INSPIRE

ACADEMY
Presents

CMA-INTER’S
MOST EXPECTED
QUESTIONS
BY:-CA CS SHRIKANT PATIL
(ANOTHER NAME OF TRUST)
MESSAGE FOR MY DEAR STUDENTS
I never DREAMED about SUCCESS
I WORKED for it.....
Don’t say
“there’s still time” Or “may be next
time”
Because there’s also the concept
“Its too late”
Time is money, which leads to
successes…
YOUR TIME ........................DR
To Success a/c

Another name of TRUST

 INSPIRE ACADEMY 8888881719

SL NO QUESTIONS
1

Sir
A resource owned by the business with purpose of using it for
generating future profit, is known as
OPTION 1
Which of the following is not a method of charging depreciation? Sinking Fund Method

Capital
OPTION 2
Sum of years DigitMethod

Asset
OPTION 3
Working hours Method

Liability
OPTION 4
Asset's Life-cycleMethod

Surplus

ee
3 Outward Invoice issued is a source document of Purchase Book Sales Book Return Inward Book Return Outward Book
Wages paid forinstallation
4 Which of the following is of capital nature? Commission on purchases Cost of repairs Rent of factory

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of machinery
Which of the following is not a Fundamental Accounting

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5 Going Concern Consistency Accrual Materiality
Assumption?
6 An obligation which may or may not materialize is a/an . Loss Asset Contingent Liability None of the above
Inventory of raw materials,

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7 Which of the following is an example of Capital Expenditure? work-in- Insurance premium Taxes and legal expenses None of the above
progress and finishedgoods

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is specially suited to mines, oil wells, quarries, sandpits and
8 Depletion Depreciation Amortisation Dilapidation
similar assets of a wasting character.
9 Which of the following account has a credit balance? Plant and Equipment A/c Loans A/c Purchase A/c None of the above

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10 Which of the following is/are revenue expenditure? Consumable Stores Taxes and legalexpenses Rent of factorybuilding All of Above
To check the arithmetical acc To ascertain To facilitate
Which of the following purpose is served from the preparation
11 uracy of the the balance of any ledger accoun the preparation of final accou All of the above

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of Trial Balance?
recorded transactions t nts promptly
The basic principles of concept is that business is assumed to
12 Going Concern Business Entity Money Measurement None of the above
exist for an indefinite period .

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Purchase of a laptop for office use wrongly debited to Purchase A
13 Omission Commission Principle Misposting
ccount. It is an error of .
14 Which of the following book is both a journal and a ledger? Cash Book Sales Day Book Bills Receivable Book Journal Proper
Original cost of a machine is ₹ 1,50,000, residual value ₹10,000,
15 if depreciation is charged @ 10% per annum under WDV ₹ 12,240 ₹ 11,340 ₹ 12,150 ₹ 14,000
method then depreciation for 3rd year will be .

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

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SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

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Cost of Machine B is ₹90,000, Expenses incurred at the time
of purchase to be capitalized is ₹10,000. Estimated Residual Value of Mach
16 10,000 ₹ 20,000 ₹ 15,000 ₹ 5,000
ine B is ₹20,000. Expected Useful Life is 8

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years.Compute the amount depreciations under SLM method.
If Capital on 01.01.2023 was ₹24,000. Capital on 31.12.2023

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17 is was ₹12,000. Profit /(Loss) during the year was ₹6,000 and Fresh Capital ₹ 7,200 ₹ 12,000 ₹ 25,200 ₹ 19,200

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introduced was ₹1,200 Then the amount of drawings was .
Dr.Wages A/c and Dr.Machinery
Dr.Machinery A/c and Cr.

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18 Journal entry of wages ₹10,000 paid for installation of machinery will be . Cr. Cash A/c with ₹10,00 repairs A/c and Cr. Cash A/c wit None of the above
Cash A/c with₹10,000
0 h ₹10,000

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19 Credit balance of a nominal account shows Expenses of the business Loss in the business Income in the business Asset of the business

Cheque of Cheque of ₹3,000 received

A customer
₹1,000 withdrawn from ₹2,000 received from Mr. before

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20 Which of the following will be recorded as Contra Entry in a Cash Book? directly deposited ₹4,000 in the
bank for personal use X lodged into bank onthe s from Mr.Y and now lodgedinto b
bank account of thebusiness
ame day ank

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Goods purchased costing ₹60,000 and cash paid ₹45,000 after receipt of a
21 15% 10% 7.50% 25%
cash discount of ₹9,000. What is the percentage oftrade discount got?
The total of the sales journal has
Sale ₹5,000 written in th Wages paid to Shyam debi
22 Which of the following errors in an error of omission? not None of the above

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e purchase journal ted to his account
been posted to the salesaccount
A credit sale of goods to Amir, worth ₹600 was recorded inPurchase Book. Amir will be debited by₹ Purchase will bedebited b
23 Amir will be debitedby ₹1,200 Sales will be creditedby ₹1,200

a
In the rectification entry . 600 y ₹600
Purchase of machinery worth ₹5,000 was omitted from accounts.The recti Purchase A/c will bedebi
24 Cash A/c will becredited Machinery A/c will becredited None of the above
fication entry is . ted

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Goods purchased from A for ₹2,000 passed through sales book. The rectific
25 Decrease in Gross Profit No effect on Gross Profit Increase in Gross Profit Increase in Sundry Debtors
ation of this error results in .
to finance
to facilitate trade transmis when both parties are in need of
26 The Accommodation bill is drawn actual purchase or sale o None of the above
sion. funds.
f goods.
an income of the joint ve an expense of the joint ve it will be treated in thepersonal b
27 If any stock is taken by a co-venturer, it will be treated as to be ignored from joint venture
nture nture ooks of the co-venturer

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

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SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

Kuntal draws a bill on shyam for Rs. 7,000.Kuntal endorsed it to Ram. Ra

28 Kuntal Ram Shyam Rahim
m endorsed it to Rahim. The payee of the bill will be:

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A and B purchased a piece of land for ₹30,000 and sold it for₹60,000 in 2
29 022.Originally A had contributed ₹12,000 and B ₹8,000. The profit on ven ₹ 30,000 ₹ 20,000 60,000 ₹ 10,000

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ture will be .

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The profit or loss on joint
The JV is
venture is The co-venturers may or may

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30 Which of the following is/ are the basic features of a Joint Venture dissolved once the purpose of All of the above
shared between the co- not contribute initial capital
the business is over
venturers in the agreed ratio

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31 The person to whom bill is endorsed is known as. Endorsee Drawee Drawer None of the above

A and B enter into a joint venture sharing profit and losses in the ratio of

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3:2. A purchased goods costing ₹2,00,000. B sold 95% goods for ₹2,50,000.
A is entitled to get 1% commission
32 ₹ 15,300 ₹ 21,300 ₹ 18,900 ₹ 15,000
on purchase and B is entitled to get 5% commission on sales. A drew a bill

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on B for an amount equivalent to 80% of original cost of goods. A got it
discounted at ₹1,50,000. What is A's share of profit?
Which of the following commission is allowed by the consignor to the

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33 consignee to encourage the consignee for putting-up hard Del-credere Commission Over-riding Commission Hard work Commission Ordinary Commission
work in introducing new product in the market?
X draws a bill on Y for ₹ 1,80,000 for mutual accommodation in the

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ratio of 2:1. X got it discounted for₹1,69,200 and remitted 1/3rd of the
34 proceeds to Y. How ₹ 120,000 ₹ 115,200 ₹ 116,800 ₹ 120,400
much money should be remitted by X to Y at the time of maturity so as t
o enable Y to honour the bill?

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Raju draws a bill on Sampat on 25th October, 2021 for 90 days,the
35 27th January, 2022 26th January, 2022 25th January, 2022 28th January, 2022
maturity date of the bill will be .
RepresentativePersonal Acco
36 Which class of account is Consignment Account? Personal Account Real Account Nominal Account
unt
On dishonor of a bill of exchange that has been discounted, noting
37 Bank Drawer Drawee Acceptor
charges are initially paid by .

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

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SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

Miss V draws a genuine trade bill of ₹25,000 for 6 months on Mr.M. Afte
r holding the bill for 1.5 months, as a result of unexpected requirement

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38 ₹ 1,250 ₹ 2,500 ₹ 937.50 ₹ 625
of cash, she immediately discounts the bill with
the bank@ 10% p.a. The amount of the discount on billis .

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On January 01, 2023, Mr. S drew a six months bill on Mr. H for₹15,000

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for mutual accommodation and the bill was duly
39 accepted by Mr. H. Mr. S discounted the bill on the same day with a ban ₹ 1,000 ₹ 500 ₹ 750 ₹ 1,250

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k at 10% p.a. and remitted one third proceeds to Mr. H. The discount to
be borne by Mr. S is .

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40 A proforma invoice is sent by . Consignee to Consignor Consignor toConsignee Debtors to Consignee Debtors Consignor

real and nominal personal and real

41 The nature of Consignment A/c and Consignee's A/c will be nominal and personal respectively nominal and real respectively

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respectively respectively
K of Kolkata sends out 400 bags of jute to T of Tamilnadu costing₹200
each. Consignor expenses ₹2,000. Y's non-

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42 ₹ 20,400 ₹ 20,200 ₹ 22,000 ₹ 21,000
selling expenses is₹2,000 and selling expenses is ₹1,000. 300 bags were
sold by Y. Value of consignment stock is .
Goods will be sent on consignment at invoice price which is 20% above

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43 cost. 1/5th of the goods costing ₹60,000 were damaged in transit. Find ₹ 375,000 ₹ 300,000 ₹ 360,000 None of these
out invoice price of the goods sent on consignment basis.
X of Kolkata sends out 100 boxes to Y of Delhi costing ₹200 each. Consi

a
gnor's expenses : ₹4,000 . Consignee's expenses: non-selling₹900 and
44 selling ₹500. 1/10th of the boxes were lost in ₹ 7,200 ₹ 7,500 ₹ 7,000 ₹ 6,000
transit. 2/3rd of the boxes received by consignee were sold. The amount

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ofconsignment stock will be .
A sends out goods costing ₹2,00,000 to B. Consignor's expenses₹5,000.
Consignor's expenses in relation to sales ₹3,000. 4/5th
45 ₹ 25,000 ₹ 31,000 ₹ 25,200 (₹5,000)
of goods were sold at 20% above cost. The profit on consignment will be
.
X of Kolkata send out certain goods at cost + 25%. Invoice value of
goods sends out ₹2,00,000. 4/5th of the goods were sold by consignee at
46 ₹ 4,800 ₹ 5,200 ₹ 3,200 ₹ 1,600
₹1,76,000. Commission 2% upto invoice value
& 10% of any surplus above invoice value. Amount of commission is

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

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X of Kolkata send out goods costing
₹ 1,00,000 to Y of Delhi. 3/5th of the goods were sold by consig
47 ₹ 2,833 ₹ 2,900 ₹ 3,000 ₹ 2,800
nee for Rs. 70,000.Commission exceeds cost price. The amount
of Commission willbe:

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Any account sale is the periodical summary statement sent by
48 Consignor, Consignee Consignee, Consignor Buyer, Seller Seller, Buyer
theto the

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49 Account sales Have a very particularformat Does not have aspecific format Must be prepared bylaw Given by consignor toconsignee

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X sends out good to Y, costing ₹1,50,000 to Y. goods are to
be sold at cost + 33 1/3%. The consignor asked consignee to pay

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50 ₹ 120,000 ₹ 100,000 ₹ 150,000 None of these
an advance for an amount equivalent to 60% of sales value.
The amount of advance will be:

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51 Which of these accounts is not a part of double entry system? Memorandum A/c Joint Bank A/c Joint Venture A/c Co-venture’s A/c
A purchased goods costing ₹1,00,000. B sold the goods for₹1,5
52 0,000. Profit sharing ratio between A and B equal. If same sets B will remit ₹1,25,000 to A B will remit ₹1,50,000 to A A will remit ₹1,00,000 to B B will remit ₹25,000 to A

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of books is maintained, what will be the final remittance?
A and B entered into a joint venture agreement to share the pr

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ofits and losses in the ratio of 2:1. A supplied 100 ratio sets wor
53 th₹1,00,000 to B incurring expenses of ₹5,000 for freight Profit of ₹20,000 Profit of ₹15,000 Loss of ₹20,000 Profit of ₹20,250
and issuance. B sold the 95 ratio sets for ₹1,20,000. 5 radio sets
were taken over by B. The profit a/loss on venture willbe

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A purchased goods costing ₹42,500. B sold goods costing ₹40,0
54 00 at ₹50,000. Balance goods were taken over by A at ₹4,000. ₹ 11,500 ₹ 7,500 ₹ 3,500 Nil

a
The profit on joint venture is –
A purchased 1000 kg of rice costing ₹200 each. Carriage
₹2,000 insurance ₹3,000. 4/5th of the boxes were sold by B at
55 ₹250 ₹ 40,000 ₹ 41,000 ₹ 50,000 ₹ 50,200

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per boxes. Remaining stock were taken over by B at cost. The a
mount of stock taken over will be –
56 The party who is ordered to pay the amount is knownas . Payee Drawer Drawee Endorsee
57 Retirement of a Bill means Discounting a Bill Dishonour of a Bill Renewal of a Bill Payment made beforedue dates
X draws a bill on Y for ₹3000. X endorsed to Z. Y will pay thea
58 X Z To himself None
mount of the bill to:
X sold goods to Y for ₹3,00,000. ½ of the amount will be receiv
59 ed in cash and the balance through a B/R. For what amount X s ₹ 150,000 ₹ 300,000 ₹ 100,000 ₹ 120,000
hould draw a bill on Y.

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

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SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

On 1st April, Mr. A sold goods of ₹10,000 to B and drew a bill for 3 months. Mr. A discount
60 ₹ 125 ₹ 250 ₹ 375 None of these

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ed the bill with bank at 15%. Amount of discount will be?
assets side of the liabilities side of the debit side of the Profit credit side of the Profit
61 At the end of the accounting year the capital expenditures areshown in the .

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Balance Sheet Balance Sheet and Loss A/c and Loss A/c

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If average inventory is ₹1,25,000 and closing inventory is
62 ₹ 135,000 ₹ 115,000 ₹ 130,000 ₹ 120,000
₹10,000 less than opening inventory then the value of closing inventory will be

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As on 31st March, 2023 debtors and additional bad debts are₹8,00,000 and ₹10,000
63 respectively. If the provision for bad debts is made at 5% on debtors then amount of such 40,000 50,000 39,500 40,500

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provision will be
Artificial Personal
64 Income and Expenditure Account is a . Nominal Account Real Account Personal Account
Account

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Artificial Personal
65 Receipts and Payments account is a Nominal Account Real Account Personal Account
Account
Statement of profit and Receipts and PaymentsA Income and

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66 Income statement of a Charitable Institution is known as Profit and LossAccount
loss ccount Expenditure Account
Income and Receipts and Payments
67 is similar to the Profit and loss A/c Balance Sheet None of the Above
Expenditure A/c A/c

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From the following details estimate the capital as on 31.03.2023. Capital as on 01.04.2022 -
68 ₹ 410,000 ₹ 450,000 ₹ 420,000 ₹ 410,000
₹4,10,000. Drawings ₹40,000, Profit during the year ₹50,000

a
Transactions are
It is a summarized cash It records revenue It serves the purpose of a
69 Which of the following item does not match with receipts and payments account? recorded in it on cash
book transactions only real account
basis
Income & Expenditure A/c shows subscriptions ₹10,000; Subscriptions accrued in the

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70 beginning of the year and at the end of the year were ₹1,000 and ₹1,500 respectively. The ₹ 9,500 ₹ 10,000 ₹ 10,500 ₹ 12,000
figure of subscription received appear in receipts and payments account will be:
A Charitable Institution has 250 members with a
annual subscription of ₹5,000 each. The subscription received during 2021-
71 ₹ 90,000 ₹ 125,000 ₹ 215,000 ₹ 190,000
22 were ₹11,25,000, which include Rs. 65,000 and₹25,000 for the years of 2020-21 and
2022-23 respectively. Amount of outstanding subscription for the 2021-22 will be

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

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Opening Debtors, Collection from Debtors and Discount Allowed were ₹
3,15,000;₹18,30,000 and ₹35,000 respectively. If the closing debtors wer
72 ₹3,51,667 and₹17,58,333 ₹3,63,333 and₹18,16,667 ₹3,87,500 and₹19,37,500 ₹3,10,000 and₹ 15,50,000
e 20% of credit sales of the period then closing debtors and
credit sales would be .

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73 In case of a Club, the excess of expenditure over income is calledas . Surplus Deficit Capital Fund Investment in FixedAssets

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Opening Inventory ₹9,600, Purchases less Return ₹11,850,Salaries₹3,200

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,Wages Rs.750, Commission on Purchases ₹200,Carriage Outward
74 ₹ 5,000 ₹ 6,500 ₹ 3,250 ₹ 3,200
₹300,Sales ₹24,900,Closing Inventory

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₹3,500,Carriage on purchases ₹1,000. Compute Gross Profit.
Find out Gross profit / Loss :-

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75 Purchase₹30,000, Sales₹15,000, Carriage Inward₹2,400, Opening stock ₹ 20,000 ₹ 10,000 ₹ 9,600 ₹ 10,600
₹10,000, PurchaseReturns₹1,000,Closing stock₹36,000
Opening Stock ₹1,50,000, Cash Sales ₹1,20,000,Credit Sales₹2,30,000,Clo
76 ₹ 150,000 ₹ 140,000 ₹ 130,000 ₹ 120,000

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sing Stock is Nil. Selling Price is 125% on Cost. Compute Purchases.
Opening and Closing balance of Debtors are ₹30,000 and ₹40,000 respec
tively. Cash collected from debtors ₹2,40,000. Discount allowed is

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77 ₹ 255,000 ₹ 245,000 ₹ 295,000 ₹ 275,000
₹15,000 for prompt payment. Bad Debts ₹10,000.
The total goods sold on credit are .
If a trader's net sales amount to ₹18,000 and his gross profit is 60% of sal

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78 ₹ 10,780 ₹ 7,200 ₹ 3,600 ₹ 1,800
es and his net profit is 40% of sales, his expensesare .
A firm had a Capital Balance of ₹ 1,00,000 at the beginning of
a year. At the end of the year, the firm has total assets of ₹1,50,000 and t

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79 ₹10,000 profit ₹20,000 loss ₹50,000 loss ₹10,000 loss
otal liabilities of ₹70,000. If the total withdrawals during the period
were ₹30,000, what was the amount of net profit/net loss for the year?

80 Which of the following is fixed asset? Plant and machinery Stock Debtors Cash

C
A Trial balance as at 31st December contains the
81 following information: 12% Bank loan ₹50,000, Interest paid ₹3,800, Inte ₹ 6,000 ₹ 2,200 ₹ 9,800 ₹ 4,800
restdebited to the Profit and Loss Account is:

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

SL NO

82
QUESTIONS

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The closing capital of Mr. X as on 31.03.2023 was ₹4,00,000.On 01.04.2022 his

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capital was Rs. ₹3,50,000. His net profit for the year ended 31.03.2023 was
₹1,00,000. He introduced ₹30,000
OPTION 1

₹ 100,000
OPTION 2

₹ 80,000
OPTION 3

₹ 120,000
OPTION 4

₹ 150,000

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as additional capital in February,2023. Find out th amount drawn by Mr.B for
his personal expenses?

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83 In case of a Club, the excess of expenditure over income is called as Surplus Deficit Capital Fund Investment in FixedAssets

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84 Donation received for a specific purpose is a/an Asset liabilities Revenue Receipts Capital Receipts

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Which of the following account is mainly prepared at the time of dissolution
85 Revaluation A/c Goodwill A/c Realization A/c Memorandum Revaluation A/c
of the firm
X and Y are partners with the capital of ₹50,000 and
No interest will be paid to the

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86 ₹30,000 respectively. Interest Payable on Capital is 10% p.a. If the profits ₹5,000 and ₹3,000 ₹3,000 and ₹1,800 None of the above
partners
earned by the firm is ₹4,800, what will be the Interest on Capital for X and Y?
X, Y and Z are partners in the ratio of 3 : 2:1. W is admitted with 1/6 th share in

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87 future profits. Z would retain hisoriginal shares. Find out the new profit shar 3:2:1:6 12:8:5:5 3:2:1:1 5:5:8:12
ing ratios of the partners.
A and B are currently partners in a firm sharing Profit/Loss in the ratio of 4 : 3

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. A new partner C is admitted and after his admission new profit sharing ratio
88 5:09 5:03 5:04 5:01
between A, B and C becomes 5: 3 : 2.What will be the sacrifice ratio of A and B
after admission of C?

a
The share of Profits or Losses of Partners in absence of oral orwritten
89 Equal In the ratio of theircapital Agreed Ratio None of the above
agreement will be .
In absence of specific provision in the Partnership deed at what rate of
90 8% 10% 6% 11%

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interest on Capital of the Partners would be allowed?
Average Profit = ₹3,72,000 Normal rate of return = 12% Total Assets =
91 ₹68,00,000 Outside liabilities = ₹42,00,000Calculate the value of goodwill ₹ 500,000 ₹ 600,000 ₹ 700,000 ₹ 800,000
under capitalization method.
The Profits of last 3 years are ₹42,000, ₹39,000 and ₹45,000. Findout the Good
92 ₹ 42,000 ₹ 84,000 ₹ 126,000 ₹ 36,000
will of 2 years purchase.

93 Excess of average profit earned by the Firm over and above itsnormal profit - Total Profit Super Profit Normal returns Excess Profit

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

SL NO QUESTIONS
94

95

Sir
Which of the following should be valued compulsory at the time of admission of a partner .
X and Y share profits and losses in the ratio of 4:3. They admit Z in the Firm with 3/7th share which
he gets 2/7th from X and 1/7th from Y. the new profit sharing ratio will be -
OPTION 1
Goodwill

7:3:3
OPTION 2
Plant & Machinery

2:2:3
OPTION 3
Land & Building

5:2:3
OPTION 4
Furniture & Fittings

2:3:3

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A,B,C and D are partners sharing their profits and losses equally.They change their profit sharing t
96 1/6 1/12 1/24 1/2

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o 2:2:1:1. How much will C sacrifice?
X and Y are partners in a Firm with Capital of ₹18,000 and₹20,000. Z was admitted for 1/3rd share
97 ₹ 24,000 ₹ 20,000 ₹ 15,000 ₹ 10,000

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in profits and brings₹24,000 as Capital, calculate the amount goodwill:
A, B and C are Partners sharing profits equally. A retires

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98 ₹ 2,000 ₹ 3,000 ₹ 500 ₹ 1,000
and Goodwill appearing in the books at ₹3,000 is valued at ₹6,000. Awill get credit of -
A, B and C are Partners with Capitals of ₹1,00,000, ₹75,000 and₹50,000. On C’s retirement his
99 3:2 2:2 2:3 None of these
share is acquired by A and B in the ratio of 6:4 respectively.Calculate gaining ratio.

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A, B and C are partners sharing profits in the ratio of 2;2:1, on retirement of B, goodwill was valued Rs.20,000 and Rs.10,00
100 Rs.8,000 and Rs.4,000 Rs.15,000 and Rs.15,00 No contribution
as Rs.30,000. Find thecontribution of A and C to compensate B. 0

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A, B and C are partners sharing profits and losses in the
101 ratio 2:2;1. C died on 31st March 2022. The profits of the financial year ending 31st March 2022 is ₹6 ₹ 9,200 ₹ 12,800 ₹ 3,100 ₹ 6,100
4,000. The share of Deceased partnerin the profits will be –
102 When goodwill is withdrawn by the partners account is credited. Cash Partners Capital A/c Partners Loan A/c Goodwill A/c

C
When Goodwill is to be written off after admission of a partner in which ratio it is transferred to New Profit Sharing Ra Old Profit Sharing Rati
103 Sacrificing Ratio Equally
Capital A/c of the Partners? tio o

a
By giving a
written notice to all
In accordance with
With the consent of all other partners of
104 Section 32 of the Indian Partnership Act, 1932 a partner may retire . an express agreement All of the above
the existing partners his intention to retire

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by the partners
in case of ‘Partnership
at Will’
sales of each departme purchases of eachdepar no. of units sold byeac cost of sales of eachdep
105 Advertisement expenses are apportioned among departments in theproportion of .
nt tment h department artment
Stock and DebtorsMet
106 Which one is/ are the method/s of Accounting for Branches ? Final Accounts Method Debtors Method All of the above
hod

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

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SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4
Number of units sold by each Cost of sales of each departme
107 Bad debts are apportioned among departments in the proportion of . Sales of each department None of the above
department nt

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Goods are transferred from Department X to Department Y at a price so as
to include a profit of 33.33% on cost. If the value of closing stock of
108 ₹ 12,000 ₹ 9,000 ₹ 18,000 ₹ 16,000
Department Y is ₹ 48,000, then the amount of stock reserve on closing

e
stock will be .

e
Goods are sent to the Branch at cost plus 25%. The loading oninvoice price
109 20% 25% 30% 50%

r
is .
110 In Hire Purchase system cash price plus interest is known as Capital value of asset Book value of asset Hire purchase price ofasset Hire purchase charges

h
111 Excess of hire purchase price over cash price is known as Installment Cash down payment Interest Capital value of asset
KCS purchased a machine from JPS on hire purchase
system, whose cash price was ₹8,64,000.₹ 2,16,000 being paid on delivery
112 ₹ 72,000 ₹ 57,600 108,000 ₹ 36,000

S
and balance in three annual instalments of ₹2,88,000 each.
The amount of interest included in first installment wouldbe .
Head office invoiced goods to its branch at 10% less than

s
113 the catalogue price which is cost plus 20%. If the total invoiced goods duri ₹ 400,000 ₹ 388,800 ₹ 345,600 ₹ 518,400
ng the year is ₹4,32,000, then the cost of such goodsis .
Goods are sent to branch at cost plus 50%. The loading on theinvoice price
114 50% 33.33% 25% 20%.

C
is .
The head office of a company sends goods to its branch at 150% of its cost
115 price. lf the value of goods received by branch is₹7,50,000, then the cost of ₹ 600,000 ₹ 400,000 ₹ 625,000 ₹ 500,000

a
goods will be .
Goods costing ₹2,00,000 wew insured for ₹1,00,000. out of which3/4th we
116 ₹ 75,000 ₹ 100,000 ₹ 150,000 ₹ 200,000
re destroyed by fire. Calculate the amount of claim with average clause.

C
A plant worth ₹80,000 has been insured for ₹60,000, the loss onaccount of
117 ₹ 37,500 ₹ 50,000 ₹ 60,000 ₹ 80,000
fire is ₹50,000. The insurance company will bear the loss to the extent of .

CA CS SHRIKANT PATIL ca_cs_shree_sir

 INSPIRE ACADEMY 8888881719

SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

ir
Turnover during that period of
Turnover during last 12 Unavoidable
12 months immediately Turnover of the last accounting
months fixed expenses which have
118 Standard turnover is . before which period immediately before damage
immediately before the to be paid even if there
corresponds with indemnity per .

S
damage is reduction in sale
iod.
Evaluation of tradingres

e
ults of Effective planning andcontrol on
119 Departmental accounting helps in . Both 1 and 2 None of the above

e
each department separa each department
tely

r
If Department M transfers goods to Department N at a price of50%
120 above cost, what well be the amount of stock reserve on unsold st ₹ 3,000 ₹ 4,500 ₹ 1,500 ₹ 2,500

h
ock worth ₹9,000 of Department N?
Amount paid to thevendor till da
121 The hire purchaser records the assets at its Hire purchase price Cash price Total cost
te

S
Either the hire vendor or
the hire
122 Depreciation on hire purchased asset is claimed by Hire vendor Hire purchaser None of these
purchaser, as per theagree

s
ment
While treating the abnormal loss under Stock and Debtors system
Branch
123 of maintaining Branch accounts, loading on abnormal loss istransf Branch Stock Account Branch Debtors Account Branch Profit and Loss Account

C
Stock Adjustment Account
erred to
Under Debtors System of maintaining branch accounts, which ofth Goods returned bydebtors to bra Goods returned bydebtors
124 Credit purchase Goods sent to branch
e following appears in Branch Account? nch to H.O

a
125 Branches not keeping full system of accounting are called . Independent branches Partial branches Dependent branches None of these

126 Assets are generally repossessed at a mutual agreed . value current price Installments due None of these

C
CP Points sells Computers on Hire Purchase basis at cost
plus 25%. Terms of sale are ₹10,000 down payment and eight mont
127 ₹ 50,000 ₹ 40,000 ₹ 20,000 ₹ 10,000
hly instalments of ₹5,000 each for each computer. Compute the H
PPrice per computer.
On 1st April 2022, a car company sold to A Bros. a Motorcar
on Hire Purchase basis.Total Hire Purchase Price was ₹4,60,000 wi
th down payment of ₹1,60,000. Balance amount was to be paid
128 ₹ 30,000 ₹ 20,000 ₹ 10,000 ₹ 60,000
in three Annual Instalments of ₹1,00,000 each. The first
instalment payble on 31st March,2023. Cash Price was ₹4,00,000.
compute the interest of second year.

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r
SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

i
In January, a Firm took an insurance policy for ₹60 lakhs to insu
re goods in its godown against fire, subject to Average Clause.on
129 7th March, a Fire broke out destroying goods costing ₹44 lakhs. ₹ 6,000,000 ₹ 4,400,000 ₹ 3,300,000 ₹ 8,000,000

S
Stock in godown was estimated at ₹80 lakhs. Compute the
amount of Insurance Claim.

e
The Institute
The Institute
130 Accounting standard in India are issued by Government of India Reserve Bank of India of Accounting Standard ofI

e
of Chartered Accountantsof India
ndia

r
As per AS 10 "Property,Plant and Equipment', an
applying discounted cash f
131 enterprise holding investment properties should value Investm As per fail value using cost model None of the above
low model

h
ent Property .
Manufacturing plants and pow Inventories that require su
132 As per AS 16 all of the following are qualifying assets except Assets those are ready for sale None of the above
er generationfacilities bstantial period oftime

S
Allocated
All of the following costs are excluded while computing value of
133 Selling and distribution costs fixed production overhead Abnormal wastage All of the above
inventories except .
s based on normalcapacity

s
Which of the following is not a fundamental accountingassumpt
134 Consistancy Materiality Going Concern Accrual
ion?
As per AS 1, where a company should disclose its accountingpoli In the CEO's letter tothe sharehol In the notes to FinancialStat
135 In the Annual Report In the Auditor's Report

C
cies? ders ement
Indian
Indian InternationalFinancial Rep International Financials Reportin
136 Full form of IFRS Financial Reporting Standar
Financial Reporting Standards orting Standards g Standards

a
d
Areas involving different accounting policies by different enter Treatment Recognition of profit on long-
137 Valuation of inventories All of these
prises is/are of intangible assets term contracts

C
An entity has acquired an Asset costing ₹1,00,000 for productio
n of certain items to be sold by it. It is deductible equally over
138 2 years in the books of accounts. In Tax Law, ₹75,000 is deductib Create DTL ₹2,500 Reverse DTL ₹2,500 Create DTA ₹2,500 Reverse DTA ₹2,500
le in year 1 and balance is deductible in year 2. Tax rate is 10%.
In year 2, The entity should
139 As per AS 22 an example of permanent differenceis Exempt Income Disallowed Expenses Enhanced Deduction All of these

140 Borrowing cost includes Debenture Interest Preference Dividend Equity Dividend All of these
Grants which are in the nature of Promoter's Contribution isacc
141 Capital Approach Income Approach Any of 1 and 2 None of these
ounted under

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r
SL NO QUESTIONS OPTION 1 OPTION 2 OPTION 3 OPTION 4

i
₹ 10 lakhs Grant received for assets (life 10 years). Income
Depends on the Depreciation
142 credited to Profit and Loss A/c every year under Deferred Income Method is ₹1 lakhs ₹10 Lakhs Nil
Method used
.

S
According to AS 11 (Revised) the difference between the forward rate and the Recognised as income or Adjusted
143 Ignored None of these
exchange rate at the date of transaction should be . expense to Shareholders' interests

e
144 As per AS 11 Monetory Items excludes . Cash Receivables Payables Inventories

hre
s S
a C
C
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INSPIRE ACADEMY’S
CMA-INTERMEDIATE
GROUP 1

MCQ BOOKLET

CA CS SHRIKANT PATIL
(ANOTHER NAME OF TRUST )
 MESSAGE FROM
CA CS SHRIKANT PATIL

I never DREAMED about

SUCCESS
I WORKED for it.....
Don’t say
“there’s still time” Or “may be
next time”
Because there’s also the concept
“Its too late”
Time is money, which leads to
successes…
YOUR TIME ........................DR
To Success a/c
 INSPIRE ACADEMY 8888881719

CHAPTER -1 ACCOUNTING FRAMEWORK

Multiple Choice Questions
1. concept assumes that the infinite life of an organisation can be split into smaller periods of
equal duration.
(a)Accounting Period
(b)Entity
(c)Going concern
(d)None of the above

2.The accounts related to expenses or losses and incomes or gains are called .
(a)Personal Account
(b)Representative Personal Account
(c)Nominal Account
(d)Real Account

3.The accounting equation is presented as:

(a)Assets = Liabilities + Equity
(b)Assets = Liabilities + [Capital + (Revenue – Expenses) – Drawings]
(c)Assets + Expenses + Drawings = Liabilities + Capital + Revenue
(d)All of the above

4.The book of account which records only those cash transactions which are not of heavy amount, but the
type of transactions is frequently entered into by an entity is .
(a)Triple Column Cash Book
(b)Petty Cash Book
(c)Ledger
(d)None of the above

5.Which of the following is/ are true regarding Trial Balance?

(a)It is prepared for a particular period.
(b)A trial balance is just a statement.
(c)The agreement of a trial balance is a conclusive proof of absolute accuracy of the books of accounts.
(d)All of the above

6. A resource owned by the business with purpose of using it for generating future profit, is known as ......
(a) Capital
(b) Asset
(c) Liability
(d) Surplus

7. Which of the following transaction is of capital nature?

(a) Commission on purchases
(b) Cost of repairs
(c) Rent of factory
(d) Wages paid for installation of machinery

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8. At the end of the accounting year the capital expenditures are shown in the:
(a) assets side of the Balance Sheet.
(b) liabilities side of the Balance Sheet.
(c) debit side of the Profit and Loss A/c.
(d) credit side of the Profit and Loss A/c.

9. Which of the following book is both a journal and a ledger?

(a) Cash Book
(b) Sales Day Book
(c) Bills Receivable Book
(d) Journal Proper

10. Purchase of a laptop for office use wrongly debited to Purchase Account. It is an error of .
(a) Omission
(b) Commission
(c) Principle
(d) Misposting

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CHAPTER -2 BILLS OF
EXCHANGE,CONSIGNMENT,JOINT VENTURE

Multiple Choice Questions

1. Which class of account is Consignment Account?

(a) Personal Account
(b) Real Account
(c) Representative Personal Account
(d) Nominal Account

2. Memorandum Joint Venture Account is prepared .

(a) for determining the amount due to co-venturer
(b) for determining the amount due from co-venturer
(c) for ascertaining the profit/ loss on venture
(d) None of the above

3. On dishonor of a bill of exchange that has been discounted, noting charges are initially paid by .
(a) Bank
(b) Drawer
(c) Drawee
(d) Acceptor

4. The share of profit of a co-venturer maintaining only her/ his own transactions is .
(a) Debited to Joint Venture Account
(b) Debited to other co-venturer’s personal account
(c) Debited to Profit & Loss Account
(d) None of the above

5. If any stock is taken by a co-venturer, it will be treated as .

(a) an income of the joint venture.
(b) an expense of the joint venture.
(c) to be ignored from joint venture.
(d) it will be treated in the personal books of the co-venturer.

6. The balance in consignment account shows .

(a) Amount receivable from consignee
(b) Amount payable to consignee
(c) Profit/ loss on consignment
(d) Closing stock with consignee

7. Shyam and Ramya are entered in the business of buy and sale of food grain for a period of one year and
sharing the profit in the ratio of 2 :4 , this agreement is a:
(a) Partnership
(b) Consignment
(c) Joint-venture
(d) Lease

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8. Memorandum Joint Venture Account is prepared when

(a) the separate set of books is maintained for Joint Venture.
(b) the each Co-venturer keeps records of all transactions.
(c) the each Co-venturer keeps records of their own transactions only.
(d) All of the above cases

9. Which of the following commission is allowed by the consignor to the consignee to encourage the
consignee for putting-up hard work in introducing new product in the market?
(a) Del-credere Commission
(b) Over-riding Commission
(c) Hard work Commission
(d) Ordinary Commission

10. If Kaveri’s acceptance which was endorsed by us in favour of Saleem is dishonoured, then the amount
will be debited in our books to:
(a) Saleem
(b) Kaveri
(c) Bills Receivable Account
(d) None of the above

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CHAPTER -3 FINANCIAL STATEMENTS

Multiple Choice Questions

1. In case of a Club, the excess of expenditure over income is called as :

(a) Surplus
(b) Deficit
(c) Capital Fund
(d) Investment in Fixed Assets

2. Due to retrospective effect on revision of salary of employees, the arrears of salary relating to past years,
payable in current year is
(a) Prior - period item
(b) Extra - ordinary item
(c) Ordinary item requiring separate disclosure
(d) Contingent item

3. Income statement of a Charitable Institution is known as

(a) Statement of profit and loss
(b) Receipts and Payments Account
(c) Income and Expenditure Account
(d) Profit and Loss Account

4. Which of the following will not appear in P&L A/c?

(a) Capital
(b) Bad Debts
(c) Provision for Doubtful Debts
(d) Rent paid

5. Outstanding salaries is shown as –

(a) An Asset in the Balance Sheet
(b) A Liability in the Balance sheet
(c) By adjusting it in the P & L A/c
(d) Both (b) and (c)

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Numerical Questions

1. Following information is given:

Opening Stock 2,13,000
Purchase 16,55,000
Sales 21,32,000
Carriage Inwards 32,500
Carriage Outwards 38,600
Return Inwards 38,000

The rate of gross profit is 25% on cost then value of closing stock will be –––––––––––. (a) Rs 2,57,800
(b) Rs 1,94,900
(c) Rs 2,25,300
(d) Rs 3,30,000

2. Subscription of Rs 6,25,000 had been shown in the Income and Expenditure Account prepared for the
year ending 31st March, 2021. Additional information is as below:

Particulars On 31st March, 2020 (Rs ) On 31st March, 2021 (Rs )

Subscription Outstanding 55,000 72,000
Subscription Received in Advance 31,000 37,000

The amount of subscription received during the year 2020-21would be : (a) Rs 6,36,000
(b) Rs 6,02,000
(c) Rs 6,14,000
(d) Rs 6,48,000

3.If opening capital is Rs 70,000 and closing capital is Rs 90,000, what is the amount of profit or loss?
(a)Rs 20,000 Profit
(b) Rs 20,000 Loss
(c) Rs 70,000 Loss
(d) Rs 90,000 Profit

4.A Charitable Institution has 250 members with a annual subscription of Rs 5,000 each. The subscription
received during 2020-21 were Rs 11,25,000, which include Rs 65,000 and 25,000 for the years of 2019-20
and 2021-22 respectively. Amount of outstanding subscription for the 2020-21 will be:
(a) Rs 90,000
(b) Rs 1,25,000
(c) Rs 2,15,000
(d) Rs 1,90,000

5. If average inventory is Rs 1,25,000 and closing inventory is Rs 10,000 less than opening inventory then
the value of closing inventory will be:
(a) Rs 1,35,000
(b) Rs 1,15,000
(c) Rs 1,30,000
(d) Rs 1,20,000

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CHAPTER -4 PARTNERSHIP ACCOUNTS

Multiple Choice Questions

1. Sacrificing ratio is:
a. New Profit sharing ratio - old profit sharing ratio.
b. Equal to old profit sharing ratio
c. Equal
d. Old profit sharing ratio - new profit sharing ratio

2. Which of the following is not an essential feature of a partnership firm?

a. Mutual agency.
b. Existence of business.
c. Association of two or more people.
d. Compulsory registration

3. Generally sacrifice ratio is concerned with the situation of:

a. Admission of a new partner
b. Retirement of a partner
c. Dissolution of firm
d. Conversion of firm into company

4. Which of the following account is mainly prepared at the time of dissolution of the firm?
a. Revaluation A/c
b. Goodwill A/c
c. Realization A/c
d. Memorandum Revaluation A/c

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Numerical Questions

1. X and Y are partners with the capital ofRs 50,000 andRs 30,000 respectively. Interest Payable on
Capital is 10% p.a. If the profits earned by the firm isRs 4,800, what will be the Interest on Capital for X
and Y?
a.Rs 5,000 andRs 3,000
b. Rs 3,000 andRs 1,800
c. No interest will be paid to the partners
d. None of the above

2. X and Y were partners sharing profit/losses as 3:2. They admit Z as a new partner, giving him 1/5th share
of future profits. What should be the new profit sharing ratio?
a. 12:8:5
b. 3:2:1
c. 8:12:5
d. 5:8:12

3. B and D are partners, sharing profit or loss in the ratio 3 : 2. They admit K for 1/6th share of profits in the
firms of which she takes 2/3rd from B and 1/3rd from D. What will be the new profit sharing ratio?
a. 44: 31: 15
b. 31: 44: 15
c. 32: 41: 14
d. 15: 31: 44

4. G and C are partners. They are entitled for 9% interest on their capital contributions. The firm allowed
Rs 54,000 towards interest on capital to partners. What will be the capital contribution of each partner if
interest on Gunnu’s capital isRs 13,500 more than the interest on Chinu’s capital?
a.Rs 2,25,000
b. Rs 2,55,000
c.Rs 2,50,000
d. Rs 2,15,000

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CHAPTER -5 LEASE ACCOUNTING

Multiple Choice Questions

1.The person who undertake an agreement, conveys to another person the right to use in return for rent,
an assest for an agreed period of time.
a.Lessor
b.Lessee
c.Both
d.None of the above

2.Operating lease is a:
a.Revocable contract
b.Non revocable contract
c.Operating contract
d.None of the above

3.Which lease transfer substantially all the risk and rewards incident to ownership of an asset?
a.Operating lease
b.Finance lease
c.Both
d.None of the above

4.In which types of lease expenses like maintenance, repair, and taxes are born by the lessor?
a.Operating lease
b.Financial lease
c.Both
d.None of the above

5.Short-term lease which is often cancellable is known as

a.Finance Lease
b.Net Lease
c.Operating Lease
d.Leverage Lease

6.A lease which is generally not cancellable and covers full economic life of the asset is known as:
a.Sale and leaseback
b.Operating Lease
c.Finance Lease
d.Economic Lease

7. One difference between Operating and Financial lease is:

a. There is often an option to buy in operating lease
b. There is often a call option in financial lease.
c. An operating lease is generally cancelable by lease
A financial lease in generally cancelable by lease

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CHAPTER -6 HIRE PURCHASES &

INSTALLMENT SALE ACCOUNT

Multiple Choice Questions

1. In the hire purchase system interest charged by vendor is calculated on the basis of
(a) Outstanding cash Price
(b) Hire purchase Price
(c) Installment amount
(d) None of the above

2. Shiva purchased a laptop on hire-purchase system. As per terms, he is required to pay Rs 7,500 down,
Rs 10,000 at the end of first year, Rs 7,500 at the end of second year, and Rs 12,500 at the end of third
year. Interest is charged at 12% per annum. The interest payable with the installment at the end of second
year will be
(a) Rs 900
(b) Rs 1,999
(c) Rs 804
(d) Rs 1,760

3. Excess of hire purchase price over cash price is know as

(a) Installment
(b) Cash down payment
(c) Interest
(d) Capital value of asset

4. Arti Ltd. purchased a machine on hire purchase system for a cash price Rs 5,00,000 to be paid as Rs
78,700 cash down and the balance by three equal annual installment of Rs 2,00,000 each. If interest is
charged @ 20% per annum then amount of interest payable in second installment will be
(a) Rs 1,00,000
(b) Rs 61,112
(c) Rs 33,328
(d) Rs 84,260

5. In Hire Purchase system cash price plus interest is know as

(a) Capital value of asset
(b) Book value of asset
(c) Hire purchase price of asset
(d) Hire purchase charges

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CHAPTER -7 ACCOUNTING STANDARDS

Multiple Choice Questions

1. In India, Accounting Standards are governed by

a. The Institute of Cost Accountants of India
b. Financial Accounting Standards Board
c. The Institute of Company Secretaries of India
d. The Institute of Chartered Accountants of India

2. The Full form of GAAP

a. Generally Accepted Accounting Principles
b. Generally Accepted Accountancy Principles
c. Globally Accepted Accounting Principles
d. Global Accounting Accepted Principles

3. In India, the Accounting Standards for non-corporate entities including Small and Medium sized
Enterprises, are issued by the of Institute of Chartered Accountants of India
a. Accounting Standards Board
b. National Standard Setters
c. Financial Accounting Standards Board
d. Accounting Standards Committee

4. The IRDA issued a circular under of the Insurance Act, 1938, which mandates insurers to comply with
Ind AS and its implementation Roadmap issued by the MCA
a. Section 35
b. Section 34
c. Section 36
d. Section 40

5. Full form of IFRS

a. Indian Financial Reporting Standards
b. International Financial Reporting Standards
c. International Financials Reporting Standards
d. Indian Financial Reporting Standard

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PREVIOUS YEAR QUESTIONS

JUNE 2019

(i)Which of the following is a resource owned by the business with the purposeof using it for generating
future profits?
(A)Loan from Bank
(B)Owner's Capital
(C)Trade Mark
(D)All of the above

(ii)Chandu & Co.'s Account is a

(A)Real Account
(B)Nominal Account
(C)Representative Personal Account
(D)Artificial Personal Accounts

(iii)Purchase of a laptop for office use wrongly debited to Purchase Account. It is an error of
(A)Omission
(B)Commission
(C)Principle
(D)Misposting

(iv)Which of the following term is most suitable for writing off Patent?
(A)Depletion
(B)Amortization
(C)Depreciation
(D)All of the above

(v)Memorandum Joint Venture Account is prepared when

(A)the separate set of books is maintained for Joint Venture.
(B)the each Co-venturer keeps records of all transactions.
(C)the each Co-venturer keeps records of their own transactions only.
(D)All of the above cases

(vi) Which of the following commission is allowed by the consignor to the consignee to encourage the
consignee for putting-up hard work in introducing product in the market?
(A) Del-credere Commission
(B) Over-riding Commission
(C) Hard work Commission
(D) Ordinary Commission

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(vii)If Ram's acceptance which was endorsed by us in favour of Saleem is dishonoured, then the amount
will be debited in our books to
(A)Saleem
(B)Ram
(C)Bills Receivable Account
(D)None of the above

(viii)In case of a Club, the excess of expenditure over income is called as

(A)Surplus
(B)Deficit
(C)Capital Fund
(D)Investment in Fixed Assets

(ix)A Charitable Institution has 250 members with a annual subscription of ₹ 5,000 each. The subscription
received during 2018-19 were ₹ 11,25,000, which include
₹ 65,000 and ₹ 25,000 for the years of 2017-18 and 2019-20 respectively.
Amount of outstanding subscription for the 2018-19 will be (A) ₹ 90,000
(B) ₹ 1,25,000
(C) ₹ 2,15,000
(D) ₹ 1,90,000

(x)The following are details of closing stock items in Aarvi Limited:

Items Historical Cost (₹ in Lakh) Net Realisable Value (₹ in Lakh)

A 30 27
B 15 18
C 35 35
D 40 45

The value of Closing Stock will be

(A)₹ 120 Lakh
(B)₹ 125 Lakh
(C)₹ 117 Lakh
(D)₹ 128 Lakh

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December 2019

(i)When stock is valued at cost in one accounting period and at lower of cost and Net realizable value in
another accounting period
(A)Prudence Principle conflicts with Consistency Principle.
(B)Matching Principle conflicts with Consistency principle.
(C)Consistency Principle conflicts with Accounting Period Assumption.
(D)None of the above

(ii)Materiality Principle is an exception to the

(A)Consistency principle
(B)Full disclosure Principle
(C)Accounting Period Assumption
(D)Prudence Principle

(iii)In a Cash Book Debit balance of ₹ 112 brought forward as credit balance of ₹ 121, while preparing a
Bank Reconciliation Statement taking the balance as per Cash Book as the starting point:
(A)₹ 112 to be added
(B)₹ 121 to be added
(C)₹ 233 to be added
(D)₹ 112 to be subtracted

(iv)represents a potential obligation that could be created depending on theoutcome of an event.

(A)Internal Liability
(B)Current Liability
(C)Contingent Liability
(D)Non-current Liability

(v)Opening Debtors, Collection from Debtors and Discount Allowed were ₹ 3,15,000; ₹ 18,30,000 and ₹
35,000 respectively. If the closing debtors were 20% of credit sales of the period then closing debtors and
credit sales would be
(A) ₹ 3,51,667 and ₹ 17,58,333
(B) ₹ 3,63,333 and ₹ 18,16,667
(C) ₹ 3,87,500 and ₹ 19,37,500
(D) ₹ 3,10,000 and ₹ 15,50,000

(vi) Following information is given:

₹
Opening Stock 2,13,000
Purchase 16,55,000
Sales 21,32,000
Carriage Inwards 32,500
Carriage Outwards 38,600
Return Inwards 38,000

If the rate of gross profit is 25% on cost then value of closing stock will be (A) ₹ 2,57,800
(B) ₹ 1,94,900
(C) ₹ 2,25,300
(D) ₹ 3,30,000

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(vii)Provision for Doubtful Debt on 1st April, 2018 was ₹ 21,500. During the year 2018 – 19 the Bad-debt
and Recovery of Bad-debt were ₹ 10,500 and ₹ 2,100 respectively. The Sundry Debtors on 31st March, 2019
were ₹ 2,25,000. Provision is to be made @ 5% on Debtors. If on 31st March, 2019, there was additional
Bad- debt of ₹ 2,500 then Provision for doubtful-debt will be
(A)debited to Profit & Loss Account by ₹ 11,250.
(B)debited to Profit & Loss Account by ₹ 2,625.
(C)debited to Profit & Loss Account by ₹ 3,000.
(D)debited to Profit & Loss Account by ₹ 900.

(viii) A and B enter into a joint venture sharing profit and losses in theratio of 3:2. A purchased goods
costing ₹ 2,00,000. B sold 95% goods for ₹ 2,50,000. A is entitled to get 1% commission on purchase and B
is entitled to get 5% commission on sales. A drew a bill on B for an amount equivalent to 80% of original
cost of goods. A got it discounted at ₹ 1,50,000. What is A's share of profit?
(A) ₹ 15,300
(B) ₹ 21,300
(C) ₹ 18,900
(D) None of the above

(ix) Subscription of ₹ 6,25,000 had been shown in the Income and Expenditure Account prepared for the
year ending 31st March, 2019. Additional information is as below:
31st March,2018 (₹) 31st March,2019 (₹)
Subscription Outstanding 55,000 72,000
Subscription Received in Adva
31,000 37,000
nce

The amount of subscription received during the year 2018-19 would be (A) ₹ 6,36,000
(B) ₹ 6,02,000
(C) ₹ 6,14,000
(D) ₹ 6,48,000

(x)X and Y are partners with the capital of ₹ 50,000 and ₹ 30,000 respectively. Interest Payable on Capital
is 10% p.a. If the profits earned by the firm is ₹ 4,800, what will be the Interest on Capital for X and Y?
(A) ₹ 5,000 and ₹ 3,000
(B) ₹ 3,000 and ₹ 1,800
(C)No interest will be paid to the partners
(D)None of the above

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December 21

(i)In hire purchase System, cash price plus interest is known as

(A)Hire purchase charges.
(B)Capital value of asset.
(C)Hire purchase price of assets.
(D)Book value of asset

(ii)Depreciation is calculated from the date of .

(A)Assets put to use.
(B)Purchase of assets.
(C)Assets installed.
(D)Receipts of assets at business premises

(iii)Main elements of the accounting equation are:

(A)Cash, stock and debtors.
(B)Bank balance, Investments and bills receivable.
(C)Assets, liabilities and capital.
(D)Capital, creditors and bills payable.

(iv)Main elements of the accounting equation are:

(A)Cash, stock and debtors.
(B)Bank balance, Investments and bills receivable.
(C)Assets, liabilities and capital.
(D)Capital, creditors and bills payable.

(v)A Bill of Exchange cannot be

(A)Endorsed.
(B)Crossed
(C)None of these.
(D)Accepted

(vi) Spent amount on unsuccessful promotion policy is

(A) Capital expenditure
(B) Expenses
(C) Revenue expenditure
(D) Deferred revenue expenditure.

(vii) Convention of Conservatism takes into account:

(A) All future profits and not losses.
(B) Neither profits nor losses of the future.
(C) All future losses and not profits.
(D) All future profits and losses.

(viii) Balance Sheet is prepared with the balances of which of the following?
(A) All balances in the Ledger.
(B) Balances of real accounts.
(C) Balances of personal accounts.
(D) Balances of personal and real accounts.

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(ix)Which of these terms/concepts are not relevant to a joint venture?

(A)Co-venturers.
(B)Temporary partnership.
(C)Principal and agent relationship.
(D)Sharing profit and loss of joint ventures.

(x)Excess of minimum rent over royalty payable is known as .

(A)Minimum royalty payable.
(B)Deficiency of actual royalty.
(C)Excess working.
(D)Short working.

(xi) Sold goods worth list price of rupees 8000 at 10% trade discount and 2% cash discount. 25%
received at the time of transaction only. The amount posted to the discount account will be:
(A) Rupees 144 on credit side.
(B) Rupees 36 on debit side
(C) Rupees 144 on debit side.
(D) Rupees 40 on credit side

(xii) Revenue from recognised as per AS-9

(A) Construction contract.
(B) Lease agreement
(C) Insurance contract.
(D) Rendering the services.

(xiii) Bills payable honoured during the year, will be debited to.
(A) None of these.
(B) Creditors account
(C) Bills payable account.
(D) Cash account

(xiv) Which of the following is not an essential feature of a partnership firm?

(A) Mutual agency.
(B) Existence of business.
(C) Association of two or more people.
(D) Compulsory registration

(xv) Sacrificing ratio is.

(A) New Profit sharing ratio - old profit sharing ratio.
(B) Equal to old profit sharing ratio
(C) Equal
(D) Old profit sharing ratio - new profit sharing ratio.

(xvi) Which of the following statements is not correct?

(A) Bad debts can be less than the amount of provision for doubtful debts.
(B) Bad debts can be more than the amount of provision for doubtful debts.
(C) Provision for doubtful debts account is the amount payable to debtors.
(D) Provision for doubtful debts is shown in the balance sheet.

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(xvii)Errors are:
(A)Frauds
(B)Undetected mistake.
(C)Intentional mistake.
(D)Unintentional mistake.

(xviii)Choose the correct statement.

(A)Financial statements need not take into consideration any statutory requirement.
(B)Only credit transactions are recorded in books of accounts.
(C)Financial statements prepared by two different accountants will always show identical results.
(D)Financial accounts, of an enterprise, are treated as evidence in the Court of Law.

(xix)Which of the following are not the advantages of pre packaged accounting software?
(A)Report generated.
(B)Simple backup procedure.
(C)Easy to use.
(D)Easy to install.

(xx)Which of these is/are one of the methods of stock taking?

(A)Periodic inventory
(B)Perpetual inventory.
(C)Both.
(D)None

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December 22

(i)Chose the most appropriate one from the given following alternatives:
Select the correct statement
(A)Keeping systematic recording of business transaction is not the function of financial
(B)Accounting is concerned with monetary transactions
(C)Accounting is concerned with past as well as future events
(D)Business and businessman are the same identity from accounting point ofview.

(ii)Going concern concept is followed

(A)By bank
(B)By cooperative Societies
(C)Joint venture accounting
(D)Depreciation accounting

(iii)Rectification of which type of errors requires opening of suspense account

(A)Errors of principle
(B)Complete omission
(C)Partial omission
(D)Errors of commission

(iv)A buyer returning goods on the ground of poor quality sent a note along withthe goods stating that no
payment would be made in respect of goods returned, the return note is called
(A)Debit note
(B)Credit note
(C)Refund note
(D)Return note

(v)Which of these expense is|are not included in valuation of abnormal loss?

(A)Godown Rent
(B)Freight and insurance by consignor
(C)Transit insurance incurred by consignee
(D)Loading and Unloading expenses incurred by Consignor

(vi)Goods Sold by other co-venturer is debited to

(A)Joint venture account
(B)Other Co-venturer’s Personal account
(C)Joint bank account
(D)None of the above

(vii) Sale is recognized as revenue

(A) When the contract for sale is entered into
(B) At the point of sale or performance of service
(C) After the expiry of credit period allowed to debtors
(D) After the money collected from the customers

(viii) A and B are partners sharing profits and losses in the ratio 3 : 2 They admittedC with effect from 1st
April 2021. New profit-sharing ratio is agreed at 4:3:3 An extract of their Balance Sheet as at 31st March,
2021 is aa follows.

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Liabilities ₹ Assets ₹
Workmen Compensation Reserve 90,000

Based on the above information you are required to answer the following questions:

(a)If there is no other information in respect of workmen compensation Reserve:

(A)Cr. A’s Capital A\c with ₹ 60,000 and B,s Capital A\c with ₹ 30,000
(B)Cr. A’s Capital A\c with ₹ 54,000 and B,s Capital A\c with ₹ 36,000
(C)Dr. A’s Capital A\c with ₹54,000 and B,s Capital A\c with ₹36,000
(D)Cr. A’s Capital A\c with ₹36,000 and B,s Capital A\c with ₹ 27,000 and C’s Capital A\c with ₹ 27,000

(b)If a claim for Workmen Compensation is estimated at 60,000

(A)Cr. A’s Capital A\c with ₹ 20,000 and B,s Capital A\c with ₹ 10,000
(B)Dr. A’s Capital A\c with ₹ 18,000 and B,s Capital A\c with ₹ 12,000
(C)Cr. A’s Capital A\c with ₹ 18,000 and B,s Capital A\c with ₹ 12,000
(D)Cr. A’s Capital A\c with ₹ 12,000 and B,s Capital A\c with ₹ 9,000 and C’s Capital A\c with ₹ 9,000

(c)If a claim for Workmen Compensation is estimated at 1,50,000

(A)Dr C’s Capital with ₹ 60000
(B)Dr C’s Capital with ₹ 18000
(C)Dr Workmen Compensation Reserve A\c with ₹ 90000 and Revaluation A\c with ₹ 60,000
(D)Dr Revaluation A\c with ₹ 60000

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June 23 (old syllabus)

(i)Chose the most appropriate one from the given following alternatives:
At the end of the accounting year, advances to suppliers are
(A)Debited to profit and loss account
(B)Credited to profit and loss account
(C)shown in the balance sheet as assets
(D)shown in the balance sheet as liabilities

(ii)Rates and Taxes paid ₹ 300 during 2022-2023. At March 31, 2023, the rates and taxes were prepaid to the
following 31st January, the yearly charge being ₹300. Calculate the prepaid rates and taxes to be shown in
the closing balance sheet
(A) ₹ 250
(B) ₹ 50
(C) ₹ 25
(D) None of the above

(iii)The Cost of the closing stock was ₹ 5,00,000. Realizable Value 120% Realizable Expenses 5%. At what
amount stock will be shown in the incomestatement of mallaya Co. which is not going concern?
(A) ₹ 5,00,000
(B) ₹ 6,00,000
(C) ₹ 5,70,000
(D) None of the above

(iv)Property, Plant & Equipment appeared at ₹ 50,00,000 in the trail balance of Nirav Co. which is not a
going concern. Property, Plant & Equipment are subject to depreciation @10% on WDV basis. Realizable
value of property, Plant & Equipment 80%. Realizable Expenses 5 % At what amount Depreciation will be
shown in the income statement of Nirav Co ?
(A) ₹ 4,00,000
(B) ₹ 5,00,000
(C) ₹ 12,00,000
(D) None of the above

(v)Cost of goods available for sale ₹ 2,00,000: Total Sales ₹ 1,60,000; Opening stock of goods ₹ 40,000; Gross
Profit Margin 25 %; Closing stock of goods was;
(A) ₹ 1,60,000
(B) ₹ 1,20,000
(C) ₹ 80,000
(D) ₹ 72,000

(vi)K of Kanpur sent out certain goods to D Delhi at cost 25%. 3/4th of thegoods received by D is sold at ₹
4,70,250 at 10% above invoice price. Invoice value of goods sent out is (A) ₹ 4,75 ,000
(B) ₹ 5,64,300
(C) ₹ 6,27,000
(D) ₹ 5,70,000

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(vii)At the end of the accounting year, subscription received in advance andoutstanding rent of club will
be shown in the balance sheet
(A)Both of assets side
(B)Both of liabilities side
(C)Subscription received in advance on liabilities side and outstanding rent on assets side
(D)Subscription received in advance on liabilities side and outstanding rent on liabilities side

(viii)Cost per kg of finished goods consisted of- Material Cost ₹ 15; DirectWages ₹ 120; and Variable
production overhead ₹ 45 If the fixed production charges for the year on normal capacity of two lakhkg.
are ₹ 40 lakh then the value of closing stock of 10000 kg as per AS-2 will be
(A)₹ 27 lakh
(B)₹ 31.5 lakh
(C)₹ 33.5 lakh
(D)₹ 32.5 lakh

(ix)Telephone charge paid ₹ 1,500 during 2022-2023. A quarter’s charge for telephone is outstanding, the
amount accrued being ₹ 300. The charge for each quarter is same for both 2021-2022 and 2022-2023.
Calculate Telephone charges to be shown in the Opening Balance Sheet as at 1.4.2022
(A) ₹ 600
(B) ₹ 300
(C) ₹ 1200
(D) None of the above

(x)X ltd entered into an agreement with Y ltd. For sale of goods costing ₹ 2,00,000 at a profit of 20 % on
sale. The sale transaction took place on 1st February, 2022. On the same day X ltd. Entered into another
agreement with Y ltd. For repurchasing price covers, inter alia, the holding cost of Yltd. Calculate the
amount of revenue as per AS-9 for the financial statements of X ltd. For the year 2021-2022.
(A) ₹ 2,40,000
(B) ₹ 2,50,000
(C) ₹ 0
(D) ₹ 2,00,000

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June 23 (new syllabus)

(i)Which of the following is nota qualitative characteristics of accounting information ?

(A)Reliability
(B)Materiality
(C)Comparability
(D)Understandability

(ii)IND-AS are
(A)Rule based accounting standard
(B)Principle based accounting standard
(C)Partially role based and partially principle based accounting standard
(D)None of the above

(iii)An increase in which of the following Account will be recorded on the debitside?
(A)Rent Received Account
(B)Building Account
(C)Bills Payable Account
(D)Capital Account

(iv)Trade Discount allowed is deducted from the gross sales. Sale is recorded in the Books of Account at
(A)gross sales and trade discount separately
(B)net sales invoice
(C)none of the above
(D)Any of (A) or (B)

(v)Rebate is calculated for the period between date of

(A)Payment and maturity date
(B)Drawing and payment of bill.
(C)Drawing and maturity date
(D)none of the above

(vi)Which of the following not an error of Principle?

(A)Purchase of machinery debited to purchase Account
(B)Sale of old furniture credited to sales account
(C)Repairs on the overhauling of existing machinery debited to machineryaccount
(D)Cash received from rana posted to jana

(vii)Income tax paid by a sole trader is shown

(A)On the debit side of the trading account
(B)On the debit side of Profit & Loss Account
(C)As deduction from capital in the balance sheet
(D)As addition to capital in the balance sheet

(viii) A lease which is generally not cancellable and cover full economic life of the asset is known as _ .
(A) Sale and lease back
(B) Operating lease
(C) Financing lease
(D) Economic lease

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(ix)A charitable Institution has 250 members with an annual subscription of ₹ 5,000 each. The
subscription received during 2020-21 were ₹ 11,25,000, which include ₹ 65,000 and ₹ 25,000 for the year
2019-20 and 2021-22 respectively. Amount of outstanding subscription for the year 2020-21 willbe
(A) ₹ 90,000
(B) ₹ 1,25,000
(C) ₹ 2,15 ,000
(D) ₹ 1,90,000

(x)X and Y are partners with a capital of ₹ 50,000 and ₹ 30,000 respectively.Interest payable on capital is
10% per annum. If the profits earned by the firmt is ₹ 4,800, what will be the interest on capital for X and Y
?
(A) ₹ 5,000, ₹ 3,000
(B) ₹ 3,000, ₹ 1,800
(C)No interest will be paid to the partners.
(D)none of the above

(xi)Which class of account is Consignment Account?

(A)Personal Account
(B)Real Account
(C)Representative Personal Account
(D)Nominal Account

(xii)Memorandum Joint Venture Account is prepared when

(A)The separate set of books is maintained for Joint Venture
(B)The each co-venturer keeps records of all transaction.
(C)The each co-venturer keeps records of their own transaction only.
(D)All of the above cases.

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Question 1
Write short note on the following: 2017 - June (5 marks)

Answer:
The Accrual Concept :
The accrual concept is based on recognition of both cash and credit transactions. In case of a cash
transaction, owner’s equity is instantly affected as cash either is received or paid. In a credit transaction,
however, a mere obligation towards or by the business is created. When credit transactions exist (which is
generally the case), revenues are not the same as cash receipts and expenses are not same as cash paid
during the period. When goods are sold on credit as per normally accepted trade practices, the business
gets the legal right to claim the money from the customer. Acquiring such right to claim the consideration
for sale of goods or services is called accrual of revenue. The actual collection of money from customer
could be at a later date.

Similarly, when the business procures goods or services with the agreement that the payment will be
made at a future date, it does not mean that the expense effect should not be recognized. Because an
obligation to pay for goods or services is created upon the procurement thereof, the expense effect also
must be recognized.

Today’s accounting systems based on accrual concept are called as Accrual System or Mercantile System
of Accounting.

Question 2
Write short notes on the following: 2017 – Dec (5 marks each)
(a)Objectives of Accounting
(b)Methods/ Criteria to the selection and application of Accounting policies

Answer:
(a) Objectives of Accounting:
The main objective of Accounting is to provide financial information to stakeholders. This financial
information is normally given via financial statements, which are prepared on the basis of Generally
Accepted Accounting Principles (GAAP). There are various accounting standards developed by
professional accounting bodies all over the world. In India, these are governed by The Institute of
Chartered Accountants of India, (ICAI). In the US, the American Institute of Certified Public Accountants
(AICPA) is responsible to lay down the standards. The Financial Accounting Standards Board (FASB) is the
body that sets up the International Accounting Standards. These standards basically deal with accounting
treatment of business transactions and disclosing the same in financial statement:
The following are the main objectives of accounting:
(a) To ascertain the amount of profit or loss made by the business i.e. to compare the income earned versus
the expenses incurred and the net result thereof.
(b) To know the financial position of the business i.e. to assess what the business owns and what it owes.
(c) To provide a record for compliance with statutes and laws applicable.
(d) To enable the readers to assess progress made by the business over a period of time.
(e) To disclose information needed by different stakeholders.

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Answer:
(b) The major considerations governing the selection and application of accounting policies are:
1.Prudence: Generally maker of financial statement has to face uncertainties at the time of preparation of
financial statement, these uncertainties may be regarding collectability of recoverable, number of
warranty claims that may occur. Prudence means making of estimates that are required under conditions
of uncertainty.
2.Substance over form: It means that transaction should be accounted for in accordance with actual
happening and economic reality of the transactions not by its legal form.
3.Materiality: Financial Statement should disclose all the items and facts which are sufficient enough to
influence the decisions of reader or/user of financial statement.

Question 3
Write short note on the following: 2017 – June (5 marks)
(a) Treatment of Abnormal Loss in case of Consignment Account.
(b) Weaknesses of Single Entry System

Answer (a):
Abnormal Losses arises as a result of negligence/ accident etc., e.g., theft, fire etc. Before ascertaining the
result of the consignment, value of abnormal loss should be adjusted. The method of calculation is similar
to the method of calculating unsold stock. Sometimes insurance company admits the claim in part or in
full. The same should also be adjusted against such abnormal loss.
While valuing the abnormal loss the proportionate expenses are taken only upto the stage of the loss. For
example, if goods are lost in the transit on way to the consignee’s place, the value of abnormal loss will
include the basic cost of the goods plus proportionate expenses of the consignor only and not the
proportionate expenses of consignee because consignee has spent nothing on account of these goods.

Treatment of Abnormal Loss

a. For Abnormal Loss -
Abnormal Loss A/c Dr.
To Consignment A/c
b. For the insurance claim due / received by the consignor - Insurance Co./Bank A/c Dr.
To Abnormal Loss A/c
c. If goods are not insured -
Profit & Loss A/c Dr.
To Abnormal Loss A/c
d. For transferring the net loss -
Profit & Loss A/c Dr.
To Abnormal Loss A/c

Answer (b):
Weaknesses of single entry system:
(a) As principle of double entry is not followed, the trial balance cannot be prepared. As such, arithmetical
accuracy cannot be guaranteed.
(b) Profit or loss can be found out only by estimates as Nominal Accounts are not maintained.
(c) It is not possible to make a balance sheet in absence of Real Accounts.
(d) It is very difficult to detect frauds or errors.
(e) Valuation of assets and liabilities is not proper.
(f) The external agencies like banks cannot use financial information. A bank cannot decide whether to
lend money or not.
(g) It is quite likely that the business and personal transactions of the proprietor get mixed.

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Question 4
Distinction between Fundamental accounting assumptions and Accounting policies.
2018 - Dec (5 marks)
Basis ofDistinction Fundamental AccountingAssumptions Accounting Policies
There is no single list of
There are only three fundamental accounting policies which are applied in all circumstances.
1. Number accounting assumptions viz. Going Concern, Consistency and A As a result, there
ccrual. may be different accounting policies adopted by different
enterprises.

2. No disclosure is required if all the fundamental assumptions Disclosure is required if a particular accounting policy
Disclosure if followed have been followed. has been followed

In case, the policy is changed in subsequent year, the

In case the fundamental assumptions are not followed; the fact
3. Disclosure if notfoll reasons for
has to be disclosed
owed such change and the resulting financial consequences have
in the financial statementstogether with the reasons.
to bedisclosed.

4. Choice There is no choice. The firm has a choice to select aparticular policy

Question 5
Write short note on the following: 2018 – June (5 marks)
(a) Operating cycle of Consignment Arrangement.

Answer:
Operating Cycle of Consignment Arrangement:
•Goods are sent by consignor to the consignee
•Consignee may pay some advance or accept a bill of exchange
•Consignee will incur expenses for selling the goods
•Consignee maintains records of all cash and credit sale
•Consignee prepares a summary of results called as Account sales
•Consignor pays commission to the consignee.

Question 6
Differences between sale and consignment. 2017 – Dec (5 marks)

Answer:
Difference between Sale and Consignment:
1. In sale the property in goods is transferred to the buyer immediately whereas in consignment the
property transferred to the buyer only when goods are sold by the consignee. The ownership of goods
remains with the consignor when goods are transferred to the consignee by the consignor.
2. In sale, the risk attaching to the goods passes with ownership to the buyer, in case of a consignment,
the risk attaching to the goods does not pass to the consignee who acts as a mere agent. If there is any
damage or loss to the goods it is borne by the consignor provided the consignee has taken reasonable
care of the goods and the damage or loss is not due to his negligence.
3. The relationship of consignor and consignee is that of a principal and an agent as in a contract of
agency whereas the relationship of buyer and seller is governed by the Sale of Goods Act.

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4.Unsold goods on consignment are the property of the consignor and may be returned if not saleable in
the market whereas goods sold on sale basis are normally not returnable unless there is some defect in
them.

Question 7
Write short notes on the following: 2017 – Dec (5 marks)
(a) Criticism of the decision of Garner vs. Murray.

Answer:
Criticism of the decision of Garner vs. Murray
The following criticism may be advocated against the decisions laid down in Garner vs. Murray principle:
(i)If any solvent partner has a debit balance in capital account, he must not bear the deficiency of the
insolvent partner;
(ii)This principle does not apply if there are only two partners;
(iii)In spite of having a credit balance in capital account the solvent partner must bring cash equal to the
amount of loss on realisation which is immaterial and useless; and
If any solvent partner who possess more private asset but contributes less capital, he will naturally, as per
Garner vs. Murray decision, bear less amount of deficiency of the insolvent partner than the other solvent
partner who possess less private assets but contributes more capital to the firm. This is not justified.

Question 8
Why is goodwill considered to be an intangible asset and not a fictitious asset?
2017 - Dec (1 mark)
Answer:
Goodwill is not a fictitious asset because it has a realisable value. It is an intangible asset because it cannot
be seen and touched.

Question 9
State briefly the factors which should be considered while selecting pre-packaged accounting software.
2017 – June (6 marks)

Answer:
According to the Accounting Standard 26 (on Intangible Assets), following are the factors which should be
accounted in order to acquire software for internal use:
• The cost of a software acquired for internal use must be recognised as an asset if it fulfills the recognition
criteria prescribed in paragraph 20 and 21 of this statement.
• The cost of a software purchased for internal use must comprise of purchase price including any import
duties and other taxes and any directly attributable

expenditure on making the software ready for its use.

While arriving at cost, trade discount and rebates are deducted. In the determination of cost matters
stated in paragraph 24 to 34 of the statement must be considered. This statement deals with the method of
accounting for 'Separate Acquisitions'; Acquisition as a part of amalgamation, Acquisition by way of
Government Grant; and Exchange of Assets Recognition criteria as per para 20 & 21 of the standard.

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General criteria for selection of pre-packed accounting software are :

1.Cost : The budgetary constraints could be an important deciding factor. A package having more features
cannot be opted because of the prohibitive costs.
2.Fulfillment of business requirements : Some packages have few functionalities more than the others. The
purchaser may try to match his requirement with the available solutions.
3.Ease of Use: Some packages could be very detailed and cumbersome compared to the others.
4.Reputation of vendor : Vendor support is essential for any software. A stable vendor with good
reputation and track records will always be preferred.
5.Completeness of reports : Some packages might provide extra reports or the reports match the
requirements more than the others.
6.Regular Updates: Software which is constantly updated should be preferred against those software
where vendors do not update their software regularly.

Question 10
List the significances of computerised accounting system. 2017 – Dec (5 marks)

Answer:
Significance of computerised accounting system:
•The speed with which accounts can be maintained is several fold higher;
•Automatic Correct Balancing of Ledger Accounts;
•Automatic Tallied Trial balance unless some mistake is made while recording the opening balance;
•Automatic Income Statement;
•Automatic Balance Sheet.

Question 11
Write short note on the following: 2017 – June (5 marks)
Advantages of Accounting Standard

Answer:
Following are the Advantages of setting up Accounting Standards:
1.Standards reduce to a reasonable extent or eliminate altogether confusing variation
in the Accounting Treatment used to prepare the Financial Statements.
1. There are certain areas where important information is not required by law to be disclosed. Standard
may call for Disclosure that is beyond that is required by law.
2. It facilitates comparison of Financial Statement of different Companies at different places.

Question 12
Enumerate the advantages of computerized Accounting. 2018 – Dec (7 marks)

Answer:
1. Computers are able to perform all the tasks at high speed. It can process a millions of instructions (MIS)
per second.
2. Computer results are accurate. Once the right instructions have been given to it, the chances of the
committing errors are almost zero.
3. The computer never tires. It can give a consistently good performance hour after hour.
4. It can store a large amount of data in its memory. Storage of data and information on the computer
allows reduction of paper filing and other mundane tasks.
5. Due to some advanced features, duplication of records is not possible.
6. Modification can be easily done. Data can be easily updated, deleted or deleted in a computer system.
7. Sharing of data is possible through networking
8. It performs the sametaskagain and again without getting bored.
9. A computer's efficiency does not decrease by age.

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Question 13
Write short note on the following: 2018 – June (5 marks)
Bearer Plant.

Answer:
Bearer plant is a plant that:
(a)is used in the production or supply of agricultural produce;
(b)is expected to bear produce for more than a period of twelve months; and
(c)has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
The following are not bearer plants:
(i)plants cultivated to be harvested as agricultural produce;
(ii)plants cultivated to produce agricultural produce when there is more than a remote likelihood that the
entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap sales;
(iii)annual crops.

Consequential Loss Policy.

Answer:
Business enterprises get insured against the loss of stock on the happening of certain events such as fire,
flood, theft, earthquake etc. Insurance being a contract of indemnity, the claim for loss is restricted to the
actual loss of assets. Sometimes an enterprise also gets itself insured against consequential loss of profit
due to decreased turnover, increased expenses etc.
If loss of profits consequent to the event or mis-happening (Fire, flood, theft etc.) is also insured, the policy
is known as loss of profit or consequential loss policy.
The Loss of Profit Policy normally covers the following items:
(i)Loss of net profit
(ii)Standing charges.
Any increased cost of working e.g., renting of temporary premises.

Question 15
Write short note on the following: 2018 – June (5 marks)
Features of Single Entry System.

Answer:
Single Entry System has the following features:
(a) Maintenance of books by a sole trader or partnership firm: The books which are maintained according
to this system can be kept only by a sole trader or by a partnership firm.
(b) Maintenance of cash book: In this system, it is very often to keep one cash book which mixes up
business as well as private transactions.
(c) Only personal accounts are kept: In this system, it is very common to keep only personal accounts and
to avoid real and nominal accounts. Therefore, sometimes, this is precisely defined as a system where only
personal accounts are kept.
(d) Collection of information from original documents: For information one has to depend on original
vouchers, example, in the case of credit sales, the proprietor may keep the invoice without recording it
anywhere and at the end of the year the total of the invoices gives an idea of total credit sales of the
business.
(e) Lack of uniformity: It lacks uniformity as it is a mere adjustment of double entry system according to
the convenience of the person.
(f) Difficulty in preparation of final accounts: It is much difficult to prepare trading, profit and loss account
and balance sheet due to the absence of nominal and real accounts in the ledger.

Applicability and Non-Applicability of Garner vs. Murray Rule

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Answer:
In the case of dissolution of a partnership firm due to insolvency, Garner vs Murray rule is applicable at
the time of any partner becoming insolvent. It requires—
1.That the solvent partners should bear the loss arising due to insolvency of a partner in their capital ratio
after making adjustments for past accumulated reserves, profits or losses, drawings, interest on
drawings/capitals, remuneration to partners etc., to the date of dissolution but before making adjustment
for profit or loss on realization in case of fluctuating capital. In case of fixed capital no such adjustments
are required.
2.That the solvent partners should bring in cash equal to their respective shares of the loss on realization.

Non-Applicability: This rule is not applicable when:

1.the solvent partner has a debit balance in the capital account.
2.only one partner is solvent.
3.all partners are insolvent.
4.the partnership deed provides for a specific method to be followed in case of insolvency of a partner,
then the conditions given in the deed would prevail.

Question 17
Distinction between Hire Purchase Agreement and Instalment Purchase Agreement
2018 - Dec (5 marks)

Answer:
Hire Purchase Agreement differs from Installment purchase Agreement in the following respects:

Basis of Distinction Hire Purchase Agreement Installment PurchaseAgreement

1. Act governing It is governed by Hire PurchaseAct 1972. It is governed by the Sale ofGoods Act 1930.
2. Nature of Contract It is an agreement of hiring. It is an agreement of sale.
The title to goods
3. Passing of Title (ownership) The title to goods passes on last payment.
passesimmediately as in the case of usual sale.
The hirer may return goods without further pay
4. Right to Return goods Unless seller defaults, goods are not returnable.
ment, except for accruedinstallment.
The seller can sue for price
The seller may take possession of the goods if hir
5. Seller's right to repossess if the buyer is in default. He cannot take possession of
er is in default.
thegoods.
Hirer cannot hire out, sell, pledge The buyer may dispose of
6. Right toDispose off or assign entitling transferee to retain possession the goods and give good title to the
as against the hire vendor. bonafide purchaser.
The hirer is not responsible for risk of loss of
goods if he The buyer is responsible for risk of loss of goods
7.Responsibility for Risk of Loss
has taken reasonable precaution because the ow because of
nership has notyet transferred.
The parties involved are called Hirer and Hire
8. Name ofParties involved The parties involved arecalled buyer and seller.
vendor.
The relationship between the buyer and seller
9. Relationship between The relationship between
is that of
parties involved hirer and hire vendor is that of Bailee and Bailor.
a debtor and creditor till lastinstallment is paid.
10. Componentother Component other than CashPrice included in Ins Component other than Cash price included in Installm
than Cash Price tallment is called Hire charges. entis called Interest.
1. Sales Method for goods of substantial
11. Method of Accounting sales values Interest Suspense Method.
2. Stock Methods for Goodsof small sales values

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Question 18
Write short note on the following: 2018 – June (5 marks)
Disadvantages of a Computerized Accounting Package.

Answer:
Disadvantages of a Computerized Accounting Package:
1.A standard package may not be able to take care of complexities of a specific business.
2.The reports required for existing management control may not be available in such package.

3.Lack of security.
4.Requirement specifications are incomplete or ambiguous resulting in a defective or incomplete system.
5.Bugs may remain in the software because of inadequate testing.
6.Documentation may not be completed.
7.Frequent changes made to the system with inadequate change management procedure may result in
system compromise.
8.Vendor may not be unwilling to give support of the software due to other commitments.
9.Vendor may not be willing to part with the source code or enter into an escrow agreement.
10.Control measures may be inadequate.
11.There may be delay in completion of the software due to problems with the vendor or inadequate
project management.

Question 19
(a) An infrastructure company has constructed a mall and entered into agreement with tenants towards
license fee (monthly rental) and variable license fee, a percentage on the turnover of the tenant (on an
annual basis). Chief Finance Officer wants to account / recognize license fee as income for 12 months
during current year under audit and variable license fee as income during next year, since invoice is raised
in the subsequent year. Comment whether the treatment desired by the CFO is correct or not. 2019 June (6
marks)
(b) State briefly the factors to be considered while selecting pre-packaged accounting software. 2019 June
(6 Marks)

Answers
(a) AS 9 on Revenue Recognition, is mainly concerned with the timing of recognition of revenue in the
Statement of Profit and Loss of an enterprise. The amount of revenue arising on a transaction is usually
determined by agreement between the parties involved in the transaction. However, when uncertainties
exist regarding the determination of the amount, or its associated costs, these uncertainties may influence
the timing of revenue recognition.
Further, as per accrual concept of fundamental accounting assumptions given in AS 1 "Disclosure of
Accounting Policies", revenue should be recognised as and when it is accrued i.e. recorded in the financial
statements of the periods to which they relate.
In the present case, monthly rental towards licence fee and variable licence fee as a percentage on the
turnover of the tenant though on annual basis is the income related to common financial year. Therefore,
recognising the fee as revenue cannot be deferred simply because the invoice is raised in subsequent
period.

Hence it should be recognised in the financial year of accrual.

Therefore, the contention of the Chief Financial Officer is not in accordance with AS 9.

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(b)Factors to be considered while selecting pre-packaged accounting software

1.Fulfillment of Business Requirements: The purchaser should ensure whether the available software
meets all the business requirements.
2.Completeness of Reports: The purchaser should ensure whether the available software can provide all
the reports required by business.
3.Ease of Use: The purchaser should ensure whether the available software is easy to operate.
4.Cost: The software should not involve very high installation and running cost.
5.Reputation of the vendor: It should be ensured whether the vendor has good reputation and good track
records or not.
6.Regular updates: It should be ensured whether the vendor is prepared to give updates.

Question 20
Write short notes on any three of the following: 2019 June (5*4 = 20 marks)
(a)The Accrual concept.
(b)Provision for Discount on Debtors
(c)Features of Income and Expenditure Account
(d)Maximum Possible Loss Method

Answers
(a)The Accrual Concept:
The accrual concept is based on recognition of both cash and credit transactions. In case of a cash
transaction, owner's equity is instantly affected as cash either is received or paid. In a credit transaction,
however, a mere obligation towards or by the business is created. When credit transactions exist (which is
generally the case), revenues are not the same as cash receipts and expenses are not same as cash paid
during the period. When goods are sold on credit as per normally accepted trade practices, the business
gets the legal right to claim the money from the customer. Acquiring such right to claim the consideration
for sale of goods or services is called accrual of revenue. The actual collection of money from customer
could be at a later date. Similarly, when the business procures goods or services with the agreement that
the payment will be made at a future date, it does not mean that the effect of expense should not be
recognized. Because an obligation to pay for goods or services is created upon the procurement thereof,
the expense effect also must be recognized. Today's accounting systems based on accrual concept are
called as Accrual System or Mercantile System of Accounting.

(a) Provision for Discount on Debtors:

We know that Cash discount is allowed by the suppliers to customer for prompt settlement of cash.
Naturally a provision is created for this purpose. Thus, the provision which is created on Sundry Debtors
for allowing discount on receipt of Cash in that accounting period is called Provision for Discount on
Debtors. It is needless to say thatif the customer pays their debts before the due dates, they may claim
discounts and that is why discount is allowed to debtors for prompt settlement is an usual practice. Where
goods are sold on credit, debtors accounts are debited but the amount may not be realized in this same
accounting periods. Naturally, a possible aim is to allow discount whether cash is received. The same will
happen in the next accounting period. Due to this reason a provision for discount on debtors is made on
the basis of past experience at an estimate rate on Sundry Debtors. Care should be taken while calculating
discount. Discount should be calculated at a specified rate on of debtors (i.e. after discounting bad debts
and provision for bad debts).

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(c)Features of Income and Expenditure Account:

1.It follows Nominal Account.
2.All expenses of revenue nature for the particular period are debited to this Account on accrual basis.
3.Similarly all revenue incomes related to the particular period are credited to this account on accrual
basis.
4.All Capital Incomes and Expenditures are excluded.
5.Only current year's incomes and expenses are recorded. Amounts related to other periods are deducted.
Amounts outstanding for the current year are added.
6.Profit on Sale of Asset is credited. Loss on Sale of Asset is debited. Annual Depreciation on Assets is also
debited.
7.If income is more than expenditure, it is called a Surplus, and is added with Capital or General Fund etc.
in the Balance Sheet.
8.If expenditure is more than income, it is a deficit, and is deducted from Capital or General Fund etc. in
the Balance Sheet.

(d)Maximum Possible Loss Method:

Steps:
(1)Prepare a statement showing distribution of cash
(2)Pay off the external Liabilities
(3)After all the payment is made for the external liabilities, the partners will be paid off.
Total Due of Partners xxx
Less : Net/Balance of Realisation (x) Maximum Loss xxx
(4)The maximum loss shall be shared amongst the partners in their profit sharing ratio, as if, there will be
no further realisation.

(5)If any of the partner capitals, after step (4) is negative, that partner shall be treated like an insolvent
partner.
(6)The deficiency of the insolvent partner as per step (5) shall be shared by the other solvent partners (i.e.
those partners who has positive capital balances) in their capital contribution ratio as per Garner vs.
Murray Rule.
(7)Repeat the steps (3) to (6) till final realisation.

Question 21
(a) Briefly explain the objectives and applicability of Accounting Standard for Construction Contracts (AS-
7). Describe the basic principles of recognition of revenue and expenses as per AS-7. 2019 Dec (8 Marks)

(b) What do you mean by 'Customised Accounting Software'? Discuss its advantages.
2019 Dec (8 Marks)
Answers
(a) Objective of AS-7 :
Accounting for long-term construction contracts involves question as to when revenue should be
recognized and how to measure the revenue in the books of contractor. The primary objective of this AS is
the allocation of 'contract revenue' and 'contract cost' to the accounting period in which construction
work is performed.
Applicability of AS-7:
This Standard is applicable in accounting for construction contracts in contractor's financial statements.
In other words the AS does not apply to customer (Contractee). This would not be applicable for the
construction projects undertaken by the enterprise on its own account as a commercial venture in the
nature of production activities.

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Basic principles of recognition of revenue and expenses:

Revenue recognized in the period in which work is performed;
Expenses recognized in the period in which the work to which expenses relate is performed.

Conditions for recognizing the contract revenue:

Following conditions must be fulfilled for recognizing the contract revenue:
(i)Total contract revenue can be measured reliably
(ii)It is probable that economic benefits associated with contract will flow to the enterprise / contractor
(iii)Total contract cost and cost upto the stage of completion is measured reliably
(iv)Contract cost attributable to contract can be clearly identified.

Uncertainty in collection amounts to expenses - When an uncertainty arises about the collectability of an
amount already included in contract revenue and already

recognized in profit and loss statement, it amounts to expense. This uncollectable amount of which
recovery has ceased to be probable is recognized as an expense rather than as an adjustments to contract
revenue.

(b)Customised Accounting Software:

A customised accounting software is one which is developed on the basis of specific requirements of the
organisation. A feasibility study is first made before the decision to develop a software is made. The life
cycle of a customized accounting software begins with the organisation providing the user requirements.
Based on the these user requirement the system analyst prepares a requirement specification which is
given for approval by the user management. Once the requirement specification is approved, the
designing process begins. Development, testing and implementation are the other components of the
system development life cycle.

Advantages of a Customised Accounting Package:

1.The functional areas which are not covered in pre-packaged software gets computerised.
2.The input screens can be tailor made to match the input documents for ease of data entry.
3.It provides many MIS reports as per the specification of the organisation.
4.It facilitates the use of Bar-code scanners as input devices suitable for the specific needs of an individual
organisation.
5.It can suitably match with the organisational structure of the company.

Question 22
Write short notes on any three of the following: 2019 Dec (5*4=20 Marks)
(a) Users of Accounting information
(b) Objective and necessity for providing Depreciation
(c) Applicability of Section 37 of the Indian Partnership Act, 1932
(d) Difference between Sale and Consignment

Answer:
(a) Users of Accounting Information
Accounting provides information both to internal users and the external users. The internal users are all
the organizational participants, at all levels of management (i.e. top, middle and lower). Generally top:
level management requires information for planning, middle level management which requires
information for controlling the operations. For internal use, the information is usually provided in the
form of reports, for instance Cash Budget Reports, Production Reports, Idle Time Reports, Feedback
Reports, whether to retain or replace an equipment decision reports, project appraisal report, and the
like.

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There are also the external users (e.g. Banks, Creditors). They do not have direct

access to all the record 'of an enterprise, they have to rely on financial statements as the source of
information. External users are basically, interested in the solvency and profitability of an enterprise.

(b)Objective and Necessity for Providing Depreciation

Eric Kohler defined depreciation as "the lost usefulness, expired utility, the diminution in service yield."
Its measurement and charging are necessary for cost recovery. It is treated as a part of the expired cost for
an asset. For determination of revenue, that part or cost should be matched against revenue. The objects
or necessities of charging depreciation are:
(i)Correct calculation of cost of production: Depreciation is an allocated cost of a fixed asset. It is to be
calculated and charged correctly against the revenue of an accounting period. It must be correctly
included within the cost of production.
(ii)Correct calculation of profits: Costs incurred for earning revenues must be charged properly for correct
calculation of profits. The consumed cost of assets (depreciation) has to be provided for correct matching
of revenues with expenses.
(iii)Correct disclosure of fixed assets at reasonable value: Unless depreciation is charged, the depreciable
asset cannot be correctly valued and presented in the Balance Sheet. Depreciation is charged so that the
Balance Sheet exhibits a true and fair view of the affairs of the business.
(iv)Provision of replacement cost: Depreciation is a non-cash expense. But net profit, is calculated after
charging it. Through annual' depreciation cash resources are saved and accumulated to provide
replacement cost at the end of the useful life of an asset.
(v)Maintenance of capital: A significant portion of capital has to be invested for purchasing fixed assets.
The values of such assets are gradually reduced due to their regular use and passage of time. Depreciation
on the assets is treated as an expired cost and it is matched against revenue. It is charged against profits. If
it is not charged the profits will remain inflated. This will cause capital erosion.
(vi)Compliance with technical and legal requirements: Depreciation has to be charged to comply with the
relevant provisions of the Companies Act and Income Tax Act.

(c)Applicability of Section 37 of the Indian Partnership Act 1932:

In case of retirement, the retiring partner or in case of death, the executor of the deceased partner, if the
dues are not settled, then such retired partner or the executor is entitled to the following:
Maximum of: Interest @ 6% p.a. on the amount due to them (i.e. if the amount is unsettled, like, rate of
interest on loan to be allowed to the retired partner or the executor is not mentioned)
Or
The share of profit earned for the amount due to the partner

Conditions:
(a)The surviving partners/continuing partners continue to carry on the business of the firm.
(b)The business is carried on without any final settlement of accounts between the continuing partners
and the outgoing partners or his estate.
(c)There is no contract to the contrary of the options contained in Section 37 i.e. share in the profits or
interest @ 6% p.a. on the unsettled capital.

(a) Difference between Sale and Consignment

1. In sale the property in goods is transferred to the buyer immediately whereas in consignment the
property is transferred to the buyer only when goods are sold by the consignee. The ownership of goods
remains with the consignor when goods are transferred to the consignee by the consignor.
2. In sale, the risk attaching to the goods passes with ownership to the buyer. In case of a consignment, the
risk attaching to the goods does not pass to the consignee who acts as a mere agent. If there is any damage
or loss to the goods it is borne by the consignor provided the consignee has taken reasonable care of the
goods and the damage or loss is not due to his negligence.

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3.The relationship of consignor and consignee is that of a principal, and an agent as in a contract of agency
whereas the relationship of buyer and seller is governed by the Sale of Goods Act.
4.Unsold goods on consignment are the property of the consignor and may be returned if not saleable in
the market whereas goods sold on sale basis are normally not returnable unless there is some defect in
them.

Question 23
Why is goodwill considered an „Intangible asset‟ but not a „fictitious asset‟?
2021 Dec (2 Marks)
Answer:
Goodwill cannot be seen or touched. It can only be felt. Hence it is treated an intangible asset. But it is not
a fictitious asset because fictitious do not have a value. Whereas Goodwill has value and it can be
purchased or sold with any other asset.

Question 24
State your views in line with provision of AS-1 and give reasons for your answer in respect of the
following: 2021 Dec (5 Marks)
(i)Certain fundamental accounting assumptions underline the preparation and presentation of financial
statements. They are usually specifically stated because their acceptance and use are not assumed.
(ii)If fundamental accounting assumptions are not followed in presentation and preparation of financial
statements, a specific disclosure is not required.
(iii)All significant accounting policies adopted in the preparation and presentation of

financial statements should form part of the financial statements.

(iv)Any change in accounting policy which has a material effect should be disclosed.
Where the amount by which any item in the financial statements is affected
(v)by such change is not ascertainable, wholly or in part, the fact need not to be indicated.
(vi)There is no single list of accounting policies which are applicable to all circumstances.

Answer:
(i)False, As per AS1 “disclosure of accounting policies”, Certain fundamental accounting assumptions
underlie the preparation and presentation of financial statements. They are usually not specifically stated
because their acceptance and use are assumed Disclosure is necessary if they are not followed.
(ii)False, As per AS 1 if the fundamental accounting assumptions, VIZ going concern, consistency and
accrual are followed in financial statements, specific disclosure is not required. If a fundamental
accounting assumption is not followed, the fact should be disclosed.
(iii)True, to ensure proper understanding of financial statements, it is necessary that all significant
accounting policies adopted in the preparation and presentation of financial statements should be
disclosed. The disclosure of the significant accounting policies as such should form part of a financial
statement and they should be disclosed at one place.
(iv)False, Any change in the accounting policies which has a material effect in the current period or which
is reasonably expected to have a material effect in later periods should be disclosed. Where such amount is
not ascertainable, wholly or in part, the fact should be indicated.
(v)True, As per AS 1, There is no single list of accounting policies which are applicable to all circumstances.
The differing circumstances in which enterprises operate in a situation of diverse and complex economic
activity make alternative accounting principles and methods of applying those principles acceptable.

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Question 25
Write short notes on 2021 Dec (5*3=15 Marks)
1.Source documents
2.Error of principle.
3.Overriding Commission.
4.Transfer entries in the context of self balancing Ledger.
5.Components of computer systems

Answer:
1.Source documents: Vouchers are the documentary evidence of the transactions so happened. Source
documents at the basis on which transactions are recorded in

subsidiary books, i.e. source documents are the evidence and proof of transactions.
2.Error of principle: Entering revenue expenses as capital expense or vice versa or entering revenue
receipt as capital receipt or vice versa.
3.Overriding Commission: it is an extra commission allowed over and above, the normal Commission is
generally offered for the following reasons:
i)When, the agent is required to put in hard work in introducing a new product in the market.
ii)Where he is entrusted with the work of supervising the performance of other agents in a particular area.
For effecting sales at prices higher than the price fixed by the consignor.
4.Transfer entries: Sometimes a person may be treated both as debtor as well as a creditor to the firm.
Under the circumstances, the lower of the amount payable to and receivable from such person is to be set
off. The so called set off amount is to be deducted both from the debtors as well as from the creditors. This
is known as transfer entry.
5.Components of computer system: A computer system is made up of a number of electronic components.
These components are known as hardware. The names of the components are as follows:
i)Keyboard.
ii)Monitor.
iii)CPU.
iv)Magnetic recorder
Keyboard and monitor put together are known as terminals.

Question 26 2021 Dec ( 2+3=5 Marks)

i.Entity A carried plant and machinery in its books at 2,00,000 which were destroyed in a fire . These
machines were insured ‘New For Old’ and were replaced by the insurance company with new machines of
fair value ₹ 20,00,000. The old destroyed machines were acquired by the insurance company and the
company did not receive any cash compensation. State, how Entity A should account for the same.
ii.Omega Ltd, a supermarket chain, is renovating one of its major stores. The store will have more
available space for store promotion outlets after the store will have more available space for store
promotion outlets after the renovation and will include a restaurant. Management is preparing the
budgets for the year after store reopens, which include the cost of remodeling and the expectation of a
15% increase in sales resulting from the store renovations, which will attract new customers
Decide whether Omega Ltd can capitalize the remodeling cost or not as per provision of AS-10 ‘Property
Plant & Equipment’

Answers
i.Entity A should account for a loss in the Statement of Profit and Loss on de- recognition of the carrying
value of plant and machinery in accordance with AS 10 on Property, Plant and Equipment. Entity A should
separately recognize a receivable and a gain in the income statement resulting from the insurance
proceeds once receipt is virtually certain. The receivable should be measured at the fair value of assets
provided by the insurer.

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ii.The expenditure in remodeling the store will create future economic benefits (in the form of 15% of
increase in sales). Moreover, the cost of remodeling can be measured reliably, therefore, it should be
capitalized in line with AS 10.

Question 27 2022 Dec (5*4=20 Marks)

Write a short Notes on
(i)Advantages of Double Entry System
(ii)The main Objective of Depreciation Policy
(iii)Distinguish Between Hire-Purchase and Instalment Purchase.
(iv)Features of a Bills of Exchange

Answers
(i)Advantages of Double Entry System
It helps the trade know about his debtors and creditors from to time
It helps the trader to prepare the final accounts to reflect the true trading results at the end ofperiod
It provides a Balance Sheet on a particular date to know the true value of assets, liabilities andcapital
It helps the trader who can have a comparative study of working results and financial positionover a
number of years
It helps to find out and prevent errors and frauds
It provides ready-made information to be sent to Sales tax and Income Tax Authorities
It provides good guidance on which management take new decisions to increase the profit andcorrect
losses into profit

(ii)The main objectives of depreciation policy are given below.

Description is the allocation of the cost of the asset over its effective life and being ‘tax shield’ is
deductible expense while calculating taxable income of the concern. Diminishing balance method of
calculating depreciation results in greater tax saving in a balanced firm is compared to straight line
method.
To keep intact the capital invested in depreciable assets and to make provision for the replacement,
modernization and expansion on most favourable terms. It is process of allocation and helps the
management to retain this amount of profit in

business for replacing asset. Otherwise this profit would have gone to the Government in the form of tax.
To match the cost with revenue, depreciation is necessary to measure the cost incurred during a given
period. Thus, know correct net income and financial condition for external reporting.
Depreciation helps to measure managerial performance. But, charging it on historical cost or
replacement cost basis is again a controversial issue and will affect the managerial decisions to be taken
by the top management. Differences in costs because of charge of depreciation under different methods,
tend to mislead management in selecting their operational alternative for more profitable for the firm as
a whole.
Withdraw of asset before the end of its useful life is not up to standard to cope with the increasing
competition in the market but due to the external factor of technological improvements in the existing
asset is refereed to obsolescence. In such atmosphere the asset is depreciated quickly otherwise profit
and loss account will be over burdened with the amount of loss on account of obsolescence in the year in
which the asset obsoletes.
Serving consistently to follow a particular method of depreciation otherwise would make the financial
statements unreliable to the stakeholders. It means convention of consistency.
Depreciation makes to retain funds for replacement asset at the end of its working life
Apportioning total cost of the asset over its useful life is achieved by charging depreciation; and
investing such amount of depreciation the public may not misled and correct investment decision may be
made.

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INSPIRE ACADEMY 8888881719

Factor Hire Purchase System Installment Purchase System

Ownership in the goods sold passes to the buyer only on Ownership in the goods passes to the buyer immediately at the
Transfer of Ownership
payment of the last installment timeof sale

If the buyer fails to

The seller cannot recover the goods but he can sue for
Recovery of Goods pay any installment, the seller can recover the goods back
recovery of price and damages
from buyer

If the buyer default in Money paid by the buyer will be taken as a payment
Forfeiture of installments paid payment, the seller can forfeit money paid towards part of selling price and the seller can sue only for the
by the buyer so far balance

In the books of purchaser, vendor is debited with full purcha In the books of vendor, the purchaser is credited with
se price once contract signed. Amount due, if any, is shown full price. Purchased goods
Accounting Entries
separately as a liability of the purchaser and not adeduction become property of the buyer and shown
from the asset in his Balance Sheet at cost less depreciation

(iv)Features of a Bills of Exchange

As per Section 5 of the Negotiable Instruments Act, a bill of exchange is an instrument in writing
containing an unconditional order, signed by the maker, directing a certain person, to pay a certain sum
of money only to, or to the order of a certain person or to the bearer of the instrument. The essential of
bill ofexchange are as:
There are three parties the “Maker‟ is termed as the „Drawer‟ in Bill of Exchange. He is the creditor. The
person liable to pay the money is called the „Drawee‟. The person entitled to get the money is termed as
the „Payee‟. It should be noted that drawer himself can also be the payee. It must be drawn on a specific
person
The bill drawer being the creditor, orders the drawee to pay a certain of sum money.
A Time Bill of Exchange can be made payable to the bearer.
It is an instrument in writing and unconditional
It must be in writing, dated, stamped and signed by Drawer
It must be payable in demand or after a definite period of time, and for a certain amount ofmoney

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