INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN

New Fall (E) 2011, April 2012 Examinations

Sunday, the 22nd April 2012
FUNDAMENTALS OF FINANCIAL ACCOUNTING - (S-101)
STAGE – 1

Time Allowed – 2 Hours 45 Minutes Maximum Marks: 90 Roll No.:

(i) Attempt all questions.

(ii) Answers must be neat, relevant and brief.
(iii) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.

Marks
Q.2 (a) Briefly explain the following concepts underlying financial statements:
(i) Historical cost concept 01
(ii) Business entity concept 02
(iii) Dual aspect concept 02

(b) Following transactions relate to Electro Traders for the month of May 2011:
Date
2011 Rs.
May 01 Cash b/d 7,700
01 Bank b/d 25,400
02 Babur paid his account by cheque after deducting 5% cash
discount of Rs.490 9,310
07 Cash sales 15,000
08 Faakhir was paid by cheque, after deducting 2.5% cash discount
of Rs.300 11,700
11 Rs.5,000 was withdrawn from bank for business use 5,000
13 Bank loan obtained 35,000
15 Cheque drawn for personal expenses 17,500
16 Abubakar paid his account by cheque deducting 2.5% cash
discount of Rs.241 9,399
25 Wages paid in cash 18,500
26 Office rent paid by cheque 15,200
28 Saahir paid in cash net of 5% cash discount of Rs.570 10,830
29 Computer purchased paying by cheque 4,485
31 Ahmed was paid by cheque less 5% cash discount of Rs.570 10,830
Required:
Write up a three-column cash book and balance it off at the end of the month. 15

Q.3 (a) Asif and Wahid are close friends. In recent times their businesses are not doing well. In
order to meet their working capital needs, Asif draws a bill for Rs.50,000 on Wahid on
July 1, 2011 for 3 months for mutual accommodation. Wahid accepts the bill and sends
it back to Asif who discounts the bill with his bank. The bank charges discount @ 6% per
annum. Asif remits 60% of the proceeds of the bill to Wahid as per mutual agreement.
The remaining amount is sent to Wahid by Asif on maturity date and Wahid meets his
obligation under the bill on presentation. PTO
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Required:
Prepare relevant journal entries in the books of both the parties. 12

(b) Horizon Limited is a medium-sized business. For the year ended June 30, 2011,
stocktaking was not done until July 10, 2011. On this date, inventory was valued at
Rs.265,700. Following transactions took place between June 30, 2011 and July 10,
2011:
 Sales after June 30, 2011 amounted to Rs.61,800 (sales were made at cost plus
25%).
 Sales returns since June 30, 2011 were Rs.3,750.
 Purchases since June 30, 2011 amounted to Rs.50,860.
 An item which was included in the inventory at cost is slightly damaged. This item
costing Rs.750 could be sold for Rs.575.
 One stock sheet was under-added by Rs.1,000.
 Goods sent on ‘sale or return’ basis were included in the inventory at selling price of
Rs.5,250. These goods cost Rs.4,200 to Horizon Limited.
Required:
Compute the amount of inventory as on June 30, 2011. 08

Q.4 Following relates to Sunshine Limited:

Cash Book
2011 Rs. 2011 Rs.
Dec 01 Balance b/d 18,300 Dec 08 Dabeer 7,700
22 Javaid 11,650 15 Masood 9,350
31 Kamil 4,400 28 Ghaffar 3,350
31 Basheer 6,500 31 Balance c/d 20,450
40,850 40,850

Bank Statement
Debit Credit Balance
2011 Rs. Rs. Rs.
Dec 01 Balance b/d 18,300
10 Standing order 5,920 12,380
11 Dabeer 7,700 4,680
13 Direct debit 4,650 30
20 Masood 9,350 (9,320)
22 Cheque 11,650 2,330
30 Cheque dishonoured 8,670 (6,340)
31 Credit transfer: Wahid 3,750 (2,590)
31 Bank charges 325 (2,915)
Required:
(i) Write the cash book up to date having considered the above facts. 06
(ii) Prepare a Bank Reconciliation Statement as on December 31, 2011. 04

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Q.5 The accountant of Superior Traders prepared trial balance of the business on June 30, 2011.
The trial balance showed a difference that was posted to the suspense account. Thereafter,
draft final accounts were prepared, which showed a net profit of Rs.125,680. Following errors
were found later on:
 Sales of Rs.16,590 to Akhter was wrongly treated as sales to Akram.
 Sale of a computer for Rs.7,700 was wrongly treated as sale of goods. Book value of the
computer was also Rs.7,700.
 Utility expenses amounting to Rs.6,270 were entered as Rs.6,720 in the utility expense
account.
 The sales journal was overcast by Rs.3,000.
 Equipment account was wrongly charged for repairs to the equipment by Rs.4,520.
 A cheque was received from People Company in respect of rent but it was entered in the
cash book only. The amount of the cheque was Rs.9,500.
 Discount allowed account was overcast by Rs.900.
 Goods received from Prestige Limited amounted to Rs.11,600. They were entered in the
closing inventory on June 30, 2011 but the invoice was not entered in the purchases
journal.
Required:
(a) Prepare required Journal Entries to correct the errors mentioned above. 12
(b) Make adjustment in the net profit as given above to arrive at the correct net profit for the 08
year ended June 30, 2011.

Q.6 Following trial balance relates to Prince Traders which was extracted at the close of business
on December 31, 2011:
Debit Credit
Rs. ‘000’ Rs. ‘000’
Sales revenue 48,750
Sales returns 1,250
Carriage outwards 1,060
Purchases 25,200
Purchases returns 2,225
Carriage inwards 650
Sundry expenses 625
Accounts receivable 16,200
Allowance for doubtful debts 575
Inventory at January 01, 2011 3,750
Wages and salaries 3,150
Prepaid insurance 1,850
Office expenses 2,050
Land and buildings at cost 25,450
Accumulated depreciation – Land and buildings 6,520
Furniture and fixtures at cost 11,875
Accumulated depreciation – Furniture and fixtures 3,125
Office equipment at cost 20,600
Accumulated depreciation – Office equipment 3,100
Accounts payable 19,050
Capital 42,830
Drawings 625
Cash at bank 11,840
126,175 126,175
PTO

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Additional Information:
Depreciation expense for the year to be provided in the following manner:

 Land and buildings 2% using straight-line method

 Furniture and fixtures 10% using straight-line method
 Office equipments 25% using reducing balance method
Rs. ‘000’
 Inventory as at December 31, 2011 4,440
 Insurance expired during the year 1,260
 Prepaid wages and salaries as at December 31, 2011 920
 Allowance for doubtful debts to be maintained at 5% of closing balance of
accounts receivable as on December 31, 2011
Required:
(a) Prepare Income Statement for the year ended December 31, 2011. 12
(b) Prepare Statement of Financial Position as at December 31, 2011. 08

THE END

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