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PAPER – 1: PRINCIPLES & PRACTICE OF ACCOUNTING

QUESTIONS
True and False
1. State with reasons, whether the following statements are true or false:
(i) Prior period items need not be separately disclosed in the current statement of profit
and loss.
(ii) “Salary paid in advance” is not an expense because it neither reduces assets nor
increases liabilities.
(iii) If the effect of errors committed cancel out, the errors will be called compensating
errors and the trial balance will disagree.
(iv) The sale value of by-product is credited to Trading Account.
(v) In case of consignment sale, ownership of goods will be transferred to consignee at
the time of receiving the goods.
(vi) The problem of red-ink interest arises when the due date of a transaction falls after
the closing date of account current.
(vii) Net income in case of persons practicing vocation is determined by preparing profit
and loss account.
(viii) “Listed company” means a company which has its securities only listed with
National stock exchange.
(ix) Partners can share profits or losses in their capital ratio, when there is no
agreement.
Theoretical Framework
2. (a) Discuss the limitations which must be kept in mind while evaluating the Financial
Statements.
(b) Distinguish between Going concern and cost concept.
Journal Entries
3. (a) Pass a journal entries in the following cases.
(i) A running business was purchased by Mohan with following assets and
liabilities:
Cash ` 12,000, Land ` 24,000, Furniture ` 6,000, Stock ` 12,000, Creditors
` 6,000, Bank Overdraft ` 12,000.
(ii) Goods distributed by way of free samples, ` 6,000.
(iii) Purchase of goods from Naveen of the list price of ` 12,000. He allowed 10%

© The Institute of Chartered Accountants of India

2 FOUNDATION EXAMINATION: JUNE, 2023

trade discount, ` 300 cash discount was also allowed for quick payment.
(iv) Income tax liability of proprietor ` 10,200 was paid out of petty cash.
(v) Sumit became an insolvent and could pay only 50 paise in a rupee. Amount
due from him ` 3,600.
Capital or revenue expenditure
(b) Classify the following expenditures as capital or revenue expenditure:
(i) Insurance claim received on account of inventory damaged by fire.
(ii) Amount spent as lawyer’s fee to defend a suit claiming that the firm’s factory
site belonged to the plaintiff’s land.
(iii) Travelling expenses of the chief financial officer on trips abroad for purchase
of special machinery.
(iv) Dividend received from XYZ limited during the year.
Cash book
4. (a) Prepare a Triple Column Cash Book for the month of April 2022 from the following
transactions and bring down the balance for the start of next month:
Date `
1 Cash in hand 9,000
1 Cash at bank 36,000
2 Paid into bank 3,000
5 Bought furniture and issued cheque 4,500
8 Purchased goods for cash 1500
12 Received cash from Ms. Kamini and deposited the 2,940
same into Bank
Discount allowed to her 60
14 Cash sales 15,000
16 Paid to Ms. Shikha by cheque 4,350
Discount received 150
19 Paid into Bank 1500
20 Sales through Credit Card 4,000
23 Withdrawn from Bank for Private expenses 1,800
24 Received cheque from Ms. Reema 4,290
Allowed her discount 60

© The Institute of Chartered Accountants of India

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3

26 Deposited Ms. Reema’s cheque into Bank

28 Withdrew cash from Bank for Office use 6,000
30 Paid rent by cheque 2,400
30 Bank Charged 1% commission on sale through
debit/credit card
Rectification of errors
(b) Mr. Anirudh was unable to agree the Trial Balance last year and wrote off the
difference to the profit and loss account of that year. On verifying the old books by a
Chartered Accountant next year, the following mistakes were found.
(i) Purchase account was undercast by ` 16,000.
(ii) Sale of goods to Mr. Rahim for ` 5,000 was omitted to be recorded.
(iii) Receipt of cash from Mr. Ashok was posted to the account of Mr. Anubhav
` 1,200.
(iv) Amount of ` 4,167 of sales was wrongly posted as ` 4,617.
(v) Repairs to Machinery was debited to Machinery Account ` 6,100.
(vi) A credit purchase of goods from Mr. Paul for ` 3,000 entered as sale.
Suggest the necessary rectification entries.
Bank Reconciliation Statement
5. On 31st October, 2022, the Cash Book of Mr. Shankar showed an overdrawn position of
` 13,440 although his Bank Statement showed only ` 9,600 overdrawn. An examination
of the two records showed the following errors:
(i) The debit side of the Cash Book was undercast by ` 1,200.
(ii) A cheque for ` 4,800 in favour of Hari suppliers Ltd. was omitted by the bank from
the statement, the cheque was debited to another customer’s Account.
(iii) A cheque for ` 561 drawn for payment of telephone bill was recorded in the Cash
Book as ` 516 but was shown correctly in the Bank Statement.
(iv) A cheque for ` 1,275 from Mr. Satpal paid into bank was dishonoured and shown as
such on the Bank Statement, although no entry relating to the dishonoured cheque
was made in the Cash Book.
(v) The Bank had debited a cheque for ` 450 to Mr. Shankar Account by mistake, it
should have been debited by them to Mr. Kar’s Account.
(vi) A dividend of ` 300 was collected by the bank but not entered in the Cash Book.
(vii) Cheques totalling ` 3,900 drawn on October was not presented for payment.

© The Institute of Chartered Accountants of India

4 FOUNDATION EXAMINATION: JUNE, 2023

(viii) Cheque for ` 3,600 deposited on 30th October was not credited by the Bank.
(ix) Interest amounting to ` 900 was debited by the Bank but yet to be entered in the
Cash Book.
You are required to prepare a Bank Reconciliation Statement on 31st October, 2022.
Inventories
6. Raj Ltd. prepared their accounts financial year ended on 31st March 2022. Due to
unavoidable circumstances actual stock has been taken on 10th April 2022, when it was
ascertained at ` 5,00,000. It has been found that;
(i) Sales are entered in the Sales Book on the day of dispatch and return inwards in
the Returns Inward Book on the day of the goods received back.
(ii) Purchases are entered in the Purchase Book on the day the Invoices are received.
(iii) Sales between 1st April 2022 to 9th April 2022 amounting to ` 80,000 as per Sales
Day Book.
(iv) Free samples for business promotion issued during 1st April 2022 to 9th April 2022
amounting to ` 16,000 at cost.
(v) Purchases during 1st April 2022 to 9th April 2022 amounting to ` 40,000 but goods
amounts to ` 8,000 not received till the date of stock taking.
(vi) Invoices for goods purchased amounting to ` 80,000 were entered on 28th March
2022 but the goods were not included in stock.
Rate of Gross Profit is 25% on cost. Ascertain the value of Stock as on 31st March, 2022.
Concept and Accounting of Depreciation
7. A Plant & Machinery costing ` 10,00,000 is depreciated on straight line assuming 10
year working life and zero residual value, for four years. At the end of the fourth year, the
machinery was revalued upwards by ` 40,000. The remaining useful life was reassessed
at 8 year. Calculate Depreciation for the fifth year.
Bill of exchange
8. Priya owed `5,00,000 to Pratika. On 1st October, 2022, Priya accepted a bill drawn by
Pratika for the amount at 3 months. Pratika got the bill discounted with his bank for
`4,95,000 on 3rd October, 2022. Being unable to pay the amount on due date, Priya
approached Pratika for renewal of the bill. Pratika agreed on the conditions that
` 2,50,000 be paid immediately together with interest on the remaining amount at 10%
per annum for 3 months and for the balance, Priya should accept a new bill at three
months. These arrangements were carried out. But afterwards, Priya became insolvent
and 60% of the amount could be recovered from his estate.
Pass journal entries (with narration) in the books of Pratika.

© The Institute of Chartered Accountants of India

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 5

Consignment
9. Katen of Pilani consigns 1000 cases of goods costing ` 1,500 each to Bharat of Jaipur.
Katen pays the following expenses in connection with the consignment:
Particulars `
Carriage 30,000
Freight 90,000
Loading Charges 30,000
Bharat sells 700 cases at ` 2,100 per case and incurs the following expenses:
Clearing charges 47,500
Warehousing and Storage charges 25,000
Packing and selling expenses 7,000
It is found that 200 cases were lost in transit (which is an abnormal loss) and another 50
cases were in transit. Bharat is entitled to a commission of 10% on gross sales. Draw up
the Consignment Account and Bharat's Account in the books of Katen.
Sales of goods on approval or return basis
10. Anupam supplied goods on sale or return basis to customers, the particulars of which are
as under:
Date of dispatch Party’s name Amount ` Remarks
10.12.2022 M/s PQR Co. 20,000 No information till 31.12.2022
12.12.2022 M/s XYZ Co 25,000 Returned on 16.12.2022
15.12.2022 M/s STV Co 22,000 Goods worth ` 12,000 returned on
20.12.2022
20.12.2022 M/s XYZ Co 26,000 Goods Retained on 24.12.2022
25.12.2022 M/s PQR Co 21,000 Good Retained on 28.12.2022
30.12.2022 M/s STV Co 23,000 No information till 31.12.2022
Goods are to be returned within 15 days from the dispatch, failing which it will be treated
as sales. The books of ‘Anupam’ are closed on the 31st December, 2022.
Prepare the following account in the books of ‘Anupam’.
Goods on “sales or return, sold and returned day books”.
Goods on sales or return total account.

© The Institute of Chartered Accountants of India

6 FOUNDATION EXAMINATION: JUNE, 2023

Average Due Date

11. (a) A accepted the following bills drawn by B.
On 8th March, 2022 ` 16,000 for 4 months.
On 16th March, 2022 ` 20,000 for 3 months.
On 7th April, 2022 ` 24,000 for 5 months.
On 17th May, 2022 ` 20,000 for 3 months.
He wants to pay all the bills on a single day. Find out this date. Interest is charged
@ 18% p.a. and A wants to save ` 628 by way of interest. Calculate the date on
which he has to effect the payment to save interest of ` 628.
Account current
(b) From the following particulars prepare an Account Current to be rendered by X to Y
at 31st December, reckoning interest @ 10% p.a.
2022 ` 2022 `
July 1 Balance owing 600 Sept. Y accepted X’s Bill at 3 250
from Y 01 months date
July 17 Goods sold to Y 50 Oct.22 Goods bought from Y 30
Aug. 1 Cash received 650 Nov. 12 Goods sold to Y 20
from Y
Aug. 19 Goods sold to Y 700 Dec. 14 Cash received from Y 80
Aug. 30 Goods sold to Y 40
Sept. 1 Cash received 350
from Y
Final accounts
12. The following is the trial balance of Prakesh as at 31st December, 2022:
Dr. Cr.
` `
Prakesh’s capital account 3,83,450
Stock 1st January, 2022 2,34,000 -
Sales - 19,48,000
Returns inward 43,000 -
Purchases 16,08,500 -
Returns outward - 29,000

© The Institute of Chartered Accountants of India

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 7

Carriage inwards 98,000 -

Rent & taxes 23,500 -
Salaries & wages 46,500 -
Sundry debtors 1,20,000 -
Sundry creditors - 74,000
Bank loan @ 14% p.a. - 1,00,000
Bank interest 5,500 -
Printing and stationary expenses 72,000 -
Bank balance 40,000 -
Discount earned - 22,200
Furniture & fittings 25,000 -
Discount allowed 9,000 -
General expenses 57,250 -
Insurance 6,500 -
Postage & telegram expenses 11,650 -
Cash balance 1,900 -
Travelling expenses 4,350 -
Drawings 1,50,000 -
25,56,650 25,56,650

The following adjustments are to be made:

(1) Included amongst the debtors is ` 15,000 due from Ravi and included among the
creditors ` 5,000 due to him.
(2) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on
sundry debtors.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Personal purchases of Prakash amounting to ` 3,000 had been recorded in the
purchases day book.
(5) Interest on bank loan shall be provided for the whole year.
(6) A quarter of the amount of printing and stationary expenses is to be carried forward
to the next year.
(7) Credit purchase invoice amounting to ` 2,000 had been omitted from the books.
(8) Stock on 31.12.2022 was ` 3,93,000.

© The Institute of Chartered Accountants of India

8 FOUNDATION EXAMINATION: JUNE, 2023

Prepare (i) Trading & profit and loss account for the year ended 31.12.2022 and (ii)
Balance sheet as on 31 st December, 2022.
Partnership Accounts
13. P, Q and R were partners in a firm sharing profits in the ratio of 1:2:2. After division of the
profits for the year ended 3.03.2022 their capitals were: P Rs. 1,50,000. Q Rs. 1,80,000
and R Rs. 2,10,000. During the year they withdraw Rs. 20,000 each. The profit of the
year was Rs. 60,000. The partnership deed provided that interest on capital will be
allowed @ 10% p.a. While preparing the final accounts, interest on partners’ capital was
not allowed.
You are required to pass the necessary adjustment entity for providing interest on capital.
Calculation of goodwill
14. The profits and losses for the previous years are: 2019 Profit ` 15,000, 2020 Loss
` 25,500, 2021 Profit ` 75,000, 2022 Profit ` 1,12,500. The average Capital employed in
the business is ` 3,00,000. The rate of interest expected from capital invested is 10%.
The remuneration from alternative employment of the proprietor ` 9,000 p.a. Calculate
the value of goodwill on the basis of 3 years’ purchases of Super Profits based on the
average of 4 years.
Admission of partner
15 Shyam, Sunder and Girdhar are partners in a firm sharing profits and losses in the ratio
of 3:2:1. Their Balance Sheet as on 31 st March, 2022 is as below:
Liabilities (`) Assets (`)
Trade payables 56,250 Land & Buildings 92,500
Outstanding Liabilities 5,500 Furniture & Fixtures 18,000
General Reserve 19,500 Closing stock 31,500
Capital Accounts: Trade Receivables 26,750
Dinesh 37,500 Cash in hand 7,000
Ramesh 37,500 Cash at Bank 5,500
Naresh 25,000 1,00,000
1,81,250 1,81,250

The partners have agreed to take Hari as a partner with effect from 1 st April, 2022 on the
following items:
(i) Hari shall bring ` 20,000 towards his capital.
(ii) The value of stock to be increased to ` 35,000 and Furniture & Fixtures to be
depreciated by 10%.

© The Institute of Chartered Accountants of India

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 9

(iii) Provision for bad and doubtful debts should be provided at 2% of the trade
receivables.
(iv) The value of Land & Buildings to be increased by ` 14,000 and the value of the
goodwill be fixed at ` 45,000.
(v) The new profit sharing ratio shall be divided equally among the partners.
The outstanding liabilities include ` 1,750 due to Aman which has been paid by Shyam.
Necessary entries were not made in the books.
Prepare (i) Revaluation Account, (ii) Capital Accounts of the partners, (iii) Balance Sheet
of the firm after admission of Hari.
Financial statements of Not for Profit Organizations
16. A Doctor Ankur after retiring from Govt. service, started private practice on 1 st April, 2021
with ` 1,50,000 of his own and ` 2,25,000 borrowed at an interest of 12% per annum on
the security of his life policies. His accounts for the year were kept on a cash basis and
the following is his summarized cash account:
Receipts ` Payments `
Own capital 1,50,000 Medicines purchased 1,83,750
Loan 2,25,000 Surgical equipments 1,87,500
Prescription fees 4,95,000 Motor car 2,40,000
Visiting fees 1,87,500 Motor car expenses 90,000
Fees from lectures 18,000 Wages and salaries 78,750
Pension received 2,25,000 Rent of clinic 45,000
General charges 36,750
Household expenses 1,35,000
Household Furniture 18,750
Expenses on daughter’s marriage 1,61,250
Interest on loan 27,000
Balance at bank 82,500
Cash in hand 14,250
One-third of the motor car expense may be treated as applicable to the private use of car
and ` 22,500 of salaries are in respect of domestic servants.
The stock of medicines in hand on 31st March, 2022 was valued at ` 71,250.
You are required to prepare his capital account and income and expenditure account for
the year ended 31st March, 2022 and balance sheet as on that date. Ignore depreciation
of fixed assets.

© The Institute of Chartered Accountants of India

10 FOUNDATION EXAMINATION: JUNE, 2023

Issue of Shares
17. Finopolis Limited is a company with an authorized share capital of ` 4,00,00,000 in
equity shares of ` 10 each, of which 30,00,000 shares had been issued and fully paid on
30th June, 2022. The company proposed to make a further issue of 3,60,000 shares of
` 10 each at a price of ` 12 each, the arrangements for payment being:
(i) ` 2 per share payable on application, to be received by 1st July, 2022;
(ii) Allotment to be made on 10 th July, 2022 and a further ` 5 per share (including the
premium) to be payable;
(iii) The final call for the balance to be made, and the money received by
31th March, 2023.
Applications were received for 8,40,000 shares and were dealt with as follows:
(1) Applicants for 40,000 shares received allotment in full;
(2) Applicants for 2,00,000 shares received an allotment of one share for every two
applied for; no money was returned to these applicants, the surplus on application
being used to reduce the amount due on allotment;
(3) Applicants for 6,00,000 shares received an allotment of one share for every five
shares applied for; the money due on allotment was retained by the company, the
excess being returned to the applicants; and
(4) The money due on final call was received on the due date.
You are required to record these transactions (including cash items) in the journal of
Finopolis limited.
Forfeiture of Shares
18. Give necessary journal entries for the forfeiture and re-issue of shares:
(i) Avtar Ltd. forfeited 900 shares of ` 10 each fully called up, held by Varun for non-
payment of allotment money of ` 3 per share and final call of ` 4 per share. He paid
the application money of ` 3 per share. These shares were re-issued to Nitesh for `
8 per share.
(ii) X Ltd. forfeited 200 shares of ` 10 each (` 7 called up) on which Naresh had paid
application and allotment money of ` 5 per share. Out of these, 150 shares were re-
issued to Mahesh as fully paid up for ` 6 per share.
Issue of Debentures
19. Somya Limited issued 30,000 12% Debentures of the nominal value of `15,00,00,00 as
follows:
(a) To sundry persons for cash at 90% of nominal value of ` 75,00,000.

© The Institute of Chartered Accountants of India

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 11

(b) To a vendor for purchase of fixed assets worth ` 30,00,000 – ` 37,50,000 nominal
value.
(c) To the banker as collateral security for a loan of ` 30,00,000 – ` 37,50,000 nominal
value.
You are required to prepare necessary journal entries Journal Entries.
20. Write short notes on the following:
(i) Accounting conventions.
(ii) Trade bill vs. Accommodation bill.
(iii) Machine Hour Rate method of calculating depreciation
(iv) Journal
(v) Periodic Inventory System Vs Perpetual Inventory System

SUGGESTED ANSWERS/HINTS

1. (i) False: Prior Period Items should be separately disclosed in the current statement of
profit and loss together with their nature and amount in a manner that their impact
on current profit or loss can be perceived
(ii) True: Salary paid in advance relates to the coming accounting period. It has nothing
to do with the current period. Hence it is not taken in the Profit and Loss Account as
an expense. It is shown as a Current Asset in the Balance Sheet.
(iii) False: If the effect of errors committed cancel out, the errors will be called
compensating errors and the trial balance will agree.
(iv) False: The sale value of the by-product is credited to Manufacturing Account so as
to reduce to that extent, the cost of manufacture of main product.
(v) False: In Consignment sale, ownership of the goods rests with the consignor till
they are sold by the consignee. The consignee does not become the owner of the
goods even though goods are in his possession. He acts only as agent of the
consignor.
(vi) True: No interest is allowed when the due date of a bill falls after the date of closing
the account. However, interest from the date of closing to such due date is written
in ‘Red Ink’ in the appropriate side of account current.
(vii) False: Net income is determined by preparing income and expenditure in case of
persons practicing vacation.
(viii) False: As per Section 2 (52) of the Companies Act, 2013,"listed company" means a
company which has any of its securities listed on any recognised stock exchange.

© The Institute of Chartered Accountants of India

12 FOUNDATION EXAMINATION: JUNE, 2023

(ix) False: According to Partnership Act, in the absence of any agreement to the
contrary profits and losses are to be shared equally among partners..
2. (a) Limitations which must be kept in mind while evaluating the Financial Statements
are as follows:
 The factors which may be relevant in assessing the worth of the enterprise
don’t find place in the accounts as they cannot be measured in terms of
money.
 Balance Sheet shows the position of the business on the day of its preparation
and not on the future date while the users of the accounts are interested in
knowing the position of the business in the near future and also in long run and
not for the past date.
 Accounting ignores changes in some money factors like inflation etc.
 There are occasions when accounting principles conflict with each other.
 Certain accounting estimates depend on the sheer personal judgement of the
accountant.
 Different accounting policies for the treatment of same item adds to the
probability of manipulations.
(b) Going Concern concept: The financial statements are normally prepared on the
assumption that an enterprise is a going concern and will continue its operation for
the foreseeable future. Hence, it is assumed that the enterprise has neither the
intention nor the need to liquidate or curtail materially the scale of its operations; if
such an intention or need exists, it should be disclosed in the financial statements.
Cost concept: It means that the value of an asset is to be determined on the basis of
historical cost, in other words, acquisition cost. Although there are various
measurement bases, accountants traditionally prefer this concept in the interests of
objectivity.
3. (a)
S Particulars Amount (Dr) Amount (Cr)
No.
(i) Cash A/c Dr. 12,000
Land A/c Dr. 24,000
Furniture A/c Dr. 6,000
Stock A/c Dr. 12,000
To Creditors 6,000

© The Institute of Chartered Accountants of India

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 13

To Bank overdraft 12,000

To Capital A/c 36,000
(Being commencement of business by
mohan by taking over a running
business.)
(ii) Advertisement Expenses A/c Dr. 6,000
To Purchases A/c 6,000
(Being goods distributed as free samples)
(iii) Purchase A/c Dr. 10,800
To Cash A/c 10,500
To Discount Received A/c 300
(Being the goods purchased from Naveen
for ` 12,000 @ 10% trade discount and
cash discount of ` 300)
(iv) Drawings A/c Dr. 10,200
To Petty Cash A/c 10,200
(Being the income tax of proprietor paid
out of business money)
(v) Cash A/c Dr. 1,800
Bad Debts A/c Dr. 1,800
To Sumit 3,600
(Being Sumit became insolvent 50 paise
in a rupee could be recovered)
(b) (i) Revenue expenditure.
(ii) Revenue expenditure.
(iii) Capital expenditure.
(iv) Revenue expenditure.
4. (a) Triple Column Cash Book
Dr. Cr.
Date Particulars Discou Cash Bank Date Particulars Discount Cash Bank
nt
2022 ` ` ` 2022 ` ` `
April 1 To Balance b/d 9,000 36,000 April 2 By Bank (C) 3,000
April 2 To Cash (C) 3,000 April 5 By Furniture A/c 4,500
April 12 To Ms. Kamini 60 2,940 April 8 By Purchase A/c 1500

© The Institute of Chartered Accountants of India

14 FOUNDATION EXAMINATION: JUNE, 2023

April 14 To Sales A/c 15,000 April 16 By Ms. Shikha 150 4,350

April 19 To Cash (C) 1500 April 19 By Bank (C) 1500
April 20 To Sales 4000 April 23 By Drawings A/c 1800
April 24 To Ms. Reema April 26 By Bank (C)
60 4,290 4,290
(Note 2)
April 26 To Cash (C) 4,290 April 28 By Cash (C) 6,000
April 28 To Bank (C) 6000 April 30 By Rent A/c 2,400
April 30 By Commission 40
___ ___ April 30 By Balance c/d ___ 26,940 29,700
120 37,230 48,790 150 37,230 48,790
May 1 To Balance b/d 26,940 29,700

Note:
(1) Discount allowed and discount received ` 120 and ` 150 respectively should be
posted in respective Accounts in the ledger.
(2) When cheque is not promptly deposited into Bank, first it is entered in the Cash
Column and subsequently at the time of deposit, Bank Account is debited and Cash
Account is credited.
(b) Journal Entries in the books of Mr. Anirudh
Date Particulars Dr. (`) Cr. (`)
(i) Profit & Loss Adjustment A/c Dr. 16,000
To Suspense*A/c 16,000
(Purchase Account under cast in the previous
year; error now rectified)
(ii) Rahim’s Account Dr. 5,000
To Profit & Loss Adjustment A/c 5,000
(Sales to Rahim omitted last year; now adjusted)
(iii) Anubhav’s Account Dr. 1,200
To Ashok’s Account 1,200
(Amount received from Ashok wrongly posted to
the account of Anubhav now rectified)
(iv) Profit & Loss Adjustment A/c Dr. 450
To Suspense* A/c 450
(Excess posting to sales account last year,
` 4,617, instead of ` 4,167 now adjusted)
(v) Profit & Loss Adjustment A/c Dr. 6,100

© The Institute of Chartered Accountants of India

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 15

To Machinery A/c 6,100

(Repairs to machinery was wrongly debited to
machinery account, now rectified)
(vi) Profit & Loss Adjustment A/c Dr. 6,000
To Mr. Paul Account 6,000
Credit purchase of goods from Mr. Paul sale last
year, now rectified)
(vii) Anirudh’s Capital A/c Dr. 23,550
To Profit and Loss Adjustment Account 23,550
(Being balance in P & L Adjustment Account
transferred to Anirudh’s Capital A/c – Refer W.N.
1)
(viii) Suspense A/c Dr. 16,450
To Anirudh’s Capital A/c 16,450
(Being balance of Suspense A/c transferred to
Capital A/c– Refer W.N. 2)
*Considering that the difference was posted to Suspense account.
Working Notes
1. Profit and Loss Adjustment Account
` `
To Suspense A/c 16,000 By Rahim’s A/c 5,000
To Suspense A/c 450 By Anirudh’s Capital A/c 23,550
To Machinery A/c 6,100 (Bal. Transfer)

To Mr. Paul’s A/c 6,000

28,550 28,550

2. Suspense Account
` `
To Anirudh’s Capital A/c 16,450 By P & L Adj. A/c 16,000
(Balance Transfer) By P & L Adj. A/c 450
16,450 16,450

© The Institute of Chartered Accountants of India

16 FOUNDATION EXAMINATION: JUNE, 2023

5. (a) Bank Reconciliation Statement as on 31st October, 2022

Particulars ` `
Bank Overdraft as per Bank Statement 9,600
Add: (i) Debit side of the Cash Book was undercast 1,200
(ii) Cheque issued but debited by the Bank to
another customer’s account by mistake 4,800
(vi) Dividend directly collected by the Bank but
not entered in the Cash Book 300
(vii) Cheque issued but yet to be presented for 3,900 10,200
payment
19,800
Less: (iii) Cheque issued for ` 561 posted in the
Cash Book as ` 516 45
(iv) Cheque dishonoured but not recorded in 1,275
the Cash Book
(v) Wrong debit by the Bank to Shankar’s A/c 450
(viii) Cheque deposited but yet to be credited 3,600
(ix) Interest debited by the Bank and yet to be
entered in the Cash Book 900 6,270
Bank overdraft as per the Cash Book (Cr.) 13,530
6. Statement of Valuation of Physical Stock as on 31 st March,2022
` `
Value of stock as on 10th April, 2022 5,00,000
Add: Cost of sales during the intervening period
Sales made between 1.4.2022 and 9.4.2022 80,000
Less: Gross profit @20% on sales (16,000) 64,000
Free sample 16,000
5,80,000
Less: Purchases actually received during the intervening
period:
Purchases from 1.4.2022 to 9.4.2022 40,000
Less: Goods not received upto 9.4.2022 (8,000) (32,000)
5,48,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 17

Add: Purchases during March, 2022 but not recorded in

stock 80,000
Value of physical stock as on 31.3.2022 6,28,000
7. In the books of Firm
Calculation of depreciation for 5th year
(a) Depreciation per year charged for four years = ` 10,00,000 / 10 = ` 1,00,000
(b) WDV of the machine at the end of fourth year = ` 10,00,000 – (` 1,00,000 × 4)
= ` 6,00,000.
(c) Depreciable amount after revaluation = ` 6,00,000 + ` 40,000 = ` 6,40,000
(d) Remaining useful life as per previous estimate = 6 years
(e) Remaining useful life as per revised estimate = 8 years
(f) Depreciation for the fifth year and onwards = ` 6,40,000 / 8 = ` 80,000.
8. In the books of Pratika
Journal Entries
Particulars Dr. Cr.
` `
01-10-2022 Bills Receivable A/c Dr. 5,00,000
To Priya A/c 5,00,000
(Being a 3 month’s bill drawn on Priya for the
amount due)
03-10-2022 Bank A/c Dr. 4,95000
Discount A/c Dr. 5,000
To Bills Receivable A/c 5,00,000
(Being the bill discounted)
04-01-2023 Priya A/c Dr. 5,00,000
To Bank A/c 5,00,000
(Being the bill cancelled up due to Priya’s
inability to pay it)
04-01-2023 Priya A/c Dr. 6,250
To Interest A/c 6,250
(Being the interest due on ` 2,50,000 @ 10% for
3 months)

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18 FOUNDATION EXAMINATION: JUNE, 2023

04-01-2023 Bank A/c Dr. 2,56,250

To Priya A/c 2,56,250
(Being the receipt of a portion of the amount
due on the bill together with interest)
04-01-2023 Bills Receivable A/c Dr. 2,50,000
To Priya A/c 2,50,000
(Being the new bill drawn for the balance)
07-03-2023 Priya A/c Dr. 2,50,000
To Bills Receivable A/c 2,50,000
(Being the dishonour of the bill due to Priya’s
insolvency)
07-03-2023 Bank A/c Dr. 1,50,000
Bad Debts A/c Dr. 1,00,000
To Priya A/c 2,50,000
(Being the receipt of 60% of the amount due
on the bill from Priya’s estate)
9. In the books of Katen
Consignment to Bharat of Jaipur Account
Particulars ` Particulars `
To Goods sent on 15,00,000 By Bharat (Sales) 14,70,000
Consignment
To Bank (Expenses: 1,50,000 By Goods lost in Transit 200 3,30,000
30,000+90,000+30,000) cases @ ` 1,650 each
(WN1)
To Bharat (Expenses: 79,500 By Consignment Inventories:
47,500+25,000+7,000) In hand 50 @ ` 1,700 8,50,000
each (WN2)
To Bharat (Commission) 1,47,000 By Consignment Inventories:
To Profit on Consignment 8,56,000 In transit 50 @ ` 1,650
ts/f to Profit & Loss A/c each (WN3) 82,500
27,32,500 27,32,500

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 19

Bharat’s Account
Particulars ` Particulars `
To Consignment to 14,70,000 By Consignment A/c 79,500
Jaipur A/c (Expenses)
By Consignment 1,47,000
A/c(Commission)
By Balance c/d 12,43,500
14,70,000 14,70,000
Working Notes:
1. Consignor’s expenses on 1000 cases amounts to ` 1,50,000; it comes to
` 150 per case. The cost of cases lost will be computed at ` 1,650 per case
i.e. 1,500+150.
2. Bharat has incurred ` 47,500 on clearing 950 cases, i.e., ` 50 per case; while
valuing closing inventories with the agent ` 45 per case has been added to
cases in hand with the agent i.e. 1,500+150+50.
3. The goods in transit (50 cases) have not yet been cleared. Hence the
proportionate clearing charges on those goods have not been included in their
value i.e. 1,500+150 =1,650.
4. It has been assumed that balance of ` 12,43,500 is not yet paid.
10. In the books of ‘Anupam’
Goods on sales or return, sold and returned day book
Date Party to whom L.F Amount Date Sold Returned
2022 goods sent ` 2022 ` `
Dec.10 M/s PQR 20,000 Dec. 25 20,000 -
Dec.12 M/s XYZ 25,000 Dec. 16 - 25,000
Dec.15 M/s STV 22,000 Dec. 20 10,000 12,000
Dec.20 M/s XYZ 26,000 Dec. 24 26,000 -
Dec.25 M/s PQR 21,000 Dec. 28 21,000 -
Dec.30 M/s STV 23,000 - _____ _____
1,37,000 77,000 37,000

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20 FOUNDATION EXAMINATION: JUNE, 2023

Goods on Sales or Return Total Account

Amount Amount
2022 ` 2022 `
Dec. 31 To Returns 37,000 Dec. 31 By Goods sent
To Sales 77,000 on sales or return 1,37,000
To Balance c/d 23,000 _____
1,37,000 1,37,000
11. (a) Taking 19.6.2022 as a Base date
Transaction Date Due Date Amount No of days
8.3.2022 11.7.2022 16,000 22 3,52,000
16.3.2022 19.6.2022 20,000 0 0
7.4.2022 10.9.2022 24,000 83 19,92,000
17.5.2022 20.8.2022 20,000 62 12,40,000
80,000 35,84,000
Total of Product
Average Due Date = Base date +
Total of Amount
= 19.6.2022 + ` 35,84000/`80,000
= 19.6.2022 + 44.8 days (or 45 days approximately)
= 3.8.2022
A wants to save interest of ` 628. The yearly interest is ` 80,000  18%
= ` 14,400.
Assume that days corresponding to interest of ` 628 are Y.
Then, 14,400  Y/365 = ` 628
or Y = 628  365/14,400 = 15.9 days or 16 days (Approx.)
Hence, if A wants to save ` 628 by way of interest, she should prepone the
payment of amount involved by 16 days from the Average Due Date. Hence, he
should make the payment on 18.7.2022 (3.8.2022 – 16 days)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 21

(b) Y in Account Current with X

(Interest from Due Date to Dec.31, 2022 @ 10% p.a.)
Dr. Cr.
Date Particulars Due Amount Days Product Date Particulars Due Amount Days Product
Date (`) Date (`)
July 1 To Balance July 1 600 184 1,10,400 Aug. 1 By Cash A/c Aug. 1 650 152 98,800
b/d
July 17 To Sales A/c July 17 50 167 8,350 Sept. 1 By Cash A/c Sept. 350 121 42,350
1
Aug. 19 To Sales A/c Aug 19 700 134 93,800 Sept. 1 By Bills Receivable Dec. 4 250 27 6,750
A/c
Aug.30 To Sales A/c Aug. 30 40 123 4,920 Oct. 22 By Purchases A/c Oct. 30 70 2,100
22
Nov.12 To Sales A/c Nov. 12 20 49 980 Dec. 14 By Cash A/c Dec. 80 17 1,360
14
Dec.31 To Interest A/c Dec. 31 By Balance c/d 68.38 67,090
` (67,090
 0.1 / 365) 18.38 _____ ____ _____
1428.38 2,18,450 1428.38 2,18,450

12. Trading and Profit and Loss Account of Mr. Prakash

for the year ended 31 st December, 2022
` ` ` `
To Opening stock 2,34,000 By Sales 19,48,000
To Purchases 16,08,500 Less: Returns 43,000 19,05,000
Add: Omitted By Closing stock
2000 3,93,000
invoice
16,10,500
Less: Returns 29,000
15,81,500
Less: Drawings 3000 15,78,500
To Carriage 98,000
To Gross profit c/d 3,87,500
22,98,000 22,98,000
To Rent and taxes 23,500 By Gross profit b/d 3,87,500
To Salaries and By Discount
46,500 22,200
wages
To Bank interest 5,500
Add: Due 8,500 14,000

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22 FOUNDATION EXAMINATION: JUNE, 2023

To Printing and 72,000

stationary
Less: Prepaid (1/4) 18,000 54,000
To Discount allowed 9,000
To General expenses 57,250
To Insurance 6,500
To Postage & telegram expenses 11,650
To Travelling expenses 4350
To Provision for bad debts
5,750
[W.N.(ii)]
To Provision for discount on
2185
debtors [W.N.(iii)]
To Depreciation on
2,500
furniture & fittings
To Net profit 1,72,515
4,09,700 4,09,700
Balance Sheet of Prakash as at 31st December, 2022
Liabilities ` ` Assets ` `
Capital 3,83,450 Furniture & fittings 25,000
Add: Net profit 1,72,515 Less: Depreciation 2,500 22,500

5,55,965 Sundry debtors (W.N.1) 115,000

Less: Drawings: Less: Provision for bad
Cash 1,50,000 & doubtful debts (W.N.2) 5,750
Goods 3000 1,53,000 4,02,965 1,09,250
Bank loan 1,00,000 Less: Provision for
Bank interest due 8,500 Discount (W.N.2) 2,185 1,07,065
Sundry creditors (W.N.3) 71,000 Stock 3,93,000
Prepaid expenses:
Printing & stationary 18,000
Bank balance 40,000
_______ Cash balance 1900
5,82,465 5,82,465

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 23

Working Notes:
(1) Sundry debtors
Balance as per trial balance 1,20,000
Less: Due to Ravi 5,000
1,15,000
(2) Provision for bad & doubtful debts:
@ 5% on ` 1,15,000 5,750
Provision for discount:
2% on ` 1,09,250 (1,15,000 -5,750) 2,185
(3) Sundry creditors
Balance as per trial balance 74,000
Less: Set off in respect of Ravi 5,000
69,000
Add: Purchase invoice omitted 2,000
71,000
13. Calculation of Capital as on 01.04.2021
Particulars P (`) Q (`) R (`) Total
Closing Capital 1,50,000 1,80,000 2,10,000 5,40,000
Add: Drawings 20,000 20,000 20,000 60,000
Less: Share of Profit 12,000 24,000 24,000 60,000
Capitals as on 01.04.2021 1,58,000 1,76,000 2,06,000 5,40,000

Particulars P (`) Q (`) R (`) Total

Share of profit already credited (A) 12,000 24,000 24,000 60,000
II. Amount which should have been
credited:
Interest on Capital @ 10% 15,800 17,600 20,600 54,000
Share of Profit (out of the balance 1,200 2,400 2,400 6,000
amount) (60,000 – 54,000)
(B) 17,000 20,000 23,000 60,000
III. Difference [(A)-(B)] -5000 4,000 1,000 -

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24 FOUNDATION EXAMINATION: JUNE, 2023

Journal entry
Particulars L.F. Dr. (`) Cr. (`)
Q’s Capital A/c Dr. 4,000
R’s Capital A/c Dr. 1,000
To P’s Capital A/c 5,000
(Being the omission of interest on capital rectified)

14. Total Profit for 4 years = ` 15,000+ ` (25,500) +` 75,000+` 1,12,500= ` 1,77,000.
Total Profit `1,77,000
Average profits = = = `44,250
No. of Years 4
Average Profits for Goodwill = ` 44,250 – Proprietor Remuneration
= ` 44,250 – ` 9,000 = ` 35,250
Normal Profit = Interest on Capital employed
= ` 30,000 (i.e. ` 3,00,000 x10/100) = ` 30,000
Super Profit = Average Profit-Normal Profit = ` 35,250 – ` 30,000 = ` 5,250
Goodwill = Super Profit x No of years purchases = ` 5,250 x 3 =` 15,750
15. Revaluation Account
2022 ` 2022 `
April 1 To Provision for bad 535 April 1 By Inventory in 3,500
and doubtful debts trade
To Furniture and 1,800 By Land and 14,000
fittings Building
To Capital A/cs:
(Profit on
revaluation
transferred)
Shyam 7582.5
Sundar 5055.00
Girdhar 2527.5 15,165
17,500 17,500

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 25

Working Note:
Calculation of sacrificing ratio
Partners New share Old share Sacrifice Gain
Shyam ¼ 3/6 6/24
Sundar ¼ 2/6 2/24
Girdhar ¼ 1/6 2/24
Hari ¼ 6/24
Entry for goodwill adjustment
Shyam (2/24 of `45,000) Dr. 3,750
Sundar (6/24 of `45,000) Dr. 11,250
To Girdhar (6/24 od `45,000) 11,250
To Hari (2/24 of `45,000) 3,750
Balance Sheet of Shyam, Sundar, Girdhar and Hari as on 1 st April,2022
Liabilities ` ` Assets ` `
Trade payables 56,250 Land and Buildings 1,06,500
Outstanding Liabilities 3,750 Furniture 16,200
(5,500-1,750)
Capital Accounts of Inventory of goods 35,000
Partners:

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26 FOUNDATION EXAMINATION: JUNE, 2023

Mr. Shyam 67,832.50 Trade receivables 26,750

Mr. Sundar 52,805.00 Less: Provisions (535) 26,215
Mr. Girdhar 27,027.50 Cash in hand 7,000
Mr. Hari Cash at Bank
8,750.00 25,500
1,56,415 (5,500+20,000)
2,16,415 2,16,415
16. Income and Expenditure Account
for the year ended 31st March, 2022
` `
To Medicines consumed By Prescription fees 4,95,000
Purchases 1,83,750 By Visiting fees 1,87,500
Less: Closing Stock (71,250) By Fees from
1,12,500 18,000
lectures
To Motor car expense (90,000 x 2/3) 60,000
To Salaries (` 78,750 – ` 22,500) 56,250
To Rent for clinic 45,000
To General charges 36,750
To Interest on loan 27,000
To Excess of Income over ______
3,63,000
expenditure
7,00,500 7,00,500

Capital Account
for the year ended 31 st March, 2022
` `
To Drawings: By Cash/bank 1,50,000
Motor car expenses 30,000 By Cash/bank (pension) 2,25,000
Household expenses 1,35,000 By Net income from practice 3,63,000
Marriage expenses 1,61,250 (derived from income
To Salary of domestic and expenditure a/c)
22,500
servants
To Household furniture 18,750
To Balance c/d 3,70,500
7,38,000 7,38,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 27

Balance Sheet as on 31st March, 2022

Liabilities ` Assets `
Capital 3,70,500 Motor car 2,40,000
Loan 2,25,000 Surgical equipment 1,87,500
Stock of medicines 71,250
Cash at bank 82,500
Cash in hand 14,250
5,95,500 5,95,500
17. Journal of Finopolis Limited
Date Dr. Cr.
2022 Particulars ` `
July 1 Bank A/c (Note 1 – Column 3) Dr. 16,80,000
To Equity Share Application A/c 16,80,000
(Being application money received on
4,20,000 shares @ ` 2 per share)
July Equity Share Application A/c Dr. 16,80,000
10
To Equity Share Capital A/c 5,20,000
To Equity Share Allotment A/c
(Note 1 - Column 5) 8,00,000
To Bank A/c (Note 1–Column 6) 3,60,000
(Being application money on 2,60,000
shares transferred to Equity Share Capital
Account; on 4,00,000 shares adjusted with
allotment and on 1,80,000 shares refunded
as per Board’s Resolution No…..dated…)
Equity Share Allotment A/c Dr. 13,00,000
To Equity Share Capital A/c 7,80,000
To Securities Premium a/c 5,20,000
(Being allotment money due on 2,60,000
shares @ ` 5 each including premium at
` 2 each as per Board’s Resolution
No….dated….)

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28 FOUNDATION EXAMINATION: JUNE, 2023

Bank A/c (Note 1 – Column 8) Dr. 5,00,000

To Equity Share Allotment A/c 5,00,000
(Being balance allotment money received)
Equity Share Final Call A/c Dr. 13,00,000
To Equity Share Capital A/c 13,00,000
(Being final call money due on 2,60,000
shares @ ` 5 per share as per Board’s
Resolution No…..dated….)
March Bank A/c Dr. 13,00,000
31st
To Equity Share Final Call A/c 13,00,000
(Being final call money on 2,60,000 shares
@ ` 5 each received)

Working Note:
Calculation for Adjustment and Refund
Category No. of No. of Amount Amount Amount Refund Amount Amount
Shares Shares Received Required adjusted [3-4-5] due on received
Applied Allotted on on on Allotment on
for Application Application Allotment Allotment
(1x ` 2) (2 x ` 2)
(1) (2) (3) (4) (5) (6) (7) (8)
(i) 40,000 40,000 80,000 80,000 Nil Nil 2,00,000 2,00,000
(ii) 2,00,000 1,00,000 4,00,000 2,00,000 2,00,000 Nil 5,00,000 3,00,000
(iii) 6,00,000 1,20,000 12,00,000 2,40,000 6,00,000 3,60,000 6,00,000 Nil
TOTAL 8,40,000 2,60,000 16,80,000 5,20,000 8,00,000 3,60,000 13,00,000 5,00,000

18. (i) Journal Entries in the books of Avtar Ltd.

Date Dr. Cr.
` `
(a) Equity Share Capital A/c Dr. 9,000
To Equity Share Allotment money A/c 2,700
(900 x ` 3)
To Equity Share Final Call A/c (900 x ` 4) 3,600

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 29

To Forfeited Shares A/c (900 x ` 3) 2,700

(Being the forfeiture of 900 equity shares of
` 10 each for non-payment of allotment money and
final call, held by Varun as per Board’s resolution
No…………….dated……………..)
(b) Bank A/c (900 x 8) Dr. 7,200
Forfeited Shares A/c (900x 2) Dr. 1,800
To Equity Share Capital A/c 9,000
(Being the re-issue of 900 forfeited shares @
` 8 each as fully paid up to Nitesh as per Board’s
resolution No……….dated……………..)
(c) Forfeited Shares A/c Dr. 900
To Capital Reserve A/c 900
(Being the profit on re-issue, transferred to capital
reserve)

(ii)
Date Dr. Cr.
` `
(a) Equity Share Capital A/c (200 x ` 7) Dr. 1,400
To Equity Share First Call A/c (200 x ` 2) 400
To Forfeited Shares A/c (200 x ` 5) 1,000
(Being the forfeiture of 200 equity shares of
` 10/- (`7 called up) for non-payment of first call @
` 2/- per share as per Board Resolution No……….
dated………………)
(b) Bank A/c Dr. 900
Forfeited Shares A/c Dr. 600
To Equity Share Capital A/c 1,500
(Being the re-issue of 150 forfeited shares as fully paid
up as per Board’s resolution No.………dated…………..)
(c) Forfeited Shares A/c Dr. 150
To Capital Reserve A/c 150
(Being the profit on re-issue, transferred to capital
reserve)

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30 FOUNDATION EXAMINATION: JUNE, 2023

Working Note:
Balance in forfeited shares account on forfeiture of 150 shares (150 x 5) `750
Less: Forfeiture of 150 shares (`600)
Profit on re-issue of shares `150
19. In the books of Somya Ltd.
Journal Entries
Date Particulars Dr. Cr.
` `
(a) Bank A/c Dr. 67,50,000
To Debentures Application A/c 67,50,000
(Being the application money received on
15,000 debentures @ ` 450 each)
Debentures Application A/c Dr. 67,50,000
Discount on issue of Debentures A/c Dr. 7,50,000
To 14% Debentures A/c 75,00,000
(Being the issue of 15,000 12% Debentures
@ 90% as per Board’s Resolution
No….dated….)
(b) Fixed Assets A/c Dr. 30,00,000
To Vendor A/c 30,00,000
(Being the purchase of fixed assets from
vendor)
Vendor A/c Dr. 30,00,000
Discount on Issue of Debentures A/c Dr. 7,50,000
To 14% Debentures A/c 37,50,000
(Being the issue of debentures of
` 37,50,000 to vendor to satisfy his claim)
(c) Bank A/c Dr. 30,00,000
To Bank Loan A/c (See Note) 30,00,000
(Being a loan of ` 30,00,000 taken from
bank by issuing debentures of `37,50,000 as
collateral security)
Note: No entry is made in the books of account of the company at the time of making
issue of such debentures. In the “Notes to Accounts” of Balance Sheet, the fact that the

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 31

30 Paid rent by cheque 2,400
30 Bank Charged 1% commission on sale through
debit/credit card
Rectification of errors
(b) Mr. Anirudh was unable to agree the Trial Balance last year and wrote off the
difference to the profit and loss account of that year. On verifying the old books by a
Chartered Accountant next year, the following mistakes were found.
(i) Purchase account was undercast by ` 16,000.
(ii) Sale of goods to Mr. Rahim for ` 5,000 was omitted to be recorded.
(iii) Receipt of cash from Mr. Ashok was posted to the account of Mr. Anubhav
` 1,200.
(iv) Amount of ` 4,167 of sales was wrongly posted as ` 4,617.
(v) Repairs to Machinery was debited to Machinery Account ` 6,100.
(vi) A credit purchase of goods from Mr. Paul for ` 3,000 entered as sale.
Suggest the necessary rectification entries.
Bank Reconciliation Statement
5. On 31st October, 2022, the Cash Book of Mr. Shankar showed an overdrawn position of
` 13,530 although his Bank Statement showed only ` 9,600 overdrawn. An examination
of the two records showed the following errors:
(i) The debit side of the Cash Book was undercast by ` 1,200.
(ii) A cheque for ` 4,800 in favour of Hari suppliers Ltd. was omitted by the bank from
the statement, the cheque was debited to another customer’s Account.
(iii) A cheque for ` 561 drawn for payment of telephone bill was recorded in the Cash
Book as ` 516 but was shown correctly in the Bank Statement.
(iv) A cheque for ` 1,275 from Mr. Satpal paid into bank was dishonoured and shown as
such on the Bank Statement, although no entry relating to the dishonoured cheque
was made in the Cash Book.
(v) The Bank had debited a cheque for ` 450 to Mr. Shankar Account by mistake, it
should have been debited by them to Mr. Kar’s Account.
(vi) A dividend of ` 300 was collected by the bank but not entered in the Cash Book.
(vii) Cheques totalling ` 3,900 drawn on October was not presented for payment.
(viii) Cheque for ` 3,600 deposited on 30th October was not credited by the Bank.

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4 FOUNDATION EXAMINATION: JUNE, 2023

(ix) Interest amounting to ` 900 was debited by the Bank but yet to be entered in the
Cash Book.
You are required to prepare a Bank Reconciliation Statement on 31st October, 2022.
Inventories
6. Raj Ltd. prepared their accounts financial year ended on 31st March 2022. Due to
unavoidable circumstances actual stock has been taken on 10th April 2022, when it was
ascertained at ` 5,00,000. It has been found that;
(i) Sales are entered in the Sales Book on the day of dispatch and return inwards in
the Returns Inward Book on the day of the goods received back.
(ii) Purchases are entered in the Purchase Book on the day the Invoices are received.
(iii) Sales between 1st April 2022 to 9th April 2022 amounting to ` 80,000 as per Sales
Day Book.
(iv) Free samples for business promotion issued during 1st April 2022 to 9th April 2022
amounting to ` 16,000 at cost.
(v) Purchases during 1st April 2022 to 9th April 2022 amounting to ` 40,000 but goods
amounts to ` 8,000 not received till the date of stock taking.
(vi) Invoices for goods purchased amounting to ` 80,000 were entered on 28th March
2022 but the goods were not included in stock.
Rate of Gross Profit is 25% on cost. Ascertain the value of Stock as on 31st March, 2022.
Concept and Accounting of Depreciation
7. A Plant & Machinery costing ` 10,00,000 is depreciated on straight line assuming 10
year working life and zero residual value, for four years. At the end of the fourth year, the
machinery was revalued upwards by ` 40,000. The remaining useful life was reassessed
at 8 year. Calculate Depreciation for the fifth year.
Bill of exchange
8. Priya owed `5,00,000 to Pratika. On 1st October, 2022, Priya accepted a bill drawn by
Pratika for the amount at 3 months. Pratika got the bill discounted with his bank for
`4,95,000 on 3rd October, 2022. Being unable to pay the amount on due date, Priya
approached Pratika for renewal of the bill. Pratika agreed on the conditions that
` 2,50,000 be paid immediately together with interest on the remaining amount at 10%
per annum for 3 months and for the balance, Priya should accept a new bill at three
months. These arrangements were carried out. But afterwards, Priya became insolvent
and 60% of the amount could be recovered from his estate.
Pass journal entries (with narration) in the books of Pratika.

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Average Due Date

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Carriage inwards 98,000 -

The following adjustments are to be made:

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To Bank overdraft 12,000

To Capital A/c 36,000
(Being commencement of business by
mohan by taking over a running
business.)
(ii) Advertisement Expenses A/c Dr. 6,000
To Purchases A/c 6,000
(Being goods distributed as free samples)
(iii) Purchase A/c Dr. 10,800
To Cash A/c 10,500
To Discount Received A/c 300
(Being the goods purchased from Naveen
for ` 12,000 @ 10% trade discount and
cash discount of ` 300)
(iv) Drawings A/c Dr. 10,200
To Petty Cash A/c 10,200
(Being the income tax of proprietor paid
out of business money)
(v) Cash A/c Dr. 1,800
Bad Debts A/c Dr. 1,800
To Sumit 3,600
(Being Sumit became insolvent 50 paise
in a rupee could be recovered)
(b) (i) Revenue receipt.
(ii) Revenue expenditure.
(iii) Capital expenditure.
(iv) Revenue receipt.
4. (a) Triple Column Cash Book
Dr. Cr.
Date Particulars Discou Cash Bank Date Particulars Discount Cash Bank
nt
2022 ` ` ` 2022 ` ` `
April 1 To Balance b/d 9,000 36,000 April 2 By Bank (C) 3,000
April 2 To Cash (C) 3,000 April 5 By Furniture A/c 4,500
April 12 To Ms. Kamini 60 2,940 April 8 By Purchase A/c 1500

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April 14 To Sales A/c 15,000 April 16 By Ms. Shikha 150 4,350

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To Machinery A/c 6,100

To Mr. Paul’s A/c 6,000

28,550 28,550

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Particulars P (`) Q (`) R (`) Total

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32 FOUNDATION EXAMINATION: JUNE, 2023

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ACCOUNTING

QUESTIONS

True and False

1. State with reasons, whether the following statements are true or false:
(a) A concern proposes to discontinue its business from December
2023 and decides to dispose off all its plants within a period of 3
months. The Balance Sheet as on 31 st December, 2023 should
continue to indicate the plants at its historical costs as the assets
will be disposed off after the Balance Sheet date.
(b) The Sales book is kept to record both cash and credit sales.
(c) Bank reconciliation statement is prepared to arrive at the bank
balance.
(d) Damaged Inventory should be valued at cost or market price,
whichever is lower.
(e) Reducing balance method of depreciation is followed to have a
uniform charge for depreciation and repairs and maintenance
together.
(f) Discount at the time of retirement of a bill is a gain for the drawee.
(g) A withdrawal of cash from the business by the proprietor for
personal use should be charged to profit and loss account as an
expense.
(h) In case of admission of a new partner in a partnership firm, the
profit/loss on revaluation account is transferred to all partners in
their new profit sharing ratio.

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(i) Where a Non-Profit organization separate trading activity, the

profit and loss from the trading account shall be transferred to
Income and Expenditure Account at the time of consolidation.
(j) In the balance sheet of X Limited, preliminary expenses amounting
to ` 5 lakhs and securities premium account of ` 35 lakhs are
appearing; The accountant can use the balance in securities
premium account to write off preliminary expenses.
(k) Debenture interest is payable after the payment of preference
dividend but before the payment of equity dividend.
Theoretical Framework
2. (a) What services can a Chartered Accountant provide to the society?
(b) State the advantages of setting Accounting Standards.
Journal Entries
3. (a) Journalise the following transactions in the books of Gopal
Traders:
2023
April,5 Discounted a bill of exchange of `20,000 at 2%
through bank.
April,8 Sold goods to Malik costing ` 20,000 at 25% above
cost less trade discount of 10% plus CGST and SGST @
6%.
April,10 Purchased goods from trends industries for Rs 8,000
plus CGST and SGST@6% each.
April,16 Received `5,800 form Amar Singh in full settlement of
his account for ` 6,000.
April,19 Goods given as charity costing `800, sale price `1,000.
CGST and SGST @6% each was paid at the time of
purchase of such goods.
April,23 Received `510 from Ganesh on his account for `600.
April,25 Interest on loan from Akash `1,000 due but not paid.

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Capital or Revenue Receipt or Expenditure

(b) Classify the following receipts or expenditures as capital or
revenue:
(i) Wages incurred by a factory in manufacturing a part for its
plant.
(ii) Travelling expenses of the directors for trips abroad for
purchase of capital assets.
(iii) An expenditure intended to benefit the current period.
(iv) Amount paid for removal of stock to a new site.
(v) Amount received from sale of land and building by a real
estate dealer.
Subsidiary Books
4. (a) The following are some of the transactions of M/s Sameer traders -
a garment dealer. Prepare the sales book.
Sold to M/s. Chawla & Verma on credit:
30 shirts @ ` 700 per shirt.
20 trousers @ `1,000 per trouser.
Less: Trade Discount @ 10%
Sold furniture to M/s. Mittal & Co. on credit `8,000.
Sold 50 shirts to M/s. Nagpal & Sons @ `800 per shirt.
Sold typewriter to M/s. Goyal & Co. `7,200 for cash
Sold 30 shirts to Cheap Stores @ `750 each for cash.
Sold on credit to M/s. Madhu & Garg.
50 shirts @ `750 per shirt
20 overcoats @ `5,000 per overcoat.
Less: Trade Discount @ 10%

3 JUNE 2024 EXAMINATION

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Rectification of Errors
(b) M/s. Beta Chemicals labs were unable to agree the Trial Balance as
on 31st March, 2023 and have raised a suspense account for the
difference. Next year the following errors were discovered:
(i) Repairs made during the year were wrongly debited to the
building A/c - ` 12,500.
(ii) The addition of the 'Freight' column in the purchase journal
was short by ` 15,000.
(iii) Goods to the value of ` 4,500 returned by a customer, Shiv &
Co., had been posted to the debit of Shiv & Co. and also to
sales returns.
(iv) Sundry items of furniture sold for ` 30,000 had been entered
in the sales book, the total of which had been posted to sales
account.
(v) A bill of exchange (received from Ms. Sapna) for ` 75,000 had
been returned by the bank as dishonoured and had been
credited to the bank and debited to bills receivable account.
You are required to pass journal entries to rectify the above
mistakes.
Bank Reconciliation Statement
5. On 31 December 2023, Bank Statement of Samar & Co. was showing a
favourable balance of `1,05,980. This did not agree with the balance in
the cash book. On scrutiny of the Cash Book and Bank Statement
following discrepancies were found:
(i) A deposit of 30,825 made on 29th December 2023 had not been
credited by the bank till 31 December 2023.
(ii) Cheques issued for `48,400 not presented for payment till 31
December 2023.
(iii) On 25th September 2023, the firm had entered into Hire Purchase
agreement to pay by bank order a sum of ` 25,000 on the 10th of
each month, commencing from October 2023. For this transaction
no entries had been made in cash book.

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(iv) A customer of the firm, who received a cash discount of 4% on his

account of `2,00,000 paid the firm a cheque on 22 December. The
Cashier erroneously entered the gross amount in the bank column
of the Cash Book.
(v) Bank Charges amounting to `1,250 had not been entered in Cash
Book
(vi) Dividend of 25,000 collected by bank was not recorded in cash
book.
Prepare Bank Reconciliation Statement as on 31 st December 2023. .
Valuation of Inventories
6. A trader prepared his accounts on 31st March, each year. Due to some
unavoidable reasons, no stock taking could be possible till 15 th April,
2023 on which date the total cost of goods in his godown came to
` 50,000. The following facts were established between 31st March and
15th April, 2023.
(i) Sales ` 41,000 (including cash sales ` 10,000)
(ii) Purchases ` 5,034 (including cash purchases ` 1,990)
(iii) Sales Return ` 1,000.
(iv) On 15th March, goods of the sale value of ` 10,000 were sent on
sale or return basis to a customer, the period of approval being
four weeks. He returned 40% of the goods on 10th April,
approving the rest; the customer was billed on 16th April.
(v) The trader had also received goods costing ` 8,000 in March, for
sale on consignment basis; 20% of the goods had been sold by
31st March, and another 50% by the 15th April. These sales are
not included in above sales.
Goods are sold by the trader at a profit of 20% on sales.
You are required to ascertain the value of Inventory as on 31 st March,
2023.

5 JUNE 2024 EXAMINATION

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Depreciation and Amortisation

7. M/s. Mohit Transport Company purchased 10 Buses @ ` 25,00,000 each
on 1st July 2020. On 1st October, 2022, one of the buses is involved in an
accident and is completely destroyed and ` 17,50,000 is received from
the insurance in full settlement. On the same date, another bus was
purchased by the company for the sum of ` 30,00,000. The company
writes off 20% of the original cost per annum. The company observes
the calendar year as its financial year.
Give the Bus account for two years ending 31st December, 2023.
Bills of Exchange
8. Chavi owed ` 1,00,000 to Ritu. Chavi accepted a bill drawn by Ritu for
the amount at 3 months. After 3 days, Ritu got the bill discounted with
her bank for ` 99,000. Before the due date, Chavi approached Ritu for
renewal of the bill. Ritu agreed on the conditions that ` 50,000 be paid
immediately together with interest on the remaining amount at 12% per
annum for 3 months and for the balance, Chavi should accept a new bill
at three months. These arrangements were carried out. But afterwards,
Chavi became insolvent and 40% of the amount could be recovered
from his estate.
Pass journal entries (with narration) in the books of Ritu.
Final accounts
9. The following is the trial balance of Mr. Samuel for the year ended 31 st
March,2024:
Trial Balance as on 31 st March,2024

Particulars Dr. Cr.

Capital 9,50,000
Sundry Creditors 3,25,000
Purchase Returns 50,000
Loan from Mr. Sahil 4,00,000
Provision for Bad and Doubtful Debts 25,000
Sales 44,20,000

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Bank overdraft 6,00,000

Opening Stock:
Raw Materials 2,50,000
Finished goods 4,25,000
Purchase of Raw Materials 34,00,000
Land 50,000
Building 6,00,000
Loose tools 1,50,000
Plant & Machinery 3,00,000
Investments 2,50,000
Cash in Hand 15,500
Cash in Bank 43,500
Furniture & Fixtures 1,25,000
Sundry Debtors 3,75,000
Drawings 60,000
Salaries 90,000
Coal and Fuel 1,05,000
Factory rent 77,000
General Expenses 39,000
Sales Return 55,000
Bad Debts 15,000
Direct Wages (Factory) 1,20,000
Power 80,000
Interest Paid on Bank overdraft 90,000
Carriage Inwards 30,000
Carriage Outwards 25,000
67,70,000 67,70,000

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Additional Information:
(i) Stock of Raw materials and finished goods at the end of the year
was ` 5,00,000 and ` 4,37,500 respectively.
(ii) A provision for doubtful debts at 5% on Sundry Debtors.
(iii) Depreciate building by 10%, Plant and machinery by 15% and
Furniture and fixtures by 10%,
(iv) One month Factory rent is outstanding.
(v) Interest has accrued on investment and rate of interest is 10% p.a.
(vi) Interest on loan from Mr. Sahil is payable @ 12% per annum. The
loan was taken on 01.10.2023.
You are required to prepare Manufacturing Account, Trading Account,
Profit and Loss Account and Balance sheet for the year ended
31 March,2024.
Accounts from Incomplete records
10. Ankur keeps his books of accounts by single entry system. However, he
is able to give you the following lists of his assets and liabilities in the
beginning as well as at the end of the year ended 31st March, 2024:

On 1st April, 2023 On 31 st March, 2024

` `
Cash in hand 1,750 1,400
Cash at bank 20,000 -
Bank Overdraft - 1,800
Bills Receivable 15,000 25,000
Stock 93,500 98,700
Debtors 60,000 70,000
Furniture and Fittings 65,000 65,000
Creditors 45,000 31,000
Bills Payable 5,000 Nil

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Ankur introduced ` 10,000 as fresh capital on 1 st October, 2023. He also

withdrew ` 5,000 every month for his household expenses.
During the year, there was no sale or fresh purchase of furniture and
fittings. Ascertain the profit earned by Ankur during the year ended
31st March, 2024 after depreciating furniture and fittings @ 10% per
annum and creating a provision for bad debts @ 5% on debtors.
Partnership Accounts
11. On 31 st March, 2023, the Balance Sheet of X, Y and Z sharing profits and
losses in proportion to their Capital stood as below:

Liabilities ` Assets `
Capital Account: Land and Building 90,000
Mr. X 60,000 Plant and Machinery 60,000
Mr. Y 90,000 Stock of goods 36,000
Mr. Z 60,000 Sundry debtors 33,000
Sundry Creditors 30,000 Cash and Bank Balances 21,000
2,40,000 2,40,000

On 1st April, 2023, X desired to retire from the firm and remaining
partners decided to carry on the business. It was agreed to revalue the
assets and liabilities on that date on the following basis:
(i) Land and Building be appreciated by 20%.
(ii) Plant and Machinery be depreciated by 30%.
(iii) Stock of goods to be valued at ` 30,000.
(iv) Old credit balances of Sundry creditors, ` 6,000 to be written back.
(v) Provisions for bad debts should be provided at 5%.
(vi) Joint life policy of the partners surrendered and cash obtained
` 22,650.
(vii) Goodwill of the entire firm is valued at ` 42,000 and X’s share of
the goodwill is adjusted in the A/cs of Y and Z, who would share
the future profits equally. No goodwill account being raised.

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(viii) The total capital of the firm is to be the same as before retirement.
Individual capital is in their profit sharing ratio.
(ix) Amount due to Mr. X is to be settled on the following basis:
50% on retirement and the balance 50% within one year.
Prepare (a) Revaluation account, (b) The Capital accounts of the
partners, (c) Cash account and (d) Balance Sheet of the new firm M/s Y &
Z as on 1.04.2023.
Dissolution of Partnership
12. Seema, Meena & Tina are partners sharing profits and losses in the ratio
of 5:3:2. There capitals were ` 13,440, ` 8,400, ` 11,760 respectively.
Liabilities and assets of the firm are as under:
Liabilities: `
Trade creditors 2,800
Loan from partners 1,400
Assets: `
Patent 1,400
Furniture 2,800

Machinery 1,680
Stock 5,600
The assets realized in full in the order in which they are listed above.
Meena is insolvent.
You are required to prepare a statement showing the distribution of
cash as and when available, applying maximum possible loss procedure.
Financial Statements of Not for Profit Organizations
13. Hilfiger Sports club gives the following Receipts and Payments account
for the year ended March 31,2023:

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Receipts and Payments Account

Receipts ` Payments `
To Opening cash and By Salaries
1,04,000 3,00,000
bank balances
To Subscription 6,96,000 By Rent and taxes 1,08,000
To Donations 2,00,000 By Electricity charges 12,000
To Interest on By Sports goods
24,000 40,000
investments
To Sundry receipts 6,000 By Library books 2,00,000
By Newspapers and
21,600
periodicals
By Miscellaneous
1,08,000
expenses
By Closing cash and
2,40,400
bank balances
10,30,000 10,30,000

Liabilities As on As on
31.3.2022 (`) 31.3.2023 (`)
Outstanding expense:
Salaries 20,000 40,000
Newspapers and periodicals 8,000 10,000
Rent and taxes 12,000 12,000
Electricity charges 16,000 20,000
Library Books 2,00,000 -
Sports goods 1,60,000 -
Furniture and fixtures 2,00,000 -
Subscription receivable 1,00,000 2,40,000
Investment government securities 10,00,000 -
Accrued interest 12,000 12,000

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Provide depreciation as follows:

Furniture and fixtures @ 10%
Sports goods @ 20%
Library books @ 10%
Provide full depreciation on additions.
Donations are to be capitalised.
You are required to prepare Club's opening Balance Sheet as on
1.4.2022, Income and expenditure Account for the year ended on
31.3.2023 and Balance sheet as on that date.
Issue and Forfeiture of Shares
14. Y. Ltd issued 20,000 shares of ` 10 each at premium of 20% per share.
Payables as following:
On Application ` 2 Per share
On Allotment ` 5 per share (including premium)
On First Call ` 3 per share
On Final Call ` 2 per share
Applications were received for 30,000 shares and pro-rata allotment was
made to the application for 24,000 shares. Any excess money paid on
application was employed on account of sum due on allotment.
Kamal, to whom 400 shares were allotted, failed to pay the allotment
money and on his subsequent failure to pay the first call his shares were
forfeited.
Tamal, the holder of 600 shares, failed to pay the two calls, and his
shares were forfeited after the final call. Out of the shares forfeited, 800
shares were issued to Ramesh Credited as fully paid for ` 9 per share,
the whole of Kamal’s shares being included.
Pass the necessary journal entries to record the above transactions.

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Debentures
15. On 1st April 2023, Sapan Ltd. (an unlisted NBFC) took over assets of
` 9,00,000 and liabilities of 1,20,000 of Plus Herbs Ltd. for the purchase
consideration of ` 8,80,000. It paid the purchase consideration by
issuing 8% debenture of ` 100 each at 10% premium on same date.
Sapan Ltd. issued another 3000, 8% debenture of ` 100 at discount of
10% redeemable at premium of 5 % after 5 years. According to the
terms of the issue ` 30 is payable on application and the balance on the
allotment on debentures. It has been decided to write off the entire loss
on issue of discount in the current year itself.
You are required to pass the journal entries in the books of Sapan Ltd.
for the financial year 2023-24.
Bonus Issue and Right Issue
16. Following are the balances appear in the trial balance of XYZ Ltd. as at
31st March, 2023.
Issued and Subscribed Capital:
`
10,000; 10% Preference Shares of ` 10 each fully paid 1,00,000
1,00,000 Equity Shares of ` 10 each ` 8 paid up 8,00,000
Reserves and Surplus:
General Reserve 2,40,000
Securities Premium (collected in cash) 25,000
Profit and Loss Account 1,20,000

On 1st April, 2023 the company has made final call @ ` 2 each on
1,00,000 Equity Shares. The call money was received by 15 th April, 2023.
Thereafter the company decided to issue bonus shares to equity
shareholders at the rate of 1 share for every 5 shares held and for this
purpose, it decided that there should be minimum reduction in free
reserves. Pass Journal entries.

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Redemption of Preference Shares

17. Sushil Limited had 10,000, 10% Redeemable Preference Shares of ` 100
each, fully paid up. The company had to redeem these shares at a
premium of 10%.
It was decided by the company to issue the following:
(i) 80,000 Equity Shares of ` 10 each at par.
(ii) 4,000 12% Debentures of ` 100 each.
The issue was fully subscribed and all accounts were received in full. The
payment was duly made. The company had sufficient profits. Show
journal entries in the books of the company.
18. Write short notes on the following:
(i) Fundamental Accounting Assumptions.
(ii) Objectives of preparing Trial Balance.
(iii) Tangible Assets vs. Intangible Assets.
(iv) Liability of LLP and its Partners.
(v) Requirement to create Debenture Redemption Reserve.

SUGGESTED ANSWERS/HINTS

1. (a) False: If the fundamental accounting assumption of going concern

is not followed, then the assets and liabilities should be stated at
realizable value not historical cost.
(b) False: The Sales book is a register especially kept to record credit
sales of goods dealt in by the firm, cash sales are entered in the
cash book and not in the sales book.
(c) False: Bank reconciliation statement is prepared to reconcile and
explain the causes of differences between bank balance as per
cash book and the same as per bank statement as on a particular
date.

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(d) False: Damaged Inventory should be valued at net releasable

value.
(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
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) True: Discount at the time of retirement of a bill is a gain for the
drawee and loss for the drawer.
(g) False: Cash withdrawal for personal use by the proprietor from his
business should be treated as his drawings and not a business
expense chargeable to profit and loss account. Such drawings
should be deducted from the proprietors capital.
(h) False: In case of admission of new partner in a partnership firm,
profit/loss on revaluation account is transferred to old partners in
their old profit-sharing ratio.
(i) True: Where in case of a Non-Profit organization separate trading
activity, the profit and loss from the trading account shall be
transferred to Income and Expenditure Account at the time of
consolidation.
(j) True: According to Section 52 of the Companies Act, 2013,
Securities Premium Account may be used by the company to write
off preliminary expenses of the company. Thus, the accountant can
use the balance in securities premium account to write off the
preliminary expenses amounting ` 5 lakhs
(k) False: Debenture interest is payable before the payment of any
dividend on shares.
2. (a) The practice of accountancy has crossed its usual domain of
preparation of financial statements, interpretation of such
statements and audit thereof. Chartered Accountants are presently

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taking active role in company laws and other corporate legislation

matters, in taxation laws matters (both direct and indirect) and in
general management problems.
Some of the services rendered by chartered accountants to the
society are briefly mentioned hereunder:
(i) Maintenance of books of accounts;
(ii) Statutory audit;
(iii) Internal Audit;
(iv) Taxation;
(v) Management accounting and consultancy services;
(vi) Financial advice and financial investigations etc.
(vii) Other services like secretarial work, share registration work,
company formation receiverships, arbitrations etc.
(b) The main advantage of setting accounting standards is that the
adoption and application of accounting standards ensure
uniformity, comparability and qualitative improvement in the
preparation and presentation of financial statements. The other
advantages are: Reduction in variations; Disclosures beyond that
required by law and Facilitates comparison.
3. (a)
Date Particulars L.F. Dr. (`) Cr. (`)
2023
April,5 Bank A/c Dr. 19,600
Discounting Charges A/c 400
(20,000X2%) Dr.
To Bills Receivable A/c 20,000
(Being bill discounted
from bank at 2%)
April,8 Malik’s A/c Dr. 25,200

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To Sales 22,500
To Output CGST A/c 1,350
To Output SGST A/c 1,350
(Being goods sold at a
profit of 25% and trade
discount of 10% CGST and
SGST at 6% each)
April,10 Purchases A/c Dr. 8,000
Input CGST A/c Dr. 480
Input SGST A/c Dr. 480
To Trends Industries 8,960
(Being goods purchased
and CGST and SGST
payable at 6% each)
April,16 Cash A/c Dr. 5,800
Discount Allowed A/c Dr. 200
To Amar Singh 6,000
(Being cash received form
Amar Singh after allowing
him discount of ` 200)
April,19 Charity A/c Dr. 896
To Purchases A/c 800
To Input CGST A/c 48
To Input SGST A/c 48
(Being goods given as
charity, input CGST and
input SGST debited at the
time of purchases
reversed)

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April,23 Cash A/c Dr. 510

Discount allowed A/c 60
To Ganesh’s A/c 600
(Being cash received form
Ganesh on account)
April,25 Interest on Loan A/c Dr. 1,000
To interest on Loan 1,000
Outstanding A/c
(Being interest on loan
due but not paid)

(b) (i) Capital Expenditure.

(ii) Capital Expenditure.
(iii) Revenue Expenditure.
(iv) Revenue Expenditure.
(v) Revenue Receipt.
4. (a) Sales Book

Date Particulars Details Amount

` `
2023 M/s. Chawla & Verma
30 shirts @ ` 700 21,000
20 Trousers @ ` 1,000 20,000
41,000
Less: Trade discount @10% (4,100)
Sales as per invoice no. dated ..... 36,900
M/s. Nagpal & Sons 50 shirts @ 40,000
` 800
Sale as per invoice no. dated ......

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M/s Madhu & Garg

50 shirts @ ` 750 37,500
20 overcoats @ ` 5,000 1,00,000
1,37,500
Less: Trade discount @10% (13,750)
Sales as per invoice no. dated...... 1,23,750
Total 2,00,650

Note: Cash sale, sale of furniture and sale of typewriter are not
entered in Sales Book.
(b) Rectification entries in the books of M/s Beta Chemicals labs

Particulars L.F. Dr. Cr.

` `
1. Profit and Loss Adjustment A/c Dr. 12,500
To Building Account 12,500
(Repairs amounting ` 12,500 wrongly
debited to building account, now
rectified)
2. Profit and Loss Adjustment A/c Dr. 15,000
To Suspense Account 15,000
(Addition of freight column in purchase
journal was under casted, now
rectification entry made)
3. Suspense A/c Dr. 9,000
To Shiv & Co. 9,000
(Goods returned by Shiv & Co. had
been posted wrongly to the debit of her
account, now rectified)
4. Profit and Loss Adjustment A/c Dr. 30,000
To Furniture A/C 30,000
(Being sale of furniture wrongly entered
in sales book, now rectified)

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5. Ms. Sapna. Dr. 75,000

To Bills receivable A/c 75,000
(Bill receivable dishonoured debited to
Bills receivable account instead of
customer account, now rectified)
5.

Particulars Details (`) Amount (`)

Balance as per the Pass Book 1,05,980
Add: Deposited with bank but not 30,825
credited
Payment of Hire Purchases Instalments for 75,000
3 months (Oct.to Dec.) not entered in
Cash Book (` 25,000X3)
Discount allowed wrongly entered n Bank 8,000
Column
Bank Charges not entered in the Cash 1,250 1,15,075
Book
2,21,055

Less: cheques issued but not presented (48,400)

for payments
Dividends directly collected by bank but
(25,000) (73,400)
not entered in the Cash Book
1,47,655
Balance as per Cash Book
6. Statement of Valuation of Stock on 31 st March, 2023
` `
Value of stock as on 15th April, 2023 50,000
Add: Cost of sales during the period from
31st March, 2023 to 15th April, 2023
Sales (` 41,000 – ` 1,000) 40,000
Less: Gross Profit (20% of ` 40,000) 8,000 32,000
Cost of goods sent on approval basis
(80% of ` 6,000) 4,800
86,800

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Less: Purchases during the period from

31st March, 2023 to 15th April, 2023 5,034
Unsold stock out of goods received on
consignment basis (30% of ` 8,000) 2,400 7,434
79,366

7. Buses A/c

Date Particulars Amount Date Particulars Amount

2022 2022
Jan- To balance b/d Oct-
1,75,00,000 By bank A/c 17,50,000
01 (W.N.2) 01

To Profit &
Loss A/c -
Oct- Oct- By Depreciation
Profit on 3,75,000 3,75,000
01 01 on lost assets
settlement of
Truck (W. Note
1)
Oct- Dec- By Depreciation
To Bank A/c 30,00,000 46,50,000
01 31 A/c (W Note 3)
Dec-
By balance c/d 1,41,00,000
31
2,08,75,000 2,08,75,000
2023 2023
Jan- Dec- By Depreciation
To balance b/d 1,41,00,000 51,00,000
01 31 A/c (W Note 3)
Dec-
By balance c/d 90,00,000
31
1,41,00,000 1,41,00,000

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Working Note:
1. Profit on settlement of Bus

Original cost as on 1.7.2020 25,00,000

Less: Depreciation for 2020 (6 months) 2,50,000
WDV as on 31.12.2020 22,50,000
Less: Depreciation for 2021 5,00,000
WDV as on 31.12.2021 17,50,000
Less: Depreciation for 2022 (9 months) 3,75,000
WDV as on 31.12.2022 13,75,000
Less: Amount received from Insurance 17,50,000
company
Profit on settlement of Bus 3,75,000

2. Calculation of WDV of 10 Bus as on 01.01.2022

Amount
WDV of 1 Bus as on 31.12.2021 (Refer W.N 1) 17,50,000
WDV of 10 Bus as on 01.01.2022 1,75,00,000

3. Calculation for Depreciation for 2022 and 2023

Amount
Depreciation for 2022
On 9 Buses (` 25,00,000 x 9 x 20%) 45,00,000
On new Buses (` 30,00,000 x 1 x 20% x 3/12) 1,50,000
46,50,000
Depreciation for 2023
On 9 Buses (` 25,00,000 x 9 x 20%) 45,00,000
On new Buses (Rs 30,00,000 x 1 x 20%) 6,00,000
51,00,000

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8. In the books of Ritu

Journal Entries

Particulars L.F. Dr. Cr.

` `
Bills Receivable A/c Dr. 1,00,000
To Chavi A/c 1,00,000
(Being a 3 month’s bill drawn on
Chavi for the amount due)
Bank A/c Dr. 99,000
Discount A/c Dr. 1,000
To Bills Receivable A/c 1,00,000
(Being the bill discounted)
Chavi A/c Dr. 1,00,000
To Bank A/c 1,00,000
(Being the bill cancelled up due to
Chavi’s inability to pay it)
Chavi A/c Dr. 1,500
To Interest A/c 1,500
(Being the interest due on ` 50,000
@ 12% for 3 months)
Bank A/c Dr. 51,500
To Chavi A/c 51,500
(Being the receipt of a portion of
the amount due on the bill together
with interest)
Bills Receivable A/c Dr. 50,000
To Chavi A/c 50,000
(Being the new bill drawn for the
balance)
Chavi A/c Dr. 50,000

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To Bills Receivable A/c 50,000

(Being the dishonour of the bill due
to Chavi’s insolvency)
Bank A/c Dr. 20,000
Bad Debts A/c Dr. 30,000
To Chavi A/c 50,000
(Being the receipt of 40% of the
amount due on the bill from Chavi’s
estate)

9. In the books of Mr. Samuel

Manufacturing Account for the year ended 31 st March,2024
Particulars ` Particulars `
To Opening Stock 2,50,000 By Closing stock 5,00,000
of Raw Material
To Purchase 34,00,000 By Cost of 35,64,000
Less: Purchase 50,000 33,50,000 Manufactured
Return goods
To Carriage Inwards 30,000 Transferred to
To Direct Wages 1,20,000 Trading A/c
To Power 80,000
To Coal and fuel 1,05,000
To Factory Rent 84,000
To Depreciation on
Machinery 45,000
40,64,000 40,64,000

Trading Account for the year ended 31st March,2024

Particulars ` Particulars ` `
To Opening Stock of By Sales 44,20,000
Finished goods 4,25,000 Less: Sales 55,000 43,65,000
Return
To Cost of goods By Closing 4,37,500
transferred from Stock

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Manufacturing A/c 35,64,000

To Gross Profit c/d 8,13,500
48,02,500 48,02,500

Profit and Loss Account for the year ended 31 st March 2024

Particulars ` ` Particulars `
To Carriage Outward 25,000 By Gross Profit 8,13,500
b/d
To General expenses 39,000 By Accrued 25,000
Interest
To Salaries 90,000
To Interest Paid to 90,000
bank
To Interest to 24,000
Mr. Sahil
To Provision for Bad
&
Doubtful Debts 18,750
Add: Bad Debts 15,000
Less: Old Provision
for
Doubtful Debts 25,000 8,750
To Depreciation 72,500
(60,000+12500)
To Net Profit c/d 4,89,250
8,38,500 8,38,500

Balance Sheet as on 31 st March,2024

Capital and ` ` Assets `
Liabilities
Capital 9,50,000 Land 50,000
Add: Net Profit 4,89,250 Plant & Machinery 3,00,000

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Less: Drawing (60,000) 13,79,250 Less: Depreciation 45,000 2,55,000

Sundry Creditors 3,25,000 Building 6,00,000
Factory rent 7,000 Less: Depreciation 60,000 5,40,000
Outstanding Furniture & Fixtures 1,25,000
Loan from 4,00,000 Less: Depreciation 12,500 1,12,500
Mr. Sahil
Interest due 24,000 4,24,000 Investments 2,50,000
Bank Overdraft 6,00,000 Accrued Interest 25,000
Closing Stock
Raw materials 5,00,000
Finished goods 4,37,500 9,37,500
Loose Tools 1,50,000
Sundry Debtors 3,75,000
Less: Provision for
Bad & Doubtful 18,750 3,56,250
Debts
Cash in Hand 15,500
Cash at Bank 43,500
27,35,250 27,35,250

10. Statement of Profit

Capital as on 31 st March, 2024 (W.N. 2) 2,17,300

Add: Drawings (` 5,000 x 12) 60,000
2,77,300
Less: Additional capital (10,000)
2,67,300
Less: Capital as on 1 st April, 2023 (W.N. 1) (2,05,250)
Profits during the year 62,050

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Working Note 1
Statement of Affairs as on 1 st April, 2023
` `
Creditors 45,000 Cash in Hand 1,750
Bills Payable 5,000 Cash at Bank 20,000
Capital (bal. fig.) 2,05,250 Bills Receivable 15,000
Stock 93,500
Debtors 60,000
Furniture and Fittings 65,000
2,55,250 2,55,250

Working Note 2
Statement of Affairs as on 31 st March, 2024

Liabilities ` Assets ` `
Creditors 31,000 Cash in Hand 1,400
Bank Overdraft 1,800 Bills Receivable 25,000
Capital (bal. fig.) 2,17,300 Stock 98,700
Debtors 70,000
Less: Provision for
doubtful debts (3,500) 66,500
Furniture and fittings 65,000
Less: Depreciation (6,500) 58,500
2,50,100 2,50,100
11. (a) Revaluation Account
Date Particulars ` Date Particulars `
2023 2023
April To Plant & Machinery April By Land and
18,000 18,000
building
To Stock of goods By Sundry
6,000 6,000
creditors
To Provision for bad and By Cash & Bank -
1650 22,650
doubtful debts Joint life Policy

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surrendered
To Capital accounts
(profit on revaluation
transferred)
Mr. X (2/7) 6,000
Mr. Y (3/7) 9,000
Mr. Z (2/7) 6,000 21,000
46,650 46,650

(b) Partners’ Capital Accounts

Dr. Cr.
Particulars X Y Z Particulars X Y Z
(`) (`) (`) (`) (`) (`)
To X’s Capital - 3,000 9,000 By Balance 60,000 90,000 60,000
A/c - b/d
goodwill

To Cash & - - By Revaluatio 6,000 9,000 6,000

bank A/c - n A/c
39,000
(50% dues
paid)

To X’s Loan - - By Y & Z’s 12,000 - -

A/c - (50% Capital
39,000
transfer) A/cs –
goodwill

To Balance - 1,05,000 1,05,000 By Cash & - 9,000 48,000

c/d bank A/c -
amount
brought in
(Balancing
figures)

78,000 1,08,000 1,14,000 78,000 1,08,000 1,14,000

(c) Cash and Bank Account

Particulars ` Particulars `
To Balance b/d 21,000 By X’s Capital A/c - 50% 39,000
dues paid
To Revaluation A/c – 22,650 By Balance b/d 61,650

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surrender value of
joint life policy
To Y’s Capital A/c 9,000
To Z’s Capital A/c 48,000
1,00,650 1,00,650

(d) Balance Sheet of M/s Y & Z as on 01.04.2023

Liabilities ` Assets `
Partners’ Capital Land and Building 90,000
account
Mr. Y 1,05,000 Add: Appreciation
20% 18,000 1,08,000
Mr. Z 1,05,000 2,10,000 Plant & Machinery 60,000
Mr. X’s Loan account Less: Depreciation 30%
39,000
18,000 42,000
Sundry Creditors 24,000 Stock of goods 36,000
Less: revalued 6,000 30,000
Sundry Debtors 33,000
Less: Provision for
bad debts 5% 1650 31,350
Cash & Bank balances 61,650
2,73,000 2,73,000

Working Notes:

Adjustment for Goodwill:

Goodwill of the firm 42,000
Mr. X’s Share (2/7) 12,000
Gaining ratio of Y & Z;
Y = ½ - 3/7 = 1/14
Z = ½ - 2/7 = 3/14
Y:Z = 1:3

Therefore, Y will bear – ¼  12000 or `3,000

Z will bear = ¾  12000 or `9,000

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12. Statement of Distribution of Cash

Realization Trade Loans Partners’ Capitals
Creditor from
partners
Seema Meena Tina Total
` ` ` ` ` ` `
Balances due (1) 2,800 1,400 13,440 8,400 11,760 33,600
(i) Sale of Patent 1,400 (1,400) -
1,400 1,400
(ii) Sale of 2,800 (1,400) (1,400)
furniture
(iii) Sale of 1,680
machinery
Maximum possible ` 31,920 (15,960) (9,576) (6,384) (31,920)
loss (total of
capitals ` 33,600
less cash available
` 1,680) allocated
to partners in the
profit sharing ratio
i.e. 5 : 3 : 2
Amounts at credit (2,520) (1,176) 5,376 1,680
Deficiency of Seema 2,520 1,176 (3,696) -
and Meena written
off against Tina
Amount paid (2) – – 1,680 1,680
Balances in capital 13,440 8,400 10,080 31,920
accounts (1 – 2) =
(3)
(iv) Sale of stock 5,600
Maximum possible 26,320
loss
(` 31,920 – ` 5,600)
allocated
to partners in the
ratio (13,160) (7,896) (5,264) (26,320)
5:3:2

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Amounts at credit
and cash paid (4) 280 504 4,816 5,600
Balances in capital 13,160 7,896 5,264 26,320
accounts left
unpaid—
Loss (3 – 4) = (5)

13. Balance Sheet of Hilfiger Sports Club as on 1 st April,2022

Liabilities ` ` `
Capital fund (bal. 17,20,000 Library books 2,00,000
fig)
Outstanding Sports goods 1,60,000
expenses:
Salaries 20,000 Furniture and 2,00,000
Newspapers and Fixtures
Periodicals 8,000 Subscriptions 1,00,000
Electricity charges 16,000 Receivable
Rent and taxes 12,000 56,000 Investment Govt 10,00,000
Securities
Accrued interest 12,000
Cash in Bank 1,04,000
balances
17,76,000 17,76,000

Income and Expenditure Account for the year ended on

31st March,2023

Expenditure ` Income `
To Salaries 3,20,000 By Subscription 8,36,000
To Electricity charges 16,000 (W.N.1)
To Rent and taxes 1,08,000 By Interest on 24,000
To Newspapers and 23,600 Investments (W.N.2)

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Periodicals By Sundry receipts 6,000

To Misc expenses 1,08,000
To Depreciation on fixed 1,00,000
Assets (W N 4)
To Excess of income
1,90,400
over
Expenditure (Transferred
to
Capital fund)
8,66,000 8,66,000

Balance Sheet of Hilfiger Sports Club as on 31 st March,2023

Liabilities ` ` Assets ` `
Capital fund Fixed assets
(W.N.4)
Opening Furniture and 1,80,000
17,20,000
balance
Add: Surplus 1,90,400 Fixtures
Add: Donations 2,00,000 21,10,400 Sports goods 1,60,000
Library books 3,60,000 7,00,000
Outstanding Investment Govt
Expenses: Securities 10,00,000
(W.N.3)
Salaries 40,000 Accrued interest 12,000
Newspapers and 10,000 Subscriptions
Periodicals Receivable 2,40,000
Electricity Cash and bank 2,40,400
20,000
charges Balance
Rent and taxes 12,000 82,000
21,92,400 21,92,400

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Working Notes:
(1) Subscriptions for the year ended 31 st March,2023:
`
Subscription received during the year 6,96,000
Add: Subscriptions receivable on 31.3.2023 2,40,000
9,36,000
Less: Subscriptions receivable on 31.3.2022 (1,00,000)
8,36,000

(2) Interest on investments for the year ended 31 st March,2023:

`
Interest received during the year 24,000
Add: Accrued interest on 31.3.2023 12,000
36,000
Less: Accrued interest on 31.3.2022 (12,000)
24,000

(3) Expenses for the year ended 31st March,2023:

Expenses Salaries Electricity Rent and taxes Newspapers

and
periodicals
` ` ` `
Paid during the 3,00,000 12,000 1,08,000 21,600
year
Add: Outstanding 40,000 20,000 12,000 10,000
(as on 31.3.2023)
3,40,000 32,000 1,20,000 31,600

Less: Outstanding (20,000) (16,000) (12,000) (8,000)

(as on 31.3.2022)
3,20,000 16,000 1,08,000 23,600

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(4) Depreciation on Fixed assets

Assets Book Additions Total Rate of Depreciation W.D.V.as on
value during depreciation 31.3.2023
(31.3.2022 the year
Furniture 2,00,000 2,00,000 10% 20,000 1,80,000
and
fixtures
Sports
Goods 1,60,000 40,000 2,00,000 20% 40,000 1,60,000

Library 2,00,000 2,00,000 4,00,000 10% 40,000 3,60,000

Books
Total 1,00,000 7,00,000

14.

Particulars LF Dr. Cr.

Bank A/c Dr. 60,000
To Share Application A/c 60,000
(Being application money received)
Share Application A/c Dr. 60,000
To Share Capital A/c 40,000
To Share allotment A/c 8,000
To Bank A/c 12,000
(Being application money Transfer to share
capital account)
Share Allotment A/c Dr. 1,00,000
To Share Capital A/c 60,000
To Securities Primmum A/c 40,000
(Being allotment money due)
Bank A/c (W.N.) Dr. 90,160
To Share Allotment A/c 90,160
(Being Allotment money received
Share First Call A/c Dr. 60,000
To Share Capital A/c 60,000
(Being first call money receivable)

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Bank A/c Dr. 57,000

To Share First call A/c 57,000
(Being First call money received)
Share Capital A/c Dr. 3,200
Securities Premium A/c Dr. 800
To Share Allotment A/c 1,840
To Share First call A/c 1,200
To Share Forfeiture A/c 960
(Being Share forfeited for 400 share of
Kamal)
Share Final Call A/c Dr. 39,200
To Share Capital A/c 39,200
(Being Final call money due for
20,000-400 = 19600 shares)
Bank A/c Dr. 38,000
To Share Final call A/c 38,000
(Being First call money received)
Share Capital A/c Dr. 6,000
To Share First call A/c 1,800
To Share Final call A/c 1,200
To Share Forfeiture A/c 3,000
(Being Share forfeited for 600 shares)
Bank A/c Dr. 7,200
Share Forfeited A/c Dr. 800
To Share Capital A/c 8,000
(Being 800 shares are re-issued)
Share Forfeited A/c Dr. 2,160
To Capital Reserve A/c 2,160
(Being Profit on re-issue transfer to capital
reserve account)

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Working Note:
Calculation of shares applied by Kamal:
Total Shares Applied =24,000 , Share Allotted = 20,000
share applied by Kamal=400 shares *24,000/20,000=480 shares.
Allotment money due to Kamal = 400*5=2,000
Adjustment of excess money of application =80*2=160
Allotment Money Received by Company:
Allotment money due =20,000* 5 = 1,00,000
Adjustment of excess money of application (4,000*2) (8,000)
Arrear of Allotment money of Kamal (1,840)
Allotment Money Received 90,160
15. Journal Entries

Date Particular L.F Dr. Cr.

2023 Sundry Assets A/c Dr. 9,00,000
April Goodwill A/c (Bal. fig) Dr. 1,00,000
To Plus Herbs Ltd. A/c 8,80,000
To Sundry Liabilities A/c 1,20,000
(Being Assets and liabilities taken
over for a net consideration of
` 8,80,000)
Plus Herbs Ltd. A/c Dr. 8,80,000
To 8% Debentures A/c 8,00,000
To Securities Premium A/c 80,000
(Being 8000; 8% Debenture of
` 100 each issued at a premium of
10%
Bank A/c Dr. 1,80,000
To Debenture Application A/c 1,80,000
(Being the application money
received for 6000, 8% Debenture)

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Debenture Application A/c Dr. 1,80,000

To 8% Debenture A/c 1,80,000
(Being 6000; 8% Debenture allotted)
Debentures allotment A/c Dr. 3,60,000
Loss on issue of debenture A/c Dr. 90,000
To 8% Debentures A/c 4,20,000
To Premium on redemption of 30,000
debentures A/c
(Being allotment money due on
6000; 8% Debentures at 10%
discount and redeemable at 5%
premium)
Bank A/c Dr. 3,60,000
To Debentures Allotment A/c 3,60,000
(Being the allotment money
received)
2024
Mar, Profit and Loss A/c Dr. 90,000
31
To Loss on issue of Debenture 90,000
A/c
(Being the Loss on issue of
debenture written off)

16. XYZ Ltd.

Journal Entries

Dr. Cr.
2023 ` `
April 1 Equity Share Final Call A/c Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(Final call of ` 2 per share on
1,00,000 equity shares due as per
Board’s Resolution dated....)

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April 15 Bank A/c Dr. 2,00,000

To Equity Share Final Call A/c 2,00,000
(Final Call money on 1,00,000
equity shares received)
Securities Premium A/c Dr. 25,000
General Reserve A/c* Dr. 1,75,000
To Bonus to Shareholders A/c 2,00,000
(Bonus issue @ one share for every
5 shares held by utilizing various
reserves as per Board’s Resolution
dated...)
April 15 Bonus to Shareholders A/c Dr. 2,00,000
To Equity Share Capital A/c 2,00,000
(Capitalization of profit)
Note: Profit and Loss Account balance may also be utilized along with
General Reserve for the purpose of issue of Bonus shares.
17. Redemption of Preference Shares
In the books of Sushil Limited
Journal Entries

Date Particulars Dr. (`) Cr. (`)

Bank A/c Dr. 8,00,000
To Equity Share Capital A/c 8,00,000
(Being the issue of 80,000 equity shares
of ` 10 each at par as per Board’s
resolution No……dated…..)
Bank A/c Dr. 4,00,000
To 12% Debenture A/c 4,00,000
(Being the issue of 4,000 Debentures of
` 100 each as per Board’s Resolution
No…..dated……)

38 JUNE 2024 EXAMINATION

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10% Redeemable Preference Share Dr. 10,00,000

Capital A/c
Premium on Redemption of Preference Dr. 1,00,000
Shares A/c
To Preference Shareholders A/c 11,00,000
(Being the amount payable on
redemption transferred to Preference
Shareholders Account)
Preference Shareholders A/c Dr. 11,00,000
To Bank A/c 11,00,000
(Being the amount paid on redemption
of preference shares)
Profit & Loss A/c Dr. 1,00,000
To Premium on Redemption of 1,00,000
Preference Shares A/c
(Being the adjustment of premium on
redemption against Profits & Loss
Account)
Profit & Loss A/c Dr. 2,00,000
To Capital Redemption Reserve A/c 2,00,000
(Working Note)
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)
Working Note:
Amount to be transferred to Capital Redemption Reserve Account
Face value of shares to be redeemed ` 10,00,000
Less: Proceeds from new issue (` 8,00,000)
Balance ` 2,00,000

39 JUNE 2024 EXAMINATION

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FOUNDATION COURSE

18. (i) Fundamental Accounting Assumptions: 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. The Institute of Chartered Accountants of India
issued Accounting Standard (AS) 1 on ‘Disclosure of Accounting
Policies’ according to which the following have been generally
accepted as fundamental accounting assumptions:
1. Going concern: The enterprise is normally viewed as a going
concern, i.e. as continuing operations for the foreseeable
future. It is assumed that the enterprise has neither the
intention nor the necessity of liquidation or of curtailing
materially the scale of the operations.
2. Consistency: It is assumed that accounting policies are
consistent from one period to another.
3. Accrual: Guidance Note on ‘Terms used in Financial
Statements’ defines accrual basis of accounting as “the
method of recording transactions by which revenue, costs,
assets and liabilities are reflected in the accounts in the
period in which they accrue.” The accrual ‘basis of
accounting’ includes considerations relating to deferrals,
allocations, depreciation and amortisation. Financial
statements prepared on the accrual basis inform users not
only of past events involving the payment and receipt of
cash but also of obligations to pay cash in future and of
resources that represent cash to be received in the future.
Hence, they provide the type of information about past
transactions and other events that is most useful to users in
making economic decisions. Accrual basis is also referred to
as mercantile basis of accounting.
(ii) Objectives of preparing Trial Balance
The preparation of trial balance has the following objectives:
1. Checking of the arithmetical accuracy of the accounting
entries: Trial Balance enables one to establish whether the

40 JUNE 2024 EXAMINATION

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posting and other accounting processes have been carried

out without committing arithmetical errors. In other words,
the trial balance helps to establish the arithmetical accuracy
of the books.
2. Basis for preparation of financial statements: Trial Balance
forms the basis for preparing financial statements such as
the Income Statement and the Balance Sheet. The Trial
Balance represents all transactions relating to different
accounts in a summarized form for a particular period. In
case, the Trial Balance is not prepared, it will be almost
impossible to prepare the financial statements to know the
profit or loss made by the business during a particular period
or its financial position on a particular date.
3. Summarized ledger: Trial Balance contains the ledger
balances on a particular date. Thus, the entire ledger is
summarized in the form of a Trial Balance. The position of a
particular account can be judged simply by looking at the
Trial Balance. The ledger may be seen only when details
regarding the accounts are required.
(iii) Distinction between Tangible and Intangible Assets

Tangible Assets Intangible Assets

Tangible Assets are assets that Intangible Assets are
have a physical substance i.e., identifiable assets that
they can be seen and touched, do NOT have a physical
held for use in the production substance, held for use in the
or supply of goods or services, production or supply of goods
for rental to others, or for or services, for rental to others,
administrative purposes. or for administrative purposes.
Tangible Assets have a finite Intangible Assets have a finite
life based on expected usage. life based on contractual terms.
In some cases, intangible assets
could also have an indefinite
life e.g. purchased goodwill.

41 JUNE 2024 EXAMINATION

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Useful life is based on Useful life of Intangible Assets

expected usage, with no is presumed not to exceed 10
presumption laid down for the years unless evidence exists to
same. the contrary.
Tangible Assets are Intangible Assets are amortised
depreciated over the useful over the useful life. In other
life. In other words, writing off words, writing off the value of
the value of tangible assets on intangible assets on an annual
an annual basis is known as basis is known as amortisation.
depreciation.
Examples include Property, Examples include software,
Machinery, Vehicles etc. streaming rights, landing
rights, trademarks, patents etc.

(iv) Extent of Liability of LLP and its partners

Every partner of an LLP for the purpose of its business is an agent
of the LLP but is not an agent of other partners. Obligations of
LLP are solely its obligations and liabilities of LLP are to be met out
of properties of LLP.
The partners of an LLP in the normal course of business are not
liable for the debts of the LLP. The LLP is liable if a partner of LLP is
liable to any person as a result of wrongful or omission on his part
in the course of business of the LLP or with his authority. However,
a partner will be liable for his own wrongful acts or commissions,
but will not be liable for the wrongful acts or commissions of other
partners of the LLP. Thus a partner may be called to pay the
liability of an LLP under exceptional circumstances.
If an LLP or any of its partners act with the intent to defraud
creditors of the LLP or any other person or for any fraudulent
purpose, then the liability of the LLP and the concerned partners is
unlimited. However, where the fraudulent act is carried out by a
partner, the LLP is not liable if it is established by the LLP that the
act was without the knowledge or authority of the LLP. Where the
business is carried out with fraudulent intent or for fraudulent

42 JUNE 2024 EXAMINATION

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purpose, every person who was knowingly a party is punishable

with imprisonment and fine.
(v) Section 71 of the Companies Act 2013 covers the requirement of
creating a debenture redemption reserve account. Section 71
states as follows:
(1) Where a company issues debentures under this section, it
should create a debenture redemption reserve account out
of its profits which are available for distribution of dividend
every year until such debentures are redeemed.
(2) The amounts credited to the debenture redemption reserve
should not be utilised by the company for any purpose
except for the purpose aforesaid.
(3) The company should pay interest and redeem the
debentures in accordance with the terms and conditions of
their issue.
(4) Where a company fails to redeem the debentures on the
date of maturity or fails to pay the interest on debentures
when they fall due, the Tribunal may, on the application of
any or all the holders of debentures or debenture trustee
and, after hearing the parties concerned, direct, by order, the
company to redeem the debentures forthwith by the
payment of principal and interest due thereon.

43 JUNE 2024 EXAMINATION

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PAPER – 1:
ACCOUNTING

QUESTIONS

True and False

been written off as a bad debit in the previous year was

unexpectedly recovered and has been posted to the personal
account of Mahesh Chand.
(iv) Goods (Cost being ` 15,000 and Sales price being ` 16,000)
distributed as free samples amount prospective customers
were not recorded anywhere.
(v) Goods worth ` 1,500 returned by Ritu have not been
recorded anywhere.
Bank Reconciliation Statement
5. According to the cash-book of Mihir there was balance of ` 4,45,000 in
his bank on 30th June, 2024 On investigation you find that :
(i) Cheques amounting to 60,000 issued to creditors have not been
presented for payment till the date
(ii) Cheques paid into bank amounting to 1,10,500 out of which
cheques amounting to ` 55,000 only collected by bank up to 30th
June 2024
(iii) A dividend of ` 4,000 and rent amounting to 60,000 received by
the bank and entered in the pass-book but not recorded in the
cash book.
(iv) Insurance premium (up to 31st December, 2023) paid by the bank
` 2,700 not entered in the cash book.
(v) The payment side of the cash book had been under cast by ` 500
(vi) Bank charges ` 150 shown in the pass book had not been entered
in the cash book.
(vii) A bill payable of ` 20,000 had been paid by the bank but was not
entered in the cash book and bill receivable for ` 6,000 had been
discounted with the bank at a cost of ` 100 which had also not
been recorded in cash book.
You are required:
(1) To make the appropriate adjustments in the cash book, and
(2) To prepare a statement reconciling it with the bank pass book.

4 SEPTEMBER 2024 EXAMINATION

provided at 10% per annum on fixed assets purchased during the year. A
scrutiny of the books of account revealed the following matters :
(i) ` 20,000 drawn from bank was debited to Drawings account, but
out of this amount withdrawn ` 12,000 was used in the business
for day-to-day expenses.
(ii) Purchase of goods worth ` 16,000 was not recorded in the books
of account upto 31.03.2024, but the goods were included in stock.
(iii) Purchase returns of ` 1,000 was recorded in Sales Return Journal
and the amount was correctly posted to the Party’s A/c on the
correct side.
(iv) Expenses include ` 6,000 in respect of the period after 31st March,
2024.
Give the necessary Journal Entries in respect of (i) to (iv) and prepare the
Final Accounts for the year ended 31st March, 2024.
Financial Statements of Not for Profit Organizations
10. The following information of M/s. Sanyam Club are related for the year
ended 31st March, 2024:
(1)

Balances As on 01-04-2023 As on 31-3-2024

(`) (`)
Stock of Sports Material 75,000 1,12,500
Amount due for Sports 67,500 97,500
Material
Subscription due 11,250 16,500
Subscription received in 9,000 5,250
advance

(2) Subscription received during the year ` 3,75,000

(3) Payments for Sports Material during the year ` 2,25,000

7 SEPTEMBER 2024 EXAMINATION

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FOUNDATION EXAMINATION

You are required to:

(A) Calculate the amount of Subscription and Sports Material that will
appear in Income & Expenditure Account for the year ended
31.03.2024 and
(B) Also show how these items would appear in the Balance Sheet as
on 31.03.2024
Accounts from Incomplete Records
11. Shivam Enterprises maintain their books of accounts under single entry
system. The Balance-Sheet as on 31st March, 2023 was as follows :

Liabilities Amount (`) Assets Amount (`)

Capital A/c 6,75,000 Furniture & fixtures 1,50,000
Trade creditors 7,57,500 Stock 9,15,000
Outstanding 67,500 Trade debtors 3,12,000
expenses
Prepaid insurance 3,000
Cash in hand & at bank 1,20,000
15,00,000 15,00,000

The following was the summary of cash and bank book for the year
ended 31st March, 2024:

Receipts Amount (`) Payments Amount (`)

Cash in hand & at 1,20,000 Payment to trade 1,24,83,000
Bank on 1st April, creditors
2023
Cash sales 1,10,70,000 Sundry expenses 9,31,050
paid
Receipts from 27,75,000 Drawings 3,60,000
trade debtors
Cash in hand & at
Bank on 31st March,
2024 1,90,950
1,39,65,000 1,39,65,000

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ACCOUNTING

Additional Information:
(i) Discount allowed to trade debtors and received from trade
creditors amounted to ` 54,000 and ` 42,500 respectively (for the
year ended 31st March, 2024).
(ii) Annual fire insurance premium of ` 9,000 was paid every year on
1st August for the renewal of the policy.
(iii) Furniture & fixtures were subject to depreciation @ 15% p.a. on
diminishing balance method.
(iv) The following are the balances as on 31st March, 2024:
Stock ` 9,75,000
Trade debtors ` 3,43,000
Outstanding expenses ` 55,200
(v) Gross profit is to be maintained at 10% on total sales.
You are required to prepare Trading and Profit & Loss account for the
year ended 31st March, 2024, and Balance Sheet as on that date.
Partnership Accounts
Calculation of Goodwill
12. A and B are partners in a firm. Their capitals are: A ` 6,00,000 and B
` 4,00,000. During the year ended 31st March, 2024 the firm earned a
profit of ` 3,00,000. Assuming that the normal rate of return is 20%,
calculate the value of goodwill on the firm:
(i) By Capitalization Method; and
(ii) By Super Profit Method if the goodwill is valued at 2 years’
purchase of Super Profit.
Admission of Partner
13. P and Q are partners, sharing profits and losses in the ratio of 3:1. As at
31st March, 2024, following is the Balance Sheet of P and Q.

9 SEPTEMBER 2024 EXAMINATION

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On 1st April, 2024, the company decided to capitalize its reserves by way
of bonus at the rate of two shares for every five equity shares held.
Show necessary journal entries in the books of the company and prepare
the extract of the balance sheet after bonus issue.
18. Write short notes on the following:
(i) Accounting conventions.
(ii) Objectives of preparing Trial Balance.
(iii) posting of journal entries into the Leger.
(iv) Machine Hour Rate method of calculating depreciation.
(v) Contingent Asset and Contingent Liability

SUGGESTED ANSWERS/HINTS

1. (a) False - Accrual concept implies accounting on ‘due’ or ‘accrual’

basis. Accrual basis of accounting involves recognition of revenues
and costs as and when they accrue irrespective of actual receipts
or payments.

12 SEPTEMBER 2024 EXAMINATION

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(b) False - The Sales book is a register specially kept to record credit
sales of goods dealt in by the firm, cash sales are entered in the
cash book and not in the sales book.
(c) False - Bank reconciliation statement is prepared to reconcile and
explain the causes of differences between bank balance as per
cash book and the same as per bank statement as on a particular
date.
(d) False: The provision for bad debts is debited to Profit and loss
Account, in Balance Sheet it is shown either on liability side or
deducted from the head debtors.
(e) True: Under Periodic inventory system actual physical count of
inventory is taken of all the inventory on hand at a particular date.
(f) True - Discount at the time of retirement of a bill is a gain for the
drawee and loss for the drawer.
(g) True: According to the principle of conservatism provision is
maintained for the losses to be incurred in future. Discount on
creditors is an income so provision in not maintained.
(h) False - According to Partnership Act, in the absence of any
agreement to the contrary profits and losses are to be shared
equally among partners.
(i) True: All the receipts and payments whether of revenue or capital
nature are included in Receipt and Payment account.
(j) False: A fixed charge is a mortgage on specific assets. A floating
charge generally covers all the assets of the company including
future one
2. 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 professionals, educational
institutions or non-profit making organizations.

13 SEPTEMBER 2024 EXAMINATION

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FOUNDATION EXAMINATION

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) (i) In the books of Kewal
Journal entries

Particulars Dr. Cr.

Amount Amount
` `
(i) Bank A/c Dr. 9,000
Discount allowed A/c Dr. 1,000
To Hari Krishan A/c 10,000
(Being amount received from Hari
Krishan after allowing discount of
1,000).
(ii) Drawings Dr. 7,000
To Purchases A/c 6,000
To Cash A/c 1,000
(Being goods and cash withdrawn for
personal use).
(iii) Free Samples/Sales promotion A/c Dr. 3,000
To Purchases A/c 3,000
(Being the goods distributes as free
samples).
(iv) Bank A/c Dr. 10,000
To Commission A/c 10,000
(Being commission received).

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ACCOUNTING

Commission A/c Dr. 5,000

To Commission received in 5,000
Advance A/c/ Prepaid Commission A/c
(Being commission received in advance
adjusted).
(v) Machinery A/c Dr. 3,00,000
Input CGST A/c Dr. 18,000
Input SGST A/c Dr. 18,000
To Bank A/c 1,00,000
To Jawahar Industries A/c 2,36,000
(Being machinery purchased from
Jawahar and paid 1,00,000 immediately
CGST and SGST @ 6% each)

(b) (i) Capital Expenditure.

(ii) Capital Expenditure.
(iii) Revenue Expenditure.
(iv) Capital Expenditure.
(v) Revenue Expenditure
4. (a) M/s Ram Agencies
Dr. Cash Book Cr.
Date Particulars L.F. Discount Cash Bank Date Particulars L.F. Discount Cash Bank
` ` ` ` ` `

2024 2024

Mar To Balance 30,000 1,20,000 Mar 2 By Bank C 10,000

1 b/d

Mar To Cash C 10,000 Mar 5 By Furniture 15,000

Mar To Mohan 200 9,800 Mar 8 By Goods / 5,000

12 Purchase

Mar To Sales 50,000 Mar 16 By Lata 500 14,500

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Mar To Cash C 5,000 Mar 19 By Bank C 5,000

Mar To Gupta 200 14,300 Mar 23 By Drawings 6,000

Mar To Cash C 14,300 Mar 26 By Bank C 14,300

Mar To Bank C 20,000 Mar 28 By Cash C 20,000

Mar 30 By Rent 8,000

Mar 31 By Balance 89,800 85,800

c/d

400 1,24,100 1,49,300 500 1,24,100 1,49,300

(b) Journal

Particulars L.F. Dr. Cr.

` `
(1) Building A/c Dr. 20,000
To Wages A/c 20,000
(Being correction of wrong debit in the
wages A/c of the construction of office
building)
(2) Ramesh Dr. 2,400
To Purchases A/c 1,200
To Sales A/c 1,200
(Being correction of wrong entry in the
Purchases Book of a credit sale of goods
to Ramesh)
(3) Mahesh Chand Dr. 2,000
To Bad Debts Recovered A/c 2,000
(Being correction of wrong credit to
Personal A/c in respect of recovery of
previously written off bad debts)
(4) Advertisement expenses or Sales Dr. 15,000
Promotion or Free Samples A/c

16 SEPTEMBER 2024 EXAMINATION

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ACCOUNTING

To Purchases A/c 15,000

(Being entry of the goods distributed as
free samples omitted from records)
(5) Returns Inwards /Sales Return A/c Dr. 1,500
To Green 1,500
(Being entry of goods returned by Ritu
omitted from records)

5. (i) In the Books of Mr. Mihir

Cash Book (Bank Column)

Receipts ` Payments `
To Balance b/d 4,45,000 By Insurance premium 2,700
A/c
To Dividend A/c 4,000 By Correction of errors 500
To Rent A/c 60,000 By Bank charges 150
To Bill receivable A/c 5,900 By Bill payable 20,000
By Balance c/d 4,91,550
5,14,900 5,14,900

Bank Reconciliation Statement as on 30th June, 2024

To Aadya A/c 50,000
(Being the receipt of 40% of the amount
due on the bill from Aadya’s estate)

9. Journal Entries

Particulars Dr. (`) Cr. (`)

(i) Expenses A/c Dr. 12,000
To Drawings A/c 12,000
(Being entry for the amount wrongly
debited to the latter A/c, now
corrected)
(ii) Purchase A/c Dr. 16,000
To Creditors A/c 16,000
(Being entry for purchases not
recorded)
(iii) Suspense A/c Dr. 2,000
To Purchase Returns A/c 1,000
To Sales Returns A/c 1,000
(Being rectification entry for amount
wrongly entered in Sales Journal)

(iv) Prepaid Expenses A/c Dr. 6,000

To Expenses A/c 6,000
(Being prepaid expenses adjusted)

Trading, Profit and Loss Account of Mr. Shekhar

for the year ending 31st March, 2024
Dr. Cr.
` `
To Opening Stock 60,000 By Sales 22,00,000

21 SEPTEMBER 2024 EXAMINATION

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To Purchases 16,00,000 Less: Sales

Return
Add: Amount not 16,000 (99,000-1,000) 98,000 21,02,000
recorded
16,16,000 By Closing 1,00,000
Stock
Less: Purchases
Returns
(69,000+1,000) 70,000 15,46,000
To Gross Profit c/d 5,96,000
22,02,000 22,02,000
To Expenses (50,000 – 56,000 By Gross Profit 5,96,000
6,000 + 12,000)
To Rent (17,000 – 12,000 By Interest on 20,000
5,000) Fixed
Deposit
To Depreciation 14,000 By Interest on 20,000
Add: Further 10,000 24,000 Investments
Depreciation

To Net Profit 5,44,000

6,36,000 6,36,000

Balance Sheet as on 31st March, 2024

Liabilities ` Assets `
Capital 6,00,000 Fixed Assets 1,40,000
Add: Profit 5,44,000 Additions 2,00,000
Less: Drawings 3,40,000
(70,000– 12,000) 58,000 10,86,000 Less: Depreciation 10,000 3,30,000
Creditors 2,20,000 Stock 1,00,000
Add: Purchases Debtors 2,50,000
not recorded 16,000 2,36,000 Investments 2,50,000
Overdraft 8,000 Interest accrued 20,000
on Investment
Bank fixed 2,00,000

22 SEPTEMBER 2024 EXAMINATION

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ACCOUNTING

deposit
Prepaid Expenses 11,000
(6000+5000)
Bank 1,69,000
13,30,000 13,30,000

10. Subscription for the year ended 31.3.2024

`
Subscription received during the year 3,75,000
Less: Subscription receivable on 1.4.2023 11,250
Less: Subscription received in advance on
31.3.2024 5,250 (16,500)
3,58,500
Add: Subscription receivable on 31.3.2024 16,500
Add: Subscription received in advance on 1.4.2023 9,000 25,500
Amount of Subscription appearing in Income & 3,84,000
Expenditure Account

Sports material consumed during the year end 31.3.2024

`
Payment for Sports material 2,25,000
Less: Amounts due for sports material on 1.4.2023 (67,500)
1,57,500
Add: Amounts due for sports material on 31.3.2024 97,500
Purchase of sports material 2,55,000
Sports material consumed:
Stock of sports material on 1.4.2023 75,000
Add: Purchase of sports material during the year 2,55,000
3,30,000
Less: Stock of sports material on 31.3.2024 (1,12,500)
Amount of Sports Material appearing in Income &

23 SEPTEMBER 2024 EXAMINATION

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Expenditure Account 2,17,500

Balance Sheet of M/s Sanyam Club for the year ended
31st March, 2024 (An extract)

ACCOUNTING

=` 3,00,000 – ` 2,00,000 = ` 1,00,000

Goodwill = Super Profit x Number of years’ purchase
= ` 1,00,000 x 2 = ` 2,00,000
13. (a) Revaluation Account
Particulars Amount ` Particulars Amount `
To Furniture 1,000 By Land and Building 50,000
To Stock 20,000
To Provision for doubtful debts 8,000
To Revaluation Profit 21,000
P (21,000 x ¾) 15,750
Q (21,000 x ¼) 5,250

50,000 50,000

Partners’ Capital Accounts

P` Q` R` P` Q` R`
To ‘Q’s - 45,250 - By Balance b/d 2,85,000 1,55,000 –
Current A/c
(bal fig)
To Balance 4,20,000 1,40,000 1,40,000 By General 45,000 15,000 -
c/d reserve
By Revaluation 15,750 5,250
Profit
By Bank A/c - - 1,40,000
By R’s Current 30,000 10,000 -
A/c (Goodwill)
By P’s Current 44,250 - -
A/c (bal fig)
4,20,000 1,85,250 1,40,000 4,20,000 1,85,250 1,40,000

Working Notes:
1. Calculation of total capital
R’s capital contribution of ` 1,40,000 consists of 1/5th of capital.

27 SEPTEMBER 2024 EXAMINATION

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Therefore, total capital of firm should be ` 1,40,000 x 5

= ` 7,00,000
Hence, ` 5,60,000 (7,00,000 -1,40,000) will be shared by P and Q in
the ratio of 3:1 i.e., P’s capital ` 4,20,000 and Q’s capital ` 1,40,000
2. Calculation of New Profit Sharing ratio
P = ¾ x 4/5 = 12/20 = 3/5
Q = 1 /4 X 4/ 5 = 4/20 = 1/5
R = 1/5= 4/20 = 1/5 or 3:1:1
OR
Calculation of sacrificing ratio

Partners New share Old share Sacrifice Gain

P -

Q -

R - -

3. Goodwill
R’s share in Goodwill = 40,000 (2,00,000x1/5) is adjusted through
R’s Current
Account because capitals of old partners are also adjusted on the
basis of R’s Capital.
Therefore, Journal entry for goodwill will be
R’s Current A/c Dr. 40,000
To P’s Capital A/c 30,000
To Q’s Capital A/c 10,000
14. Journal entries in the books of Happy Limited
Bank A/c Dr. 50,000

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To Equity Share Application A/c 50,000

(Money received on application for 2,000 shares @ ` 25
per share)
Equity Share Application A/c Dr. 50,000
To Equity Share Capital A/c 50,000
(Transfer of application money on 2,000 shares to share
capital)
Equity Share Allotment A/c Dr. 60,000
To Equity Share Capital A/c 60,000
(Amount due on the allotment of 2,000 shares @ ` 30
per share)
Bank A/c Dr. 60,000
To Equity Share Allotment A/c 60,000
(Allotment money received)
Equity Share First Call A/c Dr. 40,000
To Equity Share Capital A/c 40,000
(First call money due on 2,000 shares @ ` 20 per
share)
Bank A/c Dr. 38,500
Calls-in-Arrears A/c Dr. 4,000
To Equity Share First Call A/c 40,000
To Calls-in-Advance A/c 2,500
(First call money received on 1,800 shares and calls-in-
advance on 100 shares @ ` 25 per share)
15. In the books of Well Done Limited
Journal entries
Date Particulars ` '000 ` '000
April 1 Bank A/c Dr. 38,500
To 12% Debentures Application A/c 38,500
(Being money received on 3,85,000 debentures)
April 7 12% Debentures Application A/c Dr. 3,500
To Bank A/c 3,500
(Being money on 35,000 debentures refunded as per
Board’s Resolution No…..dated…)

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April 7 12% Debentures Application A/c Dr. 35,000

To 12% Debentures A/c 35,000
(Being the allotment of 3,50,000 debentures of ` 100
each at par, as per Board’s Resolution No….dated…)

16. Calculation of number of equity shares to be allotted

Number of debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000
Option for conversion 20%
Number of debentures to be converted (20% of 35,000) 7,000

Redemption value of 7,000 debentures at a premium of 5%

[7,000 x (100+5)] ` 7,35,000
Equity shares of ` 10 each issued to debenture holders on
redemption
[` 7,35,000/ ` 15] 49,000 shares
Amount of cash to be paid
Amount to be paid into cash [42,00,000 (40,000 x ` 105 ) – ` 34,65,000
7,35,000] on redemption

17. In the books of Goldstar Ltd.

Journal Entries

Dr. Cr.
April 1 Capital Redemption Reserve A/c Dr. 1,20,000
Securities Premium A/c Dr. 75,000
General Reserve A/c Dr. 3,60,000
Profit and Loss A/c (b.f.) Dr. 5,25,000
To Bonus to Equity Shareholders A/c 10,80,000
(Being bonus issue @ two shares for every
five shares held by utilizing various reserves

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as per Board’s Resolution dated...)

Bonus to Shareholders A/c Dr. 10,80,000
To Equity Share Capital A/c 10,80,000
(Being bonus shares issued)

Journal Entries
Balance Sheet (Extract) as on 1st April, 2024 (after bonus issue)
Particulars Notes Amount (`)
Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 40,20,000
b Reserves and Surplus 2 75,000
Notes to Accounts
1 Share Capital (`)
Authorized share capital:
3,78,000* Equity shares of ` 10 each 37,80,000*
25,000 10% Preference shares of ` 10 each 2,50,000
Total 40,30,000
Issued, subscribed and fully paid share capital:
3,78,000 Equity shares of ` 10 each, fully paid
(Out of above, 1,08,000 equity shares @ ` 10
each were issued by way of bonus) 37,80,000
24,000 10% Preference shares of ` 10 each 2,40,000
Total 40,20,000
2 Reserves and Surplus
Capital Redemption Reserve 1,20,000 Nil
Less: Utilized 1,20,000
Securities Premium 75,000
Less: Utilised for bonus issue (75,000) Nil
General reserve 3,60,000

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Less: Utilised for bonus issue (3,60,000) Nil

Profit & Loss Account 6,00,000
Less: Utilised for bonus issue (5,25,000) 75,000
Total 75,000

Note: *Authorized capital has been increased by the minimum required amount i.e. `
7,80,000 (37,80,000 – 30,00,000) in the above solution.

18. (i) Accounting conventions emerge out of accounting practices,

commonly known as accounting principles, adopted by various
organizations over a period of time. These conventions are derived
by usage and practice. The accountancy bodies of the world may
change any of the convention to improve the quality of accounting
information. Accounting conventions need not have universal
application.
(ii) Objectives of preparing trial balance
The preparation of trial balance has the following objectives:
1 Checking of the arithmetical accuracy of the accounting
entries: Trial Balance enables one to establish whether the
posting and other accounting processes have been carried
out without committing arithmetical errors. In other words,
the trial balance helps to establish the arithmetical accuracy
of the books.
2. Basis for preparation of financial statements: Trial Balance
forms the basis for preparing financial statements such as
the Income Statement and the Balance Sheet. The Trial
Balance represents all transactions relating to different
accounts in a summarized form for a particular period. In
case, the Trial Balance is not prepared, it will be almost
impossible to prepare the financial statements to know the
profit or loss made by the business during a particular period
or its financial position on a particular date.
3. Summarized ledger: Trial Balance contains the ledger
balances on a particular date. Thus, the entire ledger is

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summarized in the form of a Trial Balance. The position of a

particular account can be judged simply by looking at the
Trial Balance. The ledger may be seen only when details
regarding the accounts are required.
(iii) Rules regarding posting of entries in the ledger:
1. Separate account is opened in ledger book for each account
and entries from journal are posted to respective ledger
account accordingly.
2. It is a practice to use words ‘To’ and ‘By’ while posting
transactions in the ledger. The word ‘To’ is used in the
particular column with the accounts written on the debit side
while ‘By’ is used with the accounts written in the particular
column of the credit side. These ‘To’ and ‘By’ do not have any
meanings but are used to the account debited and credited.
3. The concerned account debited in the journal should also be
debited in the ledger but reference should be of the
respective credit account.
(iv) Machine Hour Rate method of calculating depreciation: Where
it is practicable to keep a record of the actual running hours of
each machine, depreciation may be calculated on the basis of
hours that the concerned machinery worked. Under machine hour
rate method of calculating depreciation, the life of a machine is
not estimated in years but in hours. Thus depreciation is calculated
after estimating the total number of hours that machine would
work during its whole life; however, it may have to be varied from
time to time, on a consideration of the changes in the economic
and technological conditions which might take place, to ensure
that the amount provided for depreciation corresponds to that
considered appropriate in the changed circumstances. Proper
records are maintained for running hours of the machine and
depreciation is computed accordingly. For example, the cost of a
machine is `10,00,000 and life of the machine is estimated at
50,000 hours. The hourly depreciation will be calculated as
follows:

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Total cost of Machine

Hourly Depreciation =
Estimated life of Machine

`10,00,000
=
50,000 hours

= ` 20 per hour
If the machine runs for say, 2,000 hours in a particular period,
depreciation for the period will be 2,000 hours × ` 20 = ` 40,000.
(v) Contingent Asset
An asset the existence, ownership or value of which may be known
or determined only on the occurrence or non-occurrence of one or
more uncertain future events.
Contingent Liability
An obligation relating to an existing condition or situation which
may arise in future depending on the occurrence or non-
occurrence of one or more uncertain future events.

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QUESTIONS

FOUNDATION EXAMINATION

(viii) Freight paid on a machine ` 5,600 was posted to the freight

Account as ` 6,500.
Pass the necessary rectification entries.
Bank Reconciliation Statement
5. From the following particulars of M/s Iqbal enterprises, prepare a Bank
reconciliation statement:
(1) Bank overdraft as per Pass Book as on 31st March, 2024 was
` 8,800
(2) Cheques deposited in Bank for ` 5,800 but only ` 2,000 were
cleared till 31st March.
(3) Cheques issued were ` 2,500, ` 3,800 and ` 2,000 during the
month. The cheque of ` 5,800 is still with supplier.
(4) Dividend collected by Bank ` 1,250 was wrongly entered as ` 1,520
in Cash Book.
(5) Corporation tax ` 1,200 paid by Bank as per standing instruction
appears in Pass Book only.
(6) Interest on overdraft ` 930 was debited by Bank in Pass Book and
the information was received only on 3rd April 2024.
(7) Direct deposit by M/s Rajesh Trader ` 400 not entered in Cash
Book.
(8) Amount transferred from fixed deposit A/c into the current A/c
` 2,000 appeared only in Pass Book.
Valuation of Inventories
6. (a) The following are the details of material inventory bought and
used by manufacturing company:

Date Particulars Unit and Rate

1.10.24 Balance opening inventory NIL

1.10.24 Material bought 200 unit, `60 per unit

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2.10.24 Issued for use 100 unit

3.10.24 Material bought 400 unit, `80 per unit

4.10.24 Issued for use 200 unit

7.10.24 Issued for use 200 unit

You are required to calculate the value of inventory material as on

7.10.24 by applying weighted average method.
(b) From the following information, calculate the historical cost of
closing inventories using adjusted selling price method:
Purchase during the year - ` 10,00,000
Sales during the year - ` 15,00,000
Opening Inventory Nil
Closing Inventory at selling price ` 2,00,000
Depreciation and Amortisation
7. M/s. Deep lakshmi purchased a second-hand machine on 1st April, 2020
for ` 1,60,000. Overhauling and erection charges amounted to ` 40,000.
Another machine was purchased for ` 80,000 on 1 st Oct, 2020.
On 1st Oct, 2022, the machine installed on 1st April, 2020 was sold for
` 1,00,000. Another machine for `30,000 was purchased and was
installed on 31 st December, 2022.
Under the existing practice the company provides depreciation @ 10%
p.a. on original cost. However, from 1 st April,2023 it decided to adopt
WDV method and to charge depreciation @ 15% p.a. You are required
to prepare Machinery account for the years 2020 to 2024.
Bills of Exchange
8. On 1st April,2024, X sells goods to Y for `25,000 plus IGST@ 18% and
draws two bills of exchange on him; the first bill for `15,000 for 2
months and second bill for the balance for 3 months. Y accepts and
returns these bills to X. Both the bills are sent to the bank for collection

Additional information:
1. Following are the assets and liabilities on 31 st March, 2023:
Assets- Sports equipment- ` 32,000; Subscription in arrears-
` 7,600; furniture- ` 12,480
Liabilities- Outstanding Electricity charges- ` 5,400; Subscription in
advance- ` 6,250
2. Following are the assets and liabilities on 31 st March, 2024-
Assets- Sports equipment- ` 50,500; Subscription in arrears-
` 5,200; furniture- ` 11,180
Liabilities- Outstanding Electricity charges- ` 3,800; Subscription in
advance- ` 4,850
3. 50% of the entrance fees to be capitalized.
4. Interest on the investments is being received in full, and the
investments have been made on 1.4.2022
You are required to prepare Income and Expenditure account and the
Closing balance sheet as of 31st March 2024 in the books of Masters
Club.
Accounts from Incomplete Records
11. Following is the incomplete information of Moonlight Traders:
The following balances are available as on 31.03.2023 and 31.03.2024.

Balances 31.03.2023 31.03.2024

Land 5,00,000 5,00,000
Plant and Machinery 2,20,000 3,30,000
Office equipment 1,05,000 85,000
Debtors ? 2,25,000
Creditors for purchases 95,000 ?
Creditors for office expenses 20,000 15,000
Stock ? 65,000

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Long term loan from FBI @ 12%. 1,60,000 100,000

Bank 25,000 ?

Other Information In `
Collection from debtors 9,25,000
Payment to creditors for purchases 5,25,000
Payment of office expenses (excluding interest on loan) 42,000
Salary paid 32,000
Selling expenses 15,000
Cash sales 2,50,000
Credit sales (80% of total sales)
Credit purchases 5,40,000
Cash purchases (40% of total purchases)
GP Margin at cost plus 25%
Discount Allowed 5,500
Discount Received 4,500
Depreciation to be provided as follows:
Plant and Machinery 10%
Office Equipment 15%

Other adjustments:
(i) On 01.10.23 they sold machine having Book Value ` 40,000 (as on
31.03.2023) at a loss of ` 15,000. New machine was purchased on
01.01.2024.
(ii) Office equipment was sold at its book value on 01.04.2023.
(iii) Loan was partly repaid on 31.03.24 together with interest for the
year.
You are required to prepare Trading, Profit & Loss Account and Balance
Sheet as on 31.03.2024.

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Partnership Accounts
Profit and Loss Appropriation Account
12. (a) Akbar and Bali are partners in a firm sharing profits and losses
equally. On 1st April, 2023 the balance of their Capital Accounts
were : Akbar ` 50,000 and Bali ` 40,000. On that date the balances
of their Current Accounts were: Akbar ` 10,000 (credit) and Bali
` 3,000 (debit). Interest @ 5% p.a. is to be allowed on the balance
of Capital Accounts as on 1.4.2023. Bali is to get annual salary of
` 3,000 which had not been withdrawn. Drawings of Akbar and Bali
during the year were ` 1,000 and ` 2,000 respectively. The profit
for the year ended 31st March, 2024 before charging interest on
capital but after charging Bali salary was ` 70,000. It is decided to
transfer 10% of divisible profit to a Reserve Account. Prepare Profit
& Loss Appropriation Account for the year ended 31st March, 2024
and show Capital and Current Accounts of the Partners for the
year.
Calculation of goodwill
(b) The following information given below:
(i) Total Assets `10,00,000
(ii) External Liabilities `1,80,000
(iii) Normal Rate of Return 10%
(iv) Average Net Profit of last five years `1,00,000
You are required to calculate goodwill by applying:
(i) Capitalization Method and
(ii) 3 year’s purchase of super profits.
Admission and Retirement of Partner
13. Acme & Co. is a partnership firm with partners Mr. X, Mr. Y and Mr. Z,
sharing profits and losses in the ratio of 10:6:4. The balance sheet of the
firm as at 31st March, 2024 is as under:

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Liabilities ` Assets `
Capitals: Land 30,000
Mr. X 2,40,000 Buildings 6,00,000
Mr. Y 60,000 Plant and 3,90,000
machinery
Mr. Z 90,000 3,90,000 Furniture 1,29,000
Reserves Investments 36,000
(un-appropriated 60,000 Inventories 3,90,000
profit)
Long Term Debt 9,00,000 Trade receivables 4,17,000
Bank Overdraft 1,32,000
Trade payables 5,10,000
19,92,000 19,92,000

It was mutually agreed that Mr. Y will retire from partnership and in his
place Mr. P will be admitted as a partner with effect from 1 st April, 2024.
For this purpose, the following adjustments are to be made:
(a) Goodwill is to be valued at `3 lakh but the same will not appear as
an asset in the books of the reconstituted firm.
(b) Buildings and plant and machinery are to be depreciated by 5%
and 20% respectively. Investments are to be taken over by the
retiring partner at ` 45,000. Provision of 20% is to be made on
Trade receivables to cover doubtful debts.
(c) In the reconstituted firm, the total capital will be ` 6 lakhs which
will be contributed by Mr. X, Mr. Z and Mr. P in their new profit
sharing ratio, which is 2:2:1.
(i) The surplus funds, if any, will be used for repaying bank
overdraft.
(ii) The amount due to retiring partner shall be transferred to his
loan account.

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FOUNDATION EXAMINATION

You are required to prepare

(a) Revaluation account;
(b) Partners capital accounts;
(c) Bank account; and
(d) Balance sheet of the reconstituted firm as on 1st April, 2024.
Dissolution of Partnership
14. Neptune, Jupiter, Venus and Pluto had been carrying on business in
partnership sharing profits and losses in the ratio of 3 : 2 : 1 : 1. They
decide to dissolve the partnership on the basis of the following Balance
Sheet as on 30th April, 2024:

Liabilities ` ` Assets ` `
Capital Account: Premises 1,20,000
Neptune 1,00,000 Furniture 40,000
Jupiter 60,000 1,60,000 Stock 1,00,000
General Reserve 56,000 Debtors 40,000
Capital Reserve 14,000 Bank 8,000
Sundry 20,000 Capital
Creditors Overdrawn:
Mortgage Loan 80,000 Venus 10,000
Pluto 12,000 22,000
3,30,000 3,30,000

(i) The assets were realised as under:

FOUNDATION EXAMINATION

(b)

Date Particulars Dr. Cr.

` `
(1) Scooter A/c Dr. 27,000
To Profit and Loss 27,000
Adjustment A/c
(Purchase of scooter wrongly
debited to conveyance account
now rectified-capitalization of
` 27,000, i.e., `30,000 less 10%
depreciation)
(2) Profit & Loss adjustment A/c Dr. 12,400
To suspense A/c 12,400
(Total of return inward book for
July, 2024 omitted to be
recorded now rectified).
(3) Profit & Loss Adjustment A/c Dr. 40,000
To X’s A/c 40,000
(Credit purchase from X
`20,000, entered as sales last
year, now rectified)
(4) Ravish’s A/c Dr. 10,000
To Preetish’s A/c 10,000
(Amount received from
Mr. Preetish wrongly posted to
the account of Mr. Ravish; now
rectified)
(5) Suspense A/c Dr. 10,000
To Chandu’s A/c 10,000
(` 5,000 received from Chandu
wrongly debited to his account;
now rectified)

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(6) Suspense A/c Dr. 10,000

To Profit & Loss 10,000
Adjustment A/c
(Carry forward of total of
purchase a/c to next page
65,950 instead of 55,950 now
rectified)
(7) Rohan’s A/c Dr. 20,000
To Profit & Loss 20,000
Adjustment A/c
(Sales to Rohan omitted last
year; now adjusted)
(8) Machinery A/c Dr. 5,600
Suspense A/c Dr. 900
To Profit & Loss 6,500
Adjustment A/c
(Freight paid for machine 5,600
was posted to freight A/c at
6,500 now rectified)
(9) Profit & Loss Adjustment A/c Dr. 11,100
To Satvik’s Capital A/c 11,100
(Balance of Profit & Loss
Adjustment A/c transferred to
Capital Account)
(10) Satvik’s Capital A/c Dr. 8,500
To Suspense A/c 8,500
(Balance of Suspense Account
transferred to Capital Account)

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FOUNDATION EXAMINATION

5. Bank Reconciliation Statement as on 31 st March, 2024

Particulars Amount
`
Overdraft as per Pass Book 8,800
Add:
(i) Cheques issued but not presented till 31st March 5,800
(ii) Transfer from fixed deposit 2,000
(iii) Direct deposit by M/s Rajesh Trader 400 8,200
17,000
Less:
(i) Cheques deposited but not cleared
(5,800 - 2,000) 3,800
(ii) Dividend collected excess recorded
in Cash Book (1,520-1,250) 270
(iii) Interest on overdraft debited
in Pass Book only 930
(iv) Corporation tax paid appeared
in Pass Book only 1,200 6,200
Overdraft as per Cash Book 10,800
6. (a) Calculation of value of inventory as on 7.1.2024 of manufacturing
company.
Date Receipts Rate Amount Issue Rate Amount Balance Rate Amount
(`) Units (`)
1.10.24 Balance Nil
1.10.24 200 60 12,000 200 60 12,000
2.10.24 100 60 6000 100 60 6,000
3.10.24 400 80 32,000 500 76 38,000
4.10.24 200 76 15200 300 76 22,800
7.10.24 200 76 15200 100 76 7,600

The value of 100 units of inventory as on 7.10.24 ` 7,600

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ACCOUNTING

FOUNDATION EXAMINATION

Aug.4 Y 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)

9. In the books of Mr. Robin

Manufacturing Account for the year ended 31 st March, 2024

Particulars ` Particulars `

Raw material By Closing Stock of 2,34,000

consumed: Work in Progress
To Opening Stock of 6,30,000 By Sale of Scrap 75,000
Raw Materials By Cost of goods 35,70,000
Manufactured
Add: Purchases 25,50,000 (Transferred to
Trading Account)
Less: Closing Stock 4,86,000 26,94,000
To Opening Stock of 2,85,000
WIP
To Wages 3,90,000
Add: Outstanding 60,000 4,50,000
Wages
To Carriage on 45,000
Purchases
To Repairs to Plant 33,000
To Rent (3/4) 1,35,000
To Lighting (2/3) 27,000
To Depreciation of 2,10,000
Plant
38,79,000 38,79,000

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ACCOUNTING

Trading Account for the year ended 31 st March, 2024

Particulars ` Particulars `
To Opening Stock of 4,65,000 By Sales 50,16,000
finished goods
To Cost of goods 35,70,000 By Closing Stock 5,43,000
transferred from
Manufacturing A/c
To Gross Profit c/d 15,24,000
55,59,000 55,59,000

Profit and Loss Account for the year ended 31 st March, 2024

Particulars ` Particulars `
To Salaries 3,00,000 By Gross Profit 15,24,000
b/d
Add: Outstanding 27,000 3,27,000 By Commission 13,500
To Telephone & 30,000
Internet Charges
To Repairs to 10,500
Furniture
To Depreciation of 22,500
furniture
To Rent (1/4) 45,000
To Lighting (1/3) 13,500
To General Expenses 45,000
To Provision for
doubtful Debts: 50,160
Required (1% of
`50,16,00)
Less: Existing Provision 49,500 660
To Net Profit 10,43,340
15,37,500 15,37,500

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FOUNDATION EXAMINATION

10. In the books of Masters Club

Income and expenditure Account for the year ended on
31st March, 2024
Expenditure Amount Income Amount
(`) (`)
To Salaries and 12,250 By Subscriptions 22,000
wages (W.N. 4)
To Depreciation 10,300 By Net proceeds from 3,750
(W.N. 3) refreshments
(22,000-18,250)
To Telephone 2,800 By Entrance fees 13,000
Charges (50% x 26,000)
To Electricity charges 14,000 By Interest on 4,550
(W.N. 5) investments
To Honorarium 6,500 By Excess of 2,550
charges expenditure over
income
45,850 45,850

Balance sheet as at 31st March, 2024

Liabilities Amount Assets Amount

(`) (`)
Opening capital 1,13,880 Sports Equipment 50,500
Less: Deficit (2,550) 1,11,330 Furniture 11,180
Entrance fees 13,000 7% Investments 65,000
Outstanding electricity 3,800 Subscription in arrears 5,200
charges
Subscription in advance 4,850 Cash 1,100
1,32,980 1,32,980

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Working notes
Income earned during the year 4,550
1. Investments made = = 65,000
Rate of interest 7%
2. Balance sheet as at 31st March, 2023

Liabilities Amount Assets Amount

(`) (`)
Opening capital fund 1,13,880 Sports Equipment 32,000
(B/f)
Accrued electricity 5,400 Furniture 12,480
charges
Subscription in 6,250 7% Investments 65,000
advance
Subscription 7,600
Outstanding
Cash 8,450
Total 1,25,530 1,25,530

3. Calculation of depreciation of Sports equipment

Particulars Amount
(`)
Sports equipment as on 31st, March 2023 32,000
Add: Purchases during the year 27,500
Less: Closing balance of equipment as on (50,500)
31st, March 2024
Depreciation on sports equipment for the year 9,000
ended 31st, March 2024

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FOUNDATION EXAMINATION

Calculation of depreciation of Furniture

Particulars Amount
(`)
Furniture as on 31 st, March 2023 12,480
Add: Purchases during the year -
Less: Closing balance of equipment as on 31 st, March (11,180)
2024
Depreciation on furniture for the year ended 31st, 1,300
March 2024

Total Depreciation = ` 10,300 (9,000+1,300)

4. Subscription to be credited to income and expenditure
account for the year 2024
Dr. Subscription A/c (year ended on 31st March, 2024) Cr.

Particulars Amount Particulars Amount

(`) (`)
To Outstanding at 7,600 By Advance at the 6,250
the beginning beginning (2023)
(2023)
To Income and 22,000 By Receipts and 23,000
Expenditure A/c payments A/c
To Advance at the 4,850 By Outstanding at 5,200
end (2025) the end (2024)
34,450 34,450
5. Electricity charges to be debited to Income and expenditure
Account-

Electricity charges paid for year 2024 15,600

Add: Outstanding charges for year 2024 3,800
Less: Outstanding charges for year 2023 (5,400)
Electricity charges to be debited to Income and 14,000
Expenditure A/c

30 JANUARY 2025 EXAMINATION

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ACCOUNTING

11. In the Books of Moonlight Traders

Trading Account for the year ended 31.03.2024

Particulars ` Particulars `
To Opening Stock A/c 1,65,000 By Sales (W.N.1) 12,50,000
(Bal. fig.)
To Purchases (W.N.2) 9,00,000 By Closing Stock 65,000
To Gross profit
(12,50,000x25/125) 2,50,000
13,15,000 13,15,000

Profit and Loss Account for the year ended 31.03.2024

Particulars ` Particulars `
To Discount 5,500 By Gross profit 2,50,000
To Salaries Expenses 32,000 By Discount 4,500
To Office expenses (W.N.3) 37,000
To Selling expenses 15,000 84,000
To Interest on loan (12% on `1,60,000) 19,200
To Loss on sale of Machinery (WN4(c) 15,000
To Depreciation:
Plant & Machinery (W.N 4b) 23,750
Office Equipment (W.N. 5) 12,750 36,500
To Net profit after tax 94,300
2,54,500 2,54,500

Balance sheet as at 31.3.2024

Liabilities ` ` Assets `

Capital (W.N. 6) 8,95,500 Land 5,00,000

Add: Net Profit 94,300 9,89,800 Plant and Machinery 3,08,250
(W.N.4a)
(3,30,000-21,750)
Creditors for 1,05,500 Office Equipment 72,250
Purchases (W.N. 8) (85,000-12,750)

31 JANUARY 2025 EXAMINATION

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FOUNDATION EXAMINATION

Outstanding Debtors 2,25,000

Partners’ Current Account

Date Akbar Bali Date Akbar Bali
01.04.23 To Balance - 3,000 01.04.23 By Balance b/d 10,000
b/d
31.03.24 To Drawings 1,000 2,000 31.03.24 By Interest on 2,500 2,000
A/c Capital
31.03.24 To Balance 40,975 29,475 31.03.24 By Salary 3,000
c/d
31.03.24 By Profit and Loss 29,475 29,475
App A/c

41,975 34,475 41,975 34,475

Note: Profit before charging interest on Capital and Salary to Bali

= 70,000+3,000 =73,000
(b) Goodwill as per Capitalization Method:
(i) Capital Employed (Net Assets)
= Total Assets – External Liabilities
= ` 10,00,000 – ` 1,80,000 = ` 8,20,000
Normal Profit = 10% of ` 8,20,000 = ` 82,000
Super Profit = Average Profit – Normal Profit
= ` 1,00,000 – ` 82,000
= ` 18,000
Goodwill = Super Profit x 100/Normal rate of Return
= 18,000 X 100/10= `1,80,000
(ii) Goodwill as per 3 year’s purchase of super profits:
Goodwill = Super Profit x Number of Year’s purchased
= ` 18,000 x 3 = ` 54,000

36 JANUARY 2025 EXAMINATION

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ACCOUNTING

13. Revaluation Account

Particulars Amount Particulars Amount

(`) (`)
To Buildings A/c 30,000 By Investments A/c 9,000
To Plant and Machinery A/c 78,000 By Loss to Partners:
To Provision for Doubtful 83,400 X 91,200
Debts A/c Y 54,720
Z 36,480 1,82,400
1,91,400 1,91,400

Partners’ Capital A/c

Particulars X Y Z P Particulars X Y Z P
` ` ` ` ` ` ` `
To Revaluation 91,200 54,720 36,480 - By Balance 2,40,000 60,000 90,000 -
A/c b/d
To Investments - 45,000 -- By Reserves 30,000 18,000 12,000 -
A/c A/c
To X and Y’s - 60,000 60,000 By Z and P’s 30,000 90,000 - -
Capital A/c Capital
A/c
To Y’s Loan 68,280 -- By Bank A/c 31,200 - 2,34,480 1,80,000
A/c (balancing
figure)
To Balance c/d 2,40,000 - 2,40,000 1,20,000
3,31,200 1,68,000 3,36,480 1,80,000 3,31,200 1,68,000 3,36,480 1,80,000

Bank Account
Particulars Amount Particulars Amount
` `
To X’s capital A/c 31,200 By Bank overdraft A/c 1,32,000
To Z’s capital A/c 2,34,480 By Balance c/d 3,13,680
To P’s capital A/c 1,80,000
4,45,680 4,45,680

37 JANUARY 2025 EXAMINATION

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FOUNDATION EXAMINATION

Balance Sheet of Acme & Co.

as at 1st April, 2024

Liabilities ` Assets `
Capital Accounts: Land 30,000
X 2,40,000 Buildings 5,70,000
Z 2,40,000 Plant and Machinery 3,12,000
P 1,20,000 6,00,000 Furniture 1,29,000
Long Term Debts 9,00,000 Inventories 3,90,000
Trade payables 5,10,000 Trade receivables 4,17,000
Y’s Loan Account 68,280 Less: Provision for
Doubtful Debts (83,400) 3,33,600
Balance at Bank 3,13,680
20,78,280 20,78,280

14. Realisation Account

` ` `
To Sundry assets By Sundry creditors 20,000
A/c (transfer): A/c
By Mortgage loan 80,000
Premises 1,20,000 By Bank A/c (assets
Furniture 40,000 realised):
Stock 1,00,000 Premises 90,000
Furniture 16,000
Sundry Debtors 40,000 Stock 60,000
To Bank A/c 32,000 Debtors 24,000 1,90,000
(creditors paid)
To Bank A/c 80,000 By Loss transferred
(Mortgage loan) to Capital
Accounts:

38 JANUARY 2025 EXAMINATION

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ACCOUNTING

To Bank A/c 4,000 Neptune 54,000

(expenses)
Jupiter 36,000
Venus 18,000
Pluto 18,000 1,26,000
4,16,000 4,16,000

Bank Account
` `
To Balance b/d 8,000 By Realisation A/c 32,000
(creditors)
To Realisation A/c By Realisation A/c 4,000
(expenses)
(assets 1,90,000 By Mortgage loan 80,000
realised)
To Capital By Neptune's Capital 1,18,857
A/c(realisation A/c
loss
made good): By Jupiter's Capital 73,143
A/c
Neptune 54,000
Jupiter 36,000
Pluto 18,000 1,08,000
To Pluto's Capital 2,000
A/c
3,08,000 3,08,000

Partners’ Capital Account

Particulars Neptune Jupiter Venus Pluto Particulars Neptune Jupiter Venus Pluto
` ` ` ` ` ` ` `

To Balance b/d − − 10,000 12,000 By Balance 1,00,000 60,000 − −

b/d

39 JANUARY 2025 EXAMINATION

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FOUNDATION EXAMINATION

To Realisastion By General 24,000 16,000 8,000 8,000

A/c (loss) 54,000 36,000 18,000 18,000 reserve A/c
(3 : 2 : 1 :1)
To Venus's − − By Capital 6,000 4,000 2,000 2,000
Capital 11,143 6,857 reserve A/c
A/c (loss) (3 : 2 : 1 :1)
(W.N.1)
To Bank A/c 1,18,857 73,143 − − By Bank A/c 54,000 36,000 − 18,000
(loss on
realization)
By Neptune's − − 11,143 −
Capital A/c
By Jupiter's − − 6,857 −
Capital A/c
_______ _______ _____ _____ By Bank A/c − − − 2,000
1,84,000 1,16,000 28,000 30,000 1,84,000 1,16,000 28,000 30,000

18. (i) Going Concern concept: The financial statements are normally
prepared on the assumption that an enterprise is a going concern
and will continue in operation for the foreseeable future. Hence, it
is assumed that the enterprise has neither the intention nor the
need to liquidate or curtail materially the scale of its operations; if
such an intention or need exists, the financial statements may have
to be prepared on a different basis and, if so, the basis used is
disclosed.
(ii) Accounting Standards are selected set of accounting policies or
broad guidelines regarding the principles and methods to be
chosen out of several alternatives. The main objective of
Accounting Standards is to establish standards which have to be
complied with, to ensure that financial statements are prepared in
accordance with generally accepted accounting principles.
Accounting Standards seek to suggest rules and criteria of
accounting measurements. These standards harmonize the diverse
accounting policies and practices at present in use in India.
(iii) Retirement of bills of exchange: Sometimes, the acceptor of a
bill of exchange has spare funds much before the maturity date of
the bill of exchange accepted by him. He may, therefore, desire to
pay the bill before the due date. In such a circumstance, the
acceptor shall ask the payee or the holder of the bill to accept cash
before the maturity date. If the payee agrees, the acceptor may be
allowed a rebate or discount on such early payment. This rebate is
generally the interest at an agreed rate for the period between the
date of payment and date of maturity. The interest/rebate/
discount becomes the income of the acceptor and expense of the
payee. It is a consideration for premature payment. When a bill is
paid before due date, it is said to be retired under rebate.

47 JANUARY 2025 EXAMINATION

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FOUNDATION EXAMINATION

(iv) 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
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.

48 JANUARY 2025 EXAMINATION

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