Mock Test Paper - Series II: May, 2025

Date of Paper: 5 th May, 2025

Time of Paper: 2 PM to 5 PM

FOUNDATION COURSE
PAPER – 1: ACCOUNTING
ANSWERS
1. (a) 1. False: Warehousing costs related to finished goods are expensed when
incurred and are not included in inventory costs unless storage is incurred
for getting the inventory ready for sale i.e. until and unless storage is
required as a part of process of production of inventory like in case of wine.
2. True: Cash transactions are straightaway recorded in the Cash Book and
on the basis of such a record, ledger accounts are prepared. Therefore,
the Cash Book is a subsidiary book. But the Cash Book itself serves as the
cash account and the bank account; the balances are entered in the trial
balance directly. The Cash Book therefore, is part of the ledger also.
Hence, it has also to be treated as a principal book. The Cash Book is thus
both a subsidiary book and a principal book.
3. False: Current year subscription shall be shown in the credit side of the
income and expenditure account and not in the Balance Sheet, as it is not
a capital item.
4. False: Even if the company incurs losses, it has to pay interest on
debentures. Debentures being debts on the company & debenture holders
are not concerned with the profit or loss of the company, the interest is to
be paid at the rate fixed on it at the time of issue of debenture.
5. False: On the death of a partner, the firm receives full value of the sum
assured of the joint life policy.
6. True: Conservatism states that the accountant / entity should not anticipate
any future income. However, they should provide for all possible / probable
losses. Imprudent use of concept of conservatism may lead to
understatement of Income and Assets.
(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

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 (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) Calculation of depreciation for the year ended 31.3.25
Machine Machine Machine Depreciation
on sold
machine
I II III Purchased IV
(42,81,000 - Purchased on 1st Nov
3,24,000) on 1st July
` ` ` `
Book value as on 39,57,000 7,20,000 8,40,000 3,24,000
1st April, 2024
Depreciation @15% 5,93,550 81,000 52,500 12,150
(for full year) (for 9 months) (for 5 months) (for 3 months)
Total depreciation (I + II + III + IV) ` 7,39,200
2. (a)
Date Particulars Dr. Cr.
` `
(1) Scooter A/c Dr. 90,000
To Profit and Loss Adjustment A/c 90,000
(Purchase of scooter wrongly debited to
conveyance account now rectified-
capitalization of `90,000, i.e., `1,00,000 less
10% depreciation)
(2) Suspense A/c Dr. 2,00,000
To Profit & Loss Adjustment A/c 2,00,000
(Purchase Account overcast in the previous
year error now rectified).
(3) Profit & Loss Adjustment A/c Dr. 40,000
To Sandeep’s A/c 40,000
(Credit purchase from Sandeep’s `20,000,
entered as sales last year, now rectified)

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 (4) Prem’s A/c Dr. 10,000
To Parag’s A/c 10,000
(Amount received from Mr. Parag’s wrongly
posted to the account of Mr. Prem; now
rectified)
(5) Suspense A/c Dr. 10,000
To C’s A/c 10,000
(` 5,000 received from C wrongly debited to
his account; now rectified)
(6) Trade receivables (Ramesh) / Ramesh A/c Dr. 5,000
To Suspense A/c 5,000
(`5,000 due by Mr. Ramesh not taken into
trial balance now rectified)
(7) Ram’s A/c Dr. 20,000
To Profit & Loss Adjustment A/c 20,000
(Sales to Ram omitted last year; now
adjusted)
(8) Suspense A/c Dr. 1,980
To Profit & Loss Adjustment A/c 1,980
(Excess posting to purchase account last
year, `55,930, instead of `53,950, now
adjusted)
(9) Profit & Loss Adjustment A/c Dr. 2,71,980
To Kunal’s Capital A/c 2,71,980
(Balance of Profit & Loss Adjustment A/c
transferred to Capital Account)
(10) Kunal’s Capital A/c Dr. 2,06,980
To Suspense A/c 2,06,980
(Balance of Suspense Account transferred to
Capital Account)

(b) Bank Reconciliation Statement as on 31st March,2025

Particulars Amount `
Balance as per Pass Book 5,250
Add: Bill discounted by bank (3,750+750) 4,500

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 Less: Cheques deposited but returned on 24th March,2025 (3,750)
Discounted bill from Mr. Sahil dishonoured (7,500)
Wrong debit in passbook (2,250)
Balance as per Cash book (Dr. / Favourable) (3,750)

(c) Sales 11,25,000

Add: Closing inventory (at selling price) 1,50,000
Selling price of goods available for sale: 12,75,000
Less: Cost of goods available for sale (7,50,000)
Gross margin 5,25,000
5,25,000
Rate of gross margin = × 100 = 41.18%
12,75,000

Cost of closing inventory = 1,50,000 less 41.18% of `1,50,000 = ` 88,230

*This rate may also be considered as 41.176% in that case, the closing inventory
will be valued at ` 88,236
OR as 41.17% in that case, the closing inventory will be valued at ` 88,245
3. (a) Trading and Profit and Loss Account of Mr. Govind
for the year ended 31st March, 2025
Dr. Cr.
Amount Amount
` ` ` `
To Opening stock 1,93,500 By Sales 12,81,450
To Purchases 9,18,600 Less: Sales return 15,450 12,66,000
Less: Purchases return 10,350 9,08,250 By Closing stock
To Carriage inward 6,750 100 100 750,000
�` 480,000 × × �
To Wages 70,290 80 80
To Gross profit c/d 8,37,210
20,16,000 20,16,000
To Salaries 1,35,300 By Gross profit b/d 8,37,210
To Rent 25,800 By Bad debts recovered 2,700
To Advertisement 25,050
expenses
To Printing and stationery 7,500
To Bad debts 6,600
To Carriage outward 8,100

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 To Provision for doubtful
debts
5% of ` 7,20,000 36,000
Less: Existing provision 19,200 16,800
To Provision for discount
on debtors 17,100
2.5% of ` 6,84,000
Less: Existing provision 8,250 8,850
To Depreciation:
Plant and machinery 18,000
Furniture and fittings 6,150 24,150
To Office expenses 60,960
To Interest on loan 18,000
To Net profit
(Transferred to capital 5,02,800
account)
8,39,910 8,39,910

Balance Sheet of Mr. Govind as on 31st March, 2025

Liabilities ` Amount ` Assets ` Amount `
Capital account 390,000 Plant and machinery 1,20,000
Add: Net profit 5,02,800 Less: Depreciation 18,000 1,02,000
8,92,800 Furniture and fittings 61,500
Less: Drawings 69,000 8,23,800 Less: Depreciation 6,150 55,350
Bank overdraft 480,000 Closing stock 7,50,000
Sundry creditors 285,000 Sundry debtors 720,000
Payable salaries 14,700 Less: Provision for doubtful debts 36,000
Provision for bad debts 17,100 6,66,900
Prepaid rent 1,800
Cash in hand 8,700
_______ Cash at bank 18,750
16,03,500 16,03,500

(b) Ram’s Capital Account

Date Particulars ` Date Particulars `
2024 2024
Sep. 30 To Ram’s current Account 3,840 Sep. 30 By bal b/d 43,200
Sep. 30 To Ram’s Executor A/c 2,01,604 Sep. 30 By Bharat Capital A/c and 1,62,244
Laxman Capital A/c (Share
of goodwill)
2,05,444 2,05,444

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 Ram’s executor Account
Date Particulars ` Date Particulars `

31.3.2025 To Bank A/c 55,441 1.10.2024 By Capital A/c 2,01,604

(50,401+5,040) 31.3.2025 By Interest 5,040
31.3.2025 To Balance c/d 1,51,203 (2,01,604 x 2.5%)
2,06,644 2,06,644
30.9.2025 To bank A/c 54,181 1.4.2025 By Balance b/d 1,51,203
(50,401+3,780) 30.9.2025 By Interest 3,780
31.3.2026 To bank A/c 52,921 (1,51,203 x 2.5%)
(50,401+2,520)
30.3.2026 By Interest 2,520
31.3.2026 To balance c/d 50,401 (50,401 x 2) x 2.5%
1,57,503 1,57,503
30.9.2026 To bank A/c 51,661 1.4.2026 By balance b/d 50,401
(50,401+1,260) 30.9.26 By Interest 1,260
(50,401 x 2.5%)
51,661 51,661

Working notes
1. Ascertainment of Value of Goodwill
2021 1,40,800
2022 1,12,640
2023 96,320
2024 34,816
Total Profit for 4 years 3,84,576
Average Profit 96,144
Goodwill
Purchase of Average Profit (3 years) 2,88,432
Ram’s Share of goodwill
(9/16 of `2,88,432) 1,62,244
*Profit sharing ratio between Ram, Laxman and Bharat = 9:4:3, Therefore
Ram’s share of Profit = 9/16
2. Calculation of amount of each instalment (without interest) = ` 2,01,604 /
4 = 50,401

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4. (a) (i) Revaluation Account
` `
To Buildings A/c 90,000 By Investments A/c 27,000
To Machinery A/c 2,34,000 By Loss to Partners:
To Provision for Doubtful 2,50,200 Tim 2,73,600
Debts A/c
Sam 1,64,160
Ben 1,09,440 5,47,200
5,74,200 5,74,200
Partners’ Capital Account
Particulars Tim Sam Ben Dan Particulars Tim Sam Ben Dan

` ` ` ` ` ` ` `
To Revaluation By Balance b/d
2,73,600 1,64,160 1,09,440 - 7,20,000 1,80,000 2,70,000
A/c
To Investments By Reserves A/c
1,35,000 - 90,000 54,000 36,000
A/c
To Sam Loan By Ben and Dan
2,04,840 90,000 2,70,000
A/c Capital A/c
To Tim and By Bank A/c
Sam’s 1,80,000 1,80,000 (balancing 93,600 7,03,440 5,40,000
Capital A/c figure)
To Balance c/d 7,20,000 7,20,000 3,60,000
9,93,600 504000 10,09,440 5,40,000 9,93,600 5,04,000 10,09,440 5,40,000

Bank Account
` `
To Tim’s capital A/c 93,600 By Bank Overdraft A/c 3,96,000
To Ben’s capital A/c 7,03,440 By Balance c/d 9,41,040
To Dan’s capital A/c 5,40,000
13,37,040 13,37,040

Calculation for adjustment of Amount of Goodwill

Partner Old share New share Gain Sacrifice

Tim 5 4 1
10 10 10
Sam 3 3
10 10

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 Ben 2 4 2
10 10 10
Dan 2 2
10 10
Ben's capital Dr. 1,80,000
Dan's capital Dr. 1,80,000
To Tim's capital 90,000
To Sam's capital 2,70,000
(b) Income and Expenditure Account for the year ending 31st March, 2025
Expenditure ` ` Income ` `
To Medicine 7,25,000 By Subscription 12,80,000
To Honorarium 2,50,000 By Donation 375,000
To Salaries 7,00,000 By Interest on 2,25,000
investment
To Sundry 25,000 By Charity show 3,12,500
expenses
To Depreciation Less: Charity (37,500) 2,75,000
show expenses
Equipment 1,50,000
Building 50,000
To Surplus 2,55,000
21,55,000 21,55,000

Balance Sheet of ABC society

as on 31st March, 2025
Liabilities ` ` Assets ` `
Capital Fund: Equipments 5,25,000
Opening balance 45,07,500 Add: Purchases. 3,75,000
Add: Surplus 2,55,000 47,62,500 9,00,000
Adv subscription 17,500 Less: dep. (bal. fig) (1,50,000) 7,50,000
Creditors (medicine) 3,25,000 Building 12,50,000
Less: dep. (bal. fig) (50,000) 12,00,000
Investment 25,00,000
(` 2,25,000/9%)
Closing outstanding 55,000
subscription

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 Closing stock
(medicine) 3,75,000
Cash 225,000
51,05,000 51,05,000

Working Note:
(i) Subscription for the year ended 31st March, 2025
Particulars Amount
Subscription Received during the year 12,50,000
Less: Subscription outstanding as on 1st April, 2024 (37,500)
Add: Subscription outstanding as on 31st March, 2025 55,000
Add: Subscription received in advance as on 1st April, 2024 30,000
Less: Subscription received in advance as on 31st March, 2025 (17,500)
Total 12,80,000

(ii) Medicines purchased during the year ended 31st March, 2025
Particulars Amount
Opening due for medical supply 2,25,000
Less: Payment made during the year (7,50,000)
Less: Closing due for medical supply (3,25,000)
Medicines purchased during the year 8,50,000

(iii) Medicines consumed during the year ended 31st March, 2025
Particulars Amount
Opening stock 2,50,000
Add: Purchase during the year 8,50,000
Less: Closing Stock (3,75,000)
Medicines consumed during the year 7,25,000
(iv) Depreciation on Equipment
Particulars Amount
Opening Balance 5,25,000
Add: Purchase during the year 3,75,000
Less: Closing Balance (7,50,000)
Depreciation for the year 1,50,000

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5. (a) Purchases book
Date Particulars L.F. Amount `
(i) Red & Co.
30 pairs of black shoes @ ` 800 24,000
15 pairs of Brown shoes @ ` 900 13,500
37,500
Less: 10% trade discount (3,750) 33,750
(ii) Blue & Co.
15 pairs of black shoes @ ` 700 10,500
45 pairs of Brown shoes @ ` 100 4,500
15,000
Less: 15% trade discount (2,250) 12,750
Total 46,500

Note:
Purchase of computer cannot be entered in the Purchase Book but entered in
journal proper.
(b) (i) Joint Life Policy A/c
` `
10th June, 2021 To Bank A/c 12,000 31st Dec., 2021 By Profit and Loss A/c 12,000
10th June, 2022 To Bank A/c 12,000 31st Dec., 2022 By Profit and Loss A/c 8,400
By Balance c/d 3,600
12,000 12,000
1st January, 2023 To Balance b/d 3,600 31st Dec., 2023 By Profit and Loss A/c 7,600
10th June, 2023 To Bank A/c 12,000 31st Dec., 2023 By Balance c/d 8,000
15,600 15,600
1st January, 2024 To Balance b/d 8,000 31st Dec., 2024 By Profit and Loss A/c 5,600
10th June, 2024 To Bank A/c 12,000 31st Dec., 2023 By Balance c/d 14,400
20,000 20,000
1st January, 2025 To Balance b/d 14,400 15th April, 2025 By Bank 14,400
14,400 14,400

(ii) (a) Transfer to provisions - (i), (iv)

(b) Transfer to reserves - (ii)

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 (c) Neither related to provisions nor reserves - (iii), (v).
(c) Journal Entries in the Books of Lol Ltd.
Dr. ` Cr. `
Bank A/c Dr. 2,25,000
To Equity Shareholders A/c 2,25,000
(Application money received on 15000 shares @ ` 15 per
share to be issued as rights shares in the ratio of 1:4)
Equity Shareholders A/c Dr. 2,25,000
To Equity Share Capital A/c 1,50,000
To Securities Premium A/c 75,000
(Share application money on 15,000 shares @ ` 10 per
share transferred to Share Capital Account, and
` 5 per share to Securities Premium Account vide Board’s
Resolution dated…)
Securities Premium A/c Dr. 75,000
Profit & Loss A/c Dr. 75,000
To Bonus to Shareholders A/c 1,50,000
(Amount transferred for issue of bonus shares to existing
shareholders in the ratio of 1:5 vide General Body’s
resolution dated...)
Bonus to Shareholders A/c Dr. 1,50,000
To Equity Share Capital A/c 1,50,000
(Issue of bonus shares in the ratio of 1 for 5 vide Board’s
resolution dated....)
12% Debentures A/c Dr. 3,60,000
Premium Payable on Redemption A/c Dr. 10,800
To Debenture holders A/c 3,70,800
(Amount payable to debentures holders)
Profit and loss A/c Dr. 10,800*
To Premium Payable on Redemption A/c 10,800
(Premium payable on redemption of debentures
charged to Profit & Loss A/c)
Debenture Redemption Reserve A/c Dr. 36,000
To General Reserve 36,000
(For DRR transferred to general reserve)

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 Bank A/c Dr. 54,000
54,000
To Debenture Redemption Reserve Investment
(for DRR Investment realised)
Debenture holders A/c Dr. 3,70,800
To Bank A/c 3,70,800
(Amount paid to debenture holders on redemption)

* In the absence of details of the term of debentures (redemption period), the

entire redemption premium was charged to profit & loss A/c of the year
6. (a) In the books of Riya Closet Ltd.
Journal Entries
Particulars L.F. Debit Credit
Amount Amount
(`) (`)
Bank A/c Dr. 10,000
To Equity Share Application A/c 10,000
(Money received on applications for 10,000
shares @ ` 1 per share)
Equity Share Application A/c Dr. 10,000
To Equity Share Capital A/c 10,000
(Transfer of application money on 10,000
shares to share capital)
Equity Share Allotment A/c Dr. 20,000
To Equity Share Capital A/c 20,000
(Amount due on the allotment of 10,000
shares @ ` 2 per share)
Bank A/c Dr. 19,800
To Equity Share Allotment A/c 19,800
(Allotment money received on 9,900 shares)
OR
Bank A/c Dr. 19,800
Calls in arrears A/c Dr. 200
To Equity Share Allotment A/c 20,000
(Allotment Amount received except 100
shares)
Equity Share Capital A/c Dr. 300
To Share Forfeiture A/c 100

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 To Equity Shares Allotment A/c 200
(100 Shares of Meena forfeited)
OR
Equity Share Capital A/c Dr. 300
To Shares Forfeiture A/c 100
To Calls in arrears A/c 200
(100 shares forfeited due to non-payment of
allotment money)
Equity Share First Call A/c Dr. 29,700
To Equity Share Capital A/c 29,700
(First call made due on 9,900 shares at ` 3
per share)
Bank A/c Dr. 29,250
To Equity Share First Call A/c 29,250
(First call money received on 9,750 shares at
` 3 per share)
OR

Bank A/c Dr. 29,250

Calls in arrears A/c Dr. 450
To Equity Share First Call A/c 29,700
(First Call money received except 150
shares)
Equity Share Capital A/c Dr. 900
To Share Forfeiture A/c 450
To Equity Share First Call A/c 450
(150 Shares of Seema forfeited)
OR
Equity Share Capital A/c Dr. 900
To Share Forfeiture A/c 450
To Calls in arrears A/c 450
(150 shares forfeited due to non - payment of
First call money)
Equity Share Second and Final Call A/c Dr. 39,000
To Equity Share Capital A/c 39,000
(Second and Final call made due on 9,750
shares at ` 4 per share)

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 Bank A/c Dr. 38,800
To Equity Share Second and Final 38,800
Call A/c
(Second and Final call money received on
9,700 shares at ` 4 per share)
OR
Bank A/c Dr. 38,800
Calls in arrears A/c Dr. 200
To Equity Shares Second and Final 39,000
Call A/c
(Second and Final call money received
except 50 shares)
Equity Share Capital A/c Dr. 500
To Share Forfeiture A/c 300
To Equity Share Second and Final Call A/c 200
(50 Shares of Mohan forfeited)
OR
Equity Share Capital A/c
To Shares Forfeiture A/c Dr. 500
To Calls in arrears A/c 300
(50 shares forfeited due to non-payment of 200
Second and final call money)
Bank A/c Dr. 2,700
Share Forfeiture A/c Dr. 300
To Equity Share Capital A/c 3,000
(300 shares reissued at ` 9 per share)
Share Forfeiture A/c Dr. 550
To Capital Reserve A/c (W.N.1) 550
(Profit on re-issue transferred to Capital
Reserve)
Working Note-1: Calculation of amount to be transferred to Capital Reserve:
Surplus out of 100 shares of Meena forfeited ` 100
Surplus out of 150 shares of Seema forfeited ` 450
Surplus out of 50 shares of Mohan forfeited ` 300
` 850
Less: Loss on re-issue of shares ` 300
Transferred to Capital Reserve ` 550

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(c) The preparation of trial balance has the following objectives:
1 Checking of the arithmetical accuracy of the accounting entries: Trial
Balance enables one to establish whether the posting and other accounting
processes have been carried out without committing arithmetical errors. In
other words, the trial balance helps to establish the arithmetical accuracy
of the books.
2. Basis for preparation of financial statements: Trial Balance forms the
basis for preparing financial statements such as the Income Statement and
the Balance Sheet. The Trial Balance represents all transactions relating
to different accounts in a summarized form for a particular period. In case,
the Trial Balance is not prepared, it will be almost impossible to prepare
the financial statements to know the profit or loss made by the business
during a particular period or its financial position on a particular date.
3. Summarized ledger: Trial Balance contains the ledger balances on a
particular position of a particular account can be judged simply by looking
at the Trial Balance. The ledger may be seen only when details regarding
the accounts are required.
Or
Rules regarding posting of entries in the ledger
1. Separate account is opened in ledger book for each account and entries
from journal are posted to respective account accordingly.
2. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the
ledger.
3. The concerned account debited in the journal should also be debited in the
ledger but reference should be of the respective credit account.

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