INSPIRE ACADEMY 8989 30 8989 ACCOUNTS : SHREE SIR
FOUNDATION COURSE
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed by way of note forming part of
the answer.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) State with reasons, whether the following statements are true or false:
(i) The provision for bad debts is debited to sundry debtors account.
(ii) Discount column of the cash book is never balanced.
(iii) Goods sold on approval or return basis are not recorded as credit sales initially when they are
sent-out.
(iv) In case the due date of a bill falls after the date of closing the account, the interest from the
date of closing to such due date is known as Red-Ink interest.
(v) Business of partnership comes to an end on death of a partner.
(vi) Non-participating preference shareholders enjoy voting rights.
(6 Statements x 2 Marks = 12 Marks)
(b) Discuss the limitations which must be kept in mind while evaluating the Financial Statements .
(4 Marks)
C) Prepare Journal Entries for the following transactions in the books of SHREE Bros.
(i) Employees had taken stock worth ` 20,000 (Cost price ` 15,000) on the eve of Deepawali
and the same was deducted from their salaries in the subsequent month.
(ii) Wages paid for erection of Machinery ` 16,000.
(iii) Income tax liability of proprietor ` 3,400 was paid out of petty cash.
(iv) Purchase of goods from Naveen of the list price of ` 4,000. He allowed 10% trade discount,
` 100 cash discount was also allowed for quick payment. (4 Marks)
2. (a) The following mistakes were located in the books of a concern after its books were closed and a
Suspense Account was opened in order to get the Trial Balance agreed:
(i) A Bill Receivable for ` 1,550 was passed through Bills Payable Book. The Bill was given by
Hament.
(ii) A sale of ` 25,000 to Nidhi was wrongly debited to the Account of Vidhi.
(iii) General expenses ` 360 was posted in the General Ledger as ` 630.
iv) Sales Day Book was overcast by ` 5,000
INSPIRE ACADEMY 8989 30 8989 ACCOUNTS : SHREE SIR
v) Cash received from Aman was debited to Vimal ` 3,200.
vi) Legal Expenses ` 2,910 paid to Mr. Mohan was debited to her personal account.
vii) While carrying forward the total of one page of the Purchases Book to the next, the
amountof ` 1,235 was written as ` 1,325.
Find out the nature and amount of the Suspense Account and Pass entries for the rectification of
the above errors in the subsequent year’s books.
2 (b) Physical verification of stock in a business was done on 23 rd April, 2023. The value
of the stock was ` 48,00,000. The following transactions took place between 23rd April to 30th
April, 2023:
(i) Out of the goods sent on consignment, goods at cost worth ` 2,40,000 were unsold.
(ii) Purchases of ` 4,00,000 were made out of which goods worth ` 1,60,000 were delivered on 5th
May, 2023.
(iii) Sales were ` 13,60,000, which include goods worth ` 3,20,000 sent on approval. Half of
these goods were returned before 30th May, 2023, but no information is available regarding the
remaining goods.
(iv) Goods are sold at cost plus 25%. However goods costing ` 2,40,000 had been sold for
` 1,20,000.
You are required to determine the value of stock on 30th April, 2023
3. a) On 1st January 2023, Rajat draws two bills of exchange for ` 32,000 and ` 50,000.
The bill of exchange for ` 32,000 is for two months while the bill of exchange for ` 50,000 is for three
months. These bills are accepted by Vishal. On 4th March, 2023, Vishal requests Rajat to renew the
first bill with interest at 15% p.a. for a period of two months. Rajat agreed to this proposal. On 25th
March, 2023, Vishal retires the acceptance for ` 50,000, the interest rebate i.e. discount being ` 500.
Before the due date of the renewed bill, Vishal becomes insolvent and only 50 paisa in a rupee could
be recovered from his estate.
Show the Journal Entries (with narrations) in the books of Rajat.
(b) Kiran had accepted bills payable to Divya, falling due on different dates. The details of bills are
as follows:
Date of bill Amount Usance of bill
9th April 2022 ` 3,000 for 4 months
18th April 2022 ` 5,500 for 3 months
25th May 2022 ` 3,000 for 6 months
5th June 2022 ` 6,000 for 3 months
On 1st July, it was agreed that these bills should be withdrawn and that Kiran should accept on
that day two bills, one for ` 10,000 due in 4 months and the other for the balance with interest,
due in 6 months. Calculate the amount of the second bill taking interest @ 10% p.a. Take 365 days
in year 2022-2023.
(c) From the following transactions in the books of Mr. Lee, prepare an Account Current, by means of product
to be sent by him to Mr. Cooper for the quarter ending 31st March, 2023. Interest is to be charged
INSPIRE ACADEMY 8989 30 8989 ACCOUNTS : SHREE SIR
and/or allowed @ 12% p.a. (Take 365 days in year)
2023 `
January 1 Balance in Cooper’s Account (Credit) 3,500
January 12 Sold goods to Cooper (due 1st February) 30,000
January 31 Sold goods to Cooper (due 15th February) 27,500
February 15 Cash received 40,000
February 20 Cash received 7,500
March 10 Goods returned by Cooper 7,000
March 25 Cash received 6,500
(10 +5 + 5 = 20 Marks)
4 (a) Inder, Anil and Pawan are in partnership, sharing profits and losses equally. Pawan died on
30th June 2023.
The Balance Sheet of Firm as at 31st March 2023 stood as:
Liabilities Amount Assets Amount
Creditors 20,000 Land and Building 1,50,000
General Reserve 12,000 Investments 65,000
Capital Accounts: Stock in trade 15,000
Inder 1,00,000 Trade receivables 35,000
Anil 75,000 Less: Provision for doubtful debt (2,000) 33,000
Pawan 75,000 Cash in hand 7,000
Cash at bank 12,000
2,82,000 2,82,000
In order to arrive at the balance due to Pawan, it was mutually agreed that:
(i) Land and Building be valued at ` 1,75,000
(ii) Debtors were all good, no provision is required
(iii) Stock is valued at ` 13,500
(iv) Goodwill will be valued at one year's purchase of the average profit of the past five years.
Pawan's share of goodwill be adjusted in the account of Inder and Anil.
Pawan's share of profit from 1st April 2023, to the date of death be calculated on the basis ofaverage profit of
preceding three years
V) The profit of the preceding five years ended 1st March were:
2023 2022 2021 2020 2019
25,000 20,000 22,500 35,000 28,750
You are required to prepare Revaluation account and Capital accounts of the partners as at 1st July2023.
INSPIRE ACADEMY 8989 30 8989 ACCOUNTS : SHREE SIR
(b) The trial balance of Chawla as at 31st December, 2022 is as follows:
Dr. Cr.
` `
Chawla’s capital account - 38,345
Stock 1st January, 2022 23,400 -
Sales - 1,94,800
Returns inward 4,300 -
Purchases 1,60,850 -
Returns outward - 2,900
Carriage inwards 9,800 -
Rent & taxes 2,350 -
Salaries & wages 4,650 -
Sundry debtors 12,000 -
Sundry creditors - 7,400
Bank loan @ 14% p.a. - 10,000
Bank interest 550 -
Printing and stationary expenses 7,200 -
Bank balance 4,000 -
Discount earned - 2,220
Furniture & fittings 2,500 -
Discount allowed 900 -
General expenses 5,725 -
Insurance 650 -
Postage expenses 1,165 -
Cash balance 190 -
Travelling expenses 435 -
Drawings 15,000 -
2,55,665 2,55,665
The following adjustments are to be made:
(1) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry
debtors.
(2) Personal purchases of Chawla amounting to ` 300 had been recorded in the purchases day
book.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Included amongst the debtors is ` 1,500 due from Dyal and included among the creditors
` 500 due to him.
INSPIRE ACADEMY 8989 30 8989 ACCOUNTS : SHREE SIR
(5) A quarter of the amount of printing and stationary expenses is to be carried forward to the
next year.
(6) Credit purchase invoice amounting to ` 200 had been omitted from the books.
(7) Stock on 31.12.2022 was ` 39,300.
(8) Interest on bank loan shall be provided for the whole year.
You are required to prepare Trading & profit and loss account for the year ended 31.12.2022.
(8 + 12 = 20 Marks)
5. (a) New State Society showed the following position on 31st March, 2021:
Balance Sheet as on 31st March, 2021
Liabilities ` Assets `
Capital fund 15,86,000 Electrical fittings 3,00,000
Expenses payable 14,000 Furniture 1,00,000
Books 8,00,000
Investment in securities 3,00,000
Cash at bank 50,000
Cash in hand 50,000
16,00,000 16,00,000
The receipts and payment account for the year ended on 31 st March, 2022 is given below:
` `
To Balance b/d By Electric charges 14,400
Cash at bank 50,000 By Postage and stationary 10,000
Cash in hand 50,000 1,00,000 By Telephone charges 10,000
To Entrance fee 60,000 By Books purchased 1,20,000
To Membership subscription 4,00,000 By Outstanding expenses paid 14,000
To Sale proceeds of old papers 3,000 By Rent 1,76,000
To Hire of lecture hall 40,000 By Investment in securities 80,000
To Interest on securities. 16,000 By Salaries 1,32,000
By Balance c/d
Cash at bank 40,000
Cash in hand 22,600
6,19,000 6,19,000
You are required to prepare Income and Expenditure account for the year ended 31st March, 2022
after making the following adjustments:
Membership subscription included ` 20,000 received in advance.
INSPIRE ACADEMY 8989 30 8989 ACCOUNTS : SHREE SIR
Provide for outstanding rent ` 8,000 and salaries ` 6,000.
Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be
depreciated at the same rate.
75% of the entrance fees is to be capitalized
Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10.2021 for
` 80,000.
(b) Zavier & Co. employs a team of 9 workers who were paid ` 1,20,000 per month each in the year
ending 31st December, 2020. At the start of 2021, the company raised salaries by 10% to
` 1,32,000 per month each.
On 1 July, 2021 the company hired 2 trainees at salary of ` 63,000 per month each. The work force are
paid salary on the first working day of every month, one month in arrears, so that the employees receive
their salary for January on the first working day of February, etc.
You are required to calculate:
(i) Amount of salaries which would be charged to the profit and loss account for the year ended
31st December, 2021.
(ii) Amount actually paid as salaries during 2021.
(iii) Outstanding salaries as on 31st December, 2021. (15 + 5 = 20 Marks)
6. (a) Hari Om Ltd. registered with an authorised equity capital of ` 16,00,000 divided into 8,000 shares of `
100 each, issued for subscription of 4,000 shares payable at ` 25 per share on application,
` 30 per share on allotment, ` 20 per share on first call and the balance as and when required.
Application money on 4,000 shares was duly received and allotment was made to them. The
allotment amount was received in full, but when the first call was made, two shareholders failed to
pay the amount on 400 shares each held by them and another shareholder with 400 shares, paid the
entire amount on his shares. The company did not make any other call. Give the necessary journal
entries in the books of the company to record these transactions.
(b) Sampati Ltd. issued 300 lakh 8% debentures of `100 each at a discount of 6%, redeemable at a
premium of 5% after 3 years payable as : ` 50 on application and ` 44 on allotment.
You are required to prepare the necessary journal entries for issue of debentures.
(c) From the following particulars, prepare a Bank Reconciliation Statement for Adam Ltd. As on
31.3.2022
(1) Balance as per cash book is ` 6,00,000.
(2) Cheques issued but not presented in the bank amounts to ` 3,40,000.
(3) Bank charges amounts to ` 1,500.
(4) Interest credited by bank amounts to ` 7,500.
OR
(c) Explain in brief objective and advantages of setting Accounting Standards.
(10 + 5 + 5 = 20 Marks)
