Mock Test Paper - Series II: May 2025

Date of Paper: 5th May 2025

Time of Paper: 2 PM to 5 PM

FOUNDATION COURSE
PAPER – 1: ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and
disclosed by way of note forming part of the answer.
Working Notes should form part of the answer.
(Time allowed: 3 Hours) (100 Marks)
1. (a) State with reasons, whether the following statements are true or false:
1. Warehouse rent paid for storage of finished inventory should be included
in the cost of finished inventory.
2. Cash book is a subsidiary book as well as a principal book.
3. Subscriptions received for the current year shall be shown in the balance
sheet as a current asset.
4. Company A is incurring huge losses, the Board of Directors are of the
opinion that incase of losses, there is no need to pay interest on debenture
holders.
5. On death of a partner, the firm gets surrender value of the joint life policy.
6. The concept of conservatism when applied to the Balance Sheet results in
understatement of assets. (6 statements x 2 Marks = 12 Marks)
(b) Explain the objective of “Accounting Standards” in brief? (4 Marks)
(c) The balance of Machinery Account of a firm on 1 st April, 2024 was ` 42,81,000.
Out of this, a plant having book value of ` 3,24,000 as on 1st April, 2024 was sold
on 1st July, 2024 for ` 1,23,000. On the same date a new plant was purchased
for ` 6,87,000 and ` 33,000 was spent on its erection. On 1st November, 2024 a
new machine was purchased for ` 8,40,000. Depreciation is written off @ 15%

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 per annum under the diminishing balance method. Calculate the depreciation for
the year ended 31st March, 2025. (4 Marks)
(12 + 4 + 4 = 20 Marks)
2. (a) Mr. Kunal was unable to agree the Trial Balance last year and wrote off the
difference to the Profit and Loss Account of that year. Next year, he appointed a
Chartered Accountant who examined the old books and found the following
mistakes:
(i) Purchase of a scooter was debited to conveyance account
` 1,00,000. Mr. Kunal charges 10% depreciation on scooter.
(ii) Purchase account was overcast by ` 2,00,000.
(iii) A credit purchase of goods from Mr. Sandeep for ` 20,000 was entered as
sale.
(iv) Receipt of cash from Mr. Parag was posted to the account of Mr. Prem
` 10,000.
(v) Receipt of cash amounting to ` 5,000 from Mr. C was posted to the debit
of his account.
(vi) ` 5,000 due by Mr. Ramesh was omitted to be taken to the Trial Balance.
(vii) Sale of goods to Mr. Ram for ` 20,000 was omitted to be recorded.
(viii) Amount of ` 53,950 of purchase was wrongly posted as ` 55,930 in
purchase account.
Suggest the necessary rectification entries. (10 Marks)
(b) From the following information, ascertain the Cash Book balance of Mr. Patil as
on 31st March ,2025:
(i) Debit balance as per Bank Pass Book ` 5,250.
(ii) A cheque amounting to ` 3,750 deposited on 15th March, but the same
was returned by the Bank on 24th March for which no entry was passed in
the Cash Book.
(iii) During March 2025, two bills amounting to ` 3,750 and ` 750 were
collected by the Bank but no entry was made in the Cash Book.
(iv) A bill for ` 7,500 due from Mr. Sahil previously discounted for ` 7,200 was
dishonored. The Bank debited the account, but no entry was passed in the
Cash Book.

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 (v) A Cheque for ` 2,250 was debited twice in the cash book. (5 Marks)
(c) From the following information, calculate the historical cost of closing inventories
using adjusted selling price method:
Purchase during the year - ` 7,50,000
Sales during the year - ` 11,25,000
Opening Inventory - Nil
Closing Inventory at selling price - ` 1,50,000 (5 Marks)
(10+5+5 = 20 Marks)
3. (a) The following are the balances as at 31st March, 2025 extracted from the books
of Mr. Govind.
` `
Plant and Machinery 1,17,300 Bad debts recovered 2,700
Furniture and Fittings 61,500 Salaries 1,35,300
Bank Overdraft 4,80,000 Salaries payable 14,700
Capital Account 3,90,000 Prepaid rent 1,800
Drawings 48,000 Rent 25,800
Purchases 9,60,000 Carriage inward 6,750
Opening Stock 1,93,500 Carriage outward 8,100
Wages 72,990 Sales 12,41,800
Provision for doubtful debts 19,200 Advertisement Expenses 20,100
Provision for Discount on Printing and Stationery 7,500
Debtors 8,250 Cash in hand 8,700
Sundry Debtors 7,20,000 Cash at bank 18,750
Sundry Creditors 2,85,000 Office Expenses 60,960
Bad debts 6,600 Interest paid on loan 18,000

Additional Information:
1. Purchases include sales return of ` 15,450 and sales include purchases
return of ` 10,350.
2. Goods withdrawn by Mr. Govind for own consumption ` 21,000 included in
purchases.

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 3. Create a provision for doubtful debts @ 5% and provision for discount on
debtors @ 2.5%.
4. Free samples distributed for publicity costing ` 4,950.
5. Wages paid in the month of April for installation of plant and machinery
amounting to ` 2,700 were included in wages account.
6. Bank overdraft is secured against hypothecation of stock. Bank overdraft
outstanding as on 31.3.2025 has been considered as 80% of real value of
stock (deducting 20% as margin) and after adjusting the marginal value
80% of the same has been allowed to draw as an overdraft.
7. Depreciation is to be provided on plant and machinery @ 15% p.a. and on
furniture and fittings @ 10% p.a.
Prepare a Trading and Profit and Loss Account for the year ended 31 st March,
2025 and a Balance Sheet as on that date. (12 Marks)
(b) It was provided under the Partnership Agreement between Ram, Laxman and
Bharat that in the event of death of a partner, the survivors would have to purchase
his share in the firm on the following terms:
(i) Goodwill is to be valued at 3 year's purchase of simple average profits of
last 4 completed years.
(ii) Outstanding amount due to the representative of a deceased partner shall
be paid in 4 equal half yearly instalments commencing 6 months after the
death plus interest @ 5% p.a. on the outstanding dues.
They shared profit and loss in the ratio 9:4:3.
Ram died on 30th September 2024 and Partner's Capital account balances on
that date were: Ram - ` 43,200, Laxman - ` 25,600 and Bharat - ` 14,400. Ram's
current account on 30th September, 2024 after crediting his share of profit to that
date, however showed a debit balance of ` 3,840.
Firm profits were for the year ended
- 31st March, 2021 ` 1,40,800
- 31st March, 2022 ` 1,12,640
- 31st March, 2023 ` 96,320
- 31st March, 2024· ` 34,816

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 Show Ram’s Capital Account and Executor's Account (of Ram) till full payment is
made to Ram's Executor. (8 Marks)
(12 + 8 = 20 Marks)
4. (a) Thomson & Associates. is a partnership firm with partners Tim, Sam and Ben,
sharing profits and losses in the ratio of 10:6:4. The balance sheet of the firm as
at 31st March, 2025 is as under:
Liabilities ` Assets `
Capitals: Land 90,000
Tim 7,20,000 Buildings 18,00,000
Sam 1,80,000 Machinery 11,70,000
Ben 2,70,000 11,70,000 Furniture 3,87,000
Reserves Investments 1,08,000
(un-appropriated Inventories
1,80,000 11,70,000
profit)
Long Term Debt 27,00,000 Trade receivables 12,51,000
Bank Overdraft 3,96,000
Trade payables 15,30,000
59,76,000 59,76,000

It was mutually agreed that Sam will retire from partnership and in his place Dan
will be admitted as a partner with effect from 1st April, 2025. For this purpose, the
following adjustments are to be made:
(a) Goodwill is to be valued at `9 lakh but the same will not appear as an asset
in the books of the reconstituted firm.
(b) Buildings and Machinery are to be depreciated by 5% and 20%
respectively. Investments are to be taken over by the retiring partner at
`1,35,000. Provision of 20% is to be made on Trade receivables to cover
doubtful debts.
(c) In the reconstituted firm, the total capital will be ` 18 lakhs which will be
contributed by Tim, Ben and Dan 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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 You are required to prepare
(a) Revaluation account;
(b) Partners’ capital accounts; and
(c) Bank account; (12 Marks)
(b) Summary of Receipts and Payments of ABC Society for the year ended
31st March, 2025 are as follows:
Receipts Amount Payments Amount
Subscription Received 12,50,000 Payment for Medicine 7,50,000
Supply
Donation Raised for 3,75,000 Honorarium to Doctors 2,50,000
meeting revenue Salaries 7,00,000
expenditure Sundry Expenses 25,000
Interest on Investments 225,000 Equipment Purchase 3,75,000
@ 9% p.a. Charity Show Expenses 37,500
Charity Show Collection 3,12,500

Additional Information:
Particulars 01.04.2024 31.03.2025
Subscription due 37,500 55,000
Subscription received in advance 30,000 17,500
Stock of medicine 2,50,000 3,75,000
Amount due for medicine supply 2,25,000 3,25,000
Value of equipment 5,25,000 7,50,000
Value of building 12,50,000 12,00,000
Cash Balance 2,00,000 2,25,000
Opening Balance of Capital Fund 45,07,500

You are required to prepare Income and Expenditure Account and Balance Sheet
for the year ended 31st March, 2025. (8 Marks)
(12 + 8 = 20 Marks)
5. (a) From the following information prepare the Purchase Book of M/s Pawan &
Company:
(i) Purchased from Red & Company on credit:
30 pairs of black shoes.@ ` 800 per pair.

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 15 pairs of brown shoes @ 900 per pair
Less: Trade Discount @ 10%
(ii) Purchased Computer from M/s. Rahul. Enterprises on credit for ` 1,20,000.
(iii) Purchased from Blue & Company on credit:
15 pairs of black shoes @ ` 700 per pair
45 pairs of brown shoes@ ` 100 per pair
Less: Trade Discount @ 15%. (5 Marks)
(b) Attempt any ONE of the following two sub-parts i.e. either (i) or (ii):
(i) Sam, Sarthak, Sara shared profits and losses in the ratio of 5:3:2. They
took out a Joint Life Policy in 2021 for ` 2,00,000, a premium of ` 12,000
being paid annually on 10th June. The surrender value of the policy on
31st December of various years was as follows:
2021 Nil
2022 ` 3,600
2023 ` 8,000
2024 ` 14,400
Sam retired on 15th April, 2025 and the policy was surrendered. You are
required to prepare Joint Life Policy Account from 2021 to 2025 (assuming
the Policy Account is maintained at surrendered value basis).
OR
(ii) PQR Limited's Profit and Loss account for the year ended 31st March, 2025
includes the following information:

(1) Liability for Income Tax ` 40,000

(2) Retained Profit ` 2,00,000
(3) Proposed Dividend ` 20,000
(4) Increase in Provision for Doubtful Debts ` 25,000
(5) Bad Debts written off ` 20,000

State which one of the items above is - (a) transfer to provisions; (b) transfer to
reserves; and (c) neither related to provisions nor reserves. (5 Marks)

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(c) Lol Ltd. (unlisted company other than AIFI, Banking company, NBFC and HFC)
provides the following information as at 31st March, 2025:
Particulars `
Shareholder's Funds
(a) Share Capital
Authorized Share Capital:
90,000 equity shares of ` 10 each fully paid 9,00,000
Issued and subscribed share capital:
60,000 equity shares of ` 10 each fully paid 6,00,000
(b) Reserves and Surplus
Profit & Loss Account 3,24,000
Debenture Redemption Reserve 36,000
Non-current liabilities
(a) Long term borrowings
12% Debentures 3,60,000
Current Liabilities
(a) Trade payables 3,45,000
Non-current assets
(a) Property, Plant and Equipment (Freehold property) 3,45,000
(b) Non-current Investment: DRR Investment 54,000
Current assets
(a) Inventories 4,05,000
(b) Trade receivables 2,25,000
(c) Cash and bank balances:
Cash at bank 5,46,000
Cash in hand 90,000

At the Annual General Meeting on 1.4.2025, it was resolved:

(a) To give existing shareholders the option to purchase one ` 10 share at
` 15 for every four shares (held prior to the bonus distribution). This option
was taken up by all the shareholders.
(b) To issue one bonus share for every five shares held.

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 (c) To repay the debentures at a premium of 3%. The DRR Investments
realised at par as per existing Book value.
Give the necessary journal entries for these transactions. (10 Marks)
(5 + 5 + 10 = 20 Marks)
6. (a) Riya Closet Ltd invited applications for issuing 10,000 Equity Shares of
` 10 each. The amount was payable as follows:
On Application ` 1 per share
On Allotment ` 2 per share
On First call ` 3 per share
On Second and final Call ` 4 per share
The issue was fully subscribed. Meena to whom 100 shares were allotted, failed
to pay the allotment money and her shares were forfeited immediately after the
allotment. Seema to whom 150 shares were allotted, failed to pay the first call.
Her shares were also forfeited after the first call. Afterwards the second and final
call was made. Mohan to whom 50 shares were allotted failed to pay the second
and final call. Her shares were also forfeited. All the forfeited shares were re-
issued at ` 9 per share fully paid-up.
Pass necessary Journal entries in the books of Riya Closet Ltd. (15 Marks)
(b) Explain in brief objectives of preparing Trial Balance.
Or
What are the rules of posting of journal entries into the Ledger? Explain in brief.
(5 Marks)
(15 + 5 = 20 Marks)