PAPER – 1:

ACCOUNTING

QUESTIONS

True and False

1. State with reasons, whether the following statements are true or false:
(a) Accounting Standards for non-corporate entities in India are
issued by the Central Government.
(b) Cash book is a subsidiary book as well as a principal book.
(c) Debit balance as Cash Book is same as overdraft as per passbook.
(d) Warehouse rent paid for storage of finished inventory should be
included in the cost of finished inventory.
(e) Reducing balance method of depreciation is followed to have a
uniform charge for depreciation and repairs and maintenance
together.
(f) A Promissory note can be made payable to bearer.
(g) Provision for Bad Debts is debited to Sundry Debtors A/c
(h) Goodwill is intangible asset therefore it cannot be valued.
(i) Outstanding salaries for the previous year shall be shown as
liability in the current year balance sheet.
(j) A person holding preference shares of a company cannot hold
equity shares of the same company.
(k) A Company is not allowed to issue shares at a discount to the
public in general.
REVISION TEST PAPER
FOUNDATION COURSE

Theoretical Framework
2. (a) Under what circumstances can an enterprise change its accounting
policy?
(b) Explain Cash and Mercantile system of accounting.
Journal Entries
3. (a) Prepare Journal Entries for the following transactions in the books
of Harpreet
(i) Customer’s cheque for ` 4,000 returned dishonoured for
insufficient funds in his accounts. The customer had availed a
cash discount of ` 400.
(ii) Income tax liability of proprietor ` 8,500 was paid out of
petty cash.
(iii) Defective goods worth ` 5,000 are sold for 3,000.
(iv) Purchase of goods from Sunny of the list price of ` 20,000.
He allowed 5% trade discount, ` 200 cash discount was also
allowed for quick payment.
(v) Purchased goods from Sarah industries for ` 50,000 plus
CGST and SGST@6% each.
(vi) Goods given as charity costing ` 1,600, sale price ` 2,000.
CGST and SGST @ 6% each was paid at the time of purchase
of such goods
Capital or Revenue Receipt or Expenditure
(b) Classify the following transactions either as capital or revenue
expenditures or as capital or revenue receipts;
(i) Dividend received from XYZ limited during the year.
(ii) Amount spent for replacement of a petrol driven engine by
CNG kits.
(iii) Expenses incurred on the repairs and white washing for the
first time on purchase of an old factory.
(iv) Overhauling expenses of second-hand machine purchased.

2 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

(v) Insurance claim received on account of inventory damaged

by fire.
(vi) Entrance fees of `35,000 received by society club.
Trial Balance
4. (a) From the following information, draw up a Trial Balance in the
books of Shri Mohan Das as on 31st March,2024:

Particulars Amount Particulars Amount

(`) (`)
Capital 9,80,000 Purchases 2,52,000
Discount Allowed 8,400 Carriage Inward 60,900
Carriage Outwards 16,100 Sales 4,20,000
Return Inward 2,100 Return Outwards 4,900
Rent and Taxes 8,400 Plant and 5,64,900
Machinery
Stock on 1st April 2023 1,08,500 Sundry Debtors 1,41,400
Sundry Creditors 84,000 Investments 25,200
Commission Received 12,600 Cash in Hand 700
Cash at bank 70,700 Motor Cycle 2,42,200
Stock on 31st March, 1,43,500
2024

Rectification of Errors
(b) Mr. Mathur's trial balance as on 31st March, 2024 did not agree.
The difference was put to a Suspense Account. During the next
trading period, the following errors were discovered:
(i) The total of the Purchases Book of one page, ` 7,165 was
carried forward to the next page as ` 7,615.
(ii) A sale of ` 281 was entered in the Sales Book as ` 821 and
posted to the credit of the customer.

3 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

(iii) A return to creditor, ` 1,595 was entered in the Returns

Inward Book; however, the creditor's account was correctly
posted.
(iv) A cheque of ` 500 issued to a suppliers A/c (shown under
trade payables) towards his dues has been wrongly debited
to purchases.
(v) Goods worth ` 1,400 were dispatched to a customer before
the close of the year but no invoice was made out.
(vi) Goods worth ` 1,600 were sent on sale or return basis to a
customer and entered in the Sales Book at the close of the
year, the customer still had the option to return the goods.
The gross profit margin was 20% on sale.
(viii) Sale of goods to Mr. R for ` 3,000 was omitted to be
recorded.
You are required to give journal entries to rectify the errors in a
way so as to show the current year's profit or loss correctly.
Bank Reconciliation Statement
5. From the following information (as on 31.3.2024), prepare a bank
reconciliation statement after making necessary adjustments in the cash
book:

Particulars
Bank balances as per the cash book (Dr.) 16,25,000
Cheques deposited, but not yet credited 22,37,500
Cheques issued but not yet presented for payment 17,81,000
Bank charges debited by bank but not recorded in the
6,250
cash-book
Dividend directly collected by the bank 62,500
Insurance premium paid by bank as per standing
7,950
instruction not intimated
Cash sales wrongly recorded in the Bank column of the
1,27,500
cash-book

4 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Customer’s cheque dishonoured by bank not recorded

65,000
in the cash-book
Wrong credit given by the bank 75,000

Also show the bank balance that will appear in the trial balance as on
31.3.2024.
Valuation of Inventories
6. Closing stock is valued by Zebra Stores on generally accepted
accounting principles. Stock taking for the year ended 31st March, 2024
was completed by 10th April, 2024, the valuation of which showed a
stock figure of ` 5,02,500 at cost as on the completion date. After the
end of the accounting year and till the date of completion of stock
taking, sales for the next year were made for ` 20,625, profit margin
being 33.33 percent on cost. Purchases for the next year included in the
stock amounted to ` 27,000 at cost less trade discount 10 percent.
During this period, goods were added to stock of the mark up price of
` 900 in respect of sales returns. After stock taking it was found that
there were certain very old slow moving items costing ` 3,375 which
should be taken at ` 1,575 to ensure disposal to an interested customer.
Due to heavy floods, certain goods costing ` 4,650 were received from
the supplier beyond the delivery date of customer. As a result, the
customer refused to take delivery and net realizable value of the goods
was estimated to be ` 3,750 on 31st March, 2024.
You are required to calculate the value of stock for inclusion in the final
accounts for the year ended 31st March, 2024.
Depreciation and Amortisation
7. The Machinery Account of a Factory showed a balance of ` 95 Lakhs on
1st April,2023. The Books of Accounts of the Factory are closed on 31st
March every year and depreciation @ 10% per annum is charged under
the Diminishing Balance Method. On 1st September,2023 a new machine
was acquired at a cost of ` 14 Lakhs and ` 44,600 was incurred on the
same day as installation charges for erecting the machine. On
1st September,2023 a machine which had cost ` 21,87,000 on
1st April,2021 was sold for ` 3,75,000. Another machine which had cost

5 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

` 21,85,000 on 1st April,2022 was scrapped on 1st September,2023 and it

realized nothing.
Prepare Machinery Account for the year ended 31st March,2024. Allow
the same rate of depreciation as in the past and calculate depreciation
to the nearest multiple of a rupee. Also show all the necessary working
notes.
Bills of Exchange
8. On October, 2024, Samar sells goods to Amar for ` 25,000 plus IGST @
18% and draws two bills of exchange on him; the first bill fort ` 15,000
for 2 months and second bill for the balance for 3 months. Amar
accepts and returns these bills to Samar. Both the bills are sent to the
bank for collection on 1st October, 2024. In due course, Samar receives
the information from the bank on the due date of the respective bill that
the bill for ` 15,000 has been duly met and the other bill has been
dishonored. Noting charges paid on the dishonor of second bill are
` 500. Pass the journal entries in the books of Samar along with
narration.
Final accounts
9. Charu decided to start business of fashion garments under the name of
M/s. Bella Wear on 1st April, 2023. She had a saving of about ` 10,00,000.
She invested ` 3,00,000 out of her savings and borrowed equal amount
from bank. She purchased a commercial space for ` 5,00,000 and further
spent ` 1,00,000 on its renovation to make it ready for business.
Loan and interest repaid by her in the first year are as follows:
30th June, 2023 - ` 15,000 principal+ ` 9,000 interest
30th September, 2023 - ` 15,000 principal+ ` 8,550 interest
31st December, 2023 - ` 15,000 principal+ ` 8,100 interest
31st March, 2024 - ` 15,000 principal+ ` 7,650 interest.
In view of further capital requirement, she transferred ` 2,00,000 from
her saving bank account to the bank account of the business. She paid
security deposit of ` 7,000 for telephone connection. Furniture of

6 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

` 10,000 was purchased, All payments were made by cheque and all
receipts in cash were deposited in the bank.
At the end of the year, her business showed the following results:

Particulars Amount Particulars Amount

Total Sales 20,00,000 Total Purchases 17,00,000
Electricity Expenses 40,000 Telephone Charges 50,000
paid
Cartage Outwards 60,000 Travelling Expenses 45,000
Entertainment 5,000 Maintenance 25,000
Expenses Expenses
Misc. Expenses 15,000 Electricity Expenses 20,000
Payable

Other Information:
(i) She withdrew ` 5,000 by cheque each month for her personal
expenses.
(ii) Depreciation on building @ 5% p.a. and oil furniture @ 10% p.a.
(iii) Closing stock in hand as on 31st March, 2024: ` 5,50,000
Prepare trading account, profit and loss account for the year ended 31st
March, 2024 and Balance Sheet as on that date.
Financial Statements of Not for Profit Organizations
10. From the following Receipts and Payments Account of Finance
Professionals Club.
Receipts and Payments Account
for the year ended 31st March, 2024
Receipts ` Payments `
To Cash in Hand (Opening) 67,500 By Salaries 7,42,500
To cash at Bank (Opening) 18,90,000 By Stationery 1,34,550
To Subscriptions 22,86,000 By Billard Table 8,70,750

7 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

To Donations 10,80,000 By Investments 9,29,700

To Interest on Investments By Miscellaneous
27,000
Expenses 1,12,500
To Entrance Fees 2,70,000 By Furniture 18,45,000
To Interest Received from By Insurance Premium
94,500
Bank 40,500
To Sale of Old Newspapers By Cash in Hand
13,500
(Closing) 49,500
By Cash at Bank
(Closing) 10,03,500
57,28,500 57,28,500

(i) Subscriptions in arrears for the year ended 31st March, 2024-
`2,02,500 and Subscriptions received in advance during the year
ended 31st March,2024 - `58,500.
(ii) Insurance Premium prepaid is ` 4,500.
(iii) The detail with respect to Stationery of Accountants Club is as
follows:

1st April,2023 31st

(`) March,2024
(`)
Stock of Stationery 7,500 45,000
Creditors for Stationery 39,000 60,000
Advance paid for Stationery
--- 10,500
purchased during the year

Prepare the Income and Expenditure Account for the year ended 31st
March, 2024. As per the club rules, donations are to be capitalized and
entrance fees is the income of club.
Accounts from Incomplete records
11. Saraswati Enterprises maintain their books of accounts under single
entry system. The Balance Sheet as on 31st March, 2024 was as follows:

8 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Liabilities ` Assets `
Capital A/c 67,500 Furniture & fixtures 15,000
Trade creditors 75,750 Stock 91,500
Outstanding 6,750 Trade debtors 31,200
expenses
Prepaid insurance 300
Cash in hand & at bank 12,000
1,50,000 1,50,000

The following was the summary of cash and bank book for the year
ended 31st March, 2025:

Receipts ` Payments `
To Cash in hand & 12,000 By payment to trade 12,48,300
at Bank on 1st April, creditors
2024
To Cash sales 11,07,000 By Sundry expenses 93,105
To amount paid to 2,77,500 By Drawings 36,000
debtors
By Cash in hand & at 19,095
Bank on 31st March,
2025
13,96,500 13,96,500

Additional Information:
1. Discount allowed to trade debtors and received from trade
creditors amounted to `5,400 and `4,250 respectively, (for the year
ended 31st March, 2025)
2. Annual fire insurance premium of `900 was paid every year on
1st August for the renewal of the policy. These expenses are
included in sundry expenses.
3. Furniture & fixtures were subject to depreciation @ 15% p.a. or
diminishing balance method.

9 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

4. The following are the balances as on 31st March, 2025:

Stock `97,500
Trade debtors `34,300
Outstanding expenses `5,520
5. Gross profit ratio of 10% on sales in maintained throughout the
year.
You are required to prepare Trading and Profit & Loss account for
the year ended 31st March, 2025, and Balance Sheet as on that
date.
Partnership Accounts
12. Seema, Yedhant and Zoya are in partnership, sharing profits and losses
equally. Zoya died on 30th June 2024. The Balance Sheet of Firm as at
31st March 2024 stood as
Liabilities Amount Assets Amount
Creditors 20,000 Land and Building 1,50,000
General 12,000 Investments 65,000
Reserve
Capital Stock in trade 15,000
Accounts:
Seema 1,00,000 Trade receivables 35,000
Yedhant 75,000 Less: Provision for doubtful debt (2,000) 33,000
Zoya 75,000 Cash in hand 7,000
Cash at bank 12,000
2,82,000 2,82,000

In order to arrive at the balance due to Zoya, it was mutually agreed

that:
(i) Land and Building be valued at ` 1,75,000
(ii) Debtors were all good, no provision is required
(iii) Stock is valued at ` 13,500

10 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

(iv) Goodwill will be valued at one Year's purchase of the average

profit of the past five years. Zoya's share of goodwill be adjusted
in the account of Seema and Yedhant.
(v) Zoya's share of profit from 1st April 2024, to the date of death be
calculated on the basis of average profit of preceding three years.
(vi) The profit of the preceding five years ended 1st March were:
2024 2023 2022 2021 2020
25,000 20,000 22,500 35,000 28,750
You are required to prepare:
(1) Revaluation account
(2) Capital accounts of the partners and
(3) Balance sheet of the Firm as at 1st July 2024.
13. Agarwal, Samuel and Khan are partners in a firm. On 1st April 2022 their
fixed capital stood at ` 2,50,000, ` 1,25,000 and ` 1,25,000 respectively.
As per the provision of partnership deed:
(1) Khan was entitled for a salary of 25,000 p.a.
(2) All the partners were entitled to interest on capital at 5% p.a.
(3) Profits and losses were to be shared in the ratio of Capitals of the
partners.
Net Profit for the year ended 31st March, 2023 of ` 1,65,000 and
31st March,2024 of ` 2,25,000 was divided equally without providing for
the above adjustments.
You are required to pass an adjustment journal entry to rectify the
above errors.
Dissolution of Partnership
14. Aman, Yaman and Zaman who were sharing profits in the ratio of 3: 2:1
decided to dissolve the firm on 31st March,2024 when their Balance Shet
was as follows:

11 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

Liabilities ` Assets `
Capital A/cs: Building 1,50,000
Aman 1,80,000 Machinery 90,000
Yaman 1,35,000 Tools 12,000
Zaman 90,000 Car
4,05,000 18,000

Creditors 51,000 Debtors 93,000

Stock 55,500
Bank 37,500
4,56,000 4,56,000

Following transactions took place at the time of dissolution:

Assets realized are : `

Tools 7,500
Machinery 1,23,000
Building 1,26,000
Car 37,500
Goodwill 90,000
Debtors 88,500
(a) Creditors accepted stock in settlement of their dues.
(b) There was an unrecorded asset valued at ` 4,500 which was taken
by Aman for `3,000.
(c) There was an old furniture which had been written off from the
books. Yaman agreed to take it at ` 12,000.
(d) Firm had to pay ` 12,000 for outstanding salary which not
provided earlier.
Prepare Realisation Account, Partners’ Capital Accounts and Bank
Account.

12 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Issue and Forfeiture of Shares

15. Ambiance Limited invited applications for issuing 2,25,000 equity shares
of ` 10 each at a premium of ` 5 per share. The total amount was
payable as follows:
- ` 9 per share (including premium) on application and allotment
- Balance on the First and Final Call
Applications for 9,00,000 equity shares were received. Applications for
6,00,000 equity shares were rejected and money refunded. Shares were
allotted on pro-rata basis to the remaining applicants. The first and final
call was made. The amount was duly received except on 4,500 shares
applied by Mr. Kabir. His shares were forfeited. The forfeited shares were
re-issued at a discount of ` 4/- per share.
Pass necessary journal entries· for the above transactions in the books of
Ambiance Limited.
Debentures
16. Strawberry farms Ltd. issued 20,000 11% debentures of ` 100 each at a
discount of 5%, payable ` 50 on application and ` 45 on allotment
redeemable after 3 years.
(i) at a premium of 2%
(ii) at a discount of 2%
Pass necessary journal entries for issue of debentures.
Redemption of Preference Shares
17. The extract of Balance Sheet of Hari Om Ltd. as on 31st March 2024 is as
follows

Sr. Particulars Notes ` `

No.
I] EQUITY AND LIABILITIES
(1) Shareholders' funds
a) Share Capital 1 350,000

13 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

b) Reserve & Surplus 2 64,000

II] ASSETS
(1) Non-current assets
a) PPE & Intangible Assets
i) PPE 2,25,000
b) Non-Current Investments 60,000

Notes to accounts:

Sr. Particulars `
No.
1. Share capital
Authorized Share Capital
40,000 Equity shares of ` 10 each fully paid up 4,00,000
1,000 8% Preference shares of ` 100 each fully paid 1,00,000
up
5,00,000
Issued, Subscribed Called Up and Paid up Share
Capital
1000, 8% Preference shares of ` 100 each fully paid 1,00,000
up
25,000 Equity shares of ` 10 each fully paid up 2,50,000
Total 3,50,000
2. Reserve and Surplus
Securities Premium Reserves 9,000
Profit and Loss Account 55,000
Total 64,000

In order to redeem its preference shares, the company issued 5,000

equity shares of `10 each at a premium of 10% and sold its investment
of ` 70,800. Preference shares were redeemed at a premium of 10%.
Show the necessary journal entries in the books of the company.

14 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

18. Write short notes on the following:

(i) Double entry system.
(ii) Importance of bank reconciliation to an industrial unit.
(iii) Bill of exchange and the various parties to it.
(iv) Features of Single Entry System.
(v) Advantages and Disadvantages of Right Issue.

SUGGESTED ANSWERS

1. (a) False: Accounting Standards for non-corporate entities in India are

issued by the Institute of Chartered Accountants of India (ICAI).
(b) True: Cash transactions are straightaway recorded in the Cash
Book and on the basis of such a record, ledger accounts are
prepared. Therefore, the Cash Book is a subsidiary book. But the
Cash Book itself serves as the cash account and the bank account;
the balances are entered in the trial balance directly. The Cash
Book therefore, is part of the ledger also. Hence, it has also to be
treated as a principal book. The Cash Book is thus both a
subsidiary book and a principal book.
(c) False: Debit balance as per cash book should be represented by
credit or favourable balance in passbook.
(d) False: Warehousing costs related to finished goods are expensed
when incurred and are not included in inventory costs unless
storage is incurred for getting the inventory ready for sale i.e. until
and unless storage is required as a part of process of production
of inventory like in case of wine.
(e) True: In the early periods of useful life of a fixed assets, repairs
and maintenance expenses are relatively low because the asset is
new. Whereas in later periods, as the asset become old, repairs
and maintenance expenses increase continuously. Under written

15 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

down value method, depreciation charged is high in the initial

period and reduces continuously in the later periods. Thus,
depreciation and repair and maintenance expenses become more
or less uniform throughout the useful life of the asset.
(f) False: A promissory note cannot be made payable to bearer. It is
payable to or to do the order of certain person.
(g) False: Provision for Bad debts is debited to P&LA/c. In Balance
Sheet it is shown as deduction from “Debtors”.
(h) False: Even though Goodwill is intangible asset it can be valued in
terms of money. It can be measured in terms of physical units.
(i) False: It shall be disclosed as a current liability in the opening
balance sheet.
(j) False: Preference share holder can hold both Equity shares and
Preference shares of the company. Any person can hold both kinds
of shares.
(k) True: According to Section 53 of the Companies Act, 2013, a
Company cannot issue shares at a discount except in the case of
issue of sweat equity shares (issued to employees and directors).
2. (a) A change in accounting policy is made only if the adoption of a
different accounting policy is required by statute or for compliance
with an accounting standard or if it is considered that the change
would result in a more appropriate preparation or presentation of
the financial statements of the enterprise. A more appropriate
presentation of events or transactions in the financial statements
occurs when the new accounting policy results in more relevant or
reliable information about the financial position, performance or
cash flows of the enterprise.
(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 when
cash is received or paid, no entry being made when a payment or
receipt is merely due. Cash system is normally followed by

16 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

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

Particulars Dr. Cr.

Amount Amount
(`) (`)
(i) Customers (Debtors) A/c Dr. 4,400
To Bank A/c 4,000
To Discount Allowed A/c 400
(Being customer cheque returned
unpaid by bank, cash discount allowed
earlier)
(ii) Drawings A/c Dr. 8,500
To Petty Cash A/c 8,500
(Being the income tax of proprietor
paid out of business money)
(iii) Cash A/c Dr. 3,000
Profit and Loss A/c 2,000
To Sales A/c 5,000
(Being defective goods costing ` 5,000
were sold for a loss of ` 2,000)

17 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

(iv) Purchase A/c Dr. 19,000

To Bank A/c 18,800
To Discount Received A/c 200
(Being the goods purchased from
Sunny for ` 19,000 @ 5% trade
discount and cash discount of ` 200)
(v) Purchases A/c Dr. 50,000
Input CGST A/c Dr. 9,000
Input SGST A/c Dr. 9,000
To Sarah Industries 68,000
(Being goods purchased and CGST and
SGST payable at 6% each)
(vi) Charity A/c Dr. 1,792
To Purchases A/c 1,600
To Input CGST A/c 96
To Input SGST A/c 96
(Being goods given as charity, input
CGST and input SGST debited at the
time of purchases reversed)

(b) 1. Revenue Receipts

2. Capital Expenditure
3. Capital Expenditure
4. Capital Expenditure
5. Revenue Receipts
6. Capital Receipts.
4. (a) Trial Balance of Shri. Mohan Das as on 31st March, 2024

Particulars Dr. Cr.

Amount ` Amount `
Capital 9,80,000

18 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Purchases 2,52,000
Discount Allowed 8,400
Carriage Inward 60,900
Carriage Outwards 16,100
Sales 4,20,000
Return Inward 2,100
Return Outwards 4,900
Rent and taxes 8,400
Plant and Machinery 5,64,900
Stock on 1 April,2023
st
1,08,500
Sundry Debtors 1,41,400
Sundry Creditors 84,000
Investments 25,200
Commission Received 12,600
Cash in Hand 700
Cash at Bank 70,700
Motor Cycle 2,42,200
15,01,500 15,01,500

Note: Stock as on 31st March,2024 will not appear in trail balance.

(b) Journal Entries in the books of Mr. Mathur

Particulars L.F. Dr. Cr.

` `
(i) Suspense A/c Dr. 450
To Profit and Loss 450
Adjustment A/c
(Correction of error by which
Purchase
Account was over debited
last year- ` 7,615 carried
forward instead of ` 7,165)

19 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

(ii) Profit & Loss Adjustment A/c Dr. 540

Customer’s A/c Dr. 1,102
To Suspense A/c 1,642
(Correction of the entry by
which (a) Sales A/c was over
credited by ` 540 (b)
customer was credited by
`821 instead of being
debited by `281)
(iii) Suspense A/c Dr. 3,190
To Profit & Loss 3,190
Adjustment A/c
(Correction of error by which
Returns Inward Account was
debited by `1,595 instead of
Returns Outwards Account
being credited by `1,595)
(iv) Trade payables A/c Dr. 500
To Purchases A/c 500
(Being payments made to a
supplier wrongly credited to
purchases now rectified)
(v) Customer’s (debtors) A/c Dr. 1,400
To Profit & Loss 1,400
Adjustment A/c
(Rectification of the error
arising from non-preparation
of invoice for goods
delivered)
(vi) Profit & Loss Adjustment A/c Dr. 1,600
To Customer’s A/c 1,600
(The Customer’s A/c credited
with goods not yet
purchased by him)

20 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

(vii) Inventory A/c Dr. 1,280

To Profit & Loss 1280
Adjustment A/c
(Cost of goods debited to
inventory and credited to
Profit & Loss Adjustment
A/c)
(viii) R’s A/c/Trade receivable A/c Dr. 3,000
To Profit & Loss 3,000
Adjustment A/c
(Sales to R omitted, now
rectified)
(ix) Profit & Loss Adjustment A/c Dr. 7,180
To Mathur’s Capital A/c 7,180
(Transfer of the Profit & Loss
Adjustment A/c balance to
the Capital Account)

5. Cash Book as on 31.3.2024

(After making necessary adjustments)

Dr. Cr.
Particulars Amount Particulars Amount
` `
To Balance By Bank charges
16,25,000 6,250
b/d
To Dividend 62,500 By Insurance premium 7,950
By Trade receivables (cheque
65,000
dishonoured)
By Cash A/c (wrongly recorded
1,27,500
cash sales)
By Balance c/d 14,80,800
16,87,500 16,87,500

21 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

Bank Reconciliation Statement as on 31.3.2024

Particulars Details Amount

`
Bank balance as per the cash book 14,80,800
Add: Cheques issued but not yet
17,81,000
presented for payment
Wrong credit given by bank 75,000 18,56,000
33,36,800
Less: Cheques deposited but not yet
(22,37,500)
credited by bank
Balance as per the pass book 10,99,300

The bank balance of ` 14,80,800 will appear in the trial balance as on

31st March, 2024.
Note: Cash sales should have been recorded by passing the following
entry:
Cash A/c Dr 1,27,500
To Sales A/c 1,27,500
But it has been wrongly debited
to Bank A/c, so following rectification entry
has been passed:
Cash A/c Dr. 1,27,500

To Bank A/c 1,27,500

6. Statement showing the valuation of stock
as on 31st March, 2024
Particulars `

Value of Stock as on 10th April, 2024 5,02,500

22 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Add: Cost of sales after 31st March, till stock taking

(` 20,625 – ` 5,156) 15,469

Less: Purchases for the next period (net) (24,300)

Less: Cost of Sales Returns (900-225) (675)
Less: Loss on revaluation of slow moving inventories (1,800)
(3,375-1,575)
Less: Reduction in value on account of default (4,650- (900)
3,750)
Value of Stock on 31st March, 2024 4,90,294

Note: Profit margin of 33.33 percent on cost means 25 percent on sale

price.
7. Plant and Machinery Account for the year ended 31st March,2024
` `
01-04-23 To Balance b/d 95,00,000 01-09-24 By Bank (Sales) 3,75,000
01-09-23 To Bank By Depreciation
(14,00,000 + 14,44,600 (on sold 73,811
44,600) machine)
By Loss on sale 13,22,659
By Loss on
scrapping the 18,84,562
machine
By Depreciation
(on Scrapped 81,938
machinery)
By Depreciation
6,60,471
(Note iii)
31-03-24 By Balance c/d 65,46,159
109,44,600 109,44,600

23 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

Working Note:
(i) Calculation of loss on sale of machine on
01-09-2023
`
Cost on 1-4-2021 21,87,000
Less: Depreciation @ 10% on ` 21,87,000 (2,18,700)
W.D.V. on 31-03-2022 19,68,300
Less: Depreciation @ 10% on ` 19,68,300 (1,96,830)
W.D.V. on 31-03-2023 17,71,470
Less: Depreciation @ 10% on ` 17,71,470 for (73,811)
5 months
16,97,659
Less: Sale proceeds on 01-09-2023 (3,75,000)
Loss 13,22,659
(ii) Calculation of loss on scrapped machine
Cost on 1-4-2022 21,85,000
Less: Depreciation @ 10% on ` 21,85,000 (2,18,500)
W.D.V. on 31-3-2023 19,66,500
Less: Depreciation @ 10% on `19,66,500 for
(81,938)
5 months
Loss 18,84,562

(iii) Depreciation
Balance of machinery account on
95,00,000
1-4-2023
Less: W.D.V of machinery sold 17,71,470
W.D.V. of machinery scrapped 19,66,500 (37,37,970)
Balance of other machinery after sale and
57,62,030
scrap on 1-4-2023
Depreciation @ 10% on ` 57,62,030 for 12
5,76,203
months
Depreciation @ 10% on ` 14,44,600 for 7
84,268
months
6,60,471
Note: The figures are rounded off to nearest rupee.

24 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

8. Journal Entries in the books of Samar

Date Particulars Dr. Cr.

L.F. ` `
2024 29,500
Amar A/c Dr.
Oct.1
To Sales A/c 25,000
To Output IGST A/c 4,500
(Being the inter-state sale of goods to
Amar, charged to IGST @ 18%)
Oct.1 Bills Receivable (No. 1) A/c Dr. 15,000
Bills Receivable (No. 2) A/c Dr. 14,500
To Amar A/c 29,500
(Being the two bills acceptance - one
for `15,000 and the other for `14,500
received)
Oct.1 Bills sent for collection A/c Dr. 29,500
To Bills Receivable (No.1) A/c 15,000
To Bills Receivable (No.2) A/c 14,500
(Being the bills sent to bank for
collection)
Dec.4 Bank A/c Dr. 15,000
To Bills sent for collection A/c 15,000
(Being the amount duly collected by
bank on first bill)
2025
Jan.4 Amar A/c Dr. 15,000
To Bills sent for collection A/c 14,500
To Bank A/c 500
(Being the second bill dishonored and
bank paid `500 as noting charges)

25 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

9. In the books of M/s Bella Designer wear

Trading and Profit & Loss Account (for the year ending 31.3.2024)
` `

To Purchases 17,00,000 By Sales 20,00,000

To Gross profit 8,50,000 By Closing stock 5,50,000
25,50,000 25,50,000
To Interest 33,300 By Gross profit 8,50,000
(9,000+8,550+8,100+7,650)
To Telephone charges 50,000
To Travelling expenses 45,000
To Maintenance expenses 25,000
To Entertainment expenses 5,000
To Electricity exp 40,000
Add: outstanding 20,000 60,000
To Carriage outward 60,000
To Depreciation
Building 5% 30,000
Furniture 10% 1,000 31,000
To Misc. exp 15,000
To Net profit 5,25,700
8,50,000 8,50,000

Balance Sheet as on 31st March, 2024

LIABILITIES ` ` ASSETS ` `

Capital 3,00,000 Building 6,00,00

0
Further Capital 2,00,000 Less: dep 30,000 5,70,000
Less: Drawings (60,000) Furniture 10,000
Add: Net profit 5,25,700 9,65,700 Less: dep 1,000 9,000

26 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Bank Loan 3,00,000 Security 7,000

deposit-
Telephone
Less: repayment 60,000 2,40,000 Bank 89,700
outstanding 20,000 Closing 5,50,000
electricity exp stock
12,25,700 12,25,700

Working note:
Bank Account
PARTICULARS ` PARTICULARS `
To Capital 3,00,000 By Building 6,00,000
To Further capital 2,00,000 By Furniture 10,000
To Bank loan 3,00,000 By Bank loan repaid 60,000
To Sales 20,00,000 By Interest 33,300
By Security deposit 7,000
By Drawings 60,000
By Purchase 17,00,000
By Telephone charges 50,000
By Travelling expenses 45,000
By Maintenance expenses 25,000
By Entertainment 5,000
expenses
By Electricity expenses 40,000
paid
By Carriage outward 60,000
By Misc. expenses 15,000
By Balance c/d 89,700
28,00,000 28,00,000

27 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

10. Finance Professionals Club

Income and Expenditure Account
for the year ended 31st March, 2024
Expenditure ` Income `
To Salaries 7,42,500 By Subscriptions 22,86,000
To Stationery (WN. 2) 1,07,550 Add: Arrears 2,02,500
To Miscellaneous Expenses 1,12,500 24,88,500
To Insurance Premium Less: Advance (58,500)
40,500 - 24,30,000
Less: Prepaid (4,500) 36,000 By Entrance Fees 2,70,000
To Surplus - Excess of By Interest on Investments
Income over Expenditures 18,36,450 27,000
By Interest Received from
- Bank 94,500
- By Sale of Old Newspapers 13,500
-
28,35,000 28,35,000

Working Note:
Computation of consumption of Stationery during the year
1. Creditors for Stationery Account
Particulars ` Particulars `
To bank A/c By Balance b/d
1,34,550 39,000
(Paid)
To Balance c/d By Stock of Stationery A/c
60,000 1,45,050
(Balancing Figure)
By advance paid for
10,500
stationary purchased
1,94,550 1,94,550

28 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

2. Stock of Stationery Account

Particulars ` Particulars `
By Income and
To Balance b/d Expenditure A/c (Bal.
7,500 1,07,550
Fig.) (Stationery
Consumed)
To Creditors for By Balance c/d
1,45,050 45,000
Stationery A/c (Transfer)

1,52,550 1,52,550d

11. Trading and Profit and Loss Account

for the year ended 31st March,2025

Particulars ` Particulars `
To Opening stock 91,500 By Sales
To Purchases (bal fig) 12,59,700 Cash 11,07,000
Credit 2,86,000 13,93,000
To Gross Profit @ 10% 1,39,300 By Closing stock 97,500
14,90,500 14,90,500
To Expenses (WN .2) 90,975 By Gross Profit 1,39,300
To Insurance (WN .3) 900 By Discount Received 4,250
To Discount Allowed 5,400
To Depreciation 2,250
To Net profit (bal fig) 44,025
1,43,550 1,43,550
Balance Sheet as on 31st March,2025

Liabilities ` ` Assets ` `
Capital A/c Furniture 15,000
Opening 67,500 (-) (2,250) 12,750
balance Depreciation

29 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

(+) Profit 44,025 Debtors 34,300

1,11,525 Stock 97,500
(-) Drawings (36,000) 75,525 Bank 19,095
Creditors 82,900 Prepaid 300
Insurance
Outstanding exp 5,520
1,63,945 1,63,945

W. N. 1 Creditors A/c

Particulars ` Particulars `
To Bank a/c 12,48,300 By Bal b/d 75,750
To Discount 4,250 By Purchase 12,59,700
To Bal c/d (bal 82,900
fig)

13,35,450 13,35,450

W.N. 2 Expenses A/c

Particulars ` Particulars `
To Bank (93,105- 92,205 By Outstanding 6,750
900) expenses as per
opening balance
sheet
To Payable 5,520 By P&L (bal fig) 90,975

97,725 97,725

W.N.3 Insurance A/c

Particulars ` Particulars `
To Prepaid as per 300 By Prepaid (900*4/12) 300
opening Balance
Sheet

30 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

To Bank 900 By P&L (bal fig) 900

1,200 1,200

W.N. 4 Debtors A/c

Particulars ` Particulars `
To Bal b/d 31,200 By bank 2,77,500
To Credit 2,86,000 By Discount 5,400
Sales (Bal fig)
By Bal c/d 34,300

3,17,200 3,17,200

12. (a) Revaluation Account

Particulars ` Particulars `
To Stock 1,500 By Land & Building 25,000
To Partners: By Provision for 2,000
(Revaluation Profit) doubtful debt
Seema 8,500
Yedhant 8,500
Zoya 8,500
27,000 27,000

Partners’ Capital Accounts

Particulars Seema Yedhant Zoya Particulars Seema Yedhant Zoya
To Zoya 4,375 4,375 - By Bal b/d. 1,00,000 75,000 75,000
To Zoya’s - - 98,125 By General reserve 4,000 4,000 4,000
Executor By Seema & - - 8,750
Yedhant
To Bal. c/d 1,08,125 83,125 By Profit and Loss - - 1,875
Adjustment*
(suspense) A/c

31 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

By Revaluation 8,500 8,500 8,500

1,12,500 87,500 98,125 1,12,500 87,500 98,125

*Profit and Loss Adjustment = [(25,000 + 20,000 + 22,500)/3] x 3/12 x

1/3 = 1,875
Balance Sheet of Firm as on 1st July,2024

Particulars ` Particulars `
Seema 1,08,125 Land & Building 1,75,000
Yedhant 83,125 Investment 65,000
Zoya Executor 98,125 Stock 13,500
Creditors 20,000 Trade receivable 35,000
Profit & Loss Adjustment 1,875
Cash in hand 7,000
Cash at bank 12,000
3,09,375 3,09,375

Calculation of goodwill and Zoya’s share

Average of last five year’s profits and losses for the year ended on
31st March.

31.3.2020 28,750
31.3.2021 35,000
31.3.2022 22,500
31.3.2023 20,000
31.3.2024 25,000
Total 1,31,250
Average profit 26,250

Goodwill at 1 year purchase = ` 26,250 x 1 = ` 26,250

Zoya’s Share of Goodwill = ` 26,250X1/3
= ` 8,750
Which is contributed by Seema and Yedhant in their gaining Ratio

32 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Seema = ` 8750X1/2 =` 4375

Yedhant =` 8750X1/2 = ` 4375
13.
Particulars A B C Total
Profit of
firm
I. Amount already credited:
Share of profit (in the ratio of 1,30,000 1,30,000 1,30,000 3,90,000
1:1:1) (2022-23,2023-24)
Amount which should have been
credited:
Khan’s Salary (2022-23,2023-24) 50,000 50,000
Interest on Capital (2022- 25,000 12,500 12,500 50,000
23,2023-24)
Share of Profit 1,45,000 72,500 72,500 2,90,000
1,70,000 85,000 1,35,000
Net effect (I-II) (40,000) 45,000 (5,000) -

The necessary journal entry will be:

Particulars Debit (`) Credit (`)

Samuel’s Current A/c 45,000
To Agarwal’s Current A/c 40,000
To Khan’s Current A/c 5,000
(Salary to Khan’s, Interest on capital
charged and profit shared among partners
in the ratio of capital)

14. Realisation Account

Particulars Particulars
To Sundry Assets
By Creditors 51,000
– Transfer:
Debtors 93,000 By bank A/c –

33 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

Assets Realised:
Stock 55,500 Machinery 1,23,000
Tools 12,000 Car 37,500
Car 18,000 Debtors 88,500
Machinery 90,000 Tools 7,500
Building 1,50,000 4,18,500 Building 1,26,000
To bank A/c 12,000 Goodwill 90,000 4,72,500
(outstanding
Salary)
To gain (Profit) By Yaman’s
on realization Capital A/c (Old 12,000
transferred to Furniture)
Aman’s Capital 54,000 By Aman’s
A/c Capital A/c
3,000
Unrecorded
Asset
Yaman’s Capital
36,000
A/c
Zaman’s Capital 18,000 1,08,000
A/c
5,38,500 5,38,500

Partners Capital Accounts

Particulars Aman Yaman Zaman Particulars Aman Yaman Zaman
(`) (`) (`) (`) (`) (`)

To Realisation By Balance
A/c 3,000 12,000 b/d 1,80,000 1,35,000 90,000
To Bank A/c By Realisation
2,31,000 1,59,000 1,08,000 A/c (Gain) 54,000 36,000 18,000
2,34,000 1,71,000 1,08,000 2,34,000 1,71,000 1,08,000

Bank Account

Particulars ` Particulars `
To Balance b/d 37,500 By Realisation A/c 12,000
(Outstanding Salary)
To Realisation A/c 4,72,500 By Aman’s Capital A/c 2,31,000

34 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Assets Realised - By Yaman’s Capital A/c 1,59,000

- By Zaman’s Capital A/c 1,08,000
5,10,000 5,10,000

Note: Since the stock is taken over by creditors, no entry is passed for
such payment.
15. Journal Entries in the books of Ambiance Ltd.

Dr. Cr.
` `
1 Bank Account Dr. 81,00,000
To Share Application & Allotment 81,00,000
A/c
(Being Application money on 9,00,000
shares at ` 9 per share received.)
2 Share Application & Allotment A/c Dr. 81,00,000
To Share Capital A/c (225,000 x ` 4) 9,00,000
To Securities premium A/c (225,000 11,25,000
x ` 5)
To Bank A/c (6,00,000 x ` 9) 54,00,000
To Share First & Final Call A/c 6,75,000
(Being application money transferred)
3 Share First & Final Call A/c (225,000 x6) Dr. 13,50,000
To Share Capital Account 13,50,000
(Amount First & Final Call A/c due from
members as per Directors, resolution
no...... dated.....)
4 Bank Account A/c Dr. 6,64,875
Calls in arrear A/c Dr. 10,125
To Share First & Final Call Account 6,75,000
(Being Receipt of the amounts due on
first call)
5 Equity share capital A/c Dr. 33,750

35 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

To Share forfeiture A/c 23,625

To Calls in arrear A/c 10,125
(Being 3,375 shares forfeited for non
payment of final call.)
6 Bank Account A/c (3,375 x ` 6) Dr. 20,250
Share forfeiture A/c (3,375 x ` 4) 13,500
To Share Capital Account (3,375 x ` 33,750
10)
(Being forfeited shares reissued at ` 4
discount)
7 Share forfeiture A/c 10,125
To Capital reserve A/c 10,125
(Being share forfeiture transferred to
capital reserve*)

Working notes:
1.
Shares Shares Money Money Money Excess Share Amount Money
Applied Allotted Received on Transferred Transferred Application First and received Refunded
Application to Share to Security Money Final Call from
@ ` 9/- Capital@ Premium @ ` 6/- Share First
` 4/- @` 5/- and Final
Call after
adjusting
excess
appl.
money
6,00000 - 54,00,000 - - - - - 54,00,000
3,00,000 225,000 27,00,000 9,00,000 11,25,000 6,75,000 13,50,000 12,75,000 -
9,00,000 2,25,000 81,00,000 9,00,000 11,25,000 6,75,000 13,50,000 13,39,875* 54,00,000

* ` 13,50,000 less ` 10,125.

2. Number of shares allotted to Mr. Kabir = 4,500 x 225,000 /
3,00,000 = 3,375 shares

36 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

3. Calculation of calls in arrear

Application money received from Kabir (4,500 40,500

x9)
Less: actual application money 3,375 x9 30,375
Excess Application & Allotment Money 70,875
Adjusted with first and final call
Final call due from Kabir 20,250
Less: Adjusted with final call (10,125)
Calls in arrear 10,125

16. (i) Books of Strawberry Farms Ltd.

Journal
Particulars L.F. Debit Credit
Amount Amount

Bank A/c Dr. 10,00,000

To Debenture Application A/c 10,00,000
(Debentures application money
received)
Debenture Application A/c Dr. 10,00,000
To 11% Debentures A/c 10,00,000
(Application money transferred to 11%
debentures account)
Debenture Allotment A/c Dr. 9,00,000
Discount on issue of debentures Dr 1,00,000
Loss on issue of debenture A/c Dr. 40,000
To 11% Debentures A/c 10,00,000
To Debenture redemption 40,000
premium A/c
(Call made consequent upon allotment
of debentures issued at discount and
redeemable at premium)

37 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

Bank A/c Dr. 8,80,000

To Debenture Allotment A/c 8,80,000
(Allotment amount received)
Working Notes:
Amount of discount on issue = 20,000 X ₹100 X 5% = ₹ 1,00,000
Loss on issue of debentures = 20,000 X ₹100 X 2% = ₹ 40,000
Alternatively, the discount on issue of debentures, can be combined with
loss on issue of debentures A/c as both discount and redemption
premium represent loss to the company. In that case the journal entries
will be

Debenture Allotment A/c Dr. 9,00,000

Loss on issue of debenture A/c Dr. 1,40,000
To 11% Debentures A/c 10,00,000
To Debenture redemption premium A/c 40,000
(Call made consequent upon allotment of
debentures issued at discount and redeemable
at premium)

(ii) Books of Strawberry Farms Ltd.

Journal
Particulars L.F. Debit Credit
Amount Amount
Bank A/c Dr. 10,00,000
To Debenture Application A/c 10,00,000
(Debentures application money
received)
Debenture Application A/c Dr. 10,00,000
To 11% Debentures A/c 10,00,000
(Application money transferred to 11%
debentures account)

38 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

Debenture Allotment A/c Dr. 9,00,000

Discount on issue of debentures Dr 1,00,000

To 11% Debentures A/c 10,00,000

(Call made consequent upon allotment
of debentures issued at discount and
redeemable at premium)
Bank A/c Dr. 9,00,000
To Debenture Allotment A/c 9,00,000
(Allotment amount received)

17. In the books of Hari Om Ltd.

Journal Entries

Particulars Cr. (`) Cr. (`)

Bank A/c Dr. 55,000
To Equity Share Application and 55,000
Allotment A/c
(Being Application money received)
Equity Share Application A/c Dr. 55,000
To Equity Share Capital A/c 50,000
To Securities Premium A/c 5,000
(Being capitalization of equity share
application money received)
Bank A/c Dr. 70,800
To Investments A/c 60,000
To Profit on sale of investments A/c 10,800
(Being Investments Sold)
8% Redeemable Preference Share Capital Dr. 1,00,000
A/c
Premium on Redemption of Preference 10,000

39 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

Shares A/c
To 8% Preference Shareholders A/c 1,10,000
(Being amount payable to preference
share holders on redemption of 10%
premium)
Preference Shareholders A/c Dr. 1,10,000
To Bank A/c 1,10,000
(Being amount paid to Preference
Shareholders)
Profit & Loss A/c Dr. 10,000
To Premium on Redemption of 10,000
Preference Share A/c
(Being Premium on Redemption of
preference shares written off out of
profit)
Profit and Loss A/c Dr. 50,000
To Capital Redemption Reserve A/c 50,000
(W.N.)
(Being amount transferred to Capital
Redemption Reserve)

Working Note:
Amount to be transferred to Capital Redemption Reserve Account
Face value of shares to be redeemed ` 1,00,000
Less: Proceeds from new issue ` (50,000)
Total Balance ` 50,000
18. (i) Double entry system may be defined as that system which
recognizes and records both the aspects of a transaction.
Every transaction has two aspects and according to this system,
both the aspects are recorded. This system was developed in the
15th century in Italy by Luca Pacioli. It has proved to be systematic

40 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

and has been found of great use for recording the financial affairs
for all institutions requiring use of money.
This system offers the under mentioned advantages:
(a) By the use of this system, the accuracy of the accounting
work can be established through the device of trial balance.
(b) The profit earned or loss suffered during a period can be
ascertained together with details.
(c) The financial position of the firm or the institution
concerned, can be ascertained at the end of each period,
through preparation of the balance sheet.
(d) The system permits accounts to be kept in as much detail as
necessary and therefore, affords significant information for
the purpose of control etc.
(e) Result of one year may be compared with those of previous
years and reasons for the change may be ascertained. It is
because of these advantages that the double entry system
has been used extensively in all countries.
(ii) Banks are essential to modern society, but for an industrial unit, it
serves as a necessary instrument in the commercial world. Most of
the transactions of the business are done through bank whether it
is a receipt or payment. Rather, it is legally necessary to operate
the transactions through bank after a certain limit. All the
transactions, which have been operated through bank, if not
verified properly, the industrial unit may not be sure about its
liquidity position in the bank on a particular date. There may be
some cheques which have been issued, but not presented for
payment, as well as there may be some deposits which has been
deposited in the bank, but not collected or credited so far. Some
expenses might have been debited or bills might have been
dishonoured. It is not known to the industrial unit in time, it may
lead to wrong conclusions. The errors committed by bank may not
be known without preparing bank reconciliation statement.
Preparation of bank reconciliation statement prevents the chances

41 MAY 2025 EXAMINATION

REVISION TEST PAPER
FOUNDATION COURSE

of embezzlement. Hence, bank reconciliation statement is very

important and is a necessity of an industrial unit as it plays a key
role in the liquidity control of the industry.
(iii) A bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money to or to the order of certain
person or to the bearer of the instrument. When such an order is
accepted by the drawee on the face of the order itself, it becomes
a valid bill of exchange.
There are three parties to a bill of exchange:
(i) The drawer, who draws the bill, that is, the creditor to whom
the money is owing;
(ii) The drawee, the person to whom the bill is addressed or on
whom it is drawn and who accepts the bill that is, the debtor;
and
(iii) The payee, the person who is to receive the payment. The
drawer in many cases is also the payee.
(iv) Single entry system is an inaccurate and unsystematic method of
recording business transactions. Features of Single entry system
are as follows:
(i) It is an inaccurate, unscientific and unsystematic method of
recording business transactions.
(ii) There is generally no record of real and nominal accounts
and, in most of the cases; a record is kept for cash
transactions and personal accounts.
(iii) Cash book mixes up business and personal transactions of
the owners.
(iv) There is no uniformity in maintaining the records and the
system may differ from firm to firm depending on the
requirements and convenience of each firm.
(v) Profit under this system is only an estimate based on
available information and therefore true and correct profits

42 MAY 2025 EXAMINATION

REVISION TEST PAPER
ACCOUNTING

cannot be determined. The same is the case with the

financial position in the absence of a proper balance sheet.
(v) Advantages of Right Issue
1. Right issue enables the existing shareholders to maintain
their proportional holding in the company and retain their
financial and governance rights. It works as a deterrent to
the management, which may like to issue shares to known
persons with a view to have a better control over the
company’s affairs.
2. In well-functioning capital markets, the right issue
necessarily leads to dilution in the value of share. However,
the existing shareholders are not affected by it because
getting new shares at a discounted value from their cum-
right value will compensate decrease in the value of shares.
The cum-right value is maintained otherwise also, if the
existing shareholders renounce their right in favour of a
third party.
3. Right issue is a natural hedge against the issue expenses
normally incurred by the company in relation to public issue.
4. Right issue has an image enhancement effect, as public and
shareholders view it positively.
5. The chance of success of a right issue is better than that of a
general public issue and is logistically much easier to handle.
Disadvantages of Right Issue
1. The right issue invariably leads to dilution in the market
value of the share of the company.
2. The attractive price of the right issue should be objectively
assessed against its true worth to ensure that you get a
bargained deal.

43 MAY 2025 EXAMINATION