SUGGESTED ANSWERS TO QUESTIONS

INTERMEDIATE EXAMINATION
GROUP - I
(SYLLABUS 2016)
DECEMBER - 2021
Paper - 5 : FINANCIAL ACCOUNTING

Time Allowed : 3 Hours Full Marks : 100

20X1=20 Marks
Section : A MCQ
Q.1 In hire purchase System, cash price plus interest is known as __________
Ans 1. Hire purchase charges.
2. Capital value of asset.

3. Hire purchase price of assets.

4. Book value of asset

Q.2 Depreciation is calculated from the date of .

Ans 1. Assets put to use.
2. Purchase of assets.

3. Assets installed.

4. Receipts of assets at business premises

Q.3 Debit balance in the cash book is equivalent to.

Ans 1. Overdraft as per cash book.
2. None of these.

3. Credit balance as per Passbook.

4. Overdraft as per passbook

Q.4 Main elements of the accounting equation are:

Ans 1. Cash, stock and debtors.
2. Bank balance,Investments and bills receivable.

3. Assets, liabilities and capital.

4. Capital, creditors and bills payable.

Q.5 A Bill of Exchange cannot be

Ans 1. Endorsed.
2. Crossed.

3. None of these.

4. Accepted.

Q.6 Spent amount on unsuccessful promotion policy is

Ans 1. Capital expenditure

2. Expenses.

3. Revenue expenditure

4. Deferred revenue expenditure.

Q.7 Convention of Conservatism takes into account:
Ans 1. All future profits and not losses.
2. Neither profits nor losses of the future.

3. All future losses and not profits.

4. All future profits and losses.

Q.8 Balance Sheet is prepared with the balances of which of the following?
Ans 1. All balances in the Ledger.
2. Balances of real accounts.

3. Balances of personal accounts.

4. Balances of personal and real accounts.

Q.9 Which of these terms/concepts are not relevant to a joint venture?

Ans 1. Co venturers.
2. Temporary partnership.

3. Principal and agent relationship.

4. Sharing profit and loss of joint ventures.

Q.10 Excess of minimum rent over royalty payable is known as .

Ans 1. Minimum royalty payable.
2. Deficiency of actual royalty.

3. Excess working.

4. Short working.

Q.11 Sold goods worth list price of rupees 8000 at 10% trade discount and 2% cash discount.
25% received at the time of transaction only.The amount posted to the discount account will be:
Ans 1. Rupees 144 on credit side.

2. Rupees 36 on debit side

3. Rupees 144 on debit side.

4. Rupees 40 on credit side

Q.12 Revenue from is recognised as per AS-9

Ans 1. Construction contract.
2. Lease agreement

3. Insurance contract.

4. Rendering the services.

Q.13 Bills payable honoured during the year, will be debited to.
Ans 1. None of these.
2. Creditors account

3. Bills payable account.

4. Cash account
Q.14 Which of the following is not an essential feature of a partnership firm?
Ans 1. Mutual agency.
2. Existence of business.

3. Association of two or more people.

4. Compulsory registration

Q.15 Sacrificing ratio is.

Ans 1. New Profit sharing ratio - old profit sharing ratio.

2. Equal to old profit sharing ratio

3. Equal

4. Old profit sharing ratio - new profit sharing ratio.

Q.16 Which of the following statements is not correct?

Ans 1. Bad debts can be less than the amount of provision for doubtful debts.

2. Bad debts can be more than the amount of provision for doubtful debts.

3. Provision for doubtful debts account is the amount payable to debtors.

4. Provision for doubtful debts is shown in the balance sheet.

Q.17 Errors are:

Ans 1. Frauds

2. Undetected mistake.

3. Intentional mistake.

4. Unintentional mistake.

Q.18 Choose the correct statement.

Ans 1. Financial statements need not take into consideration any statutoryrequirement.
2. Only credit transactions are recorded in books of accounts.

3. Financial statements prepared by two different accountants will always show identical results.
4. Financial accounts, of an enterprise, are treated as evidence in the Court of Law.

Q.19 Which of the following are not the advantages of pre packaged accounting software?
Ans 1. Report generated.
2. Simple backup procedure.

3. Easy to use.

4. Easy to install.

Q.20 Which of these is/are one of the methods of stock taking?

Ans 1. Periodic inventory
2. Perpetual inventory.

3. Both.

4. None
 Section : B SAQ
20X1= 20 Marks

Q.1 State when the title of goods are transferred to the hirer.

Answer : Title of goods are transferred only when the agreed sum (Higher purchase price) is paid by the hirer)

Q.2 What is a depreciable cost?

Answer : Depreciable cost= cost of asset- Scrap value.

Q.3 „T‟ Form presentation of financial statements is known as “Horizontal” form

or „Vertical‟ form.

Answer : Horizontal form.

Q.4 Name the side on which increase in capital is recorded.

Answer : Credit side

Q.5 Under which accounting concept provision is made for doubtful debts.

Answer : Prudent concept.

Q.6 Define ground rent.

Answer : Fixed rent payable in addition to minimum rent.

Q.7 In the single entry system, which two methods are used to ascertain profit
or loss?

Answer : I) Statement of affairs method.

II) Conversion method.

Q.8 Why is the capital of the owner shown on the liability side of the balance sheet?

Answer : Due to separate entity concept.

Q.9 Define branch as per section 2(14) of the Companies Act 2013.

Answer : Any establishment described as a branch by the company.

Q.10 X and Y were Partners sharing profit/losses as 3:2. They admit Z as a new
partner, giving him 1/5th share of future profits. What should be the new
profit sharing ratio?

Answer : 12:8:5
Q.11 Decline in the value of coal mines due to extraction is termed as .

Answer : Depletion

Q.12 X draws a bill on Y. Y accepts the same. Can Y endorse the bill to Z?

Answer : No, Y cannot endorse the bill to Z because Y is drawee only. X, the drawer can do so.

Q.13 What is a biological asset as per (AS-10)

Answer : Biological assets is a living animal or plant.

Q.14 What type of account is a revaluation account?

Answer : Nominal account.

Q.15 What is the traditional function of accounting?

Answer : Recording of financial transactions.

Q.16 Under loss of profit insurance, what is meant by gross profit?

Answer : Gross profit means net profit plus insured standing charges.

Q.17 Should a transaction be first recorded in a journal or Ledger. Why?

Answer : Transactions are first recorded in a journal because it is a book of original entry.

Q.18 On which basis of accounting outstanding expenses are not recorded?

Answer : Cash basis of accounting.

Q.19 Name the error committed by violating the rules of accounting.

Answer : Error of principle.

Q.20 Define merchandise.

Answer : Merchandise means goods for resale.

 Section : C
(12X4= 48 Marks)
One LAQ

Q.1 Which transactions will: (4 Marks)

i) Decrease the assets and decrease the capital.
ii) Increase the assets and increase the liabilities.
iii)Increase the assets and decrease another asset.
iv) Decrease the assets and decrease the liabilities.
Answer :
I) Drawing or expenses.
II) Purchase of an asset on credit.
III) Purchase or sale of an asset in cash.
IV) Payment of liability.

Q.2 When you proceed to reconcile the bank account starting with „credit‟ cash book Balance, how is the following
dealt with and why?
i) Cheque issued but not presented for payment. (4 Marks)
ii) Cheque deposited but not yet credited.
iii) Bank charges charged by the bank not recorded in the cash book.
iv) Interest allowed by the bank is not recorded in the cash book
Answer :
I) Cheques issued but not yet presented for payment are deducted because the bank shows lower
overdrawn balance.
II) Cheques deposited but not cleared are added because the bank shows a higher overdrawn balance.
III) Bank charges are added because the bank shows a higher overdrawn balance.
IV) Interest allowed is deducted because the bank shows lower overdrawn blance.

Q.3 What journal entry will be passed in the books of a drawer and drawee at the time of dishonour of Bill of
exchange in the following cases?
i) If Bill of Rupees 10,000 was discounted from the bank and the noting (4 Marks)
charges paid
by the bank was rupees 100.
ii) If B/R of Rupees 10,000 was endorsed in favour of C.Noting charges paid by
C Rupees 100.
iii) If B/R is retained with a drawer and noting charges was Rupees 100
Answer :
In the books drawer.
Date Particulars DR CR
Rs. Rs.
i) Drawee A/c DR 10100
To bank A/c 10100
(Bill dishonoured and noting charges paid by bank)
ii) Drawee A/c DR 10100
To C A/c 10100
(Bill dishonoured and noting charges paid by C)
iii) Drawee A/c DR 10100
To B/R A/c 10000
To cash A/c 100
(Bill dishonoured and noting charges paid)

In the books of drawee

In case of (i), (ii) and (iii)
B/P A/c DR 10000
Noting charges A/c DR 100
To drawer 10100
(Bill dishonoured and noting charges payable)
 Two LAQ

Q.1
(4 Marks)

Answer: Gross Profit = Rs. 25,000

Cost of Goods sold = Rs. 75,000
Closing Stock = Rs. 15,000

Q.2 From the following particulars calculate operating profit.

Net profit. Rs.1,00,000 (2 Marks)
Rent received. Rs.10,000
Gain on the sale of machines. Rs.15,000
Interest on loan paid. Rs.18,000 Donation
paid. Rs.4000

Answer:
Operating Profit = Rs. 97,000

Q.3 The partners of a firm distributed the profits for the year ended 31/3/2021.Rs.90,000 in the ratio (6 Marks)
of 3:2:1 without providing for the following adjustments.
i) A and B were entitled to a salary of Rs.1500 each per annum.
ii) B was entitled to a Commission of Rs.4500.
iii)B&C had guaranteed a minimum profit of rupees 35,000 P.a to A.
iv)Profits were to be shared in the ratio of 3:3:2
Pass the necessary journal entries for the above adjustments in the Books of the Firm.

Answer

Journal Entry

Dr Cr
A’s Capital a/c Dr Rs.8,500
To B’s Capital a/c Rs. 4,500
To C’s Capital a/c Rs. 4,000
(being adjustments made for omissions)
 Three LAQ

Q.1 A acquired on 1st January 2020 a machine under hire purchase agreement,
which provides for 5 half yearly instalments of rupees 6000 each. The first (6 Marks)
instalment is due
on 1st July 2020.Assuming that the applicable rate of interest is 10% per
annum,Calculate the cash price of the machine.All working should form part of
the answer.

Answer:
Cash Purchase price of Machine – Rs. 25,977

Q.2
(6 Marks)

Answer:
Gross Profit – Rs. 2,77,500
Closing Stock – Rs. 2,80,000
Stock destroyed by Fire - Rs. 2,80,000
Statement of claim
Stock - Rs. 2,60,000
Building - Rs. 2,36,625
Equipments - Rs. 44,375 = Rs. 5,41,000
 Four LAQ

Q.1 Ruma Ltd purchased a plant on 1st April 2015 for rupees 240,000.It bought another plant on 1st July 2016
for rupees 160,000. On 1st January 2018 Plant bought on 1st April 2015 was sold for Rupees 160,000 and
a fresh plant was purchased on the same date. Payment of this plant will be made as under.
1st January 2018 rupees 40,000. (6 Marks)
1st January 2019 rupees 48,000.
1st January 2020 rupees 44,000.
Payments made in 2019 and 2020 include interest of rupees 8000 and Rupees
4000, respectively. Depreciation is charged at 10% P.a on the diminishing
balance method.
From the above particulars, Find out.
i) Cost of plant bought on January 1st, 2018.
ii) Loss on sale of plants.
iii) Closing balance of plant 2 and plant 3 as on 31-3-2018
Answer:

(i) Cost of Plant- Rs. 1,20,000

(ii) Loss on sale of Plant- Rs. 19,820
(iii) Closing balance of Plant:
Plant 2- Rs. 1,33,200
Plant 3- Rs. 1,17,000

Q.2
(6 Marks)

Answer:
Calculation of Departmental Result Deptt. A B C
Gross Profit Rs. 32,500 39,400 24,600
Value of Stock (31/12/2020) Rs. 2,500 600 400
 Five LAQ

Q.1 Why is goodwill considered an „Intangible asset‟ but not a „fictitious asset‟ ?
(2 Marks)
Answer:

Goodwill cannot be seen or touched. It can only be felt. Hence it is treated an intangible asset.
But it is not a fictitious asset because fictitious do not have a value. Whereas Goodwill has value

and it can be purchased or sold with any other asset.

Q.2 X&Y are partners. They decided to dissolve their firm. Pass necessary entries assuming that various
assets and external liabilities have been transferred to the Realisation account.
i) X‟s loan(partner) was appearing on the liability side of the balance sheet at (5 Marks)
rupees 30,000.He accepted an unrecorded asset of rupees 50,000 in full
settlement of his account.
ii) Runa, a creditor, to whom rupees 30,000 were due to be paid, accepted an
unrecorded computer of rupees 20,000 at a discount of 10%, and the balance
was paid to him in cash.
iii) Suman, an unrecorded creditor of rupees 45,000, accepted an unrecorded
motor car of rupees 30,000 at 35,000, and the balance was paid to him in cash.
iv) There was a contingent liability in respect of bills discounted but not
matured rupees 30,000.
v) Furniture of rupees 15,000 and goodwill of rupees 20,000 were appearing in
the balance sheet but no other information was provided regarding these two
items.

Answer:
i) Debit X's loan account and credit realisation account by rupees 30,000
ii) Debit realisation account and credit bank account by rupees 12,000
iii) Debit realisation account and credit bank account by rupees 10, 000
iv) No entry.
v) No entry.
Q.3 State your views in line with provision of AS-1 and give reasons for your answer
(5 Marks)
in respect of the following:
i) Certain fundamental accounting assumptions underline the preparation and
presentation of financial statements. They are usually specifically stated
because their acceptance and use are not assumed.
ii) If fundamental accounting assumptions are not followed in presentation
and preparation of financial statements, a specific disclosure is not required.
iii) All significant accounting policies adopted in the preparation and
presentation of
financial statements should form part of the financial statements.
iv) Any change in accounting policy which has a material effect should be
disclosed. Where the amount by which any item in the financial statements
is affected
by such change is not ascertainable, wholly or in part, the fact need not to
be indicated.
v) There is no single list of accounting policies which are applicable to
all circumstances.

Answer:

i) False, As per AS1 “disclosure of accounting policies”, Certain fundamental accounting

assumptions underlie the preparation and presentation of financial statements. They are usually
not specifically stated because their acceptance and use are assumed Disclosure is necessary
if they are not followed.
ii) False, As per AS1 if the fundamental accounting assumptions, VIZ going concern, consistency
and accrual are followed in financial statements, specific disclosure is not required. If a
fundamental accounting assumption is not followed, the fact should be disclosed.
iii) True, to ensure proper understanding of financial statements, it is necessary that all significant
accounting policies adopted in the preparation and presentation of financial statements should
be disclosed. The disclosure of the significant accounting policies as such should form part of a
financial statement and they should be disclosed at one place.
iv) False, Any change in the accounting policies which has a material effect in the current period or
which is reasonably expected to have a material effect in later periods should be disclosed.
Where such amount is not ascertainable, wholly or in part, the fact should be indicated.
v) True, As per AS1,There is no single list of accounting policies which are applicable to all
circumstances. The differing circumstances in which enterprises operate in a situation of
diverse and complex economic activity make alternative accounting principles and methods of
applying those principles acceptable.
 Six LAQ
(4X3=12 Marks)

Q.1 Write short notes on Source documents

(3 Marks)

Answer:

Source documents:
Vouchers are the documentary evidence of the transactions so happened. Source
documents at the basis on which transactions are recorded in subsidiary books, i.e
source documents are the evidence and proof of transactions.

Q.2 Write short notes on Error of principle. (3 Marks)

Answer:

Error of principle: Entering revenue expenses as capital expense or vice versa or

entering revenue receipt as capital receipt or vice versa.

Q.3 Write short notes on Overriding Commission. (3 Marks)

Answer:

Overriding Commission: it is an extra commission allowed over and above, the normal
Commission is generally offered for the following reasons:
i) When, the agent is required to put in hard work in introducing a new
product in the market.
ii) Where he is entrusted with the work of supervising the performance of
other agents in a particular area.
iii) For effecting sales at prices higher than the price fixed by the consignor.

Q.4 Write short notes on Transfer entries in the context of self balancing Ledger. (3 Marks)

Answer:

Transfer entries: Sometimes a person may be treated both as debtor as well as a

creditor to the firm. Under the circumstances, the lower of the amount payable to
and receivable from such person is to be set off. The so called set off amount is to
be deducted both from the debtors as well as from the creditors. This is known as
transfer entry.

Q.5 Write short notes on Components of computer systems.

(3 Marks)

Answer:
Components of computer system: A computer system is made up of a number of electronic
components. These components are known as hardware. The names of the components are as follows:
i) Keyboard.
ii) Monitor.
iii) CPU.
iv) Magnetic recorder
Keyboard and monitor put together are known as terminals.
 Section D - Case Study Question

Q.1 1+2+2+1+4+1+1=12 Marks

i) Amount of credit sales.

ii) Amount of credit purchase.
iii) Amount of closing balance of creditors as on 31-3-19
iv) Amount of gross profit for the year ended 31-3-19
v) Amount of Sundry expenses to be charged to the profit and loss account for the year ended 31-3-19.
vi) Amount of net profit for the year ended 31-3-19.
vii) Amount of closing capital as on 31-03-19.
Answer:

i) Credit Sale - Rs. 28,60,000

ii) Credit Purchase - Rs. 1,25,97,000

iii) Closing balance of Creditors - Rs. 8,29,000

iv) Gross Profit - Rs. 13,93,000

v) Sundry Expenses - Rs. 9,18,750

vi) Net Profit - Rs. 4,40,250

vii) Closing Capital (31-3-19) - Rs. 755,250