Financial Accounting (MB131): April 2005

Financial Accounting (MB131): April 2005

• Answer all questions.
• Marks are indicated against each question.
1. Which of the following is a leverage ratio?
(a) Debt-Equity ratio (b) Current ratio ( c) Quick ratio
(d) Earning power (e) Inventory turnover ratio.
(1 mark)
< Answer >
2. Amortization of unidentified intangible assets is in terms of
(a) Conservatism concept (b) Going concern concept
(c) Matching concept (d) Time period concept
(e) Business entity concept.
(1 mark)
< Answer >
3. The following Trial Balance pertaining to John Vicky as at March 31, 2005 was prepared by an
inexperienced accountant:
Trial Balance of John Vicky as at March 31, 2005
Particulars Debit (Rs.) Credit (Rs.)
Capital (1st April, 2004) 89,000
Drawings 10,000
Stock (1st April, 2004) 37,000
Purchases 2,31,250
Sales 3,94,000
Motor vehicles 14,500
Cash in hand 1,350
Sundry creditors 49,760
Sundry debtors 1,39,700
Bank overdraft 9,000
Administrative expenses 76,360
Office equipment 35,000
Carriage outward 2,310
Returns inward 2,050
Provision for bad debts 4,250
Returns outward 3,160
Discount allowed 2,800
Discount received 3,150
Total 5,52,320 5,52,320
Though the Trial Balance has tallied, it has certain errors which were subsequently rectified. The total
of the corrected Trial Balance as on March 31, 2005 is
(a) Rs.5,52,320 (b) Rs.4,64,200 (c) Rs.5,55,510 (d) Rs.5,43,200 (e)
Rs.5,03,440.
(2 marks)
< Answer >
4. In contract accounting, the percentage of completion method is an exception to the
(a) Matching principle (b) Going concern principle
(c) Historical cost principle (d) Business entity principle
(e) Revenue recognition principle.
(1 mark)
< Answer >
5. In which of the following areas, will the accounting policies tend to be uniform among the enterprises?
(a) Method of providing Depreciation
(b) Valuation of Inventories (c) Treatment of Goodwill
(d) Treatment of Contingent Liabilities (e) Accounting for Cash.
(1 mark)
< Answer >
2
6. Consider the following data pertaining to Sun Ltd. for the month of March 2005:
Particulars Rs.
Purchase of goods for resale 2,10,000
Freight in 30,000
Freight out 25,000
Returns outward 22,000
Cost of goods available for sale is
(a) Rs.1,88,000 (b) Rs.2,10,000 (c) Rs.2,18,000
(d) Rs.2,35,000 (e) Rs.2,40,000.
(1 mark)
< Answer >
7. Consider the following information pertaining to Blue Sky Ltd. for the year 2004-2005:
Particulars 1st April 2004 31st March 2005
Inventory Rs.52,200 Rs.65,800
Sundry debtors Rs.37,000 Rs.60,000
Total credit sales made during the year were of Rs.6,75,000. The amount of discount allowed to the
sundry debtors during the period was Rs.2,800.
Cash collected from the sundry debtors during the year was
(a) Rs.7,22,000 (b) Rs.6,95,200 (c) Rs.6,75,000
(d) Rs.6,49,200 (e) Rs.5,14,200.
(2 marks)
< Answer >
8. On March 31, 2005, the overdraft balance as per the bank pass book of Mr. Suresh was Rs.13,880. The
balance did not agree with the balance as per cash book. On scrutiny, the following discrepancies are
noticed:
• Interest on overdraft for the quarter ended March ’05 is Rs.480 (not recorded in the cash book).
• Cheques deposited in the bank, but not cleared aggregate to Rs.1,800.
• Cheques issued but not presented are for Rs.2,350.
• A cheque for Rs.1,000 which was discounted with the bank earlier was dishonoured. Mr. Suresh
was not aware of the dishonour.
The balance as per cash book as on March 31, 2005 is
(a) Rs.12,950 (Credit) (b) Rs.14,810 (Credit)
(c) Rs.13,810 (Debit) (d) Rs.13,950 (Debit) (e) Rs.12,950 (Debit).
(2 marks)
< Answer >
9. Carriage inward refers to the cost of transportation for
(a) Purchase of materials (b) Sale of products (c) Returns outward
(d) Return of unsold goods (e) Newly acquired machinery.
(1 mark)
< Answer >
10. Advance received from customers is an
(a) Item of current liability (b) Item of non-current asset
(c) Item of contingent liability (d) Item of non-cash transaction
(e) Item of inventory.
(1 mark)
< Answer >
11. T.M. & Co. a dealer in shares, purchased shares. This was debited to Investment account. This is a/an
(a) Error of commission (b) Error of omission
(c) Error of principle (d) Error of compensation
(e) Correct recording of transaction (No error).
(1 mark)
< Answer >
12. Consider the following data pertaining to M/s. Ramu Enterprises as on March 31, 2005:
Particulars Rs.
Credit sales 1,40,000
< Answer >
3
Credit purchases 20,000
Cash sales 20,000
Cash purchases 70,000
Wages paid 5,000
Returns inward 3,000
Returns outward 2,000
Carriage inward 1,000
Carriage outward 1,000
Gas, water and fuel 2,000
Raw materials destroyed by fire 2,000
Additional Information:
Particulars As on April 01, 2004 As on March 31, 2005
Rs. Rs.
Inventory 27,000 40,000
Outstanding wages 500 700
Gross profit of M/s.Ramu Enterprises for the year ended March 31, 2005 is
(a) Rs.73,800 (b) Rs.75,800 (c) Rs.74,800
(d) Rs.76,200 (e) Rs.75,200.
(2 marks)
13. As per the Accounting Standard, which of the following is/are not extra-ordinary item/s to an
enterprise?
I. Attachment of its property. II. Destruction by fire of factory building.
III. Insolvency of a debtor. IV. Factory building collapsed in earthquake.
(a) Only (III) above (b) Both (II) and (III) above
(c) Both (I) and (IV) above (d) Both (I) and (III) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
14. Which of the following is/are non-current liability(ies)?
I. Long term loans. II. Declared dividend.
III.Bank overdraft. IV.Sundry creditors. V. Debentures.
(a) Only (V) above (b) Only (I) above
(c) Both (I) and (V) above (d) (I), (II) and (IV) above
(e) (I), (III) and (V) above.
(1 mark)
< Answer >
15. Which of the following transactions does not change the total amount of liabilities in the balance sheet?
(a) Purchase of office furniture on credit
(b) Payment of bank loan (c) Issue of debentures
(d) Acceptance of bills from creditors (e) Issue of preference shares.
(1 mark)
< Answer >
16. Which of the following statements is false?
(a) Prepaid expenses are shown on the asset side
(b) Income received in advance is shown on the asset side
(c) Income earned but not received is shown on the asset side
(d) Income accrued but not due is shown on the asset side
(e) Outstanding expenses are shown on the liability side.
(1 mark)
< Answer >
17. Which of the following is not true about Fixed Assets?
(a) They are acquired for using them in the conduct of business operations
(b) They are not meant for resale to earn profit
(c) They can easily be converted into cash
(d) Depreciation at specified rates is to be charged on most of the Fixed Assets
(e) Their utility is not confined to one accounting period.
(1 mark)
< Answer >
4
18. Which of the following is not an objective of maintaining books of accounts?
(a) Maintaining a permanent, accurate and complete record of business transactions
(b) Maintaining records of incomes, expenses and losses in such a way that the net profit or loss for
any specified period may be ascertained
(c) Increasing the profit or reducing the loss made by the enterprise
(d) Maintaining records of assets and liabilities in such a way that the financial position of the
business at any point can easily be ascertained
(e) Providing required information for legal and tax purposes.
(1 mark)
< Answer >
19. In a manufacturing company, which of the following systems is called a product costing system?
(a) Perpetual inventory system (b) Periodic inventory system
(c) Accrual system (d) Weighted average system
(e) Specific identification system.
(1 mark)
< Answer >
20. Which of the following costs is not directly related to a specific contract?
(a) Site labor cost
(b) Cost of moving plant and equipment to and from a site
(c) Research and Development cost
(d) Supervision cost
(e) Cost of materials used.
(1 mark)
< Answer >
21. Which of the following methods of valuation of inventory is based on the assumption that costs are
charged against revenue in the order in which they occur?
(a) FIFO method (b) LIFO method
(c) Weighted average method (d) Moving average method (e) Base stock method.
(1 mark)
< Answer >
22. Which of the following methods of depreciation takes into consideration the output from the asset?
(a) Straight line method (b) Written down value method
(c) Sum-of-the-years’ digits method (d) Units-of-production method
(e) Double declining method.
(1 mark)
< Answer >
23. Consider the following data pertaining to Lairs Ltd. for the month of March 2005:
Date Purchases Issues Balance
Quantity (Kg.) Rate (Rs.) Quantity (Kg.) Quantity (Kg.) Rate (Rs.)
01-03-2005 500 22.80
02-03-2005 400 24
10-03-2005 600 25
25-03-2005 1,000
If the company uses weighted average method for inventory valuation, the value of inventory as on
March 31, 2005 is
(a) Rs.11,967 (b) Rs.12,000 (c) Rs.12,500
(d) Rs.11,400 (e) Rs.36,000.
(2 marks)
< Answer >
24. The cost of goods sold does not include
(a) Indirect labour (b) Power and light
(c) Storage expenses (d) Advertising expenses (e) Excise duty.
(1 mark)
< Answer >
25. Renewal fee for patents is a
(a) Capital expenditure (b) Revenue expenditure
(c) Deferred revenue expenditure (d) Development expenditure
(e) Contingent expenditure.
< Answer >
5
(1 mark)
26. Cost of raw-material is equal to its
(a) Purchase price
(b) Purchase price plus duties and taxes
(c) Purchase price plus duties, taxes and freight inward
(d) Purchase price plus duties, taxes and freight inward minus discount
(e) Purchase price plus duties, taxes and freight inward minus discount and duty draw back.
(1 mark)
< Answer >
27. Which of the following does not come under fixed assets?
(a) Buildings (b) Furniture (c) Long term investment
(d) Equipment (e) Machinery.
(1 mark)
< Answer >
28. When goods are sold subject to the approval by the buyer, revenue should be recognized when the
(a) Goods have been formally accepted by the buyer
(b) Payment has been received from the buyer
(c) Buyer has seen the sample and approved the same
(d) Goods have been sent to the buyer
(e) Goods have been received by the buyer, irrespective of his approval.
(1 mark)
< Answer >
29. For a car manufacturing company, which of the following is not a fixed asset?
(a) Land and Building (b) Machinery (c) Office furniture
(d) Stock of cars (e) Patents.
(1 mark)
< Answer >
30. Payment of Municipal taxes is a
(a) Capital expenditure (b) Revenue expenditure
(c) Capital receipt (d) Revenue receipt
(e) Development expenditure.
(1 mark)
< Answer >
31. Which of the following expenses is capital in nature?
(a) Purchase of a truck (b) Replacement of old tyres and tubes
(c) Repairs to furniture (d) Payment of Road tax
(e) Payment of insurance premium.
(1 mark)
< Answer >
32. In a funds flow statement prepared on working capital basis, a short term loan repaid by the
organization
(a) Is shown as a source of working capital
(b) Is shown as an increase in cash
(c) Is shown as a decrease in cash
(d) Does not affect the working capital
(e) Is not shown either as a source or a use of funds.
(1 mark)
< Answer >
33. In accounting, window-dressing implies
(a) Showing the real position of the business
(b) Showing a worse position of the business
(c) Showing a better position than the true and fair view of the business
(d) Making excess provisions for the expenses of the business
(e) Showing a true and fair view.
(1 mark)
< Answer >
34. Dinakar operates a garment store in a hired premises at a rent of Rs.1,20,000 per annum. The owner of
the premises, who has recently completed her fashion-designing course, wishes to purchase the garment
< Answer >
6
the premises, who has recently completed her fashion-designing course, wishes to purchase the garment
store. The details of the business of Dinakar are as under:
• The profit for the year 2004-2005 is Rs.2,30,000.
• The capital employed by Dinakar is Rs.20,00,000.
• The value of the premises is Rs.4,00,000.
If the normal return on capital employed is 12%, the super profit is
(a) Rs.58,000 (b) Rs.62,000 (c) Rs.1,10,000
(d) Rs.1,20,000 (e) Rs.1,78,000.
(3 marks)
35. Which of the following are not current assets?
(a) Inventories (b) Bills receivable
(c) Accounts receivable (d) Prepaid expenses (e) Incomes received in advance.
(1 mark)
< Answer >
36. Accounting Standard Board was set up by the
(a) Government of India
(b) Institute of Chartered Accountants of India
(c) Institute of Costs and Works Accountants of India
(d) Reserve Bank of India
(e) Securities and Exchange Board of India.
(1 mark)
< Answer >
37. RSV Ltd. acquires the following assets of BC Ltd. paying a sum of Rs.22,50,000:
Particulars Rs.
Cash at bank 23,750
Cash on hand 12,250
Accounts receivable 86,200
Other identifiable assets 16,00,000
If Accounts Receivable are believed to have a realizable value of Rs.80,000 and other identifiable assets
are estimated to have market value of Rs.18,50,000, the amount of goodwill to be recorded in the books
of RSV Ltd. is
(a) Rs.5,34,000 (b) Rs.2,90,200 (c) Rs.2,84,000
(d) Rs.5,40,200 (e) Rs.3,20,000.
(2 marks)
< Answer >
38. An inexperienced book-keeper of M/s.Volga & Co. has drawn up the following trial balance of the firm
for the year ended March 31, 2005:
Trial Balance as on March 31, 2005
Particulars Debit
Rs.
Particulars Credit
Rs.
Provision for doubtful debts 2,000 Capital 45,910
Bank overdraft 16,540 Sundry creditors 16,370
Sundry debtors 29,830 Discount allowed 7,330
Discount received 2,520 General expenses 8,290
Drawings 12,000 Returns inward 3,300
Office furniture 21,550 Cash sales 60,800
Purchases 1,09,230 Credit sales 1,08,020
Rent and rates 3,140
Salaries 25,200
Opening stock 24,180
Provision for depreciation on
office furniture 3,640
Total 2,49,830 Total 2,50,020
Subsequently another trial balance was drawn and the residual difference was placed to a suspense
account. The amount debited/credited to suspense account was
< Answer >
7
(a) Rs.190 (debit) (b) Rs.530 (credit)
(c) Rs.11,750 (debit) (d) Rs.4,170 (debit) (e) Rs.11,750(credit).
(2 marks)
39. Silver Coats Ltd. invited applications for 1,00,000 equity shares of Rs.10 each at a premium of Rs.2 per share.
The entire issue was underwritten by three underwriters in the following percentages:
Anil 30%
Vimal 40%
Sunil 30%
The details of marked and unmarked applications received are:
Marked applications of Anil 22,000 shares
Vimal 24,000 shares
Sunil 28,000 shares
Unmarked applications 16,000 shares
The final liability of Vimal in terms of number of shares is
(a) Nil (b) 9,600 (c) 3,200 (d) 16,000 (e) 8,000.
(2 marks)
< Answer >
40. Which of the following error will not be disclosed by a Trial Balance?
(a) Posting of one aspect of a transaction twice
(b) Omission of recording a transaction
(c) Error in balancing of ledger accounts
(d) Omission of listing an account balance
(e) Overcasting / undercasting of a subsidiary book.
(1 mark)
< Answer >
41. If the forfeited shares are issued at a discount, the amount of discount shall be debited to
(a) Profit and loss account (b) Capital reserve account
(c) Share forfeiture account (d) Share premium account
(e) Share capital account.
(1 mark)
< Answer >
42. The primary means of communicating comprehensive accounting information to the users is
(a) Prospectus (b) Trial balance (c) Bank Reconciliation Statement
(d) Financial statements (e) Statement of cash flow.
(1 mark)
< Answer >
43. After preparation of the Profit and Loss Account, the following are extracted from the books of
Universe Ltd. as on March 31, 2005:
Particulars Rs. Particulars Rs.
Called-up share capital 5,00,000 Plant and machinery 2,20,000
Land and building 4,90,000 Investments 60,000
Secured loans 3,00,000 Calls-in-arrear 30,000
Term loan from Syndicate Bank 1,00,000 Capital reserve 90,000
Sundry creditors 90,000
Sundry debtors 1,20,000
Profit and loss account
(credit balance) 50,000
Stock 96,000 Outstanding expenses 500
Loans to employees 50,000
Provision for doubtful debts 10,000
Insurance premium paid in
advance 1,200
Interest received in advance 700 Cash 4,000
Bank balance (Debit) 40,000 Preliminary expenses 30,000
The total of the liabilities side of the balance sheet is
(a) Rs.11,01,200 (b) Rs.11,00,200 (c) Rs.11,31,200
(d) Rs.11,41,200 (e) Rs.11,01,900.
< Answer >
8
(2 marks)
44. The authorized capital of Chand Ltd. is 1,00,000 shares of Rs.10 each. On April 10, 2004, 50,000
shares are issued for subscription at a premium of Rs.2 per share. The share money is payable as
follows:
Rs.5 (including the premium of Rs.2) with application
Rs.3 on allotment
Rs.2 on first call
Rs.2 on final call.
The subscription list closed on May 11, 2004 and the directors proceeded with allotment on May 18,
2004. The shares are fully subscribed and the application money (including the premium) is received in
full. The allotment money is received by June 30, 2004, except as regards 500 shares.
The first call and the final call money is received by September 30, 2004, and December 31, 2004,
respectively, except the final call money on 200 shares which is not received.
Assuming that there are no other transactions, the cash balance as on December 31, 2004 is
(a) Rs.8,46,100 (b) Rs.6,00,000 (c) Rs.5,96,100
(d) Rs.4,96,000 (e) Rs.5,96,000.
(2 marks)
< Answer >
45. Which of the following statement(s) is/are false?
I. An equity share always carries the voting right.
II. In case of equity shares, the dividend is paid at a fixed rate during the lifetime of the company.
III. The share premium received on issue of shares cannot be utilized in writing off the preliminary
expenses of the company.
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (II) above (d) Both (I) and (III) above
(e) Both (II) and (III) above.
(1 mark)
< Answer >
46. Rights shares are the shares
(a) Issued by a newly formed company
(b) Legally issued to the public at large
(c) Offered to the existing equity shareholders
(d) That have a right of redemption
(e) That have a right to cumulative dividends.
(1 mark)
< Answer >
47. A company issued 14% debentures of Rs.10,00,000 at a discount of 10%. The discount on issue of
debentures will be treated in the account books as
(a) Capital expenditure (b) Revenue expenditure
(c) Deferred revenue expenditure (d) Capital loss
(e) Outstanding expenditure.
(1 mark)
< Answer >
48. The Issued Share Capital of Marval Ltd. is Rs.12,00,000 divided into 1,20,000 shares which were
issued at a premium of 100%. The company offers two shares for every three shares held to its existing
shareholders. If the rights issue price is Rs.410 per share and the market value at the time of rights issue
is Rs.560 per share, the value of right is
(a) Rs.60 (b) Rs.20 (c) Rs.150 (d) Rs.410 (e) Rs.560.
(1 mark)
< Answer >
49. The difference between par value and issue price below the par value of share, is called
(a) Share premium (b) Trade discount
(c) Commission on issue of shares (d) Discount on issue of shares (e) Cash discount.
(1 mark)
< Answer >
50. Debentures can be redeemed
I. At par.
II. At a premium.
< Answer >
9
III. At a discount.
IV. By conversion into stock.
(a) Only (I) above (b) Both (I) and (II) above
(c) Both (I) and (III) above (d) (I), (II) and (III) above
(e) (I), (II), (III) and (IV) above.
(1 mark)
51. The balance of cash book signifies
(a) Net income (b) Cash in hand (c) Net sales
(d) Net purchases (e) Net expenditure.
(1 mark)
< Answer >
52. The profits earned by a subsidiary company before acquisition by a holding company are known as
(a) Revenue profits (b) Capital profits (c) Super profits
(d) Average profits (e) Future maintainable profits.
(1 mark)
< Answer >
53. On April 01, 2004, the Profit and Loss Appropriation account of Wye Ltd. had a balance of
Rs.2,30,000. During the year 2004-05, the company earned a net profit of Rs.6,62,800 and
• The adjustment of income tax provision for the year 2003-04 amounted to Rs.58,800. The
company has a policy to transfer every year a sum of Rs.2,50,000 to general reserve.
• The sinking fund for redemption of debentures is created on April 01,2002 and the annual
installment is Rs.1,50,000.
• The company declared a dividend of 20% on Equity Share Capital of 5,000 fully paid shares of
Rs.100 each issued at Rs.90 each.
After effecting the above, the balance in the Profit and Loss Appropriation account of the company as
on March 31, 2005 is
(a) Rs.3,24,000 (b) Rs.3,92,800 (c) Rs.3,34,000
(d) Rs.3,82,800 (e) Rs.4,84,000.
(2 marks)
< Answer >
54. Desktop Publishing Ltd. began its operations on July 01,2004. The following accounts and balances
were contained in the adjusted trial balance of the company as on March 31, 2005:
Equity Share Capital Rs.95,500
Declared Dividends Rs.9,550
Fees earned Rs.48,200
Rent paid Rs.13,200
Salaries paid Rs.5,750
Income Tax paid Rs.1,100
Electricity Rs.3,700
Pre paid rent Rs.1,800
Cash on hand Rs.10,600
Sundry assets Rs.1,17,650.
The amount of profit earned by the company for the year ended March 31, 2005 was
(a) Rs.13,100 (b) Rs.24,450 (c) Rs.22,650 (d) Rs.26,250 (e) Rs.16,700.
(2 marks)
< Answer >
55. The Adams Ltd. paid a dividend of Rs.1,20,000 at the end of March 31, 2005. On April 01, 2004, there
was Rs.40,000 of dividends in arrears. The company’s capital structure consists of 5,000 9%,
cumulative preference shares of Rs.100 each and 10,000 equity shares of Rs.30 each, both fully paid.
How much did Adams Ltd. pay as dividends to its equity shareholders for the year 2004 - 05?
(a) Percentage not given-Insufficient data (b) Rs.75,000
(c) Rs.45,000 (d) Rs.35,000 (e) Rs.80,000.
(2 marks)
< Answer >
56. The following information is extracted from the books of Sun Pharmacy Ltd.:
Purchases made during the year Rs.7,80,000
Sales made during the year Rs.13,22,000
Opening stock Rs.1,90,000
< Answer >
10
Closing stock Rs.2,17,000
• Goods worth Rs.18,000 were distributed as free sample and no entry is made to this effect.
• A sale of Rs.28,000 has been credited to purchases account.
• Carriage outward amounted to Rs.2,000.
Considering the above, gross profit of the company for the year was
(a) Rs.5,85,000 (b) Rs.5,87,000 (c) Rs.5,89,000
(d) Rs.6,15,000 (e) Rs.6,17,000.
(2 marks)
57. The system of accounting to be followed by a company
(a) Must be the same as of all other companies
(b) Can be different from the system followed by other companies
(c) Must be disclosed if it is different from the recognized policy
(d) Must be on accrual basis and according to the double entry system of accounting
(e) Can be on cash basis of accounting on the approval of the Registrar of Companies.
(1 mark)
< Answer >
58. Pawan Ltd. has been incorporated with an Authorised Capital of Rs.10,00,000 divided into 1,00,000
equity shares of Rs.10 each. The company issued 65,000 shares of Rs.10 each to the public for
subscription payable as under:
On application Re.1
On allotment Rs.2
On first call Rs.2
On second call Rs.2
On final call Rs.3
The public has subscribed for 60,000 shares. The directors of the company made first call of Rs.2 per
share to carry on the business of the company. Out of these, one shareholder holding 5,000 shares
failed to pay the call money of Rs.2 per share.
The company made profit of Rs.58,500 during the financial year and the directors declared a dividend
of 6% to the shareholders.
The amount of capital that is to be considered for paying dividends is
(a) Rs.5,00,000 (b) Rs.6,50,000 (c) Rs.3,00,000
(d) Rs.6,00,000 (e) Rs.2,90,000.
(2 marks)
< Answer >
59. The following information is taken from the books of Splendid Ltd.:
On April 4, 2005 the company issued 7% Debentures having a face value of Rs.12,00,000 at a discount
of 2.5%. On April 12, the company further issued 25,000 8% Preference shares of Rs.100 each. On
April 29, the company redeemed the existing 30,000 6% Preference shares of Rs.100 each at a premium
of 5% together with one month dividend thereon. Bank balance as on March 31, 2005 was
Rs.29,25,000.
The Bank balance as on April 30, 2005 will be
(a) Rs.32,30,000 (b) Rs.33,15,000 (c) Rs.33,30,000
(d) Rs.33,45,000 (e) Rs.34,30,000.
(2 marks)
< Answer >
60. Once the unclaimed dividend is transferred to General Revenue Account of the Central Government,
any shareholder entitled to such dividend may claim it from
(a) The Reserve Bank of India (b) The Central Government
(c) The Company (d) The Registrar of companies
(e) Any Scheduled Bank.
(1 mark)
< Answer >
61. The balance in the creditors account of a company as at the beginning of the month of March 2005 was
Rs.3,40,000. During the month,
• A sum of Rs.1,85,000 was paid to the creditors .
• Goods purchased from the suppliers amounted to Rs.2,47,000.
< Answer >
11
• Goods returned to them as defective were of Rs.8,000.
• They allowed a sum of Rs.4,800 as cash discount.
• A bill for Rs.8,000 accepted by the company in favour of a creditor could not be honoured on the
due date and hence was dishonoured on March 20, 2005.
The balance in the creditors account as on March 31, 2005 was
(a) Rs.4,02,000 (b) Rs.3,94,200 (c) Rs.3,97,200
(d) Rs.4,05,200 (e) Rs.4,50,020.
(2 marks)
62. The books of Sahara Ltd. revealed the following information:
Particulars Rs.
Opening inventory 6,00,000
Purchases during the year 2004-2005 34,00,000
Sales during the year 2004-2005 48,00,000
On March 31, 2005, the value of inventory as per physical stock-taking was Rs.3,25,000. The
company’s gross profit on sales has remained constant at 25%. The management of the company
suspects that some inventory might have been pilfered by a new employee. What is the estimated cost
of missing inventory?
(a) Rs.75,000 (b) Rs.25,000 (c) Rs.1,00,000
(d) Rs.1,50,000 (e) Rs.2,25,000.
(2 marks)
< Answer >
63. ABC Ltd. maintains the inventory records under perpetual system of inventory. Consider the following
data pertaining to inventory of ABC Ltd. held for the month of March 2005:
Date Particulars Quantity Cost Per unit (Rs.)
March 1 Opening inventory 15 400
4 Purchases 20 450
6 Purchases 10 460
If the company sold 32 units on March 24, 2005, closing inventory under FIFO method is
(a) Rs.5,200 (b) Rs.5,681 (c) Rs.5,800 (d) Rs.5,850 (e) Rs.5,950.
(2 marks)
< Answer >
64. Consider the following data pertaining to Taurus Ltd.
Average Trading Profit Rs.2,58,900
Normal Profits Rs.2,23,800
Where in the goodwill was valued on the basis of 3 years’ purchase of super profits. Further, it has been
resolved by the company to amortise the goodwill over a period of five years.
The journal entry to be passed for amortisation of goodwill every year is
(a) Profit and Loss a/c. Dr. Rs.21,060
To Goodwill a/c. Rs.21,060
(b) Depreciation a/c. Dr. Rs. 7,020
To Goodwill a/c. Rs.7,020
(c) Goodwill a/c. Dr. Rs.21,060
To Profit and Loss a/c. Rs.21,060
(d) Profit and Loss a/c. Dr. Rs. 7,020
To Goodwill a/c. Rs.7,020
(e) General Reserve a/c. Dr. Rs.21,060
To Goodwill a/c. Rs.21,060.
(2 marks)
< Answer >
65. Which of the following is false with respect to goodwill?
(a) Goodwill though caused by factors which cannot be easily and accurately quantified, must be
assigned a value
(b) It is the present value of a firm’s anticipated excess earnings
(c) It is the extra saleable value attached to a prosperous business beyond the intrinsic value of net
assets
< Answer >
12
(d) It is an identifiable intangible asset
(e) It is like any other asset, a store of prospective revenue.
(1 mark)
66. M/s.Sunder Ltd. issued 80,000 equity shares of Rs.10 each, payable as under:
On application Rs.3
On allotment Rs.4
On first call Rs.2
On final call Rs.1
The applications received for 1,20,000 shares were dealt with as under:
• Applicants of 20,000 shares were allotted in full.
• Applicants of 80,000 shares were allotted 60,000 shares pro-rata.
• Applications for 20,000 shares were rejected.
The amount available for adjustment towards allotment money is
(a) Rs.1,20,000 (b) Rs.2,40,000 (c) Rs.60,000
(d) Rs.1,80,000 (e) Rs.3,20,000.
(2 marks)
< Answer >
67. Needs Ltd. issued 20,000 equity shares of Rs.100 each at a premium of 20% payable as under:
On application Rs.50 (inclusive of premium)
On allotment Rs.30
On first call Rs.20
On second and final call Rs.20
Applications were received for 24,000 shares and the company has resolved to reject 4,000 applications
in full and allot to 20,000 applicants in full. The journal entry passed at the time of receipt of
application money is
(a) Bank account Dr. Rs.12,00,000
To Share application account Rs.12,00,000
(b) Share application account Dr. Rs.12,00,000
To Share Capital account Rs.12,00,000
(c) Bank account Dr. Rs.12,00,000
To Share Capital account Rs.12,00,000
(d) Bank account Dr. Rs. 6,00,000
To Share Capital account Rs. 6,00,000
(e) Bank account Dr. Rs.10,00,000
To Share Capital account Rs. 6,00,000
To Share premium account Rs. 4,00,000.
(2 marks)
< Answer >
68. When redeemable preference shares are due for redemption, the entry passed is
(a) Debit Redeemable preference share capital account and Credit Cash account
(b) Debit Redeemable preference share capital account and Credit Redeemable Preference
shareholders account
(c) Debit Redeemable Preference shareholders account and Credit Cash account
(d) Debit Redeemable Preference shareholders account and Credit Redeemable preference share
capital account
(e) Debit Redeemable preference share capital account and Credit Capital redemption reserve
account.
(1 mark)
< Answer >
69. Which of the following statements is/are true?
I. Discount on issue of debentures can be shown in the books of the accounts even after the life of
the debentures.
II. Capital profits can be used for converting partly paid shares to fully paid-up.
III. Bonus issue of shares is not permitted unless the partly paid up shares, if any existing, are made
fully paid.
< Answer >
13
fully paid.
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (II) above (d) Both (I) and (III) above (e) Both (II) and (III) above.
(1 mark)
70. Traditionally, human resource is not taken as asset in the Balance Sheet of a business in recognition of,
(a) Cost concept (b) Money measurement concept
(c) Consistency concept (d) Business entity concept
(e) Going concern concept.
(1 mark)
< Answer >
71. A transaction of purchase of stationery of Rs.400 for cash has not been entered in the cashbook. This is
an example of
(a) Error of partial omission (b) Error of commission
(c) Error of principle (d) Compensating error
(e) Error of complete omission.
(1 mark)
< Answer >
72. A firm sells goods at a gross margin of 25% on sales. Opening Stock was Rs.40,000 and closing stock
was Rs.30,000. Purchases during the period were Rs.1,10,000. What is the amount of Sales?
(a) Rs.1,60,000 (b) Rs.1,20,000 (c) Rs.2,00,000 (d) Rs.1,50,000 (e) Rs.96,000.
(2 marks)
< Answer >
73. Net worth consists of
I. Equity.
II. General reserve.
III. Capital reserve.
IV. Profit and Loss account balance.
(a) Only (I) above (b) Both (I) and (IV) above
(c) Both (I) and (III) above (d) Both (I) and (II) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
74. Damaged inventory should be valued at
(a) Nominal value (b) Market value
(c) Net realizable value (d) Cost price or market price, whichever is lower
(e) Acquisition cost.
(1 mark)
< Answer >
75. Which of the following expenses is not included in the acquisition cost of a plant and equipment?
(a) Cost of site preparation
(b) Delivery and handling charges
(c) Installation costs
(d) Professional fees in connection with the equipment
(e) Financing costs incurred subsequent to the period after plant and equipment is put to use.
(1 mark)
< Answer >
14
Suggested Answers
Financial Accounting (MB131): April 2005
1. Answer : (a)
Reason : Debt-Equity ratio is also called as leverage ratio. Thus, alternative (a) is the correct answer.
Current ratio (b) and Quick ratio (c) are liquidity ratios and not leverage ratios. Earning power (d)
and Inventory turnover ratio (e) are not leverage ratios. Therefore, alternative (a) is the correct
answer.
<
TOP
>
2. Answer : (c)
Reason : Intangible assets are amortized like tangible fixed assets. If costs benefit more than one accounting
period, they should be systematically and rationally allocated to all accounting periods. Matching
concept involves recognizing costs as expenses on the basis of direct association with assets. Thus
amortization of intangible assets is the systematic allocation of costs over several periods in
recognition of matching concept. The other concepts do not recognize allocation of costs of fixed
assets. Conservatism concept is not meant to introduce a bias into financial reporting. It is a
prudent reaction to uncertainty to try to ensure that inherent risks in business are adequately
considered. Going concern concept (b) assumes that the business entity is assumed to be a going
concern in the absence of evidence to the contrary. Time Period concept (d) requires accounting
information to be reported at regular intervals to foster comparability. Business entity concept
explains that in accounting business is to be considered as a separate entity from the owner. It does
not speak about amortization.
Thus, alternative (c) is the correct answer.
<
TOP
>
3. Answer : (a)
Reason :
Trial Balance of John Vicky as at March 31, 2005
Sl.No Heads of Account
Debt Balance
(Rs.)
Credit Balance
(Rs.)
1. Capital (1st April, 2004) 89,000
2. Drawings 10,000
3. Stock (1st April, 2004) 37,000
4. Purchases 2,31,250
5. Sales 3,94,000
6. Motor Vehicles 14,500
7. Cash in Hand 1,350
8. Sundry Creditors 49,760
9. Sundry Debtors 139,700
10. Bank Overdraft 9,000
11. Administrative over head 76,360
12. Office Equipment 35,000
13. Carriage Outward 2,310
14. Returns Inward 2,050
15. Provision for Bad Debts 4,250
16. Returns Outward 3,160
17. Discount Allowed 2,800
18. Discount Received 3,150
TOTAL 5,52,320 5,52,320
<
TOP
>
4. Answer : (e)
Reason : In contract accounting, there is a reasonable certainty that the project would be completed and the
return consideration is realized. In fact, return consideration may begin as soon as the work begins.
So, revenue may be recognized at work-in-progress. This is the exception to the revenue
recognition principle. Other principles stated in (a), (b), (c) and (d) are not correct. Hence, (e) is
true.
<
TOP
>
5. Answer : (e)
Reason : Method of providing depreciation ,valuation of inventories, treatment of Goodwill and treatment of
contingent liabilities differ from enterprise to enterprise
<
TOP
>
15
contingent liabilities differ from enterprise to enterprise >
6. Answer : (c)
Reason : Cost of goods = Purchases – Returns outward + Freight in
= Rs.2,10,000 – Rs.22,000 + Rs.30,000 = Rs.2,18,000
<
TOP
>
7. Answer : (d)
Reason :
Particulars Rs.
Opening balance of sundry debtors 37,000
Add : Credit sales 6,75,000
7,12,000
Less : Closing balance of Sundry debtors 60,000
6,52,000
Less : Discount allowed 2,800
Cash collected from sundry debtors 6,49,200
<
TOP
>
8. Answer : (a)
Reason : Bank reconciliation statement as on March 31, 2005:
Particulars Rs. Rs.
Overdraft as per bank pass book 13,880
Less : Interest on overdraft not entered in cash book 480
Cheques deposited not cleared 1,800
Cheque discounted which was dishonoured 1,000
3,280
10,600
Add : Cheques issued but not presented for payment 2,350
Overdraft as per cash book 12,950
<
TOP
>
9. Answer : (a)
Reason : Carriage inward expense is related to the carrying cost of material purchased. If it is incurred for
carrying new assets, it should be capitalized to the assets value. Carrying cost relating to sale of
products, returns outward and return of unsold goods will not be treated as carriage inward
expenses. Hence, (a) is correct.
<
TOP
>
10. Answer : (a)
Reason : Advance received from customers is a current liability till the goods are supplied or services are
rendered.
<
TOP
>
11. Answer : (c)
Reason : Error of principle is the error of treating revenue items as capital and capital items as revenue. The
purchase of shares by the share broker is to be debited to purchases account and not to investment.
It is error of principle. (c) is the correct answer.
<
TOP
>
12. Answer : (b)
Reason : Books of Ramu Enterprises
Dr. Trading Account for the period ending March 31, 2005 Cr.
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening stock 27,000 By Sales :
To Purchases Cash 20,000
Cash 70,000 Credit 1,40,000
Credit 20,000 1,60,000
90,000 (–) Returns inward 3,000 1,57,000
(–) Goods lost due to fire 2,000 By Closing stock 40,000
(–) Returns outward (–) 2,000 86,000
To Wages 5,000
(+) Outstanding as on
March 31, 2005 700
5,700
(–) Outstanding as on
April 01, 2004 500 5,200
To Carriage inward 1,000
To Gas, water, fuel 2,000
To Gross Profit 75,800
1,97,000 1,97,000
<
TOP
>
16
13. Answer : (a)
Reason : Insolvency of a debtor is not an extra-ordinary event. Attachment of property, destruction by fire of
factory building, factory building collapsed in earthquake etc. are extra-ordinary items.
<
TOP
>
14. Answer : (c)
Reason : The non-current liability is a liability which is not repayable in a period of 12 months or a business
cycle which ever is earlier. Thus, Long-term loans and Debentures are non current liabilities.(c) is
the correct answer.
<
TOP
>
15. Answer : (d)
Reason : Acceptance of bills drawn by creditors will not result in any change in the amount of liabilities of
balance sheet, because it will decrease the balance of creditors and increase the balance of bills
payable by the same amount. So (d) is correct, other transactions change the total amount of
liabilities of the balance sheet.
<
TOP
>
16. Answer : (b)
Reason : Income received in advance is a liability and should shown on the liability side and not on asset
side. All other statements viz, prepaid expenses shown on asset side, income earned but not
received shown on asset side, income accrued but not due shown on asset side and outstanding
liabilities for expenses shown on liability side are true.
<
TOP
>
17. Answer : (c)
Reason : Fixed assets cannot easily be converted into cash. They are acquired for using them in the conduct
of business operations They are not meant for resale to earn profit. Depreciation at specified rates is
to be charged on most of the Fixed Assets. Their utility is not confined to one accounting period.
<
TOP
>
18. Answer : (c )
Reason : To increase the profit or reduce the loss made by the enterprise is not an object of keeping
accounts. All others are objects of maintaining accounts.
<
TOP
>
19. Answer : (a)
Reason : In a manufacturing company, the perpetual inventory system is called product costing system. In
such system, the cost of each product is accumulated as it flows through the production process.
<
TOP
>
20. Answer : (c)
Reason : Research and Development cost cannot directly be attributed to a specific work. Site labor cost,
cost of moving plant and equipment to and from a site , supervision cost and materials used can be
related to specific contract.
<
TOP
>
21. Answer : (a)
Reason : The basis for pricing inventory is either cost of production or cost of acquisition. FIFO method of
identifying inventory is based on the assumption that costs are charged against revenue in the order
in which they occur. In case of other methods i.e. LIFO (b) method matches the most recent costs
incurred with current revenue, leaving the first cost incurred to be included as inventory. Weighted-
Average method (c) assumes that costs are charged against revenue based on an average of the
number of units acquired at each price level. Moving average method (d) can be used only with a
perpetual inventory. The cost per unit is recomputed after every addition to the inventory. The
ending inventory is valued at the last moving average unit cost for the period. Base stock method
(e) wherein a minimal level of it is a permanent investment, which is necessary for the normal
business activities. Base stock would be carried at historical cost. Thus, FIFO method is the correct
answer.
<
TOP
>
22. Answer : (d)
Reason : The depreciation rate according to units-of-production method is applied to the number of units
produced during an accounting period. Hence, it is related to the usage of the asset. Straight line
method, written down value method, sum-of-the-years’ digits method and double declining method
takes into consideration the cost of the asset, salvage value and useful life but not the output from
the asset. Hence the answer is (d).
<
TOP
>
17
23. Answer : (b)
Reason :
Purchases Issues Balance
Date Quantity
(Kg)
Rate
per kg.
(Rs.)
Amount
(Rs.)
Quantity
(Kg)
Rate per
kg. (Rs.)
Amount
(Rs.)
Quantity
(Kg)
Rate
per kg.
(Rs.)
Amount
(Rs.)
1-3-05 500 22.80 11,400
2-3-05 400 24 9,600 900 23.33 21,000
10-03-05 600 25 15,000 1,500 24.00 36000
25-03-05 1,000 24 24,000 500 24.00 12,000
<
TOP
>
24. Answer: (d)
Reason: Both direct and indirect labour as well as power and light form part of the manufacturing cost.
Advertising expenses come under selling and distribution cost and hence not a manufacturing cost
to be included in the cost of goods sold.
<
TOP
>
25. Answer : (b)
Reason : Although patent is a capital expenditure, renewal fee paid for patent is treated as revenue
expenditure.
<
TOP
>
26. Answer : (e)
Reason : Cost of purchase of raw-material is purchase price plus duties and taxes plus freight inward minus
discount and duty draw back.
<
TOP
>
27. Answer : (c)
Reason : Long term investment is not a fixed asset. Buildings, Furniture, Equipment and Machinery are
fixed assets which also referred to as property.
<
TOP
>
28. Answer : (a)
Reason : When goods are sold subject to approval by buyer, revenue should be recognized when goods have
been formally accepted by the buyer.
<
TOP
>
29. Answer : (d)
Reason : Stock of cars is a current asset for a car manufacturing company. Land and Building, machinery,
office furniture and Patents are fixed assets.
<
TOP
>
30. Answer : (b)
Reason : Payment of Municipal taxes is a revenue expenditure.
<
TOP
>
31. Answer : (a)
Reason : Purchase of a truck is a capital expenditure. Replacement of old tyres and tubes, cost of repair, and
road tax paid are revenue in nature.
<
TOP
>
32. Answer : (c)
Reason : Repayment of short term loan is shown as a decrease in cash (c). Therefore, alternative (c) is the
correct answer. It is not a source of working capital. Therefore, alternative (a) is not the correct
answer. It is shown as increase in cash (b), is also not a correct answer. Does not affect the working
capital (d) is also not a correct answer, since it is affecting the working capital. Is not shown either
as a source or a use of funds (e) is also not the correct answer. Therefore, alternative (c) is the
correct answer.
<
TOP
>
33. Answer : (c)
Reason : Window-dressing implies showing a better position than the true and fair view of accounts.
<
TOP
>
34. Answer : (b)
Reason :
Rs.
Profit for the year 2004-2005 2,30,000
Add: Rent (not relevant if the owner of the premises operates the business) 1,20,000
Adjusted maintainable profits 3,50,000
Capital employed by Dinakar 20,00,000
Add: Value of premises 4,00,000
Total capital employed 24,00,000
Normal profit (12% of Rs.24,00,000) 2,88,000
Super profits (Rs.3,50,000 – Rs.2,88,000) 62,000
<
TOP
>
35. Answer : (e)
Reason : Current assets include cash and cash equivalents, inventories, accounts receivable, bills receivable,
and prepaid expenses. Income received in advance is a liability.
<
TOP
>
18
and prepaid expenses. Income received in advance is a liability.
36. Answer : (b)
Reason : Accounting Standard Board was set up by the Institute of Chartered Accountants of India
<
TOP
>
37. Answer : (c)
Reason :
Particulars Rs. Rs.
Total Purchase price 22,50,000
Less: Cash at bank
Cash on hand
Accounts receivable
Other identifiable assets
23,750
12,250
80,000
18,50,000
19,66,000
Goodwill 2,84,000
<
TOP
>
38. Answer : (c)
Reason : Corrected Trial Balance
Particulars Debit (Rs.) Credit
(Rs.)
Provision for doubtful debts 2,000
Bank overdraft 16,540
Sundry debtors 29,830
Discount received 2,520
Drawings 12,000
Office furniture 21,550
Purchases 1,09,230
Rent and rates 3,140
Salaries 25,200
Opening stock 24,180
Provision for depreciation on furniture 3,640
Capital 45,910
Sundry creditors 16,370
Discount allowed 7,330
General expenses 8,290
Returns inward 3,300
Cash sales 60,800
Credit sales 1,08,020
Total 2,44,050 2,55,800
Suspense (Debit) Rs.2,55,800 – Rs.2,44,050 = Rs.11,750.
<
TOP
>
39. Answer : (e)
Reason : (No. of shares)
Particulars Anil Vimal Sunil Total
Liability 30,000 40,000 30,000 1,00,000
Less: Unmarked applications in the
ratio of 3:4:3
4,800 6,400 4,800 16,000
25,200 33,600 25,200 84,000
Less: Marked (Stamped) applications 22,000 24,000 28,000 74,000
3,200 9,600 (2,800) 10,000
Less: Division of Sunil’s surplus
(in the ratio of 3:4) 1,200 1,600 2,800 –
Final liability of each underwriter 2,000 8,000 Nil 10,000
<
TOP
>
40. Answer : (b )
Reason : Since a transaction altogether has been omitted both debit and credit aspects have not been
recorded. Hence the trial balance cannot disclose the existence of the above error.
<
TOP
>
41. Answer : (c)
Reason : If a company reissues the forfeited shares at a discount, that discount amount will be debited to
forfeited share account.
<
TOP
>
19
According to the Companies Act, the company cannot debit share capital account, profit and loss
account, capital redemption reserve account and capital reserve account for the amount of discount
allowed on reissue of forfeited shares.
42. Answer : (d)
Reason : The users of accounting information of a company are investors, bankers, creditors, shareholders,
management, employees, customers, government and regulatory agencies who are interested in the
affairs of a company. The means of communicating information are financial statements; (d) i.e.
profit and loss account and balance sheet. These are the means through which inferences like ratio
analysis are drawn. Prospectus (a) is the document inviting the public to subscribe to its securities
and there may be certain accounting statistics, which are useful to the users. But it is not
comprehensive. Hence it is false. Trial balance (b) is a summary of all ledger accounts prepared in
a tabular form from which no useful inference can be drawn. Hence, it is not the correct answer.
Bank reconciliation statement (c) is a statement prepared by a business only in the event of
difference between balance as per bank statement and bank column of cashbook, which has no
relevance to the users. Hence, it is false. Statement of cash flow (e) is the statement depicting
inflow and outflow of cash irrespective of nature of source and relevance of period. It is more or
less of receipts and payments account of non-profit organization which has no significance to the
users and it is false.
<
TOP
>
43. Answer : (a)
Reason : Balance Sheet of Universe Ltd. as on March 31, 2005
Liabilities Rs. Assets Rs.
Share capital 5,00,000 Land & building 4,90,000
Less calls in arrears 30,000 4,70,000 Plant and machinery 2,20,000
Capital reserve 90,000 Investments 60,000
P & L A/c 50,000 Sundry debtors 1,20,000
Secured loans 3,00,000
Less provision for
doubtful debts 10,000
1,10,000
Term Loan from Bank 1,00,000 Stock 96,000
Sundry creditors 90,000 Loans to employees 50,000
Outstanding expenses 500 Cash 4,000
Interest received in advance 700 Bank 40,000
Insurance premium paid in
advance
1,200
Preliminary expenses 30,000
11,01,200 11,01,200
<
TOP
>
44. Answer : (c)
Reason : In the books of the Company
Cash Book (Bank Column only)
Date Particulars Rs. Date Particulars Rs.
2004
May 11
To Share Application A/c (Being
application money received on 50,000
shares @ Rs.5 each including
premium of Rs.2 per share)
2,50,000 2004
Dec 31
By
Balance
c/d
5,96,100
June 30 To Share Allotment A/c
(Being allotment money received on
49,500 shares @ Rs.3 each)
1,48,500
Sept. 30 To Share First Call A/c
(Being First call money received on
49,500 shares @ Rs.2 each)
99,000
Dec. 31 To Share Final Call A/c
(Being Final Call money received on
49,300 shares @ Rs.2 each)
98,600
5,96,100
<
TOP
>
45. Answer : (e)
Reason : The equity shareholders get the dividend, depending on the income the company made and there is
no fixed amount and the share premium received on issue of shares can be utilized in writing off
the preliminary expenses of the company. Hence, alternative II and III are not correct and the
answer is (e).
<
TOP
>
20
46. Answer : (c)
Reason : Rights shares are the shares that are offered to the existing equity shareholders (c). These are not
issued by a newly formed company (a) They are not the shares issued to the public at large. They
are issued only to the existing shareholders. (b). It does not indicate the right of redemption of
shares issue (d). These are not the shares with cumulative dividend right.
<
TOP
>
47. Answer : (d)
Reason : The discount on issue of debentures is a capital loss which will be written off over a period of time.
(d) is the correct answer.
<
TOP
>
48. Answer : (a)
Reason : Value of right =
r
(M S)
N r
    −  + 
Where r = No of rights issued
N = No of old shares
M = Market price
S = Issue price of rights
∴ Value of rights =
2
(Rs.560 Rs.410)
3 2
  −  +  = Rs.60
<
TOP
>
49. Answer : (d)
Reason : When share is issued at less than par value, the difference is debited to an appropriately titled
discount account, which is a contra equity share account. The discount account is not an expense
account nor does it appear on the income statement.
<
TOP
>
50. Answer : (e)
Reason : Debentures can be redeemed
I. At par
II. At a premium
III. At a discount
IV. By conversion into stock.
Thus, (e) the combination of (I), (II), (III) and (IV) is the correct answer.
<
TOP
>
51. Answer : (b )
Reason : The cash book is to record all cash receipts and payments and the balance in cash book shows the
cash on hand.
<
TOP
>
52. Answer : (b)
Reason : The profits earned by a subsidiary company before the holding company acquiring control over it is
known as capital profit. Any profit before acquisition date is the capital profit. Other profits
mentioned in (a), (c), (d) and (e) are not true.
<
TOP
>
53. Answer : (c)
Reason : Profit and Loss Appropriation Account of Wye Ltd. for the year ended March 31, 2005
Particulars Rs. Particulars Rs.
To Income Tax Provision for the previous year 58,800 By Balance B/d 2,30,000
To General Reserve 2,50,000 By Net Profit 6,62,800
To Sinking Fund 1,50,000
To Proposed dividend 1,00,000
To Balance c/d 3,34,000
8,92,800 8,92,800
<
TOP
>
54. Answer : (b)
Reason: Net income is equal to revenues minus expenses. In this case, revenues equal Rs.48,200 and
expenses equal Rs.23,750 (Rs.13,200 + Rs.5,750 + Rs.1,100 + Rs.3,700). Net income is Rs.24,450
(Rs.48,200 – Rs.23,750).
<
TOP
>
55. Answer : (d)
Reason: Of the Rs.1,20,000 paid, Rs.40,000 was paid toward dividends in arrears and Rs.80,000 was paid
toward dividends for 2004-05. Of the Rs.80,000, Rs.45,000 was paid to preference stockholders
<
TOP
>
21
toward dividends for 2004-05. Of the Rs.80,000, Rs.45,000 was paid to preference stockholders
(5,000 shares x Rs.100 per share x .09), leaving Rs.35,000 to be paid to common stockholders
(Rs.80,000 – Rs.45,000).
56. Answer : (b)
Reason :
Trading Account for the year ended
Dr Cr
Particulars Amount
(Rs)
Amount
(Rs)
Particulars Amount
(Rs)
Amount
(Rs)
1,90,000
7,90,000
5,87,000
13,50,000
2,17,000
To Opening Stock
To Purchases
Less: Distribution of
free samples
Add: Sale wrongly
credited to purchases
To Gross Profit
7,80,000
18,000
7,62,000
28,000
15,67,000
By Sales
Add: Amount
wrongly credited
to purchases
By Closing Stock
13,22,000
28,000
15,67,000
<
TOP
>
57. Answer : (d)
Reason : A company’s system of accounting for maintaining books of accounts must be on the accrual basis
and according to the double entry system of accounting. The systems in other alternatives are no
systems at all or not recognized under the Act. Thus, alternative (d) is the correct answer.
<
TOP
>
58. Answer : (e)
Reason : Called up capital The directors of the company called Rs.5 per share on 60,000 shares =
Rs.3,00,000
Less calls in arrear on 5,000 shares at the rate of Rs.2 = 10,000
Paid-up capital to be considered for dividends = Rs.2,90,000
Thus, (e) is the correct answer.
<
TOP
>
59. Answer : (e)
Reason : Balance as on 31st March 2005 Rs.29,25,000
Issue of debentures 12,000 Rs.12,00,000
Less: discount 2.5% Rs. 30,000 Rs.11,70,000
Issued preference shares 25,000 R s.25,00,000
Rs.65,95,000
Less: Redemption of 30,000 6% preference shares Rs.30,00,000
Premium on redemption Rs. 1,50,000
Dividend for one month R s. 15,000 Rs.31,65,000
Balance as on 30 th April 2005 Rs.34,30,000
<
TOP
>
60. Answer : (b)
Reason : Once the unclaimed dividend is transferred to General Revenue a/c of the Central Government, any
shareholder entitled can claim such dividend from the Central Government.
<
TOP
>
61. Answer: (c)
Reason: Dr. Creditors A/c Cr.
Particulars Rs. Particulars Rs.
To Cash 1,85,000 By Balance b/d 3,40,000
To Purchases Returns 8,000 By Purchases 2,47,000
To Cash Discount 4,800 By Bills Payable 8,000
To Balance C/d 3,97,200
5,95,000 5,95,000
By Balance b/d 3,97,200
<
TOP
>
62. Answer : (a)
Reason : Dr. Stock account Cr.
<
TOP
>
22
Particulars Rs. Particulars Rs.
To Opening balance 6,00,000
To Purchases 34,00,000
By Cost of goods sold
(Rs.48,00,000 × 75%)
36,00,000
By Missing inventory (balancing figure) 75,000
By Closing balance (physical count) 3,25,000
40,00,000 40,00,000
The estimated cost of missing inventory is Rs.75,000.
63. Answer : (e)
Reason : Under First in First out method of inventory valuation, the sale of 32 units will be accounted as,
15 Units @ Rs.400 = Rs. 6,000
17 Units @ Rs.450 = Rs. 7,650
32 = Rs.13,650
The balance of inventory is,
3 Units @ Rs.450 = Rs. 1,350
10 Units @ Rs.460 = Rs. 4,600
Value of closing inventory Rs. 5,950
<
TOP
>
64. Answer : (a)
Reason : Average Trading Profit Rs.2,58,900
Normal Profits (-) Rs.2,23,800
Super profits Rs. 35,100
Value of goodwill = 3 x Rs.35,100 = Rs.1,05,300
Amortisation – in five years = Yearly amortisation = Rs.1,05,300/5 = Rs.21,060.
The journal entry will be
Profit and Loss a/c. Dr. Rs.21,060
To Goodwill a/c. Rs.21,060.
<
TOP
>
65. Answer : (d)
Reason : Intangible assets are classified as either identifiable or unidentifiable. Goodwill (d), arising out of
payment for reputation, brand name, location, loyality, etc. is an unidentifiable intangible asset.
Hence, alternative (d) is false. It is described as a momentum or push (a) like the momentum of a
body that continues its motion against a retarding force. It, though caused by factors which cannot
be easily and accurately quantified, must be assigned a value (a). It is a payment for something
which places the payer in the position being able to earn more than he would be able to do by his
own unaided efforts (b). It is the difference between the value of a business as a whole and the
aggregate of the fair value of its net assets (c). The basic characteristic of an asset is said to have
productivity. Since the goodwill helps in extra earnings, it is said to be a store of prospective
revenue (e). Thus, alternatives (a), (b), and (e) are true.
<
TOP
>
66. Answer : (c)
Reason :
No of shares
Applied
No of
Shares
allotted
Amount
paid
Amount adjusted
towards
application
Amount
available
Amount
refunded
Rs. Rs. Rs. Rs.
20,000 20,000 60,000 60,000 - -
80,000 60,000 2,40,000 1,80,000 60,000 -
20,000 - 60,000 - - 60,000
<
TOP
>
67. Answer : (a)
Reason : The journal entry passed at the time of receipt of application money is
Bank account Dr. Rs.12,00,000
To Share application account Rs.12,00,000
<
TOP
>
68. Answer : (b)
Reason : When redeemable preference shares are due for redemption, the entry passed is debit Redeemable
preference share capital account; Credit Redeemable Preference shareholders account.
<
TOP
>
23
69. Answer : (e)
Reason : After the life of the debenture no entry on account of discount on its issue should be shown in the
books of accounts. Capital profit can be used to convert partly paid shares to fully paid shares and
bonus shares cannot be made on partly paid-up shares. Hence, the answer is (e).
<
TOP
>
70. Answer : (b)
Reason : In financial accountancy, a record is made only when the information can be expressed in monetary
terms. Recording, classification and summarization of business transactions requires a common
unit of measurement, which is taken as money. If events cannot be quantified in monetary terms,
then they do not facilitate accounting. Hence, human resource cannot be taken as asset in
accounting books.
<
TOP
>
71. Answer : (e)
Reason : If a transaction of cash purchase of stationery has not been entered in the cashbook it is an example
of complete omission. (e) is the correct answer.
<
TOP
>
72. Answer : (d)
Reason : Opening stock + Purchases = Cost of goods sold + closing stock
= Rs.40,000 + Rs.1,10,000 = Rs.1,50,000
Cost of goods sold = Rs.1,50,000 less closing stock = Rs.1,50,000 – Rs.30,000 = Rs.1,20,000
Sales are at a margin of 25% = 125 x Rs .1,20,000/100 = Rs.1,50,000.
<
TOP
>
73. Answer : (e)
Reason : Net worth includes equity, general reserve, capital reserve and balance in Profit & Loss A/c.
<
TOP
>
74. Answer : (c)
Reason : The damaged inventory should be valued at its net realizable value. Hence the answer is (c). The
cost price or market price whichever is lower is used in case of normal inventory but not in case of
damaged inventory. The market value is not used in any case. The acquisition cost is used for
valuing fixed assets. The nominal value is not at all considered.
<
TOP
>
75. Answer : (e)
Reason : AS-10 deals with the recognition of assets, determination of carrying amounts, depreciation
impairments to the carrying amounts. The cost should include expenses directly attributable to the
asset and which result in an increase in the economic life of the asset. The financing costs relating
to deferred credits or to borrowed funds are not capitalized to the extent that such costs relate to
periods after such assets are ready to put to use. All other expenses stated in other alternatives are
capitalized.
<
TOP
>
< TOP OF THE DOCUMENT >