CA FOUNDATION

ACCOUNTING
Test Paper -5
Time: 3 Hrs Marks: 100
Note : Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Question. 1
(a) State with reasons, whether the following statements are True or False:
(i) Any amount spent to minimize the working expenses is revenue expenditure.
(ii) Expenses incurred on the repairs for the first time on purchase of an old building are capital
expenditure.
(iii) The provision for bad debts is debited to sundry debtors account.
(iv) Non-participating preference shareholders enjoy voting rights.
(v) Right shares are normally offered at a price more than the cum-right value of the share, causing dilution
in its value post-right issue.
(vi) Discount column of the cash book is never balanced. (6 x 2 = 12 Marks)
(b) The following are the details of the spare parts of an Oil Mill:

1-1-2021 Opening Inventory Nil

1-1-2021, Purchases 10 units @ Rs. 300 per unit
15-1-2021 Issued for consumption 5 units
1-2-2021 Purchases 20 units @ Rs. 400 per unit
15-2-2021 Issued for consumption 10 units
20-2-2021 Issued for consumption 10 units

Find out the value of Inventory as on 31.3.2021,if the company follows Weighted AverageMethod. (4 Marks)
(c) Explain the followings:
(i) Accrual Basis of Accounting
(ii) Amortisation
(iii) Contingent Assets
(iv) Contingent Liabilities (4 Marks)

Question. 2

(a) From the following information, draw up a Trial Balance in the books of Shri M as on31st March,2021:
Particulars Amount (Rs.) Particulars Amount (Rs.)
Capital 1,40,000 Purchases 36,000
Discount Allowed 1,200 Carriage Inward 8,700
Carriage Outwards 2,300 Sales 60,000
Return Inward 300 Return Outwards 700
Rent and Taxes 1,200 Plant and Machinery 80,700
Stock on 1st April 2020 15,500 Sundry Debtors 20,200
Sundry Creditors 12,000 Investments 3,600
Commission Received 1,800 Cash in Hand 100
Cash at bank 10,100 Motor Cycle 34,600
st
Stock on 31 March, 2021 20,500

(5 Marks)

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 (b) On 1st January, 2019 Kohinoor Transport Company purchased a Bus for Rs. 8,00,000. On 1st July, 2020 this bus
was damaged due to fire and was completely destroyed and Rs. 6,00,000 were received by a cheque from the
Insurance Company in full settlement on 1st October, 2020. On 1st July, 2020 another Bus was purchased by
the company for Rs. 10,00,000.
The Company charges Depreciation @ 20% per annum under the WDV Method. Calculate the amount of
depreciation for the year ended 31 st March, 2021 and gain or loss on the destroyed Bus. (5 Marks)

(c) According to the cash-book of G there was balance of Rs. 4,45,000 in his bank on 30th June, 2021 On
investigation you find that :
(i) Cheques amounting to 60,000 issued to creditors have not been presented forpayment till the date
(ii) Cheques paid into bank amounting to 1,10,500 out of which cheques amounting to Rs. 55,000 only
collected by bank up to 30th June 2021
(iii) A dividend of Rs. 4,000 and rent amounting to 60,000 received by the bank and entered in the pass-
book but not recorded in the cash book.
(iv) Insurance premium (up to 31st December, 2020) paid by the bank Rs. 2,700 notentered in the cash
book.
(v) The payment side of the cash book had been under cast by Rs. 500
(vi) Bank charges Rs. 150 shown in the pass book had not been entered in the cash book.
(vii) A bill payable of Rs. 20,000 had been paid by the bank but was not entered in the cash book and bill
receivable for Rs. 6,000 had been discounted with the bank at a cost of Rs. 100 which had also not been
recorded in cash book.
You are required:
(1) To make the appropriate adjustments in the cash book, and
(2) To prepare a statement reconciling it with the bank pass book. (10 Marks)

Question. 3
(a) On 12th May, 2020 A sold goods to B for 36,470 and drew upon the later two bills one for Rs. 16,470 at one
month and the other for Rs. 20,000 at three months. B accepted both the bills.
On 5th June, 2020 A sent both the bills to his banker for collection on the due dates. The first bill was duly met. But
due to some temporary financial difficulties, B failed to honour the second bill on the due date and the bank had to
pay Rs. 20 as noting charges.
However, on 16th August, 2020 it was agreed between A and B that B would immediately pay Rs. 8,020 in cash and
accept a new bill at 3 months for Rs. 12,480 which included interest for postponement of the part payment of
the dishonoured bill. A immediately sent new acceptance to its bank for collection on the due date. On 1st
October,2020 B approached A offering Rs. 12,240 for retirement of his acceptance A accepted the request.
You are required to pass journal entries of all the above transactions in the books of A. (10 Marks)

(b) Prime Streaming Co. acquired the streaming rights of a movie for Rs. 18,00,000 with the contracted
duration of the streaming period being 10 year. At the beginning of the fourth year, based on the
decline in viewership ,Prime Streaming Co. decided to stream the movie only for the next 5 years.

Required : Calculate amortization for the fourth year. (5 marks)

(c) A, B and C are partners in a firm. On 1st April 2019 their fixed capital stood at Rs. 50,000, Rs. 25,000 and
Rs. 25,000 respectively.As per the provision of partnership deed:
(1) C was entitled for a salary of 5,000 p.a.
(2) All the partners were entitled to interest on capital at 5% p.a.
(3) Profits and losses were to be shared in the ratio of Capitals of the partners. Net Profit for the year ended
31st March, 2020 of Rs. 33,000 and 31st March,2021 of Rs. 45,000 was divided equally without providing
for the above adjustments.
You are required to pass an adjustment journal entry to rectify the above errors. (5 Marks)
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Question. 4
(a) The Income and Expenditure Account of the Women Club for the Year ended onDecember 31, 2021 is as
follows.

Expenditure Rs. Income Rs.

To Salaries 47,500 By Subscription 75,000
To General Expenses 5,000 By Entrance Fees 2,500
To Audit Fee 2,500 By Contribution for Annual Dinner 10,000
To Secretary’s honorarium 10,000 By Annual Sports Meet Receipts 7,500
To Stationary and Printing 4,500
To Annual Dinner Expenses 15,000
To Interest and bank charges 1,500
To Depreciation 3,000
To Surplus 6,000
95,000 95,000
This account had been prepared after the following adjustments:

Rs.
Subscription outstanding at the end of 2020 6,000
Subscription received in advance on 31st December,2020 4,500
Subscription received in advance on 31st December, 2021 2,700
Subscription outstanding on 31st December,2021 7,500

Salaries outstanding at the beginning and end of the year 2021 were respectively Rs. 4,000 and Rs. 4,500. General
Expenses include insurance prepaid to the extent of Rs. 600. Audit fee for the year 2021 is as yet unpaid. During
the year 2021 audit fee for the year 2020 was paid amounting to Rs. 2,000
The Club owned a freehold lease of ground valued at Rs. 1,00,000. The club had sports equipment on 1st
January, 2021 valued at Rs. 26,000. At the end of the year 2021, after depreciation, this equipment amounted to
Rs.27,000. In the year 2020, the Club had raised a bank loan of Rs.20,000.This was outstanding throughout
the year 2021.On31st December, 2021 in hand was Rs. 16,000.

You are required to:

Prepare the Receipts and Payments Account for the year ended on December 31, 2021and the Balance Sheet as
on that date.
(b) A and B are partners, sharing profits and losses in the proportion of 3/4th and 1/4th As at 31st March, 2021,
following is the Balance Sheet of A and B.
Balance Sheet as at 31st March, 2021

Liabilities (Rs.) Assets (Rs.)

Capital accounts Cash in hand 1,15,000
A 2,85,000 Cash at bank 1,10,000
B 1,55,000 4,40,000 Sundry Debtors 1,60,000
Creditors 3,75,000 Stock 2,00,000

General reserve 60,000 Bills receivable 30,000

Land and building 2,50,000
Office furniture 10,000
8,75,000 8,75,000

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 They agreed to take C into Partnership on 1st April, 2021 on the following terms:
(i) Goodwill is to be valued at Rs. 2,00,000. C is unable to bring cash for his share of goodwill. So, it was
decided that due credit for goodwill be given to A and B for their sacrifice in favour of C through C’s current
account.
(ii) C pays Rs. 1,40,000 as his capital for 1/5th share in the future profits.
(iii) Stock and Furniture to be reduced by 10%.
(iv) A provision @ 5% for doubtful debts to be created on debtors.
(v) Land and building to be appreciated by 20%.
(vi) Capital Accounts of the partners be readjusted on the basis of their profit sharing arrangement and any
excess or deficiency is to be transferred to their Current Accounts.
Prepare Revaluation Account and Partners Capital Accounts. (10 Marks)

Question. 5
(a) Pass the Journal entries to rectify the following errors detected during preparation of the Trial Balance:
(i) Wages paid for construction of office building debited to wages account Rs. 20,000.
(ii) A credit sale of goods Rs. 1,200 to Ramesh has been wrongly passed through the Purchase Book.
(iii) An amount of Rs. 2,000 due from Mahesh Chand which had been written off as a bad debit in the previous year
was unexpectedly recovered and has been posted to the personal account of Mahesh Chand.
(iv) Goods (Cost being Rs. 5,000 and Sales price being Rs. 6,000) distributed as free samples amount
prospective customers were not recorded anywhere.
(v) Goods worth Rs. 1,500 returned by Green have not been recorded anywhere. (5 Marks)

(b) On 31st March, 2021 the Trial Balance of Mr. Black was as follows:

Particulars Debit Particulars Credit

(Rs.) (Rs.)
Stock on 1/4/2020 Sundry Creditors 1,50,000
Raw Materials 2,10,000 Bills Payables 75,000
Work-in-Progress 95,000 Sale of scrap 25,000
Finished Goods 1,55,000 Commission received 4,500
Sundry Debtors 2,40,000 Provision for doubtful debts 16,500
Carriages on Purchase 15,000 Capital account 10,00,000
Bills Receivables 1,50,000 Sales 16,72,000
Wages 1,30,000 Bank overdraft 85,000
Salaries 1,00,000
Telephone and Postage 10,000
Repairs to office furniture 3,500
Cash at Bank 1,70,000
Office Furniture 1,00,000
Repairs to Plant 11,000
Purchases 8,50,000
Plan and Machinery 7,00,000
Rent 60,000
Lighting 13,500
General Expenses 15,000
30,28,000 30,28,000
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 The following additional information is available:
Stocks on 31st March,2021 were:
Raw material Rs. 1,62,000
Finished goods Rs. 1,81,000
Work-in-progress Rs. 78,000

Salaries and wages unpaid for the year ended 31st March,2021 were respectively,
Rs. 9,000 and Rs. 20,000. Machinery is to be depreciated by 10% and office furniture by 7½%. A provision for
doubtful debts is to be maintained @1% of sales. Rent is to be charged as to 3/4 to factory and 1/4 to office.
Lighting is to be charged as to 2/3 to factory and 1/3 to office.
Prepare the Manufacturing Account, Trading Account and Profit and Loss Account for the year ended on 31st
March,2021. (15 Marks)

Question. 6
(a) Fashion Garments Ltd invited applications for issuing 10,000 Equity Shares of Rs. 10 each. The amount was
payable as follows:
(i) On Application Rs. 1 per share
(ii) On Allotment Rs. 2 per share
(iii) On First call Rs. 3 per share
(iv) On Second and final Call Rs. 4 per share
The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the allotment money and his
shares were forfeited immediately after the allotment. Shyam to whom 150 shares were allotted, failed to pay the first
call. His shares were also forfeited after the first call. Afterwards the second and final call was made. Mohan to
whom 50 shares were allotted failed to pay the second and final call. His shares were also forfeited. Al the
forfeited shares were re-issued at Rs. 9 per share fully paid-up.
Pass necessary Journal entries in the books of Fashion Garments Ltd. (15 Marks)
(b) Discuss the following:
(i) What do you mean by principal books of accounts?
(ii) What are the rules of posting of journal entries into the Leger? (5 Marks)