Mock Test Paper - Series III: June, 2024

Date of Paper: 5 th June, 2024

Time of Paper: 2 P.M. to 5 P.M.

FOUNDATION COURSE
PAPER – 1: ACCOUNTING
ANSWERS
1. (a) (i) True: Subsidy received from the government for working capital by
a manufacturing concern is a revenue receipt because it has no
effect on improvement of future capability of business in revenue
generation.
(ii) False: If the effect of errors committed cancel out, the errors will
be called compensating errors and the trial balance will agree.
(iii) True: The financial statements must disclose all the relevant and
reliable information in accordance with the Full Disclosure
Principle.
(iv) False: The provisions of the Indian Partnership Act, 1932 shall not
apply to a limited liability partnership. Limited Liability (LLPs) Act,
2008 is applicable for Limited Liability Partnerships
(v) False: Under the single entry system of bookkeeping,
generally cash book and personal accounts of creditors and
debtors are maintained, and no other ledger is maintained.
(vi) False: Preference share holder can hold both Equity shares and
Preference shares of the company. Any person can hold both kinds
of shares.
(b) Difference between Provision and Contingent liability
Provision Contingent liability
(1) Provision is a present liability A Contingent liability is a
of uncertain amount, which possible obligation that may or
can be measured reliably by may not crystallise depending
using a substantial degree of on the occurrence or non-
estimation. occurrence of one or more
uncertain future events.
(2) A provision meets the A contingent liability fails to
recognition criteria. meet the same.
(3) Provision is recognized when Contingent liability includes
(a) an enterprise has a present obligations that do not
present obligation arising from meet the recognition criteria
past events; an outflow of because either it is not probable
resources embodying that settlement of those
economic benefits is probable, obligations will require outflow
and (b) a reliable estimate can of economic benefits, or the
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 be made of the amount of the amount cannot be reliably
obligation. estimated.
(4) If the management estimates If the management estimates,
that it is probable that the that it is less likely that any
settlement of an obligation will economic benefit will outflow
result in outflow of economic from the firm to settle the
benefits, it recognises a obligation, it discloses the
provision in the balance sheet. obligation as a contingent
liability.
(c)
S. Debit Credit
No. (`) (`)
1 Commission A/c Dr. 13,500
To Interest Received 13,500
(Correcting wrong entry of interest received
into commission account)
2 M/s Kamal Traders A/c Dr. 630
To Suspense A/c 630
(Being credit sale of ` 5,920 posted as ` 5,290
i.e. debiting M/s Kamal Traders A/c less by
630, now rectified)
3 Drawing A/c Dr. 44,000
To Machinery A/c 44,000
(Correction of wrong debit to machinery
account for purchase of air-conditioner for
personal use)
4 Return Inward A/c Dr. 20,000
To Debtors (Personal) A/c 20,000
(Correction of omission to record return of
goods by customers)
2. (a) In the books of Firm
Machinery Account
` `
1.1.2020 To Bank A/c 37,000 31.12.2020 By Depreciation 4,000
A/c
To Bank A/c 3,000 31.12.2020 By Balance c/d 36,000
(overhauling
charges) _______ _______
40,000 40,000
1.1.2021 To Balance b/d 36,000 31.12.2021 By Depreciation 6,150
A/c
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 (` 5,400 +
` 750)
1.7.2021 To Bank A/c 10,000 31.12.2021 By Balance c/d 39,850
_______ (` 30,600 + _______
` 9,250)
46,000 46,000
1.1.2022 To Balance b/d 39,850 1.7.2022 By Bank A/c(sale) 28,000
1.7.2022 To Bank A/c 25,000 1.7.2022 By Profit and Loss 305
A/c
(Loss on Sale
– W.N. 1)
31.12.2022 By Depreciation 5,558
A/c
(` 2,295 +
` 1,388 +
` 1,875)
By Balance c/d 30,987
_______ (` 7,862 + _______
` 23,125)
64,850 64,850
1.1.2023 To Balance b/d 30,987 1.7.2023 By Bank A/c 2,000
(sale)
1.7.2023 By Profit and Loss 5,272
A/c
(Loss on Sale
– W.N. 1)
31.12.2023 By Depreciation 4,059
A/c
(` 590 +
` 3,469)
_______ 31.12.2023 By Balance c/d 19,656
30,987 30,987
Working Note:
Book Value of machines
Machine Machine Machine
I II III
` ` `
Cost of all machinery 40,000 10,000 25,000
(Machinery cost for 2020)
Depreciation for 2020 4,000

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 Written down value as on 31.12.2020 36,000
Purchase 1.7.2021 (6 months) 10,000
Depreciation for 2021 5,400 750
Written down value as on 31.12.2021 30,600 9,250
Depreciation for 6 months (2022) 2,295
Written down value as on 1.7.2022 28,305
Sale proceeds 28,000
Loss on sale 305
Purchase 1.7.2022 25,000
Depreciation for 2022 1,388 1,875
Written down value as on 31.12.2022 7,862 23,125
Depreciation for 6 months in 2023 590
Written down value as on 1.7.2023 7,272
Sale proceeds 2,000
Loss on sale 5,272
Depreciation for 2023 3,469
Written down value as on 31.12.2023 19,656
(b) Valuation of Physical Stock as at March 31, 2024
`
st
Stock at cost on 31 March,2023 7,20,000
Add: (1) Under casting of a page total 1,800
(2) Goods purchased and delivered during
January – March, 2024
` (6,30,000 – 27,000 + 36,000) 6,39,000
(3) Cost of sales return ` (9,000 – 1,800) 7,200 6,48,000
13,68,000
Less: (1) Overcasting of a page total ` (54,000 – 9,000
45,000)
(2) Goods sold and dispatched during
January – March, 2024
` (8,10,000 – 45,000 + 36,000) 8,01,000
25 6,40,800 (6,49,800)
Less: Profit margin 8,01,000 × 1,60,200
125
Value of stock as on 31st March, 2024 7,18,200
Note: In the above solution, transfer of ownership is assumed to take
place at the time of delivery of goods. If it is assumed that transfer of
ownership takes place on the date of invoice, then ` 36,000 goods
delivered in March 2024 for which invoice was received in April, 2024,
would be treated as purchases of the accounting year 2023-2024 and
thus excluded. Similarly, goods dispatched in March, 2024 but invoiced
in April, 2024 would be excluded and treated as sale of the year 2023-
2024
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3. (a) Income and Expenditure Account
for the year ended 31st March, 2024
` `
To Medicines consumed By Prescription fees 6,60,000
Purchases 2,45,000
Less: Stock on 31.3.24 (95,000) 1,50,000 By Visiting fees 2,50,000
To Motor car expense 80,000 By Fees from lectures 24,000
To Wages and salaries 75,000
(1,05,000 – 30,000)
To Rent for clinic 60,000
To General charges 49,000
To Interest on loan 36,000
To Net Income 4,84,000 ______
9,34,000 9,34,000

Capital Account
for the year ended 31st March, 2024
` `
To Drawings: By Cash/bank 2,00,000
Motor car expenses 40,000 By Cash/ bank (pension) 3,00,000
(one-third of ` 1,20,000) By Net income from 4,84,000
Household expenses 1,80,000 practice (derived from
Daughter’s Surgery 2,15,000 income and expenditure
exp. A/c)
Wages of domestic 30,000
servants
Household furniture 25,000
To Balance c/d 4,94,000 _____
9,84,000 9,84,000
(b) Revaluation Account
` `
To Furniture A/c 40,000 By Office equipment A/c 47,000
To Stock A/c 30,000 By Building A/c 5,00,000
By Provision for
To Partners’ capital A/cs: doubtful debts 15,000
P 2,46,000
Q 1,64,000
R 82,000 4,92,000 _______

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 5,62,000 5,62,000
Partners’ Capital Accounts
P Q R P Q R
` ` ` ` ` `
To Q’s 90,000 – 30,000 By Balance 8,00,000 4,20,000 4,00,000
capital A/c b/d
To Q’s loan 8,24,000 By General 1,80,000 1,20,000 60,000
A/c Reserve
To Balance 11,36,000 5,12,000 By revaluation 2,46,000 1,64,000 82,000
c/d reserve
By P’s capital 90,000
A/c
By R’s capital 30,000
A/c
12,26,000 8,24,000 5,42,000 12,26,000 8,24,000 5,42,000

Balance Sheet as on 1.4.2024 (After Q’s retirement)

Liabilities ` ` Assets ` `
Capital Building 15,00,000
accounts:
P 11,36,000 Furniture 2,00,000
R 5,12,000 16,48,000 Office equipment 3,27,000
Q’s loan 8,24,000 Stock 2,20,000
account
Sundry 3,70,000 Sundry debtors 3,00,000
creditors
Less: Provision for
doubtful debts (15,000) 2,85,000

Cash at bank 3,10,000

28,42,000 28,42,000
Working Notes:
Calculation of goodwill:
1. Average of last 4 year’s profit
= (90,000+1,40,000+1,20,000+1,30,000)/4
= ` 1,20,000
2. Goodwill at three years’ purchase
` 1,20,000 x 3 = ` 3,60,000
Goodwill adjustment
Share of goodwill Share of goodwill Adjustment
(Old ratio) (New ratio)
P 1,80,000 2,70,000 90,000 (Dr.)
Q 1,20,000 - 1,20,000 (Cr.)
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 R 60,000 90,000 30,000 (Dr.)
4. (i) Statement showing Realization of Cash
Sr. Particulars Realization Creditors Partner’s Partner’s
No. Loan Capital
1 After taking into 1,500 1,500 - -
account cash
balance and amount
set aside for
expenses
2 4,500 1,500 3,000
3 5,850 - 4,500 1,350
4 9,000 - - 9,000
Including Savings in 30,150 - - 30,150
Exp
51,000 3,000 7,500 40,500
To ascertain the amount distributable out of each installment realized
among the partners, the following table will be constructed:
Statement of Distribution on Capital Accounts
(1) Calculation to determine the mode of distribution of `1,350
Particulars Total A B C
Balance 63,000 22,500 27,000 13,500
Less: Maximum Loss in (61,650) (24,660) (24,660) (12,330)
2:2:1
+1,350 -2,160 +2,340 +1,170
Deficiency of A's capital (1,440) (720)
written off against those of
B and C in the ratio of their
capital 27,000: 13,500,
(Garner vs. Murray)
Manner in which the first + 900 + 450
` 1,350 should be
distributed
(2) Distribution of `9,000
Balance after (1) 61,650 22,500 26,100 13,050
Less : Maximum Loss in 2:2:1 (52,650) (21,060) (21,060) (10,530)
Balance available and 9,000 1,440 5,040 2,520
distributed

(3) Distribution of `30,150

Balance after (2) 52,650 21,060 21,060 10,530

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 Less: Maximum Loss in 2:2:1 (22,500) (9,000) (9,000) (4,500)
Distribution of ` 30,150 30,150 12,060 12,060 6,030
Summary:
- Balance 63,000 22,500 27,000 13,500
- Total Amounts Paid 40,500 13,500 18,000 9,000
- Loss 22,500 9,000 9,000 4,500
(b) Trading and Profit and Loss Account of Mr. Chauhan
for the year ended 31st March, 2024
Dr. Cr.
Particulars ` Amount Particulars ` Amount
(`) (`)
To Opening stock 64,500 By Sales 4,27,150
To Purchases 3,13,200 Less: Sales 5,150 4,22,000
return
Less: Purchases return 3,450 3,09,750 By Closing stock 2,50,000

To Carriage inward 2,250

To Wages 23,430
To Gross profit c/d 2,72,070
6,72,000 6,72,000

To Salaries 45,100 By Gross profit b/d 2,72,070

To Rent 8,600 By Bad debts 900
recovered
To Advertisement expenses 8,350
To Printing and stationery 2,500
To Bad debts 2,200
To Carriage outward 2,700
To Provision for doubtful
debts
5% of ` 2,40,000 12,000
Less: Existing provision 6,400 5,600
To Provision for discount on
debtors
2.5% of ` 2,28,000 5,700
Less: Existing provision 2,750 2,950
To Depreciation:
Plant and machinery 6,000
Furniture and fittings 2,050 8,050
To Office expenses 20,320
To Interest on loan 6,000
To Net profit
(Transferred to capital

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 account) 1,60,600 _______
2,72,970 2,72,970

Balance Sheet of Mr. Chauhan as on 31st March, 2024

Liabilities ` Amount ` Assets ` Amount `

Capital 1,30,000 Plant and machinery 40,000

account
Add: Net Less: Depreciation 6,000 34,000
profit 1,60,600
2,90,600 Furniture and fittings 20,500
Less: 16,000 2,74,600 Less: Depreciation 2,050 18,450
Drawings
Bank 1,60,000 Closing stock 2,50,000
overdraft
Sundry 95,000 Sundry debtors 2,40,000
creditors
Payable 4,900 Less: Provision for 12,000
salaries doubtful debts
Less: Provision for 5,700 2,22,300
bad debts
Prepaid rent 600
Cash in hand 2,900
Cash at bank 6,250
_______
5,34,500 5,34,500
5. (a) In the books of Katen
Journal Entries
Particulars ` `
Bills Receivable A/c Dr. 50,000
To Bharat A/c 50,000
(Being a 3 month’s bill drawn on Bharat for
the amount due)
Bank A/c Dr. 49,500
Discount A/c Dr. 500
To Bills Receivable A/c 50,000
(Being the bill discounted)
Bharat A/c Dr. 50,000
To Bank A/c 50,000
(Being the bill cancelled up due to Bharat’s
inability to pay it)
Bharat A/c Dr. 750
To Interest A/c 750

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 (Being the interest due on ` 25,000 @ 12%
for 3 months)
Bank A/c Dr. 25,750
To Bharat A/c 25,750
(Being the receipt of a portion of the amount
due on the bill together with interest)
Bills Receivable A/c Dr. 25,000
To Bharat A/c 25,000
(Being the new bill drawn for the balance)
Bharat A/c Dr. 25,000
To Bills Receivable A/c 25,000
(Being the dishonour of the bill due to Bharat’s
insolvency)
Bank A/c Dr. 10,000
Bad Debts A/c Dr. 15,000
To Bharat A/c 25,000
(Being the receipt of 40% of the amount due
on the bill from Bharat’s estate)
(b)(i) Computation of Income for the year 2023-24:
`
Money received during the year related to 2023-24 15,00,000
Add: Money received in advance during previous years 4,50,000
Total income of the year 2023-24 19,50,000
(ii) Advance from Customers A/c
Date Particulars ` Date Particulars `
To Sales A/c 4,50,000 1.4.2023 By Balance 6,00,000
(Advance b/d
related to
current year
transferred
to sales)
By Bank A/c 3,60,000
31.3.24 To Balance 5,10,000 (Balancing
c/d Figure)
9,60,000 9,60,000
So, total money received during the year is:
`
Cash Sales during the year 15,00,000

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 Add: Advance received during the year 3,60,000
Total money received during the year 18,60,000
OR
(ii) (i) Amount of salaries to be charged to P & L A/c for the year
ended 31 stDecember, 2023
Employees = 9 x ` 1,32,000 x 12 = ` 1,42,56,000
Trainees = 2 x ` 63,000 x 6 = ` 7,56,000
Salaries charged to P & L A/c ` 1,50,12,000
(ii) Amount actually paid as salaries during 2023
Employees = 9 x ` 1,32,000 x 11 + 9 x ` 1,20,000 = ` 1,41,48,000
Trainees = 2 x ` 63,000 x 5 = ` 6,30,000
Amount paid as salaries `1,47,78,000
(iii) Outstanding salaries as on 31.12.2023
Employees = 9 x ` 1,32,000 = ` 11,88,000
Trainees = 2 x ` 63,000 = ` 1,26,000
Outstanding salaries ` 13,14,000
(c) Journal Entries in the books of Puri Ltd.
` `
1-4-2024 Equity share final call A/c Dr. 2,70,000
To Equity share capital A/c 2,70,000
(For final calls of ` 2 per share
on 1,35,000 equity shares
due as per Board’s
Resolution dated….)
20-4-2024 Bank A/c Dr. 2,70,000
To Equity share final call A/c 2,70,000
(For final call money on
1,35,000 equity shares
received)
Securities Premium A/c Dr. 37,500
Capital Reserve A/c Dr. 60,000
General Reserve A/c Dr. 1,80,000
Profit and Loss A/c Dr. 60,000
To Bonus to shareholders 3,37,500
A/c
(For making provision for
bonus issue of one share for
every four shares held)
Bonus to shareholders A/c Dr. 3,37,500

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 To Equity share capital A/c 3,37,500
(For issue of bonus shares)

Extract of Balance Sheet as at 30th April, 2024 (after bonus issue)

`
Authorised Capital
15,000 12% Preference shares of `10 each 1,50,000
1,83,750 Equity shares of `10 each (W.N.2) 18,37,500
Issued and subscribed capital
12,000 12% Preference shares of `10 each, fully paid 1,20,000
1,68,750 Equity shares of `10 each, fully paid 16,87,500
(Out of above, 33,750 equity shares @ `10 each were
issued by way of bonus)
Reserves and surplus
Profit and Loss Account 2,40,000
Working Notes:
The authorized capital should be increased as per details `
given below:
Existing authorized Equity share capital 15,00,000
Add: Issue of bonus shares to equity shareholders
(25% of ` 13,50,000) 3,37,500
18,37,500
6. (a) In the books of Devis Ltd.
Journal Entries
Dr. Cr.
` `
Bank A/c Dr. 27,00,000
To Equity Share Application A/c 27,00,000
(Being the application money received for
4,50,000 shares at ` 6 per share)
Equity Share Application A/c Dr. 27,00,000
To Equity Share Capital A/c 18,00,000
To Share allotment A/c 9,00,000
(Being share allotment made for 3,00,000
shares and excess adjusted towards
allotment)
Equity Share Allotment A/c Dr. 30,00,000
To Equity Share Capital A/c 30,00,000

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(Being allotment amount due on 3,00,000
equity shares at ` 10 per share as per
Directors’ resolution no... dated...)
Bank A/c Dr. 21,00,000
To Equity Share Allotment A/c 21,00,000
(Being balance allotment money received
for 3,00,000 shares)
Equity Share first and final call A/c Dr. 12,00,000
To Equity Share Capital A/c 12,00,000
(Being first and final call amount due on
3,00,000 equity shares at ` 4 per share as
per Directors’ resolution no... dated...)
Bank A/c Dr. 11,64,000
Calls in arrears A/c 36,000
To Equity Share first and final call A/c 12,00,000
(Being final call received on 2,91,000
shares)
Share capital A/c (9,000 x ` 20) Dr. 1,80,000
To Forfeited shares A/c (9,000 x 1,44,000
` 16)
To Calls in arrears A/c (9,000 x ` 4) 36,000
(Being forfeiture of 9,000 shares of ` 20
each fully called-up for non payment of first
and final call @ ` 4 as per Directors’
resolution no... dated..)
Bank A/c (7,500 x `16) Dr. 1,20,000
Forfeited shares A/c (7,500 x `4) 30,000
To Equity Share Capital A/c 1,50,000
(7,500 x ` 20)
(Being re-issue of 7,500 shares @ ` 16)
Forfeited share A/c (7,500 x ` 12) 90,000
To capital reserve A/c (7,500 x ` 12) 90,000
(Being profit on re-issue transferred to
capital reserve)
Working Note:
Calculation of amount to be transferred to Capital reserve A/c
`
Forfeited amount per share = 1,44,000/9,000 = 16
Loss on re issue (20-16) 4
Surplus per share 12

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 Transfer to capital reserve ` 12 x 7,500 ` 90,000
(b) In the Books of Universe Limited
Journal Entries
Dr. (`) Cr. (`)
1-4-2023 Bank A/c Dr. 36,00,000
Discount/Loss on Issue of Debentures Dr. 6,00,000
A/c
To 12% Debentures A/c 40,00,000
To Premium on Redemption of 2,00,000
Debentures A/c
(For issue of debentures at discount
redeemable at premium)
30-9-2023 Debenture Interest A/c Dr. 2,40,000
To Debenture holders A/c 2,16,000
To Tax Deducted at Source 24,000
A/c
(For interest payable)
30-9-2023 Debenture holders A/c Dr. 2,16,000
Tax Deducted at Source A/c Dr. 24,000
To Bank A/c 2,40,000
(For payment of interest and TDS)
31-3-2024 Debenture Interest A/c Dr. 2,40,000
To Debenture holders A/c 2,16,000
To Tax Deducted at Source A/c 24,000
(For interest payable)
31-3-2024 Debenture holders A/c Dr. 2,16,000
Tax Deducted at Source A/c Dr. 24,000
To Bank A/c 2,40,000
(For payment of interest and tax)
31-3-2024 Profit and Loss A/c Dr. 4,80,000
To Debenture Interest A/c 4,80,000
(For transfer of debenture interest to
profit and loss account at the end of the
year)
31-3-2024 Profit and Loss A/c Dr. 1,20,000
To Discount/Loss on issue of 1,20,000
debenture A/c
(For proportionate debenture discount
and premium on redemption written
off, i.e., 6,00,000 x 1/5)

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(c) Adjusted Cash Book as on 31 st December, 2023
Particulars ` Particulars `
To Balance b/d 1,98,000 By Bank charges 34,000
To Debtors 1,00,000 By Debtor (cheque dishonour) 5,000
By Balance c/d 2,59,000
2,98,000 2,98,000
Bank Reconciliation Statement as on 31 st December, 2023
Particulars ` `
Balance as per adjusted cash book 2,59,000
ADD: Cheque issued but not presented 45,000
Payment not effected by bank 4,000
49,000
3,08,000
LESS: Cheque deposited but not cleared 25,000 25,000
Balance as per Bank Pass Book 2,83,000

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