CSS Past Papers

Subject: Accountancy &

Auditing
Year: 2022

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 FEDERAL PUBLIC SERVICE COMMISSION Roll Number
COMPETITIVE EXAMINATION-2022
FOR RECRUITMENT TO POSTS IN BS-17
UNDER THE FEDERAL GOVERNMENT
ACCOUNTANCY AND AUDITING, PAPER-I

TIME ALLOWED: THREE HOURS PART-I (MCQS) MAXIMUM MARKS = 20

PART-I(MCQS): MAXIMUM 30 MINUTES PART-II MAXIMUM MARKS = 80
NOTE: (i) Part-II is to be attempted on the separate Answer Book.
(ii) Attempt ONLY FOUR questions from PART-II by selecting TWO questions from EACH SECTION.
ALL questions carry EQUAL marks.
(iii) All the parts (if any) of each Question must be attempted at one place instead of at different places.
(iv) Write Q. No. in the Answer Book in accordance with Q. No. in the Q.Paper.
(v) No Page/Space be left blank between the answers. All the blank pages of Answer Book must be crossed.
(vi) Extra attempt of any question or any part of the question will not be considered.
(vii) Use of Calculator is allowed.

PART – II
SECTION – I
Q. 2. Campus Theater adjusts its accounts every month. The company’s unadjusted trial balance dated August 31,
current year, appears as follows. Additional information is provided for use in preparing the company’s adjusting
entries for the month of August. (Bear in mind that adjusting entries have already been made for the first seven
months of current year, but not for August.)
CAMPUS THEATER
Unadjusted Trial Balance
August 31, Current Year

Cash .............................................$ 24,000

Prepaid film rental ........................... 37,440
Land ............................................. 144,000
Building .........................................201,600
Accumulated depreciation: Building ............................. $ 16,800
Fixtures and equipment ..................... 43,200
Accumulated depreciation: fixtures
and equipment .............................................................. 14,400
Notes payable ............................................................. 216,000
Accounts payable ........................................................... 5,280
Unearned admissions revenue (YMCA) ............................ 1,200
Income taxes payable ...................................................... 5,688
Capital stock ................................................................ 48,000
Retained earnings ......................................................... 55,932
Dividends .......................................... 18,000
Admissions revenue .................................................. 366,240
Concessions revenue ................................................... 17,220
Salaries expense .................................. 82,200
Film rental expense ........................... 113,400
Utilities expense ................................. 11,400
Depreciation expense: building .............. 5,880
Depreciation expense: fixtures
and equipment ......................... ............ 5,040
Interest expense ................................... 12,600
Income taxes expense ........................... 48,000
$746,760 $746,760
Other Data
1. Film rental expense for the month is $18,240. However, the film rental expense for several months has
been paid in advance.
2. The building is being depreciated over a period of 20 years (240 months).
3. The fixtures and equipment are being depreciated over a period of five years (60 months).
4. On the first of each month, the theater pays the interest that accrued in the prior month on its note
payable. At August 31, accrued interest payable on this note amounts to $1,800.
5. The theater allows the local YMCA to bring children attending summer camp to the movies on any
weekday afternoon for a fixed fee of $600 per month. On June 28, the YMCA made a $1,800 advance
payment covering the months of July, August, and September.
6. The theater receives a percentage of the revenue earned by Tastie Corporation, the concessionaire
operating the snack bar. For snack bar sales in August, Tastie owes Campus Theater $2,700, payable on
September 10. No entry has yet been made to record this revenue.
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 ACCOUNTANCY AND AUDITING, PAPER-I
7. Salaries earned by employees, but not recorded or paid as of August 31, amount to $2,040. No entry has
yet been made to record this liability and expense.
8. Income taxes expense for August is estimated at $5,040. This amount will be paid in the September 15
installment payment.
9. Utilities expense is recorded as monthly bills are received. No adjusting entries for utilities expense are
made at month-end.
Required:
(a) For each of the numbered paragraphs, prepare the necessary adjusting entry (including an (08)
explanation).
(b) Refer to the balances shown in the unadjusted trial balance at August 31. How many months (09)
of expense are included in each of the following account balances? (Remember, Campus Theater
adjusts its accounts monthly. Thus, the accounts shown were last adjusted on July 31, current
year.)
1. Utilities Expense
2. Depreciation Expense
3. Accumulated Depreciation: Building
(c) Assume the theater has been operating profitably all year. Although the August 31 trial balance (03) (20)
shows substantial income taxes expense, income taxes payable is a much smaller amount. This
relationship is quite normal throughout much of the year. Explain.

Q. 3. During the current year, Hitchcock Developers disposed of plant assets in the following transactions.
Feb. 10. Office equipment costing $24,000 was given to a scrap dealer at no charge. At the date of
disposal, accumulated depreciation on the office equipment amounted to $21,800.
Apr. 1. Hitchcock sold land and a building to Claypool Associates for $900,000, receiving $100,000
cash and a 5-year, 9 percent note receivable for the remaining balance. Hitchcock’s records
showed the following amounts:
Land, $50,000; Building, $550,000; Accumulated Depreciation: Building (at the date of
disposal), $250,000.
Aug. 15. Hitchcock traded in an old truck for a new one. The old truck had cost $26,000, and its
accumulated depreciation amounted to $18,000. The list price of the new truck was $39,000, but
Hitchcock received a $10,000 trade-in allowance for the old truck and paid $28,000 in cash.
Hitchcock includes trucks in its Vehicles account.
Oct. 1. Hitchcock traded in its old computer system as part of the purchase of a new system. The old
system had cost $15,000, and its accumulated depreciation amounted to $11,000. The new
computer’s list price was $8,000. Hitchcock accepted a trade-in allowance of $500 for the old
computer system, paying $1,500 down in cash and issuing a 1-year, 8 percent note payable for the
$6,000 balance owed.
Required:
(a) Prepare journal entries to record each of the disposal transactions. Assume that depreciation (16)
expense on each asset has been recorded up to the date of disposal. Thus, you need not update the
accumulated depreciation figures stated in the problem.
(b) Will the gains and losses recorded in part affect the gross profit reported in Hitchcock’s income (04) (20)
statement? Explain.
Q. 4. S, T and Q were partners sharing profits in the proportion of 3:2:1. Their capitals on 31st December
2021, stood at $45,000, $15,000 and $15,500 respectively after adjustments of net profit of $18,000 for
the year ending that date and drawings of $6,000, $4,000 and $2,000 respectively. It was discovered
that while ascertaining the profits, the accountant did not take into consideration the following matters:
1. Interest @ 6% p.a. on capital as on January 1, 2021.
2. Q was entitled to a salary of $2,000 p.a. of which $490 was unpaid.
3. Till December 31, 2020, partners were sharing profits equally. Land costing $12,000 was purchased
on the date of reallocation of profit, but no entry has been passed in that respect for which each
partner contributed equal capital.
4. A loan of $5,000 from T as brought-forward from 2020 carrying interest at 8% p.a. was merged
into his capital on July 1, 2021. No interest on loan was, however, charged to Profit and Loss
Account.
Required:
Work out a Profit and Loss Adjustment Account and show the Journal Entries necessary for (20)
readjustments of Capital Accounts and the revised Capital Accounts of partners, assuming that all their
dues are to be adjusted in the Capital Accounts.

SECTION – II
Q. 5. Listed below are five items that may—or may not—require disclosure in the notes that accompany financial
statements.
(a) Mandella Construction Co. uses the percentage-of-completion method to recognize revenue on long-
term construction contracts. This is one of two acceptable methods of accounting for such projects.
Over the life of the project, both methods produce the same overall results, but the annual results may
differ substantially.
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 ACCOUNTANCY AND AUDITING, PAPER-I

(b). One of the most popular artists at Spectacular Comics is leaving the company and going to work for a
competitor.

(c). Shortly after the balance sheet date, but before the financial statements are issued, one of Coast
Foods’s two processing plants was damaged by a tornado. The plant will be out of service for at least
three months.
(d). The management of Soft Systems believes that the company has developed systems software that will
make Windows ® virtually obsolete. If they are correct, the company’s profits could increase by 10-
fold or more.
(e). College Property Management (CPM) withheld a $500 security deposit from students who, in violation
of their lease, kept a dog in their apartment. The students have sued CPM for this amount in small
claims court.
Required: (20)
For each case, explain what, if any, disclosure is required under generally accepted accounting principles.
Explain your reasoning.

Q. 6. Juarez Inc. had the following inventories on March 1:

Finished Goods ........................... $15,000
Work in Process ........................... 19,070
Materials ..................................... 17,000
The work in process account controls three jobs:

Job 621 Job 622 Job 623

Materials $2,800 $3,400 $1,800
Labour 2,100 2,700 1,350
Applied Factory-
Overhead 1,680 2,160 1,080
Total $6,580 $8,260 $4,230

The following information pertains to March operations:

(1) Materials purchased and received cost $19,000 at terms n/30.
(2) Materials requisitioned for production cost $21,000. Of this amount, $2,400 was for indirect
materials; the difference was distributed: $5,300 to Job 621; $7,400 to Job 622; and $5,900 to Job 623
(3) Materials returned to the storeroom from the factory totaled $600, of which $200 was for indirect
materials, the balance from Job 622.
(4) Materials returned to vendors totaled $800.
(5) Payroll of $38,000 was accrued in March.
(6) Of the payroll, direct labor represented 55%; indirect labor, 20%; sales salaries, 15%; and
administrative salaries, 10%. The direct labor cost was distributed: $6,420 to Job 621; $8,160 to Job
622; and $6,320 to Job 623.
(7) Factory overhead, other than any previously mentioned, amounted to $9,404.50. Included in this figure
were $2,000 for depreciation of factory building and equipment and $250 for expired insurance on the
factory. The remaining overhead, $7,154.50, was unpaid at the end of March.
(8) Factory overhead was applied to production at a rate of 80% of the direct labor cost to be charged to
the three jobs, based on the labor cost for March.
(9) Jobs 621 and 622 were completed and transferred to the finished goods warehouse,
(10) Both Jobs 621 and 622 were shipped and billed at a gross profit of 40% of the cost of goods sold.
(11) Cash collections from accounts receivable during March were $69,450.

Required:
(a) Prepare job order cost sheets to post beginning inventory data. (5)
(b) Journalize the March transactions with current postings to general ledger inventory accounts and (10)
to job order cost sheets.
(c) Prepare a schedule of inventories on March 31. (5) (20)

Q. 7. Wheeler Company, a small supplier of computer parts, is currently producing a new computer sensory unit.
The company has been producing 150 units per week and factory overhead (all fixed) was estimated to be
$1,200 per week. The following is a schedule of the pay rates of three workers assigned to the new
component:
Employee Hourly rate
Clancy, D $6.00
Lukan, T 8.00
Schott, J 7.00
Customers have been calling in for additional units, but management does not want work to exceed 40 hours
per week. To motivate its employees to produce more, the company decided to institute an incentive wage
plan. Under the plan, each worker would be paid a base rate per hour, as shown in the following schedule,
and a premium of $1 per unit for all units when the total number exceeds 150.
Employee Base rate
Clancy, D $3.50
Lukan, T 5.50
Schott, J 4.50 Page 3 of 4
 ACCOUNTANCY AND AUDITING, PAPER-I

The first week the plan was put into operation, production increased to 165 units. The shop superintendent
studied the results and considered the plan too costly. Production had increased 10%, but the labour cost had
increased by approximately 23.2%. The superintendent requested permission to redesign the plan to make
the labour cost increase proportionate to the productivity increase.
Required:
(a) Calculate the dollar amount of the 23.2% labour cost increase. (10)
(b) Give an opinion, supported by figures, as to whether the shop superintendent was correct in (10) (20)
assuming that the incentive wage plan was too costly, and discuss other factors to be
considered.

Q. 8. WKZ Inc., with $20,000,000 of par stock outstanding, plans to budget earnings of 6% before income tax,
on this stock. The Marketing Department budgets sales at $12,000,000. The budget director approves the
sales budget and expenses as follows:
Marketing .......................... 15% of sales
Administrative .................... 5%
Financial ........................... 1%
Labor is expected to be 50% of the total manufacturing cost; materials issued for the budgeted production
will cost $2,500,000; therefore, any savings in manufacturing cost will have to be in factory overhead.
Inventories are to be as follows:

Beginning of Year End of Year

Finished goods………… $800,000 $1,000,000
Work in Process………… 100,000 300,000
Materials………………... 500,000 600,000

Required:
Prepare the budgeted cost of goods manufactured and sold statement, showing the budgeted purchases of (20)
materials and the adjustments for inventories of materials, work in process, and finished goods.

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 FEDERAL PUBLIC SERVICE COMMISSION Roll Number
COMPETITIVE EXAMINATION-2022
FOR RECRUITMENT TO POSTS IN BS-17
UNDER THE FEDERAL GOVERNMENT
ACCOUNTANCY & AUDITING, PAPER-II
TIME ALLOWED: THREE HOURS PART-I (MCQS) MAXIMUM MARKS = 20
PART-I(MCQS): MAXIMUM 30 MINUTES PART-II MAXIMUM MARKS = 80
NOTE: (i) Part-II is to be attempted on the separate Answer Book.
(ii) Attempt ONLY FOUR questions from PART-II by selecting at least ONE question from EACH
SECTION. ALL questions carry EQUAL marks.
(iii) All the parts (if any) of each Question must be attempted at one place instead of at different places.
(iv) Write Q. No. in the Answer Book in accordance with Q. No. in the Q.Paper.
(v) No Page/Space be left blank between the answers. All the blank pages of Answer Book must be crossed.
(vi) Extra attempt of any question or any part of the question will not be considered.
(vii) Use of Calculator is allowed.

PART – II
SECTION – I (AUDITING)
Q. 2. Define audit planning. What factors should be considered by an auditor in developing an (20)
audit plan.

Q. 3. (a) Define an audit program. Give its advantages and disadvantages. (10)
(b) What are the purposes/benefits of conducting audit through a fixed audit program? (10) (20)

Q. 4. (a) Define ‘Fraud’ as applied to accounting. What are different types of frauds? (10)
(b) How will you detect and prevent the frauds related with embezzlement of cash? (10) (20)

SECTION – II (BUSINESS TAXATION)

Q. 5. ABC is a private limited company. The company manufactures and supplies consumer goods. ABC (20)
sells its product through various distributors in Karachi, Lahore and Islamabad. The following is the
profit and loss account of ABC for the year ended on June 30, 2021:
Rs.”000” Rs.”000”
Sundry expenses 2,240 Gross Profit 235,200
Office salaries 29,120 Interest on bank deposit 300
Rent, rates & taxes 8,960 Recovered bad debts 448
(Allowed in the past)
Legal charges 2,016 Dividend 672
Finance charges on leased assets 350
Advertisement 5,600
Auditor's fees 6,720
Cost of issue of debentures 5,600
Loss on sales of furniture 2,240
Provident fund contribution 7,840
Bad debts 4,480
Vehicle expenses 8,960
Fire insurance premium 7,840
Preliminary expenses 1,008
Provision for taxes 10,080
Provision for bad debts 4,480
Liquidated damages 3,360
Depreciation 44,800
Net Profit 80,926
Total 236,620 Total 236,620

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 ACCOUNTANCY & AUDITING, PAPER-II

Additional Information:
a) Sundry expenses include donation of Rs. 502,000 paid to an unrecognized charitable institution.
b) Office salaries include Rs.6,000,000 paid to one of the directors.
c) Provident Fund is recognized by the Income Tax Department.
d) Vehicle expenses are not vouched and verifiable to the extent of Rs.1,881,000.
e) Actual depreciation works out to Rs.32,650,000 only.
f) Lease rental for the year are Rs.1,750,000.
Required: Calculate the taxable income and tax liability of the company for the tax year
2021 from the above data.

Q. 6. Discuss ten allowable deductions under the head of “income from business” under section 20 (20)
of Income Tax Ordinance 2001.

SECTION – III (BUSINESS STUDIES AND FINANCE)

Q. 7. (a) What is the purpose of financial markets? How can this purpose be accomplished (10)
efficiently?
(b) Discuss the functions of financial intermediaries. (10) (20)

Q. 8. Why do bonds with long maturities fluctuate more in price than do bonds with short (20)
maturities, given the same change in yield to maturity?

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