 3,600
Balance as on
1.4.2020

Add: Purchases 5,400 By Interest on 2,700

investment (5% on Rs.
54,000)

Less: Balance as on 3,600 15,120 By Deficit: Excess of 7,200

31.3.2021 Expenditure over
Income

To Loss on sale of 360

Furniture
22,680 22,680

Balance Sheet of Peppapig club

as on 31st March, 2021

Liabilities Amount Assets Amount

Rs. Rs.
Capital Fund 72,000 Furniture 3,600
Less: Excess of 7,200 64,800 Less: Sold 900 2,700
Expenditure
over Income

5% Investment 54,000
 Building Fund 1,80,000 Interest Accrued on 2,700
Investment
Subscription 180 Sports Material 3,600
Received
in Advance

Subscription 540
Receivable
Cash in Hand and 1,81,440
at Bank
2,44,980 2,44,980

Working Note:

Balance Sheet of Peppapig Club

as on 1st April, 2020

Liabilities Amount Assets Amount

Rs. Rs.
Subscription Received in 180 Furniture 3,600
Advance
Capital Fund 72,000 Investment 54,000
(Balancing Figure)
Sports Material 13,320
Subscription Receivable 360
Cash in Hand and at Bank 900
72,180 72,180
(10 marks)
b) Buses A/c

Date Particulars Amount Date Particulars Amount

2019 2019
Jan- To balance b/d 1,23,75,000 Oct-01 By bank A/c 7,00,000
01
Oct- To Bank A/c 18,00,000 Oct-01 By Depreciation 1,12,500
01 on lost assets
Oct-01 By Profit & Loss 4,25,000
A/c (Loss on
settlement of Bus)

Dec-31 By Depreciation 13,95,000

A/c
Dec-31 By balance c/d 1,15,42,50
0
1,41,75,000 1,41,75,00
0
2020 2020
Jan- To balance b/d 1,15,42,500 Dec-31 By Depreciation 15,30,000
01 A/c
Dec-31 By balance c/d 1,00,12,50
0
1,15,42,500 1,15,42,50
0

Working Note:
To find out loss/Profit on settlement of Bus Rs.
Original cost as on 1.4.2017 15,00,000
 Less: Depreciation for 2017 1,12,500
13,87,500
Less: Depreciation for 2018 1,50,000
12,37,500
Less: Depreciation for 2019 (9 months) 1,12,500
11,25,000
Less: Amount received from Insurance company 7,00,000
Loss on Settlement of Bus 4,25,000
(5 marks)

c) Consignment to Mumbai Account in the Books of Shikha

Particulars Rs. Particulars Rs.

To Goods sent on 5,62,500 By Goods sent on Consignment 1,12,500
Consignment A/c A/c (loading)
To Cash A/c 45,000 By Abnormal Loss 49,500
To Reema (Expenses) 36,000 By Reema (Sales) 4,50,000
To Reema (Commission) 49,219 By Inventories on Consignment 91,125
A/c
To Inventories Reserve A/c 16,875 By General Profit & Loss A/c 6,469
7,09,594 7,09,594

Working Notes:
1. Calculation of value of goods sent on consignment:
Abnormal Loss at Invoice price Rs. 56,250
Abnormal Loss as a percentage of total consignment 10%.
Hence the value of goods sent on consignment = Rs. 56,250 X 100/ 10 Rs. 5,62,500
Loading of goods sent on consignment = Rs. 5,62,500 X 25/125 Rs. 1,12,500

2. Calculation of abnormal loss (10%):

Abnormal Loss at Invoice price = Rs. 56,250.
Abnormal Loss at cost = Rs. 56,250 X 100/125 = Rs. 45,000
Add: Proportionate expenses of Shikha (10 % of Rs. 45,000) = Rs. 4,500
Rs. 49,500
3. Calculation of closing Inventories (15%):

Shikha’s Basic Invoice price of consignment = Rs. 5,62,500

Shikha’s expenses on consignment = Rs. 45,000
Rs. 6,07,500
Value of closing Inventories = 15% of Rs. 6,07,500 = Rs. 91,125
Loading in closing Inventories = Rs. 1,12,500 x 15/100 = Rs. 16,875
Where Rs. 84,375 (15% of Rs. 5,62,500) is the basic invoice price of the goods sent on
consignment remaining unsold.

4. Calculation of commission:

Invoice price of the goods sold= 75% of Rs. 5,62,500 = Rs. 4,21875

Excess of selling price over invoice price = Rs. 28,125 ( Rs. 4,50,000 - Rs.
4,21,875)Total commission = 10% of Rs. 4,21,875 + 25% of Rs. 28,125
= Rs. 42187.5 + Rs. 7,031.25 = Rs. 49218.75

(5 marks)
Q-6
a)
Journal entries
S. Particulars Debit Credit
Amount Amount
No.
(Rs.) (Rs.)

1. Bank A/c Dr. 40,000

To Equity Share Application A/c 40,000
(Money received on applications for 20,000
shares @ Rs. 2 per share)
2. Equity Share Application A/c Dr. 40,000
To Equity Share Capital A/c 40,000
(Transfer of application money on 20,000
shares to share capital)
3. Equity Share Allotment A/c Dr. 80,000
To Equity Share Capital A/c 60,000
To Securities Premium A/c 20,000
 (Amount due on the allotment of 20,000 shares
@ Rs. 3 per share and Securities Premium @ Rs.1
per share)

4. Bank A/c Dr. 80,000

To Equity Share Allotment A/c 80,000
(Allotment money received)
5. Equity Share First Call A/c Dr. 40,000
To Equity Share Capital A/c 40,000
(Being first call made due on 20,000 shares at
Rs. 2 per share)
6. Bank A/c Dr. 46,000
To Equity Share First Call A/c 40,000
To Calls in Advance A/c 6,000
(Being first call money received along with
calls in advance on 2,000 shares at Rs. 3 per
share)

7. Equity Share Final Call A/c Dr. 60,000

To Equity Share Capital A/c 60,000
(Being final call made due on 20,000 shares at
Rs. 3 each)
8. Bank A/c Dr. 53,100

Calls in Advance A/c Dr. 6,000

Calls in Arrears A/c Dr. 900
To Equity Share Final Call A/c 60,000
(Being final call received for 17,700 shares,
calls in advance for 2,000 shares and calls in
arrears on 300 shares adjusted)

9. Interest on Calls in Advance A/c Dr. 240

To Shareholders A/c 240
 (Being interest made due on calls in advance
of Rs.6,000 at the rate of 12% p.a.)
10. Shareholders A/c Dr. 240
To Bank A/c 240
(Being payment of interest made to
shareholder)
11. Shareholders A/c Dr. 15
To Interest on Calls in Arrears A/c 15
(Being interest on calls in arrears made due at
the rate of 10%)
12. Bank A/c Dr. 615
To Calls in Arrears A/c 600
To Shareholders A/c 15
(Being money received from shareholder
having 200 shares for calls in arrears and
interest thereupon)

13. Shareholders A/c Dr. 10

To Interest on Calls in Arrears A/c 10
(Being interest on calls in arrears made due at
the rate of 10%)
14. Bank A/c Dr. 310
To Calls in Arrears A/c 300
To Shareholders A/c 10
(Being money received from shareholder
having 100 share for calls in arrears and
interest thereupon)

Calculation of Interest on Calls in Advance & Calls in Arrears:

Interest on Calls in Advance = Rs. 6,000 x 12% x 4 / 12 = Rs. 240

Interest on Calls in Arrears Rs. 600 x 10% x 3 / 12 = Rs. 15
Interest on Calls in Arrears Rs. 300 x 10% x 4 / 12 = Rs. 10

Table F of The Companies Act, 2013 prescribes 10% and 12% p.a. as the maximum rates
respectively for calls in arrears and calls in advance. Accordingly these rates have been
considered while passing the above entries,
Note: For entry no 9&10, 11&12,13&14 combined entry can also be passed.

(15 marks)

b)

 In a business house a number of small payments, such as for taxi fare, cartage,
etc., have to be made. If all these payments are recorded in the cash book, it will
become unnecessarily heavy. Also, the main cashier will be overburdened with work.

 Therefore, it is usual for firms to appoint a person as ‘Petty Cashier’ and to

entrust the task of making small payments. of-course he will be reimbursed for the
payments made.

 Later, on an analysis, the respective account may be debited.

 Imprest system of petty cash is followed, under this system a fixed sum of money is
given to petty cashier for meeting expenses for a prescribed period.

Advantages of Petty cash book are:

(i) Saving of time of the chief cashier.

(ii) Saving in labour in writing up the cash book and posting into the ledger.

(iii) Control over small payments.

(5 marks)