Mock Test Paper - Series II: January, 2025

Date of Paper: 31 st December, 2024

Time of Paper: 10.30 A.M. to 1.30 P.M.

FOUNDATION COURSE
PAPER – 1: ACCOUNTING
ANSWERS
1. (a) (i) False: Depreciation is a charge against profit and not an
appropriation of profit. Therefore, depreciation has to be provided
for, even in case of loss in a financial year.
(ii) False: At the end of the accounting year, all the nominal accounts
of the ledger book are totalled and transferred to Profit & Loss A/c.
(iii) False: Amount spent for replacement of any worn- out part of a
machine is revenue expense since it is part of its maintenance cost.
(iv) False: In case of admission of new partner in a partnership firm,
profit/loss on revaluation account is transferred to old partners in
their old profit-sharing ratio.
(v) False: The debit notes issued are used to prepare purchases return
book.
(vi) False: Debentures Suspense Account appears on asset side of
Balance Sheet under Non-Current Asset.
(b) Accounting Standards are selected set of accounting policies or broad
guidelines regarding the principles and methods to be chosen out of
several alternatives. The Accounting Standards Board of the Institute of
Chartered Accountants of India (ICAI) formulates Accounting Standards
to be established by the Council of the ICAI. The main objective of
Accounting Standards is to establish standards which have to be
complied with, to ensure that financial statements are prepared in
accordance with generally accepted accounting principles. Accounting
Standards seek to suggest rules and criteria of accounting
measurements. These standards harmonize the diverse accounting
policies and practices at present in use in India.
(c) Corrected Trial Balance of Mr. Govind as on 31 st March, 2024
Particulars Dr. Amount ` Cr. Amount `
Govind ’s Capital 14,004
Govind ’s Drawings 5,076
Leasehold Premises 6,750
Sales 24,750
Due from customers 4,770
Purchases 11,331
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 Purchases Returns 2,376
Loan from Bank 2,304
Trade expenses 6,300
Trade Payable 4,752
Bills payable 900
Salaries and Wages 5,400
Cash at Bank 2,034
Opening Inventory (1.4.2023) 2,376
Rent and rates 4,167
Sales return 882
49,086 49,086
Reasons:
1. Due from customers is an asset, so its balance will be a debit
balance.
2. Purchases return account always shows a credit balance because
assets goes out.
3. Trade Payable is a liability, so its balance will be a credit balance.
4. Bills payable is a liability, so its balance will be a credit balance.
5. Inventory (opening) represents assets, so it will have a debit
balance.
6. Sales return account always shows a debit balance because assets
come in.
2. (a) Valuation of Physical Stock as at March 31, 2024
`
Stock at cost on 31st December,2023 80,000
Add: (1) Undercasting of a page total 200
(2) Goods purchased and delivered
during January – March, 2024
` (70,000 – 3,000 + 4,000) 71,000
(3) Cost of sales return ` (1,000 – 200) 800 72,000
1,52,000
Less:(1) Overcasting of a page total 1,000
` (6,000 – 5,000)
(2) Goods sold and dispatched during
January – March, 2024
` (90,000 – 5,000 + 4,000) 89,000
 25 
Less: Profit margin  89,000   17,800 71,200 72,200
 125 
Value of stock as on 31st March, 2024 79,800

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 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, therefore ` 4,000 goods
delivered in March 2024 for which invoice was received in April, 2024,
would be treated as purchases of the accounting year 2024-2025 and
thus excluded. Similarly, goods dispatched in March, 2024 but invoiced
in April, 2024 would be excluded and treated as sale of the year
2024-2025.
(b) Bank Reconciliation Statement of Ramesh Traders as on 31 st March,
2024
Particulars Amount Amount
(`) (`)
Balance as per Cash Book 8,24,400
Add:
Mistake in bringing forward ` 37,000/- debit 74,000
balance as credit balance on 22nd March
Cheques issued but not presented
Issued = ` 84,000 less cashed ` 57,000 27,000
= ` 27,000/-
Dividend directly collected but not entered in 70,000
cash book
Cheques recorded twice in the cash book 2,58,000
Wrongly credited cheque by bank 50,000
Discount amount wrongly entered in bank 1,000 4,80,000
column
Less:
Wrong casting in cash book on 12th March, 24,000
2024
Cheque issued and not entered in the Bank 1,70,000
Column
Fire Insurance premium paid directly by bank 40,000
Cheque dishonored not recorded in books 10,000
Credit card payment not recorded in cash book 5,000
Cheque wrongly deposited by bank in savings 4,000
account
Bank charges debited not recorded in cash 400 2,53,400
book
Balance as per the Passbook 10,51,000
Note : No effects of cheque deposit directly and dishonored in the same
Month. Alternatively amount of ` 64,000/- can be added as well as
deducted from balance as per cash book.

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3. (a) In the books of Natures Beauty Society
Income and Expenditure Account
for the year ending 31st March, 2024
Expenditure ` Income `
To Medicine 2,90,000 By Subscription 5,12,000
To Honorarium 1,00,000 By donation 1,50,000
To Salaries 2,80,000 By Interest on investment 90,000
To Sundry 10,000 By Charity show 1,25,000
expenses
To Depreciation Less: Charity show (15,000) 1,10,000
expenses
Equipment 60,000
Building 20,000
To Surplus 1,02,000
8,62,000 8,62,000

Balance Sheet of Natures Beauty Society

as on 31st March, 2024

Liabilities ` ` Assets ` `
Capital Fund: Equipment 2,10,000
Opening balance 18,03,000 Add: Purchases. 1,50,000
Add: Surplus 1,02,000 19,05,000 3,60,000
Advance 7,000 Less: dep. (bal. fig) (60,000) 3,00,000
subscription
Creditors 1,30,000 Building 5,00,000
(medicine)
Less: dep. (bal. fig) (20,000) 4,80,000

Investment 10,00,000
(` 90,000/9%)
Outstanding 22,000
Subscription
Closing 1,50,000
stock(medicine)
Cash 90,000
20,42,000 20,42,000

Working Note:
(i) Subscription for the year ended 31 st March, 2024
Particulars Amount
Subscription Received during the year 5,00,000
st
Less: Subscription outstanding as on 1 April, 2023 (15,000)
st
Add: Subscription outstanding as on 31 March, 2024 22,000
Add: Subscription received in advance as on 12,000
1st April, 2023

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 Less: Subscription received in advance as on (7,000)
31st March, 2024
Total 5,12,000
(ii) Medicines purchased during the year ended 31 st March, 2024
Particulars Amount
Opening due for medical supply 90,000
Less: Payment made during the year (3,00,000)
Less: Closing due for medical supply (1,30,000)
Medicines purchased during the year 3,40,000
(iii) Medicines consumed during the year ended 31 st March, 2024
Particulars Amount
Opening stock 1,00,000
Add: Purchase during the year 3,40,000
Less: Closing Stock (1,50,000)
Medicines consumed during the year 2,90,000
(iv) Depreciation on Equipment
Particulars Amount
Opening Balance 2,10,000
Add: Purchase during the year 1,50,000
Less: Closing Balance (3,00,000)
Depreciation for the year 60,000

(b) Joint Life Policy Account

` `
10th June, To Bank 3,000 31stDec., By Profit and Loss A/c 3,000
2020 Account 2020
10th June, To Bank 3,000 31st Dec., By Profit and Loss A/c 2,100
2021 Account 2021
31st Dec., By Balance c/d 900
2021
3,000 3,000
1st January, To Balance b/d 900 31st Dec., By Profit and Loss A/c 1,900
2022 2022
10th June, To Bank 3,000 31st Dec., By Balance c/d 2,000
2022 Account 2022
3,900 3,900
1stJanuary, To Balance b/d 2,000 31stDec., By Profit and Loss A/c 1,400
2023 2023

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 10th June, To Bank 3,000 31st Dec., By Balance c/d 3,600
2023 Account 2023
5,000 5,000
1stJanuary, To Balance b/d 3,600 15th April, By Bank 3,600
2024 2024
3,600 3,600

(c) (ii) Computation of Goodwill of Mr. Nikhil

Average maintainable profits: `
Trading profit during 2020 2,40,000
2021 2,16,000
2023 3,00,000
7,56,000
Less: Loss during 2022 (36,000)
Total 7,20,000
Average Profits (` 7,20,000 / 4) 1,80,000
Less: Remuneration for the proprietor (36,000)
Average maintainable Profit 1,44,000
Less: Normal Profit (11% on capital employed (99,000)
of ` 9,00,000)
Super Profit 45,000
Goodwill at 6 year’s purchase of Super Profit 2,70,000
Alternative: `
Total profit (` 2,40,000+` 2,16,000+` 3,00,000-` 36,000) = 7,20,000
Normal Profit (11% on capital employed of ` 9,00,000) = (99,000)
Remuneration for the proprietor = (36,000)
(1,35,000)
Average Profits (` 7,20,000 / 4) 1,80,000
Super Profit 45,000
Goodwill at 6 year’s purchase of Super Profit = 2,70,000
4. (a) Revaluation A/c
` `
To Plant & Machinery 25,500 By Land & 1,52,000
(1,70,000 x 15%) Building A/c
To Provision for Bad &
Doubtful Debts (60,000 x 3,000
5%)
To Outstanding Repairs to
6,000
Building

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 To P’s Capital A/c (5/8) 73,438
To Q’s Capital A/c (3/8) 44,062
1,52,000 1,52,000
Partners Capital A/c
P Q R P Q R
To P’s - - 20,000 By Balance 4,10,000 3,30,000 -
Capital A/c b/d
To Q’s By Revaluation
12,000 73,438 44,062 -
Capital A/c A/c
To Q’s By Profit & Loss
- 68,062 70,000 42,000 -
Current A/c A/c
To Balance
6,00,000 3,60,000 2,40,000 By Bank - - 2,72,000
c/d
By R’s Capital
20,000 12,000 -
A/c
By P’s Current
26,562 - -
A/c
6,00,000 4,28,062 2,72,000 6,00,000 4,28,062 2,72,000

Calculation of New Profit Sharing Ratio and gaining ratio:

R’s Share of Profit = 1/5 = 2/10
Remaining Share = 1 – 1/5 = 4/5
P’s Share = 5/8 x 4/5 = 20/40 = 5/10
Q’s Share = 3/8 x 4/5 = 12/40 = 3/10
New Profit sharing Ratio = 5:3:2
Gaining ratio = 5:3 (same as old profit sharing ratio among old partners)
Balance sheet of M/s Dutch and Associates as on 31.3.2024
Liabilities ` Assets `
Capital Accounts: Land & 3,80,000
Buildings
Add:
Appreciation 1,52,000 5,32,000
P Plant &
6,00,000 1,70,000
Machinery
Q Less:
3,60,000 25,500 1,44,500
Depreciation
R 2,40,000 12,00,000 Furniture 1,09,480
Q’s Current A/c 68,062 Stock 1,45,260
Trade Creditors 54,800 Sundry Debtors 60,000
Outstanding Repairs to 6,000 Less: Provision 3,000
57,000
Building
Cash at Bank 3,14,060
P’s current A/c 26,562
13,28,862 13,28,862
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 Working Note:
Required Balance of Capital Accounts
R’s Capital after writing off Goodwill = 2,72,000 – 32,000 = 2,40,000
R’s Share of Profit = 1/5
Thus Capital of the firm shall be = 2,40,000 x 5 = 12,00,000
P’s Capital = 12,00,000 x 5/10 = 6,00,000 and
Q’s Capital = 12,00,000 x 3/10 = 3,60,000
(b) In the books of Sameer Distributors
Trading and Profit and Loss Account
for the year ended 31 st March, 2024
Particulars Amount Amount Amount (`) Amount
(`) (`) (`)
To Opening Stock 5,12,400 By Sales
To Purchases Cash 30,67,200
Cash 28,45,200 Credit (W.N. 1) 2,60,68,800 2,91,36,000
Credit (W.N. 2) 2,28,31,200 2,56,76,400 By Closing stock 6,94,800
To Gross profit c/d 36,42,000 (bal fig)
(12.5% of
2,91,36,000)
2,98,30,800 2,98,30,800
To Rent & taxes By Gross profit
7,54,800 36,42,000
b/d
To Salaries (W.N. 3) By Discount
12,55,800 1,05,000
received
To Sundry expenses By Interest on
4,15,200 10,800
investment
To Discount allowed 1,87,500
To Depreciation
(10% on 33,000
(3,30,000 & 22,050 55,050
2,20,500))
To Net Profit (b.f.) 10,89,450
37,57,800 37,57,800

Balance Sheet as at 31st March, 2024

Liabilities Amount Assets Amount
Capital Motor vehicle 3,30,000
Opening balance 18,15,000 Less: Depreciation (33,000) 2,97,000
Less: Drawings (7,20,000) Furniture 2,20,500
10,95,000
Add: Net profit for 10,89,450 Less: Depreciation (22,050)
21,84,450 1,98,450
the years
Trade creditors 3,16,800 Closing Stock 6,94,800
Outstanding salary 44,400 Trade receivable 6,61,500
6% Investment 1,80,000
Cash in hand & at bank 5,13,900
25,45,650 25,45,650

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 Working Notes:
1. Trade Debtors Account
` `
To Balance b/d 4,36,200 By Cash/Bank 2,56,56,000
To Credit sales (Bal. By Discount allowed
260,68,800 1,87,500
fig.)
By Balance c/d 6,61,500
265,05,000 265,05,000
2. Trade Creditors Account
` `
To Cash/Bank 226,35,000 By Balance b/d 2,25,600
To Discount received By Credit
1,05,000 2,28,31,200
purchases (bal fig)
To Balance c/d 3,16,800
230,56,800 230,56,800
3. Computation of salary to be charged to Profit & Loss A/c
`
Salary expenses paid (as per cash book) 12,38,400
Less: Outstanding expenses as on 31.3.2023 (27,000)
12,11,400
Add: Outstanding expenses as on 31.3.2024 44,400
12,55,800
5. (a) Rectification entries in the books of M/s Satya Paul Steels
Particulars L.F. Dr. Cr.
` `
1. Profit and Loss Adjustment A/c Dr. 37,500
To Building Account 37,500
(Repairs amounting ` 37,500 wrongly debited
to building account, now rectified)
2. Profit and Loss Adjustment A/c Dr. 4,500
To Suspense Account 4,500
(Addition of freight column in purchase
journal was under casted, now rectification
entry made)
3. Suspense A/c Dr. 6,500
To Parth 6,500

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 (Goods returned by Parth had been posted
wrongly to the debit of his account, now
rectified)
4. Profit and Loss Adjustment A/c Dr. 50,000
To Furniture account 50,000
(Being sale of furniture wrongly entered in
sales book, now rectified)
5. Comfort & Co. Dr. 60,000
To Bills receivable A/c 60,000
(Bill receivable dishonoured debited to Bills
receivable account instead of customer
account, now rectified)
(b) In the Books of Mr. Sanjay
Manufacturing Account for the year ended on March 31,2024
Particulars ` Amount ` Particulars Amount `
To Opening W.I.P. 18,75,000 By Closing W-I-P 21,45,000
To Raw Material By Sale of Scrap
1,08,000
Consumed:
Opening inventory 17,55,000 By Trading A/c- 95,46,000
Purchases 56,22,000 Cost of finished
goods transferred
73,77,000
Less: Returns (2,85,000)
70,92,000
Less: Closing inventory (14,10,000) 56,82,000
To Carriage Inwards 8,10,000
To Direct Wages 11,91,000
To Manufacturing
Overhead:
Power and Electricity 5,28,000
Repairs & Maintenance 7,95,000
Depreciation on
Factory Shed 4,32,000
Depreciation on Plant &
Machinery 4,86,000 22,41,000
1,17,99,000 1,17,99,000

(c) In the books of Rishab Limited

Journal Entries
Particulars Dr. (`) Cr. (`)
12% Redeemable Preference Share Capital A/c Dr. 3,60,000
Premium on Redemption of Preference Shares A/c Dr. 72,000
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 To Preference Shareholders A/c 4,32,000
(Being the amount payable on redemption of 36,000 12%
Redeemable Preference Shares transferred to
Shareholders Account)
Preference Shareholders A/c Dr. 4,29,600
To Bank A/c 4,29,600
(Being the amount paid on redemption of 35,800
preference shares)
Bank A/c Dr. 66,000
To Equity Shares Capital A/c 60,000
To Securities Premium A/c 6,000
(Being the issue of 6,000 Equity Shares of
` 10 each at a premium of 10% as per Board’s Resolution
No……. Dated……)
General Reserve A/c Dr. 2,40,000
Profit & Loss A/c Dr. 60,000
To Capital Redemption Reserve A/c (Working Note) 3,00,000
(Being the amount transferred to Capital Redemption
Reserve A/c as per the requirement of the Act.)
Capital Redemption Reserve A/c Dr. 2,40,000
To Bonus to Shareholders A/c 2,40,000
(Being the amount appropriated for issue of bonus share
in the ratio of 5:2 as per shareholders Resolution No.…..
dated…)
Bonus to Shareholders A/c Dr. 2,40,000
To Equity Share Capital A/c 2,40,000
(Being the utilisation of bonus dividend for issue of 24,000
equity shares of ` 10 each fully paid)
Profit & Loss A/c Dr. 72,000
To Premium on Redemption of Preference Shares A/c 72,000
(Being premium on redemption of preference shares
adjusted against to Profit & Loss Account)

Working Note:
(1) Partly paid-up preference shares cannot be redeemed.
(2) Amount to be Transferred to Capital Redemption Reserve Account
Face value of share to be redeemed ` 3,60,000
Less: Proceeds from fresh issue (excluding premium) (` 60,000)
` 3,00,000
(3) No bonus shares on 6,000 equity shares issued for redemption.
Note: Bonus shares does not result in receipt of cash, and hence the
increase in share capital on account of bonus issue cannot be
considered in determination of amount to be transferred to Capital
Redemption Reserve.

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6. (a) In the books of Samuel Limited
Journal Entries
Particulars Dr. (`) Cr. (`)
Bank A/c (Note 1 – Column 3) Dr. 10,80,000
To Equity Share Application A/c 10,80,000
(Being application money received on
3,60,000 shares @ ` 3 per share)
Equity Share Application A/c Dr. 10,80,000
To Equity Share Capital A/c 3,60,000
To Equity Share Allotment A/c 4,40,000
(Note 1 Column 5)
To Bank A/c (Note 1 – Column 6) 2,80,000
(Being application money on 1,20,000 shares
transferred to Equity Share Capital Account;
out of the excess application money
received, `4,40,000 is adjusted towards
allotment and ` 2,80,000 refunded as per
Board’s Resolution No…..dated…)
Equity Share Allotment A/c Dr. 6,00,000
To Equity Share Capital A/c 3,60,000
To Securities Premium a/c 2,40,000
(Being allotment money due on 1,20,000
shares @ ` 5 each including premium at ` 4
each as per Board’s Resolution
No….dated….)
Bank A/c (Note 1 – Column 8) Dr. 1,60,000
To Equity Share Allotment A/c 1,60,000
(Being balance allotment money received)
Equity Share First and Final Call A/c Dr. 4,80,000
To Equity Share Capital A/c 4,80,000
(Being final call money due on 1,20,000
shares @ ` 4 per share as per Board’s
Resolution No…..dated….)
Bank A/c Dr. 4,78,640
Calls in Arrears A/c Dr. 1,360
To Equity Share First and Final Call 4,80,000
A/c

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 (Being final call money on 1,19,660 shares @
` 4 each received)
Equity Share Capital A/c Dr. 3,400
To Calls in Arrears A/c 1,360
To Forfeited Shares A/c 2,040
Being forfeiture of 340 equity shares for
non- payment of call money as per
Board’s Resolution No…..dated ….)
Bank A/c Dr. 4,420
To Equity Shares Capital A/c 3,400
To Securities Premium A/c 1,020
Being re-issue of 340 shares @ `13
each as per Board’s
Resolution No…..dated….)
Forfeited Shares A/c Dr 2,040
To Capital Reserve A/c 2,040
(Being profit on re-issue transferred to
Capital Reserve)
Working Note:
Calculation for Adjustment and Refund
Category No. of No. of Amount Amount Amount Refund Amount Amount
Shares Shares Received Required adjusted [3 - 4 + 5] due on received
Applied Allotted on on on Allotment on
for Application Application Allotment Allotment
(1) (2) (3) (4) (5) (6) (7) (8)
Rejected 80,000 Nil 2,40,000 Nil Nil 2,40,000 Nil Nil
(i) 1,60,000 80,000 4,80,000 2,40,000 2,40,000 Nil 4,00,000 1,60,000
(ii) 1,20,000 40,000 3,60,000 1,20,000 2,00,000 40,000 2,00,000 Nil
TOTAL 3,60,000 1,20,000 10,80,000 3,60,000 4,40,000 2,80,000 6,00,000 1,60,000

Also,
(i) Amount Received on Application (3) = No. of shares applied for (1)
x`3
(ii) Amount Required on Application (4) = No. of shares allotted (2)
x`3
(b) (i) 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 to or to the order of certain person
or to the bearer of the instrument. When such an order is accepted
by the drawee on the face of the order itself, it becomes a valid bill
of exchange.

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 There are three parties to a bill of exchange:
(i) The drawer, who draws the bill, that is, the creditor to whom
the money is owing;
(ii) The drawee, the person to whom the bill is addressed or on
whom it is drawn and who accepts the bill that is, the debtor;
and
(iii) The payee, the person who is to receive the payment. The
drawer in many cases is also the payee.
(ii) Retirement of bills of exchange: Sometimes, the acceptor of a
bill of exchange has spare funds much before the maturity date of
the bill of exchange accepted by him. He may, therefore, desire to
pay the bill before the due date. In such a circumstance, the
acceptor shall ask the payee or the holder of the bill to accept cash
before the maturity date. If the payee agrees, the acceptor may be
allowed a rebate or discount on such early payment. This rebate
is generally the interest at an agreed rate for the period between
the date of payment and date of maturity. The interest/rebate/
discount becomes the income of the acceptor and expense of the
payee. It is a consideration for premature payment. When a bill is
paid before due date, it is said to be retired under rebate.
OR
Advantages of Subsidiary Books
The use of subsidiary books affords the under mentioned
advantages:
(i) Division of work: Since in the place of one journal there will be so
many subsidiary books, the accounting work may be divided
amongst a number of clerks.
(ii) Specialization and efficiency: When the same work is allotted to
a particular person over a period of time, he acquires full knowledge
of it and becomes efficient in handling it. Thus the accounting work
will be done efficiently.
(iii) Saving of the time: Various accounting processes can be
undertaken simultaneously because of the use of a number of
books. This will lead to the work being completed quickly.
(iv) Availability of information: Since a separate register or book is
kept for each class of transactions, the information relating to each
transactions will be available at one place.
(v) Facility in checking: When the trial balance does not agree, the
location of the error or errors is facilitated by the existence of
separate books. Even the commission of errors and frauds will be
checked by the use of various subsidiary books.

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