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PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING

Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed by way of note
forming part of the answer.
Working Notes should form part of the answer.
Question 1
(a) State with reasons, whether the following statements are True or False:
(i) The financial statement must disclose all the relevant and reliable information in
accordance with the full disclosure principle.
(ii) The gain from sale of capital assets is added to revenue to ascertain the net profit
of the business.
(iii) Depreciation is non-cash and non-operating expense which is to be provided for if
there are profits.
(iv) Sum of the year’s digit method is an example of accelerated method of charging
depreciation.
(v) Inauguration expenses of ` 10 lakhs incurred on the new unit in an existing
business is a capital expenditure.
(vi) Discount column of cash book records the trade discount. (6 x 2 = 12 Marks)
(b) Briefly explain the following terms.
(i) Conversion Cost
(ii) Diminishing Balance Method
(iii) Money Measurement Concept
(iv) Realisation Concept (4 Marks)
(c) From the following information, ascertain the value of Closing Stock as on 31 st March,2023.
Particulars (`)
Opening Stock 1,47,500
Cash Sales 5,50,000
Credit Sales 4,00,000
Purchases 8,85,000
Manufacturing Expenses 1,35,000
Advertisement Expenses 43,000
Rate of Gross Profit on Cost 25%

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2 FOUNDATION EXAMINATION: DECEMBER, 2023

At the time of valuing inventory as on 31 st March,2022, a sum of ` 12,500 was written off
on a particular item, which was originally purchased for ` 50,000 and was sold during the
year for ` 40,000. (4 Marks)
Answer
(a) (i) True: The financial statement must disclose all the reliable and relevant information
about the business enterprise to the management and also to their external users for
which they are meant, which in turn will help them to take a reasonable and rational
decision. The disclosure should be full and final as per AS – 1, so that users can
correctly assess the financial position of the enterprise.
(ii) True: Gains from the sale of capital assets are considered as the revenue of the
business. But this revenue is not in the ordinary course of business so it is capital
receipts.
(iii) False: Depreciation is non-cash but operating expenses which are to be provided for
whether there are profits or losses in the financial year.
(iv) True: Sum of year digit method is an example of accelerated method of charging
depreciation. Higher depreciation is charged in earlier years sum of year’s digit
method.
(v) False: Inauguration expenses incurred on the opening of a new unit may help to
explore more customers This expenditure is revenue expenditure, as the expenditure
may not generate any enduring benefit to the business over more than one accounting
period.
(vi) False: Discount column of cash book records the cash discount. Trade discount is
not shown in the books of accounts.
(b) (i) Conversion Cost: Cost incurred to convert raw materials or components into finished
or semi-finished products. This normally includes costs which are specifically
attributable to units of production, i.e., direct labour, direct expenses and
subcontracted work, and production overheads as applicable in accordance with
either the direct cost or absorption costing method.
(ii) Diminishing Balance Method: It is a method under which the periodic charge for
depreciation of an asset is computed by applying a fixed percentage to its historical
cost or substituted amount less accumulated depreciation (net book value). This is
also referred to as written down value method.
(iii) Money measurement concept: As per this concept, only those transactions, which
can be measured in terms of money are recorded. Transactions, even if, they affect
the results of the business materially, are not recorded if they are not convertible in
monetary terms.
(iv) Realisation concept: It closely follows the cost concept. Any change in value of an
asset is to be recorded only when the business realises it.

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3

(c) Statement of Valuation of Stock as on 31st March, 2023

`
Value of stock as on 1st April, 2022 1,47,500
Add: Purchases during the period from 1.4.2022 to 8,85,000
31.3.2023
Add: Manufacturing expenses during the above period 1,35,000
11,67,500
Less: Cost of sales during the period:
Sales 9,50,000
Less: Gross profit (Working Note) 1,84,500 7,65,500
Value of stock as on 31.3.2023 4,02,000
Working Note:
`
Calculation of gross profit:
Gross profit on normal sales 20/100 x (9,50,000 -40,000) 1,82,000
Gross profit on the particular (abnormal) item 40,000 - (50,000 - 2,500
12,500)
1,84,500
Alternative:
Statement showing the valuation of inventory as on 31 st March, 2023
` `
Inventory in the beginning 1,47,500
Less: Book value of Abnormal Inventory (50,000-12,500) 37,500 1,10,000
Add: Purchases 8,85,000
Manufacturing Expenses 1,35,000
11,30,000
Less: Cost of goods sold:
Sales as per books (5,50,000 + 4,00,000) 9,50,000
Less: Sales of abnormal item 40,000
9,10,000
Less: Gross Profit @20% 1,82,000 7,28,000
Inventory in trade as on 31 st March 2023 4,02,000

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4 FOUNDATION EXAMINATION: DECEMBER, 2023

Note: The value of closing stock on 31st March, 2023 may, alternatively, be found out by
preparing Trading Account for the year ended 31st March, 2023.
Question 2
(a) From the following particulars, prepare a Bank Reconciliation Statement as on
31st December,2022.
(i) Debit balance (overdraft) shown by the pass book 2,48,000.
(ii) Cheques of 2,10,000 were issued in the last week of December, but of these only `
1,40,000 were presented for payment.
(iii) A Cheque for ` 19,200 drawn for the payment of telephone bill had been entered in
the cash book as ` 29,200 but was shown correctly in the bank statement.
(iv) A cheque received for ` 37,520 entered twice in the Cash book.
(v) A Cheque for ` 1,17,000 was issued for purchase of merchandise and was paid by
the bank but not recorded in cash book.
(vi) Interest on overdraft and bank charges amounting to ` 3,500 were not entered in the
Cash Book.
(vii) A Cheque for 45,000 was credited in the Pass Book but was not recorded in the Cash
Book.
(viii) A bill of exchange for ` 26,200 which was discounted with bank returned dishonored
but on entry was made in the cash book.
(ix) Payment side of the Cash Book has been undercast by ` 12,000. (8 Marks)
(b) ABC sports club had the following income and expenditure account for the year ended
31st Dec 2022.
Income and Expenditure Account for the year ended 31 December, 2022
Particulars Amount` Particulars Amount`
To Salaries 2,35,000 By Subscriptions 2,50,000
To Stationary Expenses 30,000 By Interest 90,000
To Rent and Taxes 5,000 By Donations 40,000
To Insurance 2,000 By Misc. Receipts 3,000
To Office Expenses 8,000
To Depreciation
Building 37,500
Furniture 1,200
Sports Equipment 1,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 5

To Excess of Income over 63,300

Expenses
3,83,000 3,83,000
Additional information:
31-12-2021 ` 31-12-2022 `
Govt. Securities 18,00,000 18,00,000
Subscription outstanding 70,000 1,00,000
Subscription received in advance 2,000 6,000
Salaries unpaid 10,000 15,000
Furniture 20,000 19,800
Land and Building 20,00,000 19,62,500
Sports Equipment 35,000 39,000
Stock of stationary 3,000 5,500

Cash in hand and Cash at bank as on 31-12-2021 is ` 1,08,000.

You are required to prepare Receipts and Payments Account for the period ending
31.12.2022 and Balance Sheet as on 31.12.2022. (12 Marks)
Answer
(a) Bank Reconciliation Statement as on 31 st December, 2022
Particulars Amount Amount
(`) (`)
Overdraft as per Pass Book (Dr. Balance) 2,48,000
Add: Cheques issued but not yet presented ` (2,10,000 - 70,000
1,40,000)
Cheque wrongly entered in cash book (29,200-19,200) 10,000
Cheque credited in Pass Book was not recorded in the 45,000 1,25,000
Cash book
Less: Cheques received entered twice in Cash Book 37,520
Cheque issued not recorded in the Cash book 1,17,000
Interest on Overdraft and bank charges not entered in 3,500
Cash Book

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6 FOUNDATION EXAMINATION: DECEMBER, 2023

Bill of exchange dishonoured 26,200

Payment side of bank column of Cash Book was 12,000 1,96,220
undercast
Overdraft as per Cash Book 1,76,780

(b) The ABC sports club

Receipts and Payments Account for the year ended 31 st December, 2022
Receipts ` Payments ` `
To Balance b/d 1,08,000 By Salaries (W.N. 7) 2,30,000
To Subscriptions (W.N. 3) 2,24,000 By Stationery (W.N 2) 32,500
To Interest 90,000 By Rent & taxes 5,000
To Donation 40,000
By Insurances 2,000
To Misc. receipts 3,000 By Office expenses 8,000
By Furniture (W.N 5) 1,000
By Sports Equipment 5,000
(W.N 6)
By Balance c/d (balancing 1,81,500
figure)

4,65,000 4,65,000

Balance Sheet as on December 31, 2022

Liabilities ` Assets `
Opening capital Govt. securities 18,00,000
(W.N.1) 40,24,000
Add: Surplus for 2022 63,300 40,87,300 Subscription Outstanding 1,00,000
Advance subscription 6,000 furniture 19,800
Salaries Outstanding 15,000 Land & building (WN.4) 19,62,500
Sports Equipment 39,000
Stationary stock 5,500
Cash/ Bank 1,81,500
41,08,300 41,08,300

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 7

Working Notes:
1. Balance Sheet as on 31st December, 2021
Liabilities ` Assets `
Opening capital (bal. fig.) 40,24,000 Govt. securities 18,00,000
Advance subscription 2,000 Subscription Outstanding 70,000
Salaries Outstanding 10,000 Furniture 20,000
Land & building 20,00,000
Sports Equipment 35,000
Stationary stock 3,000
Cash/ Bank 1,08,000
40,36,000 40,36,000
2.
Dr. Stationery Account Cr.
` `
To Balance b/d 3,000 By Income & exp 30,000
To Receipt & payment 32,500 By Balance c/d 5,500
35,500 35,500
3.
Dr. Subscription Account Cr.
` `
To Outstanding as on 70,000 By Advance as on 2,000
31-12-21 31-12-21
To Income & exp 2,50,000 By Receipt & payment 2,24,000
(bal. fig)
To Advance as on 6,000 By Outstanding as on 1,00,000
31-12-22 31-12-22
3,26,000 3,26,000
4.
Dr. Land and Building Account Cr.
` `
To Balance b/d 20,00,000 By Depreciation 37,500

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8 FOUNDATION EXAMINATION: DECEMBER, 2023

By Balance c/d 19,62,500

20,00,000 20,00,000
5.
Dr. Furniture Account Cr.
` `
To Balance b/d 20,000 By Depreciation 1,200
To Bank (bal.fig.) 1,000 By Balance c/d 19,800
21,000 21,000
6.
Dr. Sports Equipment Account Cr.
` `
To Balance b/d 35,000 By Depreciation 1,000
To Bank (bal.fig.) 5,000 By Balance c/d 39,000
40,000 40,000
7.
Dr. Salary Account Cr.
` `
To Receipts & payment 2,30,000 By Outstanding for 2021 10,000
A/c 15,000 By Income and expenditure A/c 2,35,000
To Outstanding for 2022 2,45,000 2,45,000

Question 3
(a) R draws a bill of exchange on P for ` 2,00,000 on 1 st July,2022 for 4 months P accepted
the bill and sent it to R. R discounts the bill with his bankers for ` 1,88,000 R. immediately
remits ` 75,200 to P. On the due date, R, being unable to remit the amount due accepts a
bill for ` 2,50,00 for 4 months which is discounted by P for ` 2,36,250. P sends ` 56,700
to R. Before the bill is due for payment R becomes insolvent and his estate is paying fifty
paise in a rupee.
Give the journal entries in the books of P. Also show R’s account in P’s books.
(10 Marks)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 9

(b) Mr. B and Mr. G had the following mutual dealings and allow each other one month’s credit.
At the end of three months the accounts rendered are as follow:
Date Goods sold by Mr. B to Mr. G Date Goods sold by Mr. G to Mr. B
( `) (`)
July 20 35,000 July 25 24,000
Aug 17 30,000 Aug 16 22,000
Sep 13 32,000 Sep 05 25,000

You are required to calculate the date upon which the balance should be paid so that no
interest is due either to Mr. B or Mr. G (consider 20 Aug. as base date) (5 Marks)
(c) Attempt any ONE of the following two sub parts i.e. either (i) or (ii).
(i) From the following particulars prepare account current, as sent by Rose to Lily as on
31st March,2023 by means of product method, charging interest @ 6% p.a.
Date Particulars Amount `
01/01/2023 Balance due form Lily 8,500
10/01/2023 Sold goods to Lily 14,700
15/01/2023 Purchased goods form Lily 10,200
20/01/2023 Goods returned by Lily 2,500
25/02/2023 Lily paid by cheque 9,500

(5 Marks)
OR
(ii) Mr. X consigned goods consigned ` 1,50,000 to Mr. Y and spent ` 1,800 on
insurance. Mr. Y received the goods and spent ` 2,000 on freight. He also spent
` 1,500 on godown rent. Mr. Y sent bank draft of ` 50,000 to Mr. X as advance
payment and sent his Account sales showing that 4/5 of the goods had been sold for
` 1,40,000. Mr. Y is entitled for a commission of 8%. One of the customer turned
insolvent and could not pay ` 5,000 due from him. (Commission does not include del-
credere).
Show the necessary journal entries in the consignee’s book. (5 Marks)

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10 FOUNDATION EXAMINATION: DECEMBER, 2023

Answer
(a) In the books of P
Journal Entries
Date Particulars L.F. Dr. (in ` ) Cr. (in ` )
1.7.2022 R’s A/c Dr. 2,00,000
To Bills payable A/c 2,00,000
(Being bill of exchange
accepted and sent to Mr. R)
1.7.2022 Bank A/c Dr. 75,200
Discount charges A/c Dr. 4,800
To R’s A/c 80,000
(Being the amount received
from R on account of the bills
receivable)
4.11.2022 Bills Receivable A/c 2,50,000
To R’s A/c 2,50,000
(New bill accepted by R)
4.11.2022 Bank A/c Dr. 2,36,250
Discount charges A/c Dr. 13,750
To Bills receivable A/c 2,50,000
(Being R acceptance
discounted with bank)
4.11.2022 Bills payable A/c Dr. 2,00,000
To Bank A/c 2,00,000
(Being the amount paid on the
due date)
4.11.2023 R A/c Dr. 66,984
To Bank A/c 56,700
To Discount A/c 10,284
(Being the amount received and
the discount debited to R)
7.3.2023 R’s A/c Dr. 2,50,000
To Bank A/c 2,50,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 11

(Being R’s acceptance, which

was discounted dishonoured
due to R’s bankruptcy)
7.3.2023 Bank A/c Dr. 93,492
Bad debts A/c Dr. 93,492
To R A/c 1,86,984
(The amount received from R
and the balance being written
off as debt)
R’s account (in the books of P)
` `
To Bills payable A/c 2,00,000 By Bank A/c 75,200
To Bank A/c 2,50,000 By Discount 4,800
To Discount A/c 10,284 By Bills Receivable 2,50,000
To Bank A/c 56,700 By Bank 93,492
By Bad debt A/c 93,492
5,16,984 5,16,984
(b) Taking Aug 20 as the zero or base date (Aug 20 + One month Credit = 20 sept)
For Mr. G’s payments:
Date of Due Date Amount No. of days from Products
Transactions ` the base date `
(1) (2) (3) (4) (5)
July 20 August 20 35,000 0 0
Aug 17 Sept 17 30,000 28 8,40,000
Sept 13 Oct 13 32,000 54 17,28,000
Amount due to G 97,000 Sum of products 25,68,000
For Mr. B’s payments
Taking Aug 20 as the zero or base date.
Date of Transactions Due Date Amount No. of days from Products
` the base date `
(1) (2) (3) (4) (5)
July 25 August 25 24,000 5 1,20,000
Aug 16 Sept 16 22,000 27 5,94,000

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12 FOUNDATION EXAMINATION: DECEMBER, 2023

Sept 05 Oct 05 25,000 46 11,50,000

Amount due to B 71,000 Total products 18,64,000
Excess of Mr. G’s products over Mr. B’s = 25,68,000 - 18,64,000
= ` 7,04,000
Excess amount due to Mr. B ` 97,000 – 71,000 = ` 26,000.
Number of days from the base date to the date of settlement is
7,04,000 = 27.07 days (Hence it may be taken as 27 days or 28 days)
26,000
Hence the date of settlement of the balance is 27days after Aug 20th i.e., on Sept 16. On
Sept 16, G has to pay B, ` 26,000 to clear the account.
Alternatively, the date of settlement of the balance is 28 days after Aug 20th i.e., on Sep.17.
On 17, G has to pay B, ` 26,000 to clear the account.
(c) (i) Lily in Account Current with Rose
(Interest to 31 st March 2023, @ 6% p.a.)
Date Particulars Amount Days Product Date Particulars Amount Days Product
2023 ` 2023 `
Jan 1 To Balance 8,500 90 7,65,000 Jan. By Purchases 10,200 75 7,65,000
b/d 15 A/c
Jan. By Sales Return 2,500 70 1,75,000
20 A/c
Jan. To Sales 14,700 80 11,76,000 Feb By Bank A/c 9,500 34 3,23,000
10 A/c 25
Mar. By Balance of 6,78,000
31 products
Mar. To Interest 111.45 Mar By Balance c/d 1111.45
31 Ac 31
23311.45 19,41,000 23311.45 19,41,000

Calculation of interest: 6,78,000* 6%* 1/365 = ` 111.45

OR
(c) (ii) Journal Entries in the books of Mr. Y(Consignee)
Particulars ` `
Mr. X A/c Dr. 3,500
To Bank A/c 3,500

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 13

(being expenses incurred on goods received on

consignment)
Mr. X A/c Dr. 50,000
To Bank A/c 50,000
(being advance paid to Mr. X for consignment)
Trade receivables/Bank A/c Dr. 1,40,000
To Mr. X A/c 1,40,000
(being 4/5th of the goods sold for ` 1,40,000)
Mr. X A/c Dr. 5,000
To Trade receivables A/c 5,000
(being one customer could not pay amount due to
him)
Mr. X A/c Dr. 11,200
To Commission Earned A/c 11,200
(being commission earned)
Mr. X A/c Dr. 70,300
To Bank A/c 70,300
(being amount has been sent to Mr. X)
Question 4
(a) The following is the schedule of balances as on 31.03.23 extracted from the books of
M/s RM & Co.
Particulars Dr.` Cr. `
Bank charges 24,000
Buildings 9,00,000
Capital A/c 19,48,000
Carriage Outwards 30,000
Cash at bank 39,000
Cash at hand 21,000
Discount allowed 36,000
Discount received 24,000
Drawings 1,80,000
Electricity Charges 33,000
Freight on purchases 18,000

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14 FOUNDATION EXAMINATION: DECEMBER, 2023

Furniture & fixtures 3,21,000

General office expenses 45,000
Insurance Premium 82,500
Interest on loan 35,000
Loan 6,00,000
Printing and Stationery 27,000
Purchase Returns 39,000
Purchases 21,30,000
Rent for Godown 82,500
Salaries 1,65,000
Sales 35,50,000
Sales Returns 63,000
Stock on 1.4.2022 9,30,000
Sundry Creditors 6,45,000
Sundry Debtors 12,90,000
Vehicles 3,00,000
Vehicles running expenses 54,000
TOTAL 68,06,000 68,06,000
Prepare Trading and Profit & Loss Account for the year ended 31 st March 2023 and the
Balance sheet as at that date after making provision for the following:
(i) Value of stock as on 31.03.2023 is ` 4,10,000. This includes goods returned by
customers on 31st March,2023 to the value of ` 22,000 for which no entry has been
passed in the books.
(ii) Purchases include furniture purchased on 01.10.2022 for ` 30,000.
(iii) Depreciate:
(1) Building by 5%
(2) Furniture and Fixtures by 10%
(3) Vehicles by 20%
(iv) Sundry debtors include ` 35,000 due from Goku and Sundry creditors include
` 25,000 due to him.
(v) Provision for bad debts is to be maintained at 4% of Sundry Debtors.

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 15

(vi) Insurance premium includes ` 42,000 paid towards proprietor’s life insurance policy
and the balance of the insurance charges cover the period form 1.05.2022 to
30.4.2023. (15 Marks)
(b) P. Q and R are the 3 partners in partnership firm Partnership deed includes the following:
(i) R is entitled to get salary of ` 10,000 p.a.
(ii) P, Q and R are to get interest @ 6% on their respective capital of ` 2,50,000;
` 1,50,000 and ` 1,00,000.
(iii) R is to get extra benefit of 10% of profit in excess of ` 50,000 after providing for para
(i) and (ii) mentioned above.
(iv) Q is entitled to 10% of profits after providing all the amounts in para (i), (ii) and (iii)
mentioned above.
(v) The balance of profits will be shared by P, Q and R in the ratio of 5:3:2.
The profits for the year before providing above items are ` 3,50,000.
You are required to prepare Profit and Loss Appropriation Account. (5 Marks)
Answer
(a) M/s RM & Co.
Trading Account for the year ended 31st March, 2023

Particulars Details Amount Particulars Details Amount

` `
To opening Stock 9,30,000 By Sales 35,50,000
To Purchases 21,30,000 Less: Sales Returns 85,000 34,65,000
Less: Furniture 30,000 By Closing Stock 4,10,000
included in
purchases
Less: Purchase 39,000 20,61,000
Returns
To Freight on 18,000
purchases

To Gross Profit 8,66,000

c/d
38,75,000 38,75,000

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16 FOUNDATION EXAMINATION: DECEMBER, 2023

M/s RM & Co.

Profit and Loss Account for the year ended 31st March, 2023
Particular Amount Particular Amount
` `
To Salaries 1,65,000 By Gross profit b/d 8,66,000
To Rent for Godown 82,500 By Discount received 24,000
To Provision for doubtful debts (WN 3) 49,720
To Discount Allowed 36,000
To Carriage outwards 30,000
To Printing and stationery 27,000
To Electricity charges 33,000
To Insurance premium (WN 1) 37,125
To Depreciation (WN 2) 1,38,600
To General office expenses 45,000
To Bank Charges 24,000
To Interest on loan 35,000
To Vehicle running expenses 54,000
To Net Profit transferred to Capital a/c 1,33,055
8,90,000 8,90,000

Balance Sheet of M/s RM & Co.

as at 31 st March, 2023
Liabilities Details Amount Assets Details Amount
` `
Capital 19,48,000 Building 9,00,000
Add: Net Profit 1,33,055 Less: Dep. (45,000) 8,55,000
Less: Drawings (1,80,000)
Less: Insurance (42,000) 18,59,055 Vehicle 3,00,000
Premium
Less: Dep. (60,000) 2,40,000
Loan 6,00,000
Sundry Creditors 6,45,000 Furniture & Fixture 3,21,000
Add: Addition 30,000
Less: Due to Goku (25,000) 6,20,000 Less: Dep. (33,600) 3,17,400
Stock in Trade 4,10,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 17

Sundry Debtors 12,43,000

(WN 3)
Less: Provision for (49,720) 11,93,280
doubtful debts
Cash at hand 21,000
Cash in bank 39,000
Prepaid insurance 3,375
(1)
30,79,055 30,79,055

Working Notes
(1) Insurance premium
`
Insurance premium as given in trial balance 82,500
Less: Personal premium (42,000)
Less: Prepaid for 1 month (
𝟒𝟎,𝟓𝟎𝟎
× 𝟏) (3,375)
𝟏𝟐
Transfer to Profit & Loss a/c 37,125
(2) Depreciation
Building @ 5% on 9,00,000 45,000
Vehicle @ 20% on 3,00,000 60,000
Furniture & Fixturs @ (10% on 3,21,000) + (10 %x1/2 on 30,000) 33,600
Total 1,38,600
(3) Calculation of provision for doubtful debts
Sundry debtors as per trial balance 12,90,000
Less: Sales returns not recorded (22,000)
12,68,000
Less: Cancellation against sundry creditors (25,000)
Adjusted balance of sundry debtors 12,43,000
Provision for doubtful debts @ 4% 49,720
(b)
Dr. Profit & Loss Appropriation Account Cr.
Particulars ` Particular `
To Salary to Partner R 10,000 By Profit and Loss A/c 3,50.000

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18 FOUNDATION EXAMINATION: DECEMBER, 2023

To Interest on Capital
P 15,000
Q 9,000
R 6,000 30,000
To Profit transferred to Capital A/cs:
P 1,27,800
Q 1,05,080
R 77,120 3,10,000
3,50,000 3,50,000
Working Notes:
(i) Profit available for distribution (after interest on Capital & R’s salary = ` 3,50,000 –
` 40,000 = `3,10,000.
(ii) Excess Profits of R = (3,10,000- 50,000) X 10% = ` 26,000
(iii) Excess profit of Q = 3,10,000- 26,000 = 2,84,000 X10% = ` 28,400
(iv) Profit available for distribution = 3,10,000 -26,000- 28,400 = ` 2,55,600
P = 2,55,600 *5/10 = ` 1,27,800
Q = 2,55,600 *3/10 = 76,680 + 28,400 = ` 1,05,080
R = 2,55,600 * 2/10 = 51,120 +26,000 = ` 77,120
Question 5
(a) X, Y and Z were partners sharing profit and losses in the ratio of 5: 3: 2. Their Balance
Sheet as on 31 st March 2023 is as follows:
Balance Sheet as on 31 March, 2023
Liabilities Amount ` Assets Amount `
Capital Accounts Building 2,00,000
X 4,25,000 Machinery 3,50,000
Y 2,55,000 Debtors 1,95,000
Z 1,40,000 Stock 1,05,000
General Reserve 25,000 Bank 25,000
Trade Creditors 30,000
8,75,000 8,75,000
Y retired from the business on 1 April, 2023 on the following terms:
(i) To appreciate building by 20% and to depreciate machinery by 5%.

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 19

(ii) Provision for debts is to be created at 10%.

(iii) Goodwill of the firm is valued at 1,60,000 and Goodwill is not to be raised in the
books of accounts. New profit sharing ratio will be 5:3
(iv) Entire sum payable to Y should be brought by X and Z in such a way to make their
capital according to new profit ratio. Balance of Y to be paid immediately.
You are required to prepare Revaluation Account, Partners Capital Accounts and Balance
Sheet after retirement. (10 Marks)
(b) From the following transactions of a concern, prepare the Machinery Account for the year
ending 31 st December, 2022:
01.01.21 Purchased a second – hand Machinery for ` 2,00,000
01.01.21 Spent ` 50,000 on repairs for making it serviceable
30.06.21 Purchased additional new Machinery for ` 3,50,000
30.06.21 Installation charges of new Machine ` 15,000
01.04.22 Repairs and maintenance of Machinery ` 30,000
30.06.22 Sold second hand Machinery purchased on 01.01.21 for ` 1,55,000
31.12.22 Depreciate the Machinery at 10% per annum by WDV method
(5 Marks)
(c) Prepare a Triple Cash Book form the following transactions of G. Enterprises for the month
of Jan 2023.
Date Particulars Amount `
01.01.2023 Cash in hand 14,500
Cash in Bank 1,95,000
03.01.2023 Received from K
- Cash 7,300
- Cheque 15,000
Discount allowed to him 400
06.01.2023 Goods sold for cash 9,100
07.01.2013 Withdrew from bank by self cheque 3,000
12.01.2023 Issued a cheque to B 10,590
Discount received 410
14.01.2023 Received a cheque form R (in full settlement of her 6,350
account ` 6,500) by cheque
17.01.2023 Withdrew form bank for personal use 15,000

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20 FOUNDATION EXAMINATION: DECEMBER, 2023

18.01.2023 Paid electricity bill by cheque 5,000

20.01.2023 Cash purchases of stationary 1,200
31.01.2023 Deposit the entire cash in bank in excess of ` 10,000
(5 Marks)
Answer
(a) Revaluation Account
Particulars Amount Particulars Amount
To Depreciation on machinery 17,500 By Building 40,000
To Provision for Doubtful Debts 19,500
To Profit X (5/10) = 1,500
Y (3/10) = 900
Z (2/10) = 600 3,000
40,000 40,000
Partners’ Capital Accounts
X Y Z X Y Z
` ` ` ` ` `
To Y’s 20,000 – 28,000 By Balance b/d 4,25,000 2,55,000 1,40,000
Capital A/c
(WN. 1)
To Balance 4,19,000 3,11,400 1,17,600 By X s Capital 20,000
c/d A/c (WN. 1)
By Z’s Capital 28,000
A/c (WN. 1)
By Revaluation 1,500 900 600
A/c
By Reserve 12,500 7,500 5,000
4,39,000 3,11,400 1,45,600 4,39,000 3,11,400 1,45,600
To Bank – 3,11,400 By Balance b/d 4,19,000 3,11,400 1,17,600
To Balance 5,30,000 By Bank 1,11,000 2,00,400
c/d 3,18,000
5,30,000 3,11,400 3,18,000 5,30,000 3,11,400 3,18,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 21

Balance Sheet
(after Y’s retirement)
Liabilities ` Assets `
Capital A/c’s: (Bal fig.) Building 2,40,000
X (8,48,000 X5/8 = 5,30,000) Machinery 3,32,500
Z (8,48,000X3/8 = 3,18,000) 8,48,000 Stock 1,05,000
Debtors 1,75,500
Trade payables 30,000
Bank 25,000
8,78,000 8,78,000
Working Note
1. Calculation of gaining ratio
Partner Old Share New Share Gain
X 5 5 5
10 8 40

Y 3 –
10
Z 2 3 7
10 8 40
Adjusting entry:
` `
X’s Capital A/c Dr. 20,000
Z’s Capital A/c Dr. 28,000
To Y’s Capital A/c (1,60,000 x 3/10) 48,000
2. Bank Account
` `
To Balance b/d 25,000 By Y’s Capital A/c 3,11,400
To X’s Capital A/c 1,11,000 By Balance c/d 25,000
To Z’s Capital A/c 2,00,400
3,36,400 3,36,400

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22 FOUNDATION EXAMINATION: DECEMBER, 2023

(b) Machinery Account

` `
2021 2021
Jan. 1 To Bank A/c 2,00,000 Dec. 31 By Depreciation A/c 43,250
Jan. 1 To Bank A/c – Dec. 31 By Balance c/d 5,71,750
Repairs 50,000
June To Bank A/c 3,50,000
30
June To Bank A/c- 15,000
30 Installation
6,15,000 6,15,000
2022 2022
Jan. 1 To Balance b/d 5,71,750 June 30 By Depreciation on
sold machine 11,250
June 30 By Bank A/c 1,55,000
June 30 By Profit and Loss A/c 58,750
Dec. 31 By Depreciation A/c 34,675
By Balance c/d 3,12,075
5,71,750 5,71,750
Working Note:
Book Value of Machines
Machine Machine
I II
` `
Cost 2,50,000 3,65,000
Depreciation for 2021 (25,000) (18,250)
Written down value 2,25,000 3,46,750
Depreciation for 2022 (11,250) (34,675)
Written down value 2,13,750 3,12,075
Sale Proceeds (1,55,000)
Loss on Sale 58,750

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 23

(c) Triple Column Cash Book

Dr. Cr.
Date Particulars Dis- Cash Bank Date Particulars Dis- Cash Bank
count count
2023 ` ` ` 2023 ` ` `
Jan 1 To Balance b/d 14,500 1,95,000 Jan 7 By Cash (C) 3,000
Jan 3 To K 400 7,300 15,000 Jan 12 By B A/c 410 10,590
Jan 6 To Sales A/c Jan 17 By Drawings
9,100 15,000
A/c
Jan 7 To Bank (C) Jan 18 By Electricity
3,000 5,000
charges
Jan 14 To R 150 6,350 Jan 20 By Stationary 1,200
Jan 31 To Bank (C) 22,700 Jan 31 By Bank (C) 22,700
Jan 31 By Balance ___ 10,000
___ ___ c/d 2,05,460

550 33,900 2,39,050 410 33,900 2,39,050

Feb 1 To Balance b/d 10,000 2,05,460

Note: Discount allowed and discount received ` 550 and ` 410 respectively should be
posted in respective Accounts in the ledger.
Question 6
(a) A Ltd. issued 25,000 equity shares of ` 100 each at a premium of ` 25 per share payable
as follows:
On Application ` 50
On Application ` 50 including premium and
On Final Call 25
Application were received for 29,000 shares. Letter of regret were issued to applications
for 4000 shares and shares were allotted to all other applicants.
Mr. A the holder of 150 shares, failed to pay the allotment and call money, the shares were
forfeited.
Show the journal entries and cash book in the books of A Limited. (15 Marks)
(b) What are the sub-fields of Accounting? (5 Marks)

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24 FOUNDATION EXAMINATION: DECEMBER, 2023

Answer
(a) In the Books of A Ltd.
Cash Book (Bank column only)
Date Particulars ` Date Particulars `
To Equity Share By Equity Share
Application A/c 14,50,000 Application A/c 2,00,000
(29,000 shares x 50) (4,000 shares x ` 50
To Equity Share 12,42,500 By Balance c/d 31,13,750
Allotment A/c
(24,850 shares x ` 50
each)
To Equity Share Final 6,21,250
Call A/c
(24,850 shares x ` 25)
33,13,750 33,13,750

Journal Entries
Date Particulars ` `
1. Bank A/c Dr. 14,50,000
To Equity Share Application A/c 14,50,000
(Being application money received on 29,000
share @ ` 50)
2. Equity Share Application A/c Dr. 2,00,000
To Bank A/c 2,00,000
(Being application money on 4000 share @
` 50 returned)
3. Equity Share Application A/c Dr. 12,50,000
To Equity Share Capital A/c 12,50,000
(Being application money on 25,000 shares @ ` 50
each transferred to Equity Share Capital Account as
per Board’s Resolution No…..dated…)
4. Equity Share Allotment A/c Dr. 12,50,000
To Equity Share Capital A/c 6,25,000
To Securities Premium A/c 6,25,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 25

(Being allotment money @ ` 50 per share including

premium of ` 25 per share being made due as per
Board’s Resolution No……dated….)
5. Bank A/c Dr. 12,42,500
To Equity Share Allotment A/c 12,42,500
(Being Allotment money received on 24,850
shares)
6. Equity Share Final Call A/c Dr. 6,25,000
To Equity Share Capital A/c 6,25,000
(Being final call money @ 25 per share being
made as per board resolution No….
dated…..)
7. Bank A/c Dr. 6,21,250
To Equity Share Final Call A/c 6,21,250
(Being share final call money received on
24,850 share @ 25 per share)
8. Equity Share Capital A/c (150 x ` 100) Dr. 15,000
Securities Premium A/c (150 x ` 25) Dr. 3,750
To Equity Share Allotment A/c 7,500
To Equity Share Final Call A/c 3,750
To Forfeited Shares A/c 7,500
(Being forfeiture of 150 shares for non-payment of
allotment money and final call money as per Board’s
Resolution No….dated…)
Alternatively, calls in arrears A/c could have been used in which case following entries
would have been passed in place of the entry No.8 (given above) for forfeiture:
Particulars ` `
Calls in Arrears A/c Dr. 7,500
To Equity Share Allotment A/c 7,500
(Being allotment money on 150 shares @ ` 50 not
received transferred to calls in arrears.)
Calls in Arrears A/c Dr. 3,750
To Equity Share Final Call A/c 3,750
(Being final call on 150 shares @ ` 25 not received
transferred to calls in arrears)

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26 FOUNDATION EXAMINATION: DECEMBER, 2023

Share Capital A/c (150 x ` 100) Dr. 15,000

Securities Premium A/c (150 x ` 25) 3,750
To Calls in Arrears A/c 11,250
To Share Forfeiture A/c 7,500
(Being forfeiture of 150 shares for non-payment of
allotment money and final call money as per Board’s
Resolution No….dated…)
(b) The various sub-fields of accounting are:
(i) Financial Accounting – It covers the preparation and interpretation of financial
statements and communication to the users of accounts. It is historical in nature as it
records transactions which had already been occurred. The final step of financial
accounting is the preparation of Profit and Loss Account and the Balance Sheet. It
primarily helps in determination of the net result for an accounting period and the
financial position as on the given date.
(ii) Management Accounting – It is concerned with internal reporting to the managers
of a business unit. To discharge the functions of stewardship, planning, control, and
decision- making, the management needs variety of information. The different ways
of grouping information and preparing reports as desired by managers for discharging
their functions are referred to as management accounting. A very important
component of the management accounting is cost accounting which deals with cost
ascertainment and cost control.
(iii) Cost Accounting – The process of accounting for cost which begins with the
recording of expenditure or the bases on which they are calculated and ends with the
preparation of periodical statements and reports for ascertaining and controlling
costs.
(iv) Social Responsibility Accounting – The demand for social responsibility
accounting stems from increasing social awareness about the undesirable by -
products of economic activities., Social responsibility accounting is concerned with
accounting for social costs incurred by the enterprise and social benefits created.
(v) Human Resource Accounting – Human resource accounting is an attempt to
identify, quantify and report investments made in human resources of an organisation
that are not presently accounted for under conventional accounting practice.

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