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If only True/false
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Test false
Series: November, 2023
Maximum marks =1 5 .

for
MOCK TEST
each
PAPER 1
True

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FOUNDATION COURSE
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING
ANSWERS
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: Accrual concept implies accounting on ‘due’ or ‘accrual’ basis. Accrual basis of
accounting involves recognition of revenues and costs as and when they accrue irrespective
of actual receipts or payments.
(iii) True: If closing stock appears in the trail balance, it depicts that one aspect of the double
entry has been completed.
(iv) True: Discount at the time of retirement of a bill is a gain for the drawee and loss for the
drawer.
(v) False: According to Partnership Act, in the absence of any agreement to the contrary profits
and losses are to be shared equally among partners.
(vi) False: Receipts and payments account is a classified summary of cash receipts and
payments over a certain period together with cash and bank balances at the beginning and
close of the period.
(b) Cash and mercantile system: Cash system of accounting is a system by which a transaction is
recognized only if cash is received or paid. In cash system of accounting, entries are made only

15
[ when cash is received or paid, no entry being made when a payment or receipt is merely due. Cash
system is normally followed by professionals, educational institutions or non -profit making
organizations.
On the other hand, mercantile system of accounting is a system of classifying and summarizing

[
transactions into assets, liabilities, equity (owner’s fund), costs, revenues and recording thereof. A
: transaction is recognized when either a liability is created/ impaired and an asset is created
/impaired. A record is made on the basis of amounts having become due for payment or receipt
irrespective of the fact whether payment is made or received actually.
Mercantile system of accounting is generally accepted accounting system by business entities
(c) Journal Entries in the books of Annamalai Bros.

d makes
- a
Particulars Dr. Cr.

deduct
Amount Amount
.

N
aravor (`) (`)
each &
(i) Salaries A/c 15,000
To Purchase A/c 15,000
(Being entry made for stock taken by employees)
(ii) Machinery A/c 16,000
To Cash A/c 16,000
(Being wages paid for erection of machinery)

1
 (iii) Drawings A/c 3,400
To Petty Cash A/c 3,400
(Being the income tax of proprietor paid out of business
money)
(iv) Purchase A/c 3,600
To Cash A/c 3,500
To Discount Received A/c 100
(Being the goods purchased from Naveen for ` 4,000
@ 10% trade discount and cash discount of ` 100)
2. (a) Statement of Valuation of Stock on 30 th April,2023
`
Value of stock as on 23 rd April, 2023 48,00,000
Add: Unsold stock out of the goods sent on consignment 2,40,000
Purchases during the period from 23 rd April, 2023 to 30th April, 2,40,000
2023
Goods in transit on 30 th April, 2023 1,60,000
Cost of goods sent on approval basis (80% of ` 1,60,000) 1,28,000 7,68,000
55,68,000
Less: Cost of sales during the period from 23 rd April, 2023 to
30th April,2023
Sales (` 13,60,000-` 1,60,000) 12,00,000
Less: Gross profit 96,000
11,04,000
Value of stock as on 30 th April, 2023 44,64,000

Working Notes:
` `
1. Calculation of normal sales:
Actual sales 13,60,000
Less: Abnormal sales 1,20,000
Return of goods sent on approval 1,60,000 2,80,000
10,80,000
2. Calculation of gross profit:
Gross profit or normal sales 2,16,000
20/100 x ` 10,80,000
Less: Loss on sale of particular (abnormal) goods
(2,40,000 - 1,20,000) 1,20,000
Gross profit 96,000

2
 Answer 2
(a) PURCHASES BOOK
Date Particulars L.F. Amount ₹
(i) Red & Co.
10 pair of black shoes @ ₹ 800 8,000
5 pair of Brown shoes @ ₹ 900 4,500
12,500
Less: 10% trade discount (1,250)
11,250
Note:
1. Purchases made in cash are entered in cash book not in purchase book.
2. Purchase of computer cannot be entered in the Purchase Book but entered in journal
proper.

(b) In the books of ‘ABC’

Goods on sales or return, sold and returned day book
Date Party to whom goods L.F Amount Date Sold Returned
2021 sent ₹ 2021 ₹ ₹
Mar.10 M/s PQR 25,000 Mar. 25 25,000 -
Mar.12 M/s DEF 15,000 Mar. 16 - 15,000
Mar.15 M/s GHI 40,000 Mar. 20 32,000 8,000
M/s DEF 10,000 Mar. 24 10,000 -
Mar.20
Mar.25 M/s PQR 22,000 Mar. 28 22,000 -
Mar.30 M/s GHI 35,000 - _____ _____
1,47,000 89,000 23,000
Goods on Sales or Return Total Account
Date Particulars Amount Date Particulars Amount
₹ ₹
2021 2021
Mar. 31 To Returns 23,000 Mar. 31 By Goods sent
To Sales 89,000 on sales or return 1,47,000
To Balance c/d 35,000 _____
1,47,000 1,47,000

© The Institute of Chartered Accountants of India

 (c)(b) In the books of M/s Mazars
Machinery A/c
Date Account (in `) Date Account (in `)
01.01.2021 To Balance b/d 4,56,000 01.07.2021 By Bank A/c 2,50,000
By P&L A/c – Loss on 50,000
Sale
30.09.2021 To Bank A/c 60,000 31.12.2021 By Depreciation 37,500
By Balance c/d 1,78,500

5,16,000 5,16,000

01.01.2022 To Balance b/d 31.12.2022 By Depreciation

1,78,500 26,775
31.12.2022 By Balance c/d
1,51,725
1,78,500 1,78,500

Working Note: Calculation of Book Value of Machines under SLM

Machine 1 Machine 2 Machine 3
(in `) (in `) (in `)
Date of Purchase 01.01.2019 01.07.2019 30.09.2021
Original Cost 4,00,000 1,60,000 60,000
Depreciation for 2019 (SLM) (40,000) (8,000)
WDV on 31.12.2019 3,60,000 1,52,000
Depreciation for 2020 (SLM) (40,000) (16,000)
WDV on 31.12.2020 3,20,000 1,36,000
Depreciation for 2021 (SLM) (20,000) (16,000) (1,500)
WDV on 31.12.2021 (30th June for 3,00,000 1,20,000 58,500
Machine1)
Sale Proceeds (2,50,000)
Loss on Sale 50,000
Depreciation for 2022 (WDV @ 15%) - (18,000) (8,775)
WDV on 31.12.2022 - 1,02,000 49,725

3. (a) Journal Entries in the books of Rajat

2023 Dr. Cr.
(`) (`)
Jan. 1 Bills receivable (No. 1) A/c Dr. 32,000
Bills receivable (No. 2) A/c Dr. 50,000
To Vishal A/c 82,000
(Being drawing of bills receivable No. 1 due for
maturity on 4.3.2023 and bills receivable No. 2 due
for maturity on 4.4.2023)
March 4 Vishal’s A/c Dr. 32,000
To Bills receivable (No.1) A/c 32,000
(Being the reversal entry for bill No.1 on renewal)

3
 March 4 Bills receivable (No. 3) A/c Dr. 32,800
To Interest A/c 800
② To Vishal ’s A/c 32,000
(Being the drawing of bill of exchange no. 3 due for
maturity on 7.5.2023 together with interest at
15%p.a. in lieu of the original acceptance of Vishal)
March 25 Bank A/c Dr. 49,500
Discount A/c Dr. 500
② To Bills receivable (No. 2) A/c 50,000
(Being the amount received on retirement of bills
No.2 before the due date)
May 7 Vishal’s A/c Dr. 32,800
To Bills receivable (No. 3) A/c 32,800
① (Being the amount due from Vishal on dishonour of
his acceptance on presentation on the due date)
May 7 Bank A/c Dr. 16,400
To Vishal’s A/c 16,400
① (Being the amount received from official assignee
of Vishal at 50 paise per rupee against dishonoured
bill)
May 7 Bad debts A/c Dr. 16,400
To Vishal’s A/c 16,400
① (Being the balance 50% debt in Vishal’s Account
arising out of dishonoured bill written off as bad
debts)

(b) Calculation of Average Due Date

Taking Base Date 21.07.2022
Date of Period Due Date Amount Number of Days Product
bill from Base Date
` `

of
9.4.2022 4 months 12.08.2022 3,000 22 66,000
18.4.2022 3 months 21.07.2022 5,500 0 0
25.5.2022 6 months 28.11.2022 3,000 130 3,90,000
5.6.2022 3 months 8.09.2022 6,000 49 2,94,000
17,500 7,50,000
7,50,000
Average Due Date = 21st July +
17,500 = 21.7.2022 + 43 days = 2.09.2022.
10
Since two new bills will be drawn, their due dates will be as follows:

J
First Bill- 1.7.2022 + 4 months = 4.11.2022;
Q
Second Bill- 1.7.2022+ 6 months = 4.1.2023.
Interest to be charged in respect of the above bills:

4
 1st bill = Interest will be charged on ` 10,000 @ 10% p.a. for 63 days (2.09.2022 to
4.11.2022)
= ` 10,000 x 10% x 63/365 = ` 172.60
2nd bill = Interest will be charged on ` 7,500 (` 17,500 - 10,000) @ 10% p.a. for 124
days (2.09.2022 to 4.1.2023)
= ` 7,500 x 10% x 124/365 = ` 254.80.
Therefore, the value of the two bills:
First bill = ` 10,000
Second bill = ` (7,500+ 172.60+ 254.80) = ` 7,927.4
(c) In the books of Mr. Lee
Mr. Cooper in Account Current with Mr. Lee
(Interest to 31 st March, 2023 @ 12% p.a.)
(By means of product)
Date Particulars Due Amount Days Product Date Particulars Due Amount Days Product
2023 Date ` 2023 Date `
Jan To Sales A/c Feb. 30,000 58 17,40,000 Jan. By Balance b/d Jan. 1 3,500 90 3,15,000
12 1 1
Jan To Sales A/c Feb. 27,500 44 12,10,000 Feb. By Cash A/c Feb. 40,000 44 17,60,000
31 15 15 15
Mar. To Interest 130 Feb. By Cash A/c Feb. 7,500 39 2,92,500
31 20 20
3,96,500/365 Mar. By Sales Mar. 7,000 21 1,47,000
12
10 returns 10
x
100
Mar. By Cash A/c Mar. 6,500 6 39,000
25 25
Mar. To Balance c/d 6,870 Mar. By Balance of 3,96,500
31 31 products ______ ________
64,500 29,50,000 64,500 29,50,000

4. (a) Revaluation Account

` `
To Plant & Machinery 25,500 By Land & Building 1,52,000
(1,70,000 x 15%) A/c
To Provision for Bad & Doubtful
Debts (60,000 x 5%) 3,000
To Outstanding Repairs to Building 6,000
To P’s Capital A/c (5/8) 73,438
To Q’s Capital A/c (3/8) 44,062
1,52,000 1,52,000

Partners Capital Account

P Q R P Q R
To P’s Capital - - 20,000 By Balance b/d 4,10,000 3,30,000 -
A/c
5
 To Q’s Capital By Revaluation
12,000 73,438 44,062 -
A/c A/c
To Q’s Current By Profit & Loss
- 68,062 70,000 42,000 -
A/c A/c
To Balance c/d 6,00,000 3,60,000 2,40,000 By Bank - - 2,72,000
By R’s Capital
20,000 12,000 -
A/c
By P’s Current
26,562 - -
A/c
6,00,000 4,28,062 2,72,000 6,00,000 4,28,062 2,72,000

Calculation of New Profit Sharing Ratio and gaining ratio:

R’s Share of Profit = 1/5 = 2/10
Remaining Share = 1 – 1/5 = 4/5
P’s Share = 5/8 x 4/5 = 20/40 = 5/10
Q’s Share = 3/8 x 4/5 = 12/40 = 3/10
New Profit sharing Ratio = 5:3:2
Gaining ratio = 5:3 (same as old profit sharing ratio among old partners)
Balance sheet of M/s Pigeon and Associates as on 31.3.2023
Liabilities ` Assets
Capital Accounts: Land & Buildings 5,32,000
P 6,00,000 Plant & Machinery 1,70,000
Q 3,60,000 Less: Depreciation 25,500 1,44,500
R 2,40,000 12,00,000 Furniture 1,09,480
Q’s Current A/c 68,062 Stock 1,45,260
Trade Creditors 54,800 Sundry Debtors 60,000
Outstanding Repairs to 6,000 Less: Provision 3,000
57,000
Building
Cash at Bank 3,14,060
P’s current A/c 26,562
13,28,862 13,28,862

Working Note:
Required Balance of Capital Accounts
R’s Capital after writing off Goodwill = 2,72,000 – 32,000 = 2,40,000
R’s Share of Profit = 1/5
Thus Capital of the firm shall be = 2,40,000 x 5 = 12,00,000
P’s Capital = 12,00,000 x 5/10 = 6,00,000 and
Q’s Capital = 12,00,000 x 3/10 = 3,60,000

6
 (b) Trading and Profit and Loss Account of Mr. Kamal
for the year ended 31st March, 2023
Dr. Cr.
Amount Amount
` ` ` `
To Opening stock 64,500 By Sales 4,27,150
To Purchases 3,06,200 Less: Sales return 5,150 4,22,000
Less: Purchases return 3,450 3,02,750 By Closing stock

o 23,430
Go
To Carriage inward 2,250 (` 1,60,000 × 2,50,000
To Wages
100 100
To Gross profit c/d 2,79,070 × )
① 80 80
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
recovered
To Advertisement expenses 8,350
To Printing and stationery 2,500
To Bad debts 2,200
To Carriage outward 2,700
To Provision for doubtful debts
5% of ` 2,40,000 12,000
① E Less: Existing provision 6,400 5,600
To Provision for discount on
debtors

①E
2.5% of ` 2,28,000 5,700
Less: Existing provision 2,750 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
(Transferred
account)
to capital
C-0 1,67,600
2,79,970
_______
2,79,970

Balance Sheet of Mr. Kamal as on 31st March, 2023

Liabilities (`) Amount Assets (`) Amount
(`) (`)
Capital account 1,30,000 Plant and machinery 40,000
Add: Net profit 1,67,600 Less: Depreciation 6,000 34,000
2,97,600 Furniture and fittings 20,500

ad
Less: Drawings 23,000 2,74,600 Less: Depreciation 2,050 18,450
7
 Bank overdraft 1,60,000 Closing stock 2,50,000
Sundry creditors 95,000 Sundry debtors 2,40,000
Payable salaries 4,900 Less: Provision for doubtful 12,000
debts
Provision for disc on 5,700 2,22,300
debtors
Prepaid rent 600
Cash in hand 2,900
_______ Cash at bank 6,250
5,34,500 5,34,500

5. Pushp Speciality Hospital

Income & Expenditure Account
for the year ended 31 December, 2022
Expenditure (` ) Income (` )
To Salaries 48,000 By Subscriptions 49,000
To Diet expenses 31,200 By Govt. Grants (Maintenance) 40,000
To Rent & Rates 3,400 By Fees, Sundry Patients 9,600
To Printing & Stationery 4,800 By Donations 16,000
To Electricity & Water-charges 4,800 By Benefit shows (net 12,000
collections)
To Office expenses 4,000 By Interest on Investments 1,600
To Excess of Income over
expenditure transferred to
Capital Fund 32,000
1,28,200 1,28,200
Balance Sheet as at 31st Dec., 2022
Liabilities ` ` Assets ` `
Capital Fund : Building :
Opening balance 98,600 Opening balance 1,80,000
Excess of Income Addition 1,00,000 2,80,000
Over Expenditure 32,000 1,30,600 Hospital Equipment :
Building Fund : Opening balance 68,000
Opening balance 1,60,000 Addition 34,000 1,02,000
Add : Govt. Grant 1,60,000 3,20,000 Furniture 12,000
Subscriptions Investments-
received in advance 4,800 8% Govt. Securities 40,000
Subscriptions 2,800
receivable
Accrued interest 1,600
Prepaid expenses 600
(Rent)
8
 Cash at Bank 13,600
Cash in hand 2,800
4,55,400
C
4,55,400 0 -

Working Notes:
(1) Balance sheet as at 31st Dec., 2022
Liabilities ` Assets `
Capital Fund Building 1,80,000
(Balancing Figure)
Building Fund
Q E 98,600 Equipment
-

1,60,000 Subscription Receivable

68,000
13,000
Creditors for Expenses : Cash at Bank 10,400
Salaries payable 14,400 Cash in hand 1,600
2,73,000 2,73,000

fa
(2) Value of Building `

& traditi
Balance on 31st Dec. 2022 2,80,000
Paid during the year (1,00,000)
Balance on 31st Dec. 2021 1,80,000
(3) Value of Equipment
Balance on 31st Dec. 2022 1,02,000
Paid during the year (34,000)
Balance on 31st Dec. 2021 68,000
(4) Subscription due for 2021
Receivable on 31st Dec. 2021 13,000
Received in 2022 (10,200)
Still Receivable for 2022 2,800

Deduct
6. (a) Journal of V Kohli. Ltd.

Lausing (
mark Dr. Cr.
ob
each- 2022 ` in lakhs ` in lakhs E

for varator June 1 Bank A/c Dr. 300

&
To Shares Application A/c 300
words
then
T
(Receipt of applications for 15 lakh shares along
with application money of ` 20 per share.)
Naration Ho ,

(also
likli June 1 Share Application A/c Dr. 300

fire
&
Share Allotment A/c Dr. 450
mi
To Share Capital A/c 750
(The allotment of 15 lakh shares : payable on
application ` 20 share and ` 30 on allotment as
per Directors’ resolution no... dated...)
June 1 Bank A/c Dr. 465
To Shares Allotment A/c 450
①
9
A

2 marks deduct if Kissiinstead

labh
&
ne

Ke
line > use
Kiya
of zeros
 To Calls in Advance A/c 15
[Receipt of money due on allotment @ ` 30, also
the two calls (` 30 and ` 20) on 30,000 shares.]
Nov. 1 Share First Call A/c Dr. 450
To Share Capital A/c 450
(The amount due on 15 lakh shares @ ` 30 on
first call, as per Directors, resolution no... dated...)
Bank A/c Dr. 441
Calls in Advance A/c Dr. 9
To Share First Call A/c 450
(Receipt of the first call on 14.7 lakh shares, the
balance having been previously received
and now debited to call in advance account.)
2023
March 1 Share Final Call A/c Dr. 300
To Share Capital A/c 300
(The amount due on Final Call on 15 lakh shares
@ ` 20 per share, as per Directors’ resolution
no... dated...)
March1 Bank A/c Dr. 294
Calls in Advance A/c Dr. 6
To Share Final Call A/c 300
(Receipt of the moneys due on final call on 14.7
lakhs shares, the balance having been previously
received.)
March 1 Interest on calls in Advance A/c Dr. 0.99
To Shareholder A/c 0.99
(Being interest on call in advance made due)
March 1 Shareholder A/c Dr. 0.99
To Bank A/c 0.99
(Being interest paid)
Working Note:
The interest on calls in advance paid @ 12% on : `
` 9,00,000 (first call) from 1st June to 1st Nov., 2022–5 months 45,000
` 6,00,000 (final call) from 1st June to 1st March., 2023–9 months 54,000
Total Interest Amount Due 99,000

(b) In the books of Suman Company Ltd.

Journal Entries
Date Particulars Dr. Cr.
` `
(a) Bank A/c Dr. 90,00,000
To Debentures Application A/c 90,00,000
10
 (Being the application money received on 20,000
debentures @ ` 450 each)
Debentures Application A/c Dr. 90,00,000
Discount on issue of Debentures A/c Dr. 10,00,000
To 14% Debentures A/c 1,00,00,000
(Being the issue of 20,000 14% Debentures @ 90%
as per Board’s Resolution No….dated….)
(b) Bank A/c Dr. 40,00,000
To Bank Loan A/c (See Note) 40,00,000
(Being a loan of ` 40,00,000 taken from bank by
issuing debentures of `50,00,000 as collateral
security)
(c) Fixed Assets A/c Dr. 40,00,000
To Vendor A/c 40,00,000
(Being the purchase of fixed assets from vendor)
Vendor A/c Dr. 40,00,000
Discount on Issue of Debentures A/c Dr. 10,00,000
To 14% Debentures A/c 50,00,000
(Being the issue of debentures of ` 50,00,000 to
vendor to satisfy his claim)

Note: No entry is made in the books of account of the company at the time of making issue of such
debentures. In the “Notes to Accounts” of Balance Sheet, the fact that the debentures being issued
as collateral security and outstanding are shown by a note under the liability secured.
(c) (i) Error of Commission.
(ii) Error of Omission.
(iii) Error of Commission.
(iv) Error of Omission.
(v) Error of Principle.

11