TesT series: OcTOber, 2020

MOcK TesT PAPer

PAPer
cA fOundATiOn PAPer 1
AccOunTing
ANSWER TO Q.1.(A)
1. False, When shares are forfeited, the share capital account is debited with called
up capital of shares forfeited and the share forfeiture account is credited with
amount received on shares forfeited.

2. True, Discount at the time of retirement of a bill is a gain for the drawee.

3. False, Receipts and payments account highlights cash receipts and payments.

4. False, The correct equation is:

Equity/Capital + Long Term Liabilities = Fixed Assets + Current Assets - Current Liabilities

5. False, According to Partnership Act, in the absence of any agreement, profits and
losses are to be shared equally among partners.

6. False, Accrual concept implies accounting on ‘accrual’ basis.

ANSWER TO Q.1.(B)
Journal Entries in the books of Symphony Bros.
Particulars Dr. Cr.
Amount Amount
Rs. Rs.
(i) Salaries A/c Dr. 7,500
To Purchase A/c 7,500
(Being inventory taken by employees)
(ii) Advertisement A/c Dr. 2,000
To Purchases A/c 2,000
(Being goods distributed as free samples)
(iii) Drawings A/c Dr. 1,400
To Petty Cash A/c 1,400
(Being the income tax of proprietor paid out of business
money)
(iv) Purchase A/c Dr. 1,800
To Cash A/c 1,750
To Discount Received A/c 50
(Being the goods purchased from Naveen for Rs. 2,000 @
10% trade discount and cash discount of Rs. 50)
ANSWER TO Q.1.(C)

LIMITATIONS OF ACCOUNTING
1. Due to money measurement concept, the Balance sheet cannot reflect the value of
certain factors like loyalty and skill of the personnel which are the most valuable asset
of an enterprise.

2. Balance Sheet shows the position of the business on the day of its preparation and not
on the future date while the users of the accounts are interested in knowing the position
of the business in the near future and also in long run and not for the past date.

3. Accounting is based on estimates and certain accounting estimates depend on the sheer
personal judgement of the accountant, e.g., provision for doubtful debts, method of
depreciation adopted etc.

4. Different accounting policies for the treatment of same item adds to the probability of
manipulations. Accounting principles sometimes conflict with each other. Accounting
ignores changes in some factors like inflation.
 ANSWER TO Q.2.(A)
Statement of Valuation of Stock on 30th June, 2020
Particulars Amount
(In Rs.)

Value of stock as on June 14 96,00,000

Add: Stock of the goods sent on consignment 4,80,000

Add: Purchases during the period from 14 June to 30 June:
Goods Received 4,80,000
Goods in transit 3,20,000
Add: Cost of goods sent on approval basis 2,56,000
(6,40,000 x 50% = 3,20,000)
(Cost price = 3,20,000 – 3,20,000 x 20% = 2,56,000)

Less: Cost of sales

Sales (Rs. 27,20,000 - Rs. 3,20,000) 24,00,000
Less: Gross profit
Normal sales = 24,00,000 – 2,40,000 = 21,60,000
Profit = 21,60,000 x 20% = 4,32,000
Abnormal sales = 2,40,000
Loss = 4,80,000 – 2,40,000 = 2,40,000

Gross profit = 4,32,000 – 2,40,000 1,92,000 22,08,000

Value of stock as on 30th June 89,28,000
 ANSWER TO Q.NO.2 (B)
Dr. Adjusted Cash Book (Bank column) Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Party/creditors 16,000 By Balance b/d 4,062

To customer/debtor 1,17,400 By bank charges 580

(direct deposit)
To Balance c/d 11,242 By customer 1,40,000
(B/R dishonoured)
1,44,642 1,44,642

Bank reconciliation statement as on 31st March

Particulars Amount
(Rs.)
Bank Overdraft as per adjusted cash book 11,242

Less: Cheques deposited, but not cleared 13,14,000

Add: cheques issued but not encashed 13,26,000

Add: Wrong credit by bank 20,000

Bank balance as per pass book 20,758

 ANSWER TO Q.NO.3 (A)
Books of Gagandeep

Consignment to Mandeep (Ludhiana) Account

Particulars ` Particulars `
To Goods sent on 1,87,500 By Goods sent on Consignment A/c 37,500
Consignment A/c (loading)
To Cash A/c 15,000 By Abnormal Loss 16,500
To Mandeep (Expenses) 12,000 By Mandeep (Sales) 1,50,000
To Mandeep (Commission) 16,406 By Inventories on Consignment 30,375
A/c
To Inventories Reserve A/c 5,625 By General Profit & Loss A/c 2,156
2,36,531 2,36,531

Working Notes:

1. Calculation of value of goods sent on consignment:

Abnormal Loss at Invoice price = ` 18,750

Abnormal Loss as a percentage of total consignment = 10%
Hence the value of goods sent on consignment
= ` 18,750 X 100/ 10 = ` 1,87,500

Loading of goods sent on consignment

= ` 1,87,500 X 1/5 = ` 37,500

2. Calculation of abnormal loss (10%):

Abnormal Loss at Invoice price = ` 18,750.

Abnormal Loss at cost = ` 18,750 X 100/125 = 15,000

Add: Proportionate expenses of Gagandeep (10 % of ` 15,000) =

1,500

Total 16,500

3. Calculation of closing Inventories:

Value of closing Inventories at I.P. = 15% of ` 1,87,500 = 28,125

Add: Proportionate expenses = 15% of 15,000 = 2,250

 ` 30,375

Loading in closing Inventories = ` 28,125 x 1/5 = ` 5,625

4. Calculation of commission:

Invoice price of the goods sold

= 75% of ` 1,87,500 = ` 1,40,625

Excess of selling price over invoice price

= ` 9,375 (` 1,50,000 - ` 1,40,625)

Total commission

= 10% of ` 1,40,625 + 25% of ` 9,375

= ` 14,062.5 + ` 2,343.75 = ` 16,406
 ANSWER TO Q.NO.3 (B)

In the books of Varun

Ankur in Account Current with Varun
(Interest to 31st March, 2020 @ 10% p.a)

Date ParticularsAmount Days Product Date Particulars Amount Days Product

2020 ` ` 2020 ` `
Jan.1 To Bal b/d 2,500 90 2,25,000 Jan.24 By Promisory Note 2,500 (27) (67500)
(due date 27th April)
J 11 To Sales 3,000 79 2,37,000 Feb. 1 By Purchases 5,000 58 2,90,000
Feb. 4 To Sales 4,100 55 2,25,500 Feb. 7 By Sales Return 500 52 26,000
M 18 To Sales 4,600 13 59,800 Mar. 1 By Purchases 2,800 30 84,000
M 31 To 110 Mar. By Purchases 2,000 8 16,000
Interest 23
Mar. By Balance of 3,98,800
31 Products
Mar. By Bank 1,510
31
14,310 7,47,300 14,310 7,47,300

Working Note:
, ,
Calculation of interest: × = ` 110 (approx.)
 ANSWER TO Q.NO.4 (a)

Subscription for the year ended 31.3.2020

`
Subscription received during the year 11,25,000
Less: Subscription receivable on 1.4.2019 33,750
Less: Subscription received in advance on 31.3.2020 15,750 (49,500)
10,75,500
Add: Subscription receivable on 31.3.2020 49,500
Add: Subscription received in advance on 1.4.2019 27,000 76,500
Amount of Subscription appearing in Income & Expenditure 11,52,000
Account

Sports material consumed during the year end 31.3.2020

`
Payment for Sports material 6,75000
Less: Amounts due for sports material on 1.4.2019 (2,02,500)
4,72,500
Add: Amounts due for sports material on 31.3.2020 2,92,500
Purchase of sports material 7,65,000

Sports material consumed:

Stock of sports material on 1.4.2019 2,25,000
Add: Purchase of sports material during the year 7,65,000
Less: Stock of sports material on 31.3.2020 (3,37,500)
Amount of Sports Material appearing in Income & Expenditure Account 6,52,500
 ANSWER TO Q.NO.4 (B)

Revaluation Account

` `
To Furniture 1,740 By Building 6,400
To Stock 2,140 By Sundry creditors 2,800
To Provision of doubtful debts By Investment 900
(` 3,500 – ` 400) 3,100
To Outstanding wages 3,120 ____
10,100 10,100

Partners' Capital Accounts

P Q R P Q R
` ` ` ` ` `
To Bal 142,000 108,000 50,000 By Bal b/d 88,000 72,000 –
c/d
By Cash A/c – – 50,000
By Goodwill
A/c (WN) 54,000 36,000

142,000 108,000 50,000 142,000 108,000 50,000

 Balance Sheet of New Partnership Firm
(after admission of R)
as on 31.3.2020

Liabilities ` Assets `
Capital Accounts: Goodwill 90,000
P 1,42,000 Building (52,000 + 6,400) 58,400
Q 1,08,000 Furniture (11,600 – 1,740) 9,860
R 50,000 3,00,000 Stock-in-trade (42,800 – 2,140) 40,660
Bills Payable 8,200 Debtors 70,000
Bank Overdraft 18,000 Less: Provision for bad Debts (3,500) 66,500
Sundry creditors 23,000 Investment (5,000 + 900) 5,900
(25,800-2,800)
Outstanding wages 3,120 Cash (31,000 + 50,000) 81,000
3,52,320 3,52,320

Working Note:

Calculation of goodwill

R's contribution of ` 50,000 consists only 1/6th of capital.

Therefore, total capital of firm should be ` 50,000 × 6 = `
3,00,000.

But combined capital of P, Q and R amounts ` 88,000 + 72,000 + 50,000 = `

2,10,000. Thus Hidden goodwill is ` 90,000 (` 3,00,000 – ` 2,10,000).

Goodwill A/c Dr. 90,000

To P’s capital A/c 54,000
To Q’s capital A/c 36,000
(being goodwill raised in old partners in old ratio)
 ANSWER TO Q.NO.5 (A)

Date Particulars Amount Date Particulars Amount

2019 2019
To balance b/d
Jan-01 29,25,000 Oct-01 By Bank A/c 2,70,000
(WN 1)
To Profit & Loss
By Depreciation on lost
A/c
Oct-01 45,000 Oct-01 assets 67,500
(Profit on
(WN 2)
settlement of Car)
By Depreciation A/c
Oct-01 To Bank A/c 5,00,000 Oct-01 4,50,000 x 9 cars x 20% 8,35,000
5,00,000 x 20% x 3/12
Dec-31 By Balance c/d 22,97,500

34,70,000 34,70,000

2020 2020
By Depreciation A/c
Jan-01 To balance b/d 22,97,500 Dec-31 4,50,000 x 9 cars x 20% 9,10,000
5,00,000 x 20%
Dec-31 By Balance c/d 13,87,500
22,97,500 22,97,500

Working Note:
1. Balance b/d in Innova cars A/c:
Cost Price on 01.04.17 = 4,50,000 x 10 = 45,00,000
Depreciation for 2017 = 45,00,000 x 20% x 9/12 = 6,75,000
Depreciation for 2018 = 45,00,000 x 20% = 9,00,000
Balance = 29,25,000

2.
To find out loss on Profit on settlement of car
Rs.

Original cost as on 1.4.2017 4,50,000

Less: Depreciation for 2017 (67,500)

Less: Depreciation for 2018 (90,000)

Less: Depreciation for 2019 (9 months) (67,500)

2,25,000

Less: Amount received from Insurance company (2,70,000)

Profit 45,000
 ANSWER TO Q.NO.5 (B)
Trading and Profit and Loss Account of Mr.Sanjeev
for the year ended 31st March, 2020
Dr. Cr.
Particulars Amount Particulars Amount
` `
To Opening stock 64,500 By Sales 4,30,600
Less: 3,450
4,27,150
Less: Sales return 5,150
4,22,000
To Purchases 3,06,200 (WN 1) By Closing stock 2,50,000
Less: Purchases return 3,450 3,02,750 (160000 x 100/80 x
100/80)
To Carriage inward 2,250
To Wages 24,330
Less: 900 23,430
To Gross profit c/d 2,79,070

6,72,000 6,72,000

To Salaries 45,100 By Gross profit b/d 2,79,070

To Rent 8,600 By Bad debts 900
To Advertisement expenses recovered
8,350
(6,700 + 1,650)
To Printing and stationery 2,500
To Carriage outward 2,700
To Provision for doubtful debts (WN 3) 7,800
To Provision for discount on debtors
(WN 2) 2,950

To Depreciation:
Plant and machinery 6,000
Furniture and fittings 2,050 8,050
To Office expenses 20,320
To Interest on loan 6,000
To Net profit 1,67,600

2,79,970 2,79,970
 Balance Sheet of Mr. Sanjeev as on 31st March, 2020

Liabilities Amount Assets Amount

(in Rs.) (in Rs.)
Capital account 1,30,000 Plant and machinery 40,000
Add: Net profit 1,67,600 Less: Depreciation 6,000 34,000

Less: Drawings 23,000

2,74,600
Bank overdraft 1,60,000 Furniture and fittings 20,500 18,450
Less: Depreciation 2,050
Sundry creditors 95,000 Closing stock 2,50,000
Payable salaries 4,900 Sundry debtors 2,40,000
Less: Provision for bad debts 12,000
2,22,300
Less: Provision for discount 5,700
Prepaid rent 600
Cash in hand 2,900
Cash at bank 6,250

5,34,500 5,34,500

Working Note:
1. Purchases 3,20,000
Less: Drawings 7,000
Less: Advertisement expense 1,650
Less: Sales return 5,150

2. Provision for Discount on debtors

Particulars Amount Particulars Amount

Rs. Rs.
By Balance b/d 2,750
To Balance c/d 5,700 By Profit and Loss A/c
{ Debtors 2,40,000 (Balancing Figure) 2,950
Less: Provision for doubtful debt 12,000
2,28,000
Provision for discount = 2,28,000 x 2.5
% = 5,700
14,200 14,200
 3. Provision for Doubtful Debts Account

Rs. Rs.

To Bad Debts Account 2,200 By Balance b/d 6,400

To Balance c/d 12,000 By Profit and Loss A/c

(5% x 2,40,000) (Balancing Figure) 7,800
14,200 14,200
 ANSWER TO Q.NO.6 (A)
Books of Alpha Limited

Bank A/c Dr. 25,000

To Equity Share Application A/c 25,000
(Money received on application for 1,000 shares @ ` 25 per
share)
Equity Share Application A/c Dr. 25,000
To Equity Share Capital A/c 25,000
(Transfer of application money on 1,000 shares to share capital)
Equity Share Allotment A/c Dr. 30,000
To Equity Share Capital A/c 30,000
(Amount due on the allotment of 1,000 shares @ ` 30 per share)
Bank A/c Dr. 30,000
To Equity Share Allotment A/c 30,000
(Allotment money received)
Equity Share First Call A/c Dr. 20,000
To Equity Share Capital A/c 20,000
(First call money due on 1,000 shares @ `20 per share)
Bank A/c Dr. 18,500
Calls-in-Arrears A/c Dr. 4,000
To Equity Share First Call A/c 20,000
To Calls-in-Advance A/c 2,500
(First call money received on 800 shares and calls-in-advance
on 100 shares @ `25 per share)

ANSWER TO Q.NO.6 (B)

Books of Aditya Limited

Date Particulars Rs. Rs.

(a) Bank A/c Dr. 45,00,000
To Debentures Application A/c 45,00,000
(Application money received on 10,000 debentures @
450 each))
Debentures Application A/c Dr. 45,00,000
Discount on issue of Debentures A/c Dr. 5,00,000
To 9% Debentures A/c 50,00,000
 (Being the issue of 10,000 9% debentures as per
Board’s Resolution No….dated…)
(b) Fixed Assets A/c Dr. 20,00,000
To Vendor A/c 20,00,000
(Being the purchase of fixed assets from vendor)
Vendor A/c Dr. 20,00,000
Discount on Issue of Debentures A/c Dr. 5,00,000
To 9% Debentures A/c 25,00,000
(Being the issue of debentures of Rs. 25,00,000 to
vendor to satisfy his claim)
(c) Bank A/c Dr. 20,00,000
To Bank Loan A/c (See Note) 20,00,000
(Being a loan of Rs.20,00,000 taken from bank by
issuing debentures of Rs.25,00,000 as collateral
security)

Note : No entry is made in the books of account of the company at the time of making issue of
such debentures. In the Balance Sheet the fact that the debentures being issued as collateral
security and outstanding are shown under the respective liability.

ANSWER TO Q.NO.6 (C)

Distinction between Money Measurement concept and Matching concept:

As per Money Measurement concept, only those transactions, which can be measured in
terms of money are recorded. Since money is the medium of exchange and the standard of
economic value, this concept requires that those transactions alone that are capable of being
measured in terms of money should be recorded in the books of accounts. Transactions and
events that cannot be expressed in terms of money are not recorded in the business books.

In Matching concept, all expenses matched with the revenue of that period should only be
taken into consideration. In the financial statements of the organization if any revenue is
recognized then expenses related to earn that revenue should also be recognized.