Financial Accounting (MB131) October 2005

Financial Accounting (MB131) October 2005

• Answer all questions.
• Marks are indicated against each question.
1.
Which of the following concepts, assumes that a business will last indefinitely?
(a) Business entity (b) Going concern
(c) Periodicity (d) Conservatism (e) Consistency.
(1 mark)
2.
The concept which states that every transaction has two aspects is
(a) Dual concept (b) Matching concept
(c) Realization concept (d) Consistency concept .
(e) Accrual concept.
(1 mark)
3.
Credit signifies
(a) Increase in asset account (b) Increase in liability
(c) Decrease in capital (d) Increase in expenses
(e) Decrease in incomes.
(1 mark)
4.
Change in an accounting policy need not be disclosed, if
(a) Amount is not material (b) It is not against accounting conventions
(c) Affects current year only (d) Amount can be determined in part only
(e) The entity is a Private Limited Company.
(1 mark)
5.
Which of the following statements is false?
(a) The objective of International Accounting Standards Committee (IASC) is to promote the use of accounting standards worldwide
(b) The IASC works for the improvement of accounting standards and procedures relating to Financial Statements
(c) If there is a conflict between International Accounting Standards and local standards, the former will prevail upon the later
(d) Operations of companies across the border calls for uniformity in accounting standards
(e) Accounts of those companies adhering to International Accounting Standards find more acceptability.
(1 mark)
6.
Navneeth, a sole proprietor, maintains a triple column Cash book to record his business transactions. Consider the following data pertaining to his business for the month of August 2005:
Particulars
Rs.
Opening balance of cash in hand
25,000
Balance at bank
3,50,000
Cheque received from a customer (after allowing a discount of Rs.2,500)
50,000
Paid to the supplier by cheque (discount allowed by the supplier: Rs.10,000)
1,00,000
Salaries paid to staff in cash
20,000
Received a cheque from Daulat Ram, a customer (who owed Rs.16,500 and was allowed a discount of 10%)
14,850
Paid M/s. Bharani and Co. in full settlement of their dues of Rs.28,500
26,250
Received from Rama & Bros. (as against Rs.38,900) in full and final settlement
36,200
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The total amount of discount recorded on the debit side of the triple column Cash book for the month of August 2005 is
(a) Rs.5,200 (b) Rs.4,150 (c) Rs.6,850 (d) Rs.12,250
(e) Rs.13,900.
(2 marks)
7.
Based on the following information, answer the question. The following balances were extracted from the books of Silvergreen Ltd. during the year 2004– 2005
Particulars
April 1, 2004
March 31, 2005
Sundry creditors
Rs.80,000
Rs.100,000
Inventory
Rs.60,000
Rs. 50,000
The cost of goods sold during the year was Rs.9,00,000. The gross profit margin was 25%.
The amount of purchase made during the year was
(a) Rs.9,20,000 (b) Rs.9,10,000 (c) Rs.9,00,000 (d) Rs.8,90,000
(e) Rs.8,80,000.
(1 mark)
8.
The opening stock of a company is Rs.40,000 and the closing stock is Rs.50,000. If the purchases during the year is Rs.2,00,000, the cost of goods sold will be
(a) Rs.2,10,000 (b) Rs.2,00,000 (c) Rs.1,90,000 (d) Rs.1,80,000
(e) Rs.1,50,000.
(1 mark)
9.
Which of the following is not a book of original entry?
(a) Cash book (b) Petty cash book (c) Ledger
(d) Sales journal (e) Bills receivable book.
(1 mark)
10.
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
(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)
11.
If machinery account is debited with the amount of repairs incurred on the machine, this is an example of
(a) Compensating error (b) Error of principle
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(c) Error of commission (d) Error of omission
(e) Error of partial omission.
(1 mark)
12.
Rent paid Rs.400 was credited to Rent account. The rectifying entry is
(a) Cash account Dr. Rs.400
To Rent account Rs.400
(b) Rent account Dr. Rs.800
To Suspense account Rs.800
(c) Rent account Dr. Rs.400
To Suspense account Rs.400
(d) Suspense account Dr. Rs.800
To Rent account Rs.800
(e) Rent account Dr. Rs.400
To Cash account. Rs.400
(1 mark)
13.
Ashwini Enterprises, which started its operations on April 01, 2004 provided the following untallied trial balance as on March 31, 2005:
Particulars
Rs.
Sales
5,65,000
Carriage inward
28,000
Other expenses
31,000
Fixed assets
10,90,000
Sundry debtors
1,25,000
Sundry creditors
95,000
Cash and bank
65,000
Capital
9,00,000
On verification, it was noticed that the difference in trial balance is on account of omission of purchases. If the value of stock as on March 31, 2005, was Rs.50,000, the gross profit for the year 2004-2005 was
(a) Rs.3,66,000 (b) Rs.3,94,000 (c) Rs.3,48,000 (d) Rs.2,08,000
(e) Rs.6,15,000.
(2 marks)
14.
Consider the following data pertaining to Sarovar & Co. for the year ended March 31, 2005:
Particulars
Rs.
Sales
5,50,000
Purchases
4,50,000
Opening stock
40,000
Salaries and wages
22,000
Printing and stationery
3,000
Rent paid
12,000
Prepaid insurance
4,000
Carriage inward
3,700
Carriage outward
2,500
Returns inward
20,000
Returns outward
15,000
Closing stock
20,000
The Manager of the business is entitled to a commission of 6% on profit after charging his commission. The commission payable to the manager for the year 2004-2005 is
(a) Rs.1,800 (b) Rs.1,668 (c) Rs.2,366 (d) Rs.1,908 (e) Rs.1,574.
(2 marks)
15.
An adjusting entry is not passed in respect of ------------for preparing Trading and Profit & Loss A/c of a company.
(a) Closing Stock (b) Prepaid Expenses
(c) Dividend declared (d) Income Received in Advance
(e) Provision for Bad Debt.
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(1 mark)
16.
Goods given by a proprietor as charity should be
(a) Credited to purchase account (b) Credited to charity account
(c) Credited to sales account (d) Debited to proprietor’s drawings account
(e) Deducted from the capital of the proprietor.
(1 mark)
17.
Which of the following statements is false?
(a) The financial statements should disclose the accounting policies adopted in measuring inventory
(b) The cost of conversion of inventories includes costs directly related to the units of production such as direct labour
(c) Inventory should be measured at the lower of cost and net realizable value
(d) The cost of inventory is recoverable if it has become wholly or partially obsolete
(e) The cost of inventory should comprise of all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to their present location and condition.
(1 mark)
18.
The premium on issue of shares is credited to
(a) General Reserve (b) Specific Reserve
(c) Capital Reserve (d) Revenue Reserve
(e) Revaluation Reserve.
(1 mark)
19.
The amount earmarked for distribution to the shareholders is known as
(a) Profit after tax (b) Retained earnings
(c) Dividends (d) Operating profit
(e) Profit before tax.
(1 mark)
20.
Consider the following data pertaining to Universal Computers Ltd.:
Book value of furniture (Rs.)
25,600
Rate of depreciation (%)
12
No. of years depreciation charged
3
If the company charged depreciation under straight line method, the acquisition cost of the furniture is
(a) Rs.28,672 (b) Rs.35,000 (c) Rs.38,000 (d) Rs.40,000
(e) Rs.42,000.
(1 mark)
21.
The accounts receivable are shown in the balance sheet at
(a) Current market value (b) Estimated net realizable value
(c) Original cost when the asset is recorded in the books of account
(d) Amount receivable when due (e) Cost less realized value.
(1 mark)
22.
Which of the following is not considered as revenue?
(a) Brokerage received (b) Royalty received
(c) Rent received in Advance (d) Sale proceeds of motor car
(e) Dividend on shares.
(1 mark)
23.
Which of the following is a capital receipt?
(a) Sale of marketable securities (b) Sale of scrap
(c) Sale of Plant and machinery (d) Sale of goods
(e) Sale of old news paper.
(1 mark)
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24.
The following are the details pertaining to the operations of Sharath Ltd.
Particulars
March 31, 2003
Rs.
March 31, 2004
Rs.
March 31, 2005
Rs.
Sales
5,00,000
6,50,000
7,80,000
Other expenses
2,60,000
3,10,000
4,50,000
Interest on debentures
48,000
48,000
48,000
Assuming the tax rate of 40%, the value of goodwill on the basis of 4 years’ purchase of average post-tax profits is
(a) Rs.6,12,800 (b) Rs.4,59,600 (c) Rs.2,55,330 (d) Rs.10,21,320
(e) Rs.3,06,400.
(2 marks)
25.
The following information is extracted from the books of Jeet & Co.:
• Capital employed - Rs.1,00,000.
• Normal rate of return is -10%.
• Present value of annuity of Re.1 for five years at the rate of 10% – 3.78.
• Net profits for five years:
Year
Rs.
1
Rs.14,400
2
Rs.15,400
3
Rs.16,900
4
Rs.17,400
5
Rs.17,900.
The profits included non-recurring profits on an average basis of Rs.1,000 and recurring profits had a tendency of appearing at the rate of Rs.600 per annum.
The value of goodwill under annuity method is
(a) Rs.37,800 (b) Rs.6,000 (c) Rs.22,680 (d) Rs.60,480
(e) Rs.59,724.
(2 marks)
26.
Sonic Ltd. issued 10,000 equity shares of Rs.10 each at a premium of 20%. The share amount was payable as:
On application
Rs.2
On allotment (including premium)
Rs.5
On first call
Rs.3
On second and final call
Rs.2
Applications were received for 14,000 shares and the shares were allotted to applicants on pro-rata basis. Vikas, who was allotted 300 shares, failed to pay the first call. On his subsequent failure to pay the second and final call, all his shares were forfeited. Out of the forfeited shares, 200 shares were re-issued @ Rs.9 per share. The amount transferred to capital reserve is
(a) Rs.200 (b) Rs.1,000 (c) Rs.800 (d) Rs.1,300 (e) Rs.1,200.
(2 marks)
27.
Q Ltd. issued 10,000 10% Debentures at the rate of Rs.100 each during the year 2002-2003. Interest on debentures is payable half yearly on September 30 and March 31 every year. The company has power to purchase its 10% debentures in the open market for cancellation. The following purchases were made during the year 2004-2005:
On July 01, 2004 – 5,000 10% debentures at the rate of Rs.96 ex-interest.
On December 01, 2004 – 2,500 10% debentures at the rate of Rs.102 cum- interest.
The total amount debited to own debenture investment account was
(a) Rs.7,35,000 (b) Rs.7,30,833 (c) Rs.7,30,000 (d) Rs.7,26,666
(e) Rs.7,50,000.
(2 marks)
28.
Invert Ltd. issued 20,000 12% debentures of Rs.10 each at a discount of 10%, redeemable at a premium of 5%. The journal entry to be passed at the time of issue of debentures was
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Rs.
Rs.
(a)
Bank a/c Dr.
1,80,000
Discount on issue of debentures a/c Dr.
30,000
To 12% Debentures a/c
2,10,000
(b)
Bank a/c Dr.
1,80,000
Discount on issue of debentures a/c Dr.
20,000
Loss on redemption of debentures a/c Dr.
10,000
To 12% Debentures a/c
2,00,000
To Premium on redemption of debentures
10,000
(c)
Bank a/c Dr.
1,80,000
To 12% Debentures a/c
1,80,000
(d)
Bank a/c Dr.
1,80,000
Discount on issue of debentures a/c Dr.
20,000
To 12% Debentures a/c
2,00,000
(e)
12% Debentures a/c Dr.
1,80,000
Loss on redemption of debentures a/c Dr.
20,000
To Bank a/c
2,00,000
(2 marks)
29.
Growth Ltd. is planning to raise funds by making rights issue of equity shares to finance its expansion. The existing equity share capital of the company is 5,00,000 shares of Rs.10 each. The market value of its share is Rs.42. The company offers to its shareholders the right to buy 2 shares at Rs.11 each for every 5 shares held.
The share capital outstanding after the issue of right shares is
(a) Rs.70,00,000 (b) Rs.1,34,00,000
(c) Rs.50,00,000 (d) Rs.72,00,000
(e) Rs.77,00,000.
(2 marks)
30.
Mr. Ramesh was allotted 300 shares of Rs.10 each. The following payments were made by him:
Rs.2 per share – in respect of application
Rs.3 per share – in respect of allotment
He failed to pay the firstcall of Rs.2 and final call of Rs.3. The company forfeited the shares after due notice. The shares were later reissued to Mr. Naik @ Rs.9 each fully paid. The amount credited to the share forfeiture account (before reissue) is _____ and the amount credited to capital reserve account after reissue of shares is ________
(a) Rs.3,000 ; Rs.300 (b) Rs.3,000 ; Rs.2,700
(c) Rs.1,500 ; Rs.300 (d) Rs.1,500 ; Rs.1,200
(e) Rs.1,500 ; Rs.400.
(2 marks)
31.
The authorized capital of Shilpa Ltd. consists of 2,00,000 equity shares of Rs.10 each. The called-up and paid-up capital as on April 01, 2004 is 50,000 shares of Rs.10 each. The company had substantial reserves and decides to capitalize the same.
During the year 2004-2005, the following transactions took place:
On April 01, 2004, the company capitalized its reserves by issue of bonus shares of one share for every two shares held.
On December 31, 2004, the company offered rights shares to the existing shareholders at the rate of two shares for every five shares held at Rs.12.50 per share. All the shareholders subscribed to the rights issue offered to them.
The share capital of the company as on March 31, 2005, after effecting the above transactions is
(a) Rs.11,25,000 (b) Rs.10,50,000 (c) Rs.9,50,000 (d) Rs.10,00,000
(e) Rs.12,00,000.
(2 marks)
32.
When debentures become due for redemption, the entry is
(a) Debit debenture a/c; Credit cash a/c
(b) Debit debenture a/c; Credit debenture holders a/c
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(c) Debit debenture holders a/c; Credit cash a/c
(d) Debit debenture holders a/c; Credit debenture a/c
(e) Debit profit and loss a/c; Credit cash a/c.
(1 mark)
33.
For the redemption of debentures, sinking fund is created out of
(a) Share capital (b) Debenture capital
(c) Share premium reserve (d) Current year profits
(e) Capital reserve.
(1 mark)
34.
The share capital of Sunny Ltd. comprises of Equity share capital of Rs.3,00,000 (shares Rs.10 each). Harry Ltd. acquired 24,000 shares in Sunny Ltd. on July 1, 2005 @ Rs.12.50 per share. The cost of the investment and the holding percentage of Harry Ltd. in Sunny Ltd. is
(a) Rs.2,40,000; 85% (b) Rs.3,00,000; 70%
(c) Rs.2,40,000; 80% (d) Rs.1,25,000; 80%
(e) Rs.3,00,000; 80%.
(2 marks)
35.
Issue of bonus shares out of post-acquisition profit of a subsidiary company shall result in
(a) Decrease in cost of control as revenue profits will be capitalized
(b) Increase in cost of control as revenue profits will be capitalized
(c) No change in cost of control
(d) Decrease in the amount payable to minority
(e) No change in the amount payable to minority interest.
(1 mark)
36.
The following list of accounts with their normal balances was taken from the general ledger of Grenison Company as of March 31, 2005:
Particulars Rs.
Discount on issue of debentures 8,500
Cash 73,500
Equity Share Capital Rs.100 each 6,80,000
General Reserve 2,31,500
Securities premium 3,95,000
Dividends Payable 22,000
Profit and Loss appropriation account 80,000
10% Debentures Rs.100 each 1,00,000
The total Shareholders equity as on March 31, 2005 is:
(a) Rs.13,78,000 (b) Rs.13,86,500 (c) Rs.14,00,000 (d) Rs.14,08,500
(e) Rs.14,82,000.
(2 marks)
37.
Which of the following statements is true?
(a) Income tax provision relating to current year is a charge against Profit and loss appropriation account
(b) Income tax provision relating to previous year should be debited to Profit and loss account
(c) Proposed dividend should be debited to Profit and loss appropriation account
(d) Managing director’s salary should be debited to Profit and loss account
(e) Provision for doubtful debts relating to current year is a charge against Profit and loss appropriation account.
(1 mark)
38.
The following information is extracted from the books of Jeet Ltd.
Particulars
Debit
Credit
Opening stock (1/4/2004)
1,86,420
Purchases and sales
7,18,210
11,69,900
Returns
12,680
9,850
Manufacturing wages
1,09,740
Carriage inwards
4,910
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Carriage inwards
4,910
Sundry Manufacturing Expenses
19,240
On March 31, 2005 outstanding manufacturing wages stood at Rs.1,890. On the same date stock was valued at Rs.1,24,840.
The Gross Profit for the year is
(a) Rs.2,51,500 (b) Rs.2,60,000 (c) Rs.2,61,250 (d) Rs.2,70,100
(e) Rs.2,80,900.
(2 marks)
39.
The assets and liabilities of a business are as follows :
Particulars
Rs. ‘000
Debtors
250
Creditors
350
Investments
400
Prepaid expenses
250
Deferred revenue expenses (to the extent not written off)
125
Fixed asset
1,225
All the assets and liabilities except the shareholders’ funds are included above. The shareholders’ funds would be
(a) Rs.20,50,000 (b) Rs.18,75,000 (c) Rs.19,50,000 (d) Rs.19,00,000
(e) Rs.17,75,000.
(2 marks)
40.
ABC Corporation has authorized capital of 1,00,000 shares of Rs.10 par value. 50% of these shares have been issued and is outstanding. If a 40% bonus issue is declared at a time when the market price is Rs.20 per share. The number of additional shares that have to be issued, and the amount to be credited to the Equity share capital account would be
(a) 20,000 shares issued and the amount credited to equity share capital account is Rs.2,00,000
(b) 40,000 shares issued and the amount credited to equity share capital account is Rs.2,00,000
(c) 20,000 shares issued and the amount credited to equity share capital account is Rs.4,00,000
(d) 40,000 shares issued and the amount credited to equity share capital account is Rs.4,00,000
(e) 20,000 shares issuedand the amount credited to equity share capital account is Rs.2,00,000 and share premium account by Rs.2,00,000.
(2 marks)
41.
The directors of a company have proposed a dividend of 18% of the paid-up capital. The percentage of profits which will have to be compulsorily transferred to reserve is
(a) 2.5% (b) 5.0% (c) 7.5% (d) 10.0% (e) 12.5%
(1 mark)
42.
The Net Value Added (NVA) is derived by deducting ____ from the Gross Value Added (GVA)
(a) Extraordinary expenses (b) Depreciation
(c) Investment income (d) Cost of material and services
(e) Capital profit.
(1 mark)
43.
The closing capital employed of Jagan Ltd. as on March 31, 2005 amounted to Rs.7,88,000.
The profit for the year 2004-05 is Rs.1,52,000.
Profit includes Rs.10,000 income from non-trade investments; Income tax rate is 50%. The average trading capital employed of the company is
(a) Rs.6,36,000 (b) Rs.6,46,000 (c) Rs.7,12,000 (d) Rs.7,50,000
(e) Rs.7,52,500.
(2 marks)
44.
The capital employed of M/s. Mini Computers Ltd. is Rs.12,50,000. The profits of the company for the past five years are as under:
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Year
Rs.
1
72,000
2
75,000
3
60,000
4
72,000
5
81,000
If the normal rate of return is 5%, the goodwill of M/s. Mini Computers Ltd. on the basis of 5 years’ purchase of super profits is
(a) Rs.44,500 (b) Rs.9,500 (c) Rs.8,900 (d) Rs.47,500 (e) Rs.7,400.
(2 marks)
45.
M/s. Expert Ltd. issued 2,00,000 equity shares of Rs.10 each at a premium of Rs.2, of which 1,80,000 shares were subscribed. The issue price of Rs.12 is payable as under:
On application – Rs.2
On allotment (including premium) – Rs.5
On first call – Rs.3
On final call – Rs.2
Mr. Santosh, who was allotted 1,000 shares, failed to pay the first call money. On his failure to pay the final call money also, his shares were forfeited. The balance in share premium account after forfeiture of shares is
(a) Rs.4,00,000 (b) Rs.3,60,000 (c) Rs.3,58,000 (d) Rs.3,98,000
(e) Rs.3,53,000.
(1 mark)
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46.
Fairex Ltd. issued 2,000 10% Preference shares of Rs.100 each at par, which are redeemable at a premium of 10%. For the purpose of redemption, the company issued 1,500 Equity shares of Rs.100 each at a premium of 20% per share. At the time of redemption of Preference shares, the amount to be transferred by the company to the Capital Redemption Reserve Account is
(a) Rs.50,000 (b) Rs.40,000 (c) Rs.2,00,000 (d) Rs.2,20,000
(e) Rs.70,000.
(2 marks)
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47.
Hitech Ltd. acquired assets worth Rs.7,50,000 from Light-blue Ltd. by issue of shares of Rs.100 each at a premium of 25%. The number of shares to be issued by Hitech Ltd. to settle the purchase consideration is
(a) 6,000 shares (b) 7,500 shares (c) 9,375 shares (d) 5,625 shares
(e) 10,000 shares.
(1 mark)
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48.
A company forfeited 100 shares of Rs.10 each owing to the default in the payment of share call money of Rs.5 each. These shares were originally issued at Rs.9 each, payable at Rs.2 on application, Rs.2 on allotment and the balance of Rs.5 on call. The shares were then reissued to another shareholder at a price of Rs.6 per share.
The amount to be debited to forfeited shares account on account of reissue of shares would be
(a) Rs.100 (b) Rs.300 (c) Rs.400 (d) Rs.500 (e) Rs.Nil
(2 marks)
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49.
Which of the following is not a characteristic of Bearer Debentures?
(a) They are treated as negotiable instruments
(b) Their transfer requires a deed of transfer
(c) They are transferable by mere delivery
(d) The interest on it is paid to the holder irrespective of identity
(e) They are one of the classifications of debentures from the recording point of view.
(1 mark)
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50.
Parent Company reports net profit of Rs.5,00,000 and stockholders' equity of Rs. 20,00,000. Subsidiary Company reports post-acquisition profit of Rs.1,00,000 and stockholders' equity of Rs.5,00,000. Parent owns 80% of the Subsidiary's common stock. The consolidated financial statements will report
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(a) Net profit of Rs.6,00,000 (b) Net profit of Rs.5,80,000
(c) Share Capital of Rs.25,00,000 (d) Share Capital of Rs.24,00,000
(e) Investments of Rs.4,00,000
(2 marks)
51.
Consider the following data relating to M/s.XYZ Ltd. for the month of March 2005:
Particulars
As on March 01, 2005 (Rs.)
As on March 31, 2005 (Rs.)
Stock
1,40,000
70,000
Accounts payable
40,000
50,000
The company makes all purchases on credit. During the month of March 2005, the company paid a sum of Rs.3,60,000 to the suppliers. The goods are sold at 25% above cost.
The sales for the month of March 2005, are
(a) Rs.4,40,000 (b) Rs.5,50,000 (c) Rs.70,000 (d) Rs.1,05,000
(e) Rs.3,60,000.
(2 marks)
52.
Bank Pass Book shows an overdraft balance of Rs.5,450.00 as on September 30, 2005. A cheque for Rs.5,000 deposited has been dishonored but the customer has not been informed. The Bank balance as per Cash Book is
(a) Rs.450 (Dr.) (b) Rs.450 (Cr.) (c) Rs.10,450 (Dr.) (d) Rs.5,450 (Dr.)
(e) Rs.10,450 (Cr.).
(1 mark)
53.
At the end of the year 2004-2005, the owners’ equity of a firm was Rs.5,63,000. During the year, if assets and liabilities of the firm were increased by Rs.3,68,000 and Rs.3,25,000 respectively, then the owners’ equity at the beginning of the year was
(a) Rs.6,06,000 (b) Rs.6,00,000 (c) Rs.5,63,000 (d) Rs.5,20,000
(e) Rs.5,00,000.
(1 mark)
54.
Mr. Naik commenced his business on April 01, 2004, with a capital of Rs.57,000. The breakup of his capital includes cash amounting to Rs.40,000. All his transactions are on cash basis only. He purchased stock worth Rs.25,000. He paid for miscellaneous expenses that came to Rs.2,700. He withdrew for his personal use at the rate of Rs.450 per month during the year. The depreciation for the year was estimated at Rs.3,500 and other expenses Rs.1,700. If the sales made during the year was Rs.32,000, what was the closing cash balance as on March 31, 2005?
(a) Rs.32,450 (b) Rs.37,200 (c) Rs.33,700 (d) Rs.37,300
(e) Rs.50,700.
(2 marks)
55.
What is the net effect of the under mentioned errors on the trial balance of a firm?
I. Total of sales figures was taken as Rs.58726 instead of Rs.58762
II. A discount of Rs.52 allowed to Mr. X was not recorded in the discount A/c
III. Sale of old furniture of Rs.130 wrongly credited to Machinery A/c
IV. A credit sale of Rs.250 to Mr. S recorded twice in his A/c
(a) Credit total of trial balance will be more than debit total by Rs.234
(b) Debit total of trial balance will be more than credit total by Rs.234
(c) Credit total of trial balance will be more than debit total by Rs.104
(d) Debit total of trial balance will be more than credit total by Rs264
(e) Debit total of trial balance will be more than credit total by Rs.286.
(2 marks)
56.
Cash sales of 3,550 was posted as Rs.3,505. The difference in trial balance was transferred to suspense account. The rectification entry is
(a) Cash account Dr. Rs.45
To Sales account Rs.45
(b) Suspense account Dr. Rs.45
To Sales account Rs.45
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(c) Cash account Dr. Rs.45
To Suspense account Rs.45
(d) Suspense account Dr. Rs.3,505
To Sales account Rs.3,505
(e) Reduce the physical cash by Rs.45.
(1 mark)
57.
The amount of purchase if
Cost of goods sold is Rs.80,700
Opening stock Rs.5,800 and
Closing stock Rs.6,000
(a) Rs.80,500 (b) Rs.74,900 (c) Rs.74,700 (d) Rs.80,900
(e) Rs.86,500.
(1 mark)
58.
Which of the following is not the appropriate terminology used in respect of adjusting entries passed?
(a) Provision for bad & doubtful debt
(b) Provision for discount on accounts receivable
(c) Provision for discount on accounts payable
(d) Provision for taxation
(e) Reserves for discount on accounts payable.
(1 mark)
59.
Dividends are usually paid on
(a) Authorized capital (b) Issued capital
(c) Called-up capital (d) Paid-up capital
(e) Reserve capital.
(1 mark)
60.
Which of the following is a method of financial statement analysis which highlights the interrelationships in the contents of financial statements?
(a) Du Pont analysis (b) Common size analysis
(c) Time series analysis (d) Index analysis
(e) Break-even analysis.
(1 mark)
61.
A construction contractor usually records revenue and earnings on his project on
(a) Cash basis (b) Sales basis (c) Completion basis
(d) Period basis (e) Workers basis.
(1 mark)
62.
A machine was acquired by a company five years ago, at a price of Rs.12,000. It is being depreciated to its scrap value on straight line basis over 8 years. The amount of depreciation accumulated upto date is Rs.7,500. The company re-estimates the life of the machine in a more realistic manner and indicates its life span for 10 years. The total amount of depreciation adjustment for the past five years amounts to
(a) Rs.300 (b) Rs.600 (c) Rs.900 (d) Rs.1200 (e) Rs.1500
(1 mark)
63.
Provision for bad debts is made as per the
(a) Conservatism concept (b) Cost concept
(c) Consistency concept (d) Going concern concept
(e) Time period concept.
(1 mark)
64.
An expenditure is classified as Capital Expenditure when
(a) The amount is large (b) It is shown in the Balance Sheet
(c) It is to benefit a number of years (d) It benefits only the current year
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(e) The benefit from it is large.
(1 mark)
65.
If the sales day book of a business is undercast by Rs.5,000/-, it will
(a) Reduce gross profit but will not have any impact on net profit
(b) Reduce gross profit as well as net profit
(c) Reduce gross profit and increase net profit
(d) Increase gross profit as well as net profit
(e) Increase gross profit but will not have any impact on net profit.
(1 mark)
66.
Which of the following concepts is not considered as basic principle of accounting?
(a) Materiality concept (b) Cost concept
(c) Consistency concept (d) Matching concept
(e) Logical concept.
(1 mark)
67.
Which of the following statements is/are true?
I. According to the ‘purchase of Super-Profit Method’ of valuing goodwill, goodwill is the product of the super profit and the number of years’ purchase
II. For calculating the amount of goodwill by the super profit method, it is necessary that the fair value of the capital employed should be determined.
III. There is only one method of valuing goodwill, i.e., super profits method.
(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)
68.
The following information is given about PS Ltd.:
Inventories
Rs.4.0 lakhs
Sundry debtors
Rs.3.0 lakhs
Cash and Bank balances
Rs.5.0 lakhs
Short-term bank borrowings
Rs.1.0 lakhs
Accounts payable
Rs.2.2 lakhs
The quick ratio for the firm is
(a) 5.45 (b) 3.75 (c) 3.64 (d) 2.50 (e) 1.56.
(2 marks)
69.
Which of the following statements is/are true?
I. The amount of share premium received at the time of fresh issue of shares can be utilized for providing the premium payable on the redemption of any preference shares or any debentures of the company.
II. The company is bound to deduct income tax on the interest on debentures before making the final payment of interest to the debenture holders.
III. Annual installment set aside for the redemption of debentures is debited to profit and loss account.
(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.
The balance of the forfeited shares account after the reissue of the forfeited shares is transferred to
(a) General reserve (b) Capital redemption reserve
(c) Capital reserve (d) Revaluation reserve
(e) Dividend equalization reserve.
(1 mark)
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71.
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)
72.
The following data pertains to Avinash Ltd. for the period ended March 31, 2005.
Particulars
Rs.
Sales during the year
3,65,000
Debtors as on March 31, 2005
42,500
Bills receivable as on March 31, 2005
7,500.
The debt collection period is
(a) 60 days (b) 50 days (c) 45 days (d) 30 days (e) 82 days.
(1 mark)
73.
Earnings per share can be classified as a
(a) Liquidity ratio (b) Profitability ratio
(c) Leverage ratio (d) Activity ratio
(e) Capital gearing ratio.
(1 mark)
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Suggested Answers Financial Accounting (MB131) October 2005
1.
Answer: (b)
Reason : According to the going concern concept (b), a business entity is assumed to carry on its operations forever. Seemingly inconsequential, this is a fundamental concept, which has far reaching consequences. The other concepts, business entity concept (a) treats business distinct from the entity of its owners. According to the concept of periodicity (c) the income or loss of the business is measured periodically, one year is the usual accounting period. The conservatism concept (d) advocates that all possible losses should be provided for but not any possible profit unless it is certain. The consistency concept (e) requires that once an entity has decided on one method of treating an event in recording it in books of accounts, it will treat all subsequent events of the same character in the same fashion. Thus, the alternative (b) is the correct answer
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2.
Answer: (a)
Reason : The dual aspect concept states that every transaction has two aspects one debit and an equivalent credit. (a) is the correct answer. The other concepts, matching concept (b) in order to determine the profits or losses accrued in an accounting period, the expenses must relate to the goods or services sold during the period. According to the concept of realization concept (c) revenue is said to be realized when efforts rendered are rewarded either in cash or in the form of a promise of reward, some time in future. The consistency concept (e) requires that once an entity has decided on one method of treating an event in recording it in books of accounts, it will treat all subsequent events of the same character in the same fashion.
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3.
Answer: (b)
Reason : Credit signifies increase in liability. Increase in asset account (a) and increase in expenses (e) signify increase in the debit balance. Decrease in capital (c) and decrease in income (d) signify that there is a decrease in the credit balance. Thus, the alternative (b) is the correct answer.
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4.
Answer : (a )
Reason : Change in accounting policy need not be disclosed if amount is not material. In the case of the other options if it is not against the accounting conventions (b), affects the current year only (c), amount can be determined in part only (d) and in case of the entity is a Private Limited Company (e) the change in accounting policy needs to be disclosed.
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5.
Answer: (c)
Reason : If there is a conflict between International Accounting Standards and local standards, the local standards will prevail upon IAS. So statement (c) is false the rest of the statements (a), (b), (d), and (e) are true.
The objective of International Accounting Standard Committee (IASC) is to promote the use of accounting standards world wide. The IASC works for the improvement of accounting standards and procedures relating to Financial Statements. Cross border operations of companies calls for uniformity in accounting standards. Accounts of those companies adhering to International Accounting Standards find more acceptability.
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6.
Answer: (c)
Reason : Discount recorded on debit side of cash book represents the discount allowed to the customers.
Rs.
= Cheque received and allowed discount 2,500
+ Discount allowed to Rama & Bros
(Rs.38,900 – Rs.36,200) 2,700
+ Cheque received from Daulat Ram
discount allowed 10% of 16,500 1,650
6,850.
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7.
Answer: (d)
Reason :
Particulars
Rs.
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15
Closing inventory
50,000
Add : Cost of goods sold
9,00,000
9,50,000
Less : Opening inventory
60,000
Purchase during the year
8,90,000
8.
Answer : (c)
Reason :
Opening stock
Rs.40,000
Add : Purchases
Rs.2,00,000
Rs.2,40,000
Less : Closing stock
Rs.50,000
Cost of goods sold
Rs.1,90,000
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9.
Answer : (c)
Reason : Ledger is not a book of original entry. All other books stated Cash book, Petty cash book, Sales journal and Bills receivable book are books of original entries. (c) is the correct answer.
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10.
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.
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11.
Answer : (b)
Reason : Error of principle denotes wrong classification of expenditure or revenue. If a company pays for repairs on a machine, it should be debited to repairs account. If it is charged to machinery account, it is an error of principle.
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12.
Answer : (b)
Reason : Rent paid was wrongly credited to rent account. The rectifying entry involves a debit to Rent account and a Credit to Suspense account.
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13.
Answer : (a)
Reason : Trial balance as on March 31, 2005
Particulars
Dr. Amount
Cr. Amount
Sales
5,65,000
Purchases (balancing figure)
2,21,000
Carriage inward
28,000
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Carriage inward
28,000
Other expenses
31,000
Fixed assets
10,90,000
Sundry debtors
1,25,000
Sundry creditors
95,000
Cash and bank
65,000
Capital
9,00,000
15,60,000
15,60,000
Trading account for the year ended March 31, 2005
Particulars
Rs.
Particulars
Rs.
To Purchases
2,21,000
By Sales
5,65,000
To Carriage inward
28,000
By Closing stock
50,000
To Gross profit
3,66,000
6,15,000
6,15,000
14.
Answer : (a)
Reason : Trading account and Profit and loss account for the year ended March 31, 2005:
Dr. Cr.
Particulars
Rs.
Rs.
Particulars
Rs.
Rs.
To Opening stock
40,000
By Sales
5,50,000
To Purchases
4,50,000
Less : Returns inward
20,000
5,30,000
Less : Returns outward
15,000
4,35,000
By Closing stock
20,000
To Salaries and wages
22,000
To Printing and stationery
3,000
To Rent
12,000
To Carriage inward
3,700
To Carriage outward
2,500
To Manager’s commission
1,800
To Net Profit
30,000
5,50,000
5,50,000
Profit before charging Manager’s commission = Rs. 31,800
Manager’s Commission =31,800Rs.6Rs.1,800106×=.
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15.
Answer : (c)
Reason : Dividend declared is shown as an appropriation and therefore appears in Profit & Loss Appropriation A/c. Adjusting entries for all other items such as prepaid expenses, advance income received, provision for bad debt and closing stock are passed before preparing the Trading and P&L a/c
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16.
Answer : (a)
Reason : The value of goods given as charity will be debited to charity account and credited to purchase account .The debit balance in charity account will be transferred to P&L a/c.
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17.
Answer : (d)
Reason : The statement (d) the cost of inventory is recoverable if it has become wholly or partially obsolete is false because according to Accounting Standards – IAS-2, the cost of inventories may not be recoverable if those inventories are out of date, deteriorated or damaged wholly or partially or if their selling prices have declined. IAS-2 also prescribes the accounting, reporting, valuation, cost (which is a resultant of cost of purchase and cost of conversion) and disclosure (of the policies adopted) associated with the inventories. The same are depicted in statements (a), (b), (c) and (e) which are true
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18.
Answer : (c)
Reason : Profits on sale of fixed assets, upward revaluation of fixed assets, premium on issue of
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shares/debentures etc. are kept in Capital Reserve. They are not generally distributed as profit as a matter of prudence, law or business policy. General Reserve (a) and Revenue Reserve (d) are the reserves available for distribution to the shareholders as dividends. Revaluation reserve (e) is the reserve which is credited/debited with the amount by which the value of the asset has been increased/decreased. Specific reserve is the reserve which has been kept separate for some specific purpose.
19.
Answer : (c)
Reason : Dividends represent the amount earmarked to distribute to the shareholders. Hence (c) is the answer.
The amount of taxes is to be deducted from profit before tax and the amount to be transferred to reserves and other appropriations, if any, need to be made from profits after tax. Operating profit is the amount of profit other than non-operating surplus. Interest, taxes, other appropriations should be made to operating profit. Hence this is not the amount earmarked for distribution to shareholders.
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20.
Answer : (d)
Reason : Rate of Depreciation : 12%, No. of years = 3
Depreciation method : Straight line
Book value : Rs.25,600
Cost of machine be (x) : x(1 – 0.36) = Rs.25,600
0.64x = Rs.25,600
x= .25,60010064Rs×= Rs.40,000
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21.
Answer : (b)
Reason : The measurement attribute for accounts receivables is net realizable value. Thus, receivables are reported at their gross value minus an allowance for uncollectible accounts (provision for bad and doubtful debts). Hence (b) is the answer. The accounts receivable are not shown at market value. A provision for bad debts is deducted from the original cost. Hence (c) is not the answer. The debtors are not recorded at the amount receivable when due. The cost less realizable value indicates the provision for bad debts.
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22.
Answer :(d )
Reason : Sale proceeds of motor car is a capital receipt. All others like brokerage received, royalty received, rent received in advance and dividends on shares are revenue receipts.
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23.
Answer : (c)
Reason : Sale of plant and machinery is a capital receipt. All others are revenue receipts
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24.
Answer : (a)
Reason :
Particulars
March 31, 20031
Rs.
March 31, 2004
Rs.
March 31, 2005
Rs.
Sales
5,00,000
6,50,000
7,80,000
Less: Other expenses
2,60,000
3,10,000
4,50,000
Interest on debentures
48,000
48,000
48,000
Pre-tax profit
1,92,000
2,92,000
2,82,000
Less: tax @40%
76,800
1,16,800
1,12,800
Post-tax profits
1,15,200
1,75,200
1,69,200
Average post-tax profits = (Rs.1,15,200 + Rs.1,75,200 + Rs.1,69,200) / 3 = Rs.1,53,200
Goodwill = Rs.1,53,200 x 4 = Rs.6,12,800.
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25.
Answer : (c)
Reason : Average Profit Rs. (14,400 + 15,400 + 16,900 + 17,400 + 17,900)/5
Rs.16,400
Less : Non-recurring profit Rs. 1,000
Rs.15,400
Add : Recurring profit Rs. 600
Average adjusted profit Rs.16,000
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Normal profit 1,00,000 x 10/100 = Rs.10,00
Super profit =Rs. (16,000 – 10,000) = Rs. 6,000
a. Goodwill as per annuity method
6,000 x 3.78 = Rs.22,680.
26.
Answer : (c)
Reason : Amount transferred to capital reserve is Rs.800.
Working Note:
Particulars
Rs.
Amount received on 200 shares on forfeiture (200 x Rs.5)
1,000
Less: Amount of discount allowed on 200 shares, which were reissued (200 x Re1.)
200
Amount to be transferred to Capital Reserve
800
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27.
Answer : (b)
Reason :
01.07.2004
5,000 × Rs.96 ex-interest
Rs.4,80,000
01.12.2004
2,500 × Rs.102 cum-interest = Rs.2,55,000 – Rs.4,167(Interest for 2 months Rs.2,50,000×12= Rs.4,167)
Rs.2,50,833
Rs.7,30,833
Amount debited to own debenture investment account is Rs.7,30,833.
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28.
Answer : (b)
Reason : In case of issue of debentures at discount and redeemable at a premium, discount on issue of debentures a/c should be debited with the amount of discount, loss on issue of debentures a/c should be debited with the amount of premium payable on redemption and Bank account should be debited with actual amount received. Corresponding credit should be given to debentures a/c with face value of debentures and premium on redemption of debentures a/c with amount of premium. Hence the entry is
Rs.
Rs.
Bank a/c Dr.
1,80,000
Discount on issue of debentures a/c Dr.
20,000
Loss on issue of debentures a/c Dr.
10,000
To 12% Debentures a/c
2,00,000
To Premium on redemption of debentures
10,000
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29.
Answer : (a)
Reason : Rs.
Present capital 50,00,000
Rights issue 50,00,000 x 25 20,00,000
Total share Capital 70,00,000
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30.
Answer : (d)
Reason : The journal entry on forfeiture of share is
Particulars
Dr.
Cr.
(Rs.)
(Rs.)
Share Capital A/c. (300 ×Rs.10)
Dr.
3,000
To Share First Call A/c. (300 × Rs.2)
600
To Share Second and Final Call A/c. (300 × Rs.3)
900
To Shares Forfeited A/c. (300 × Rs.5)
1,500 (Being the forfeiture of 300 equity shares of Ramesh on non-payment of first and final call)
Bank A/c. (300 × Rs.9)
Dr.
2,700
Shares forfeited A/c. (300 × Rs.1)
Dr.
300
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100
×
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discounted amount of Re.1 per share is to be transferred from share forfeiture a/c)
Shares forfeited A/c.
Dr.
1,200
To Capital Reserve A/c.
1,200
(Being the profit on re-issue of forfeited shares transferred to Capital Reserve)
31.
Answer: (b)
Reason: Particulars Rs.
Paid-up capital as on April 01, 2004 (50,000 x Rs.10) = 5,00,000
Bonus shares (50,000/2) x Rs.10 = 2,50,000
Rights shares (75,000 x 2/5) x Rs.10 = 3,00,000
Share capital as on March 31, 2005 = 10,50,000
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32.
Answer : (b)
Reason : Debit debenture a/c; Credit debenture holders a/c
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33.
Answer : (d)
Reason : Sinking fund for redemption of Debentures is created out of Current years profits. Share capital (a), Debenture Capital (b), Share premium reserve (c) and Capital reserve (d) are the funds of the shareholder’s. If any payment is made out of any of these funds it would mean release of the capital
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34.
Answer : (e)
Reason : From the above data
Cost of investment = 24,000 shares x 12.50 = Rs.3,00,000
Shareholding % = 24, 000 shares / 30,000 shares = 80%
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35.
Answer : (a)
Reason : Issue of bonus shares out of pre-acquisition profit of a subsidiary company shall have no impact on cost of control.
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36.
Answer : (b)
Reason : The total shareholders’ equity equals the sum of the equity shares, security premium, general reserve and profit and loss appropriation account.
Rs.6,80,000 + Rs.3,95,000 + Rs.2,31,500 + Rs.80,000 = Rs.13,86,500.
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37.
Answer : (d)
Reason : Profit and loss account is usually prepared on accrual basis. All expenses, incurred and due whether they are actually paid for or not and provisions are debited to profit and loss account. Managing director’s salary is an expenditure and is to be debited to profit and loss account like any other expenditure. Hence, the statement is true.
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38.
Answer : (a)
Reason :
Particulars
Rs.
Amount Rs.
Particulars
Rs.
Amount Rs.
To Opening stock (1/4/2004)
1,86,420
By Sales
11,69,900
Less :
To Purchases
7,18,210
Returns
12,680
11,57,220
9,850
7,08,360
By Closing stock
1,24,840
To Wages
1,09,740
+ Outstanding
1,890
1,11,630
To Carriage inwards
4,910
To Sundry Manufacturing expenses
19,240
To Gross Profit
2,51,500
12,82,060
12,82,060
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39.
Answer: (d)
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Reason:
Balance Sheet
Assets
Rs.
Debtors
2,50,000
Investments
4,00,000
Prepaid expenses
2,50,000
Deferred Revenue expenses
1,25,000
Fixed Assets
12,25,000
22,50,000
Liabilities
Shareholder’s Funds (Balancing figure)
19,00,000
Creditors
3,50,000
22,50,000
The shareholder’s funds = Rs.19,00,000
40.
Answer : (a)
Reason : A large bonus issue (over 25% of the outstanding shares) is valued at the par value price of the stock. The number of shares is determined by multiplying the total shares outstanding by the rate. 50,000 shares x 40% = 20,000 shares. 20,000 shares x Rs.10 par value = Rs200,000
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41.
Answer : (c)
Reason: The directors of a company have proposed a dividend of 18% of the paid-up capital. The percentage of profits, which will have to be compulsorily transferred to reserve, is 7.5% as the dividend proposed exceeds 15% but doesn’t exceed 20% of the paid-up capital.
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42.
Answer : (b)
Reason : The net value added is derived by deducting depreciation from the gross value added.
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43.
Answer : (e)
Reason :
Particulars
Rs.
Profit for the year
1,52,000
Less : Non-trading income
10,000
1,42,000
Less : Income tax (50%)
71,000
Current year’s profit
71,000
Closing Capital employed
7,88,000
Less : ½ of current year’s profit (excluding non-trading income) after tax
35,500
Average capital employed
7,52,500
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44.
Answer : (d)
Reason : Average Profit =
Rs.72,000 Rs.75,000 Rs.60,000 Rs.72,000 Rs.81,000 Rs.72,000
+ + + +
=
5
Normal Profit = Rs.12,50,000 × 5% = Rs.62,500
Super Profit = Rs.72,000- Rs.62,500 = Rs.9,500
Goodwill = Rs.9,500 × 5 years = Rs.47,500
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45.
Answer : (b)
Reason : Amount of share Premium = 1,80,000 × Rs.2 = Rs.3,60,000.
As Mr. Santosh paid the share premium, the share premium account will not be reversed when the shares are forfeited
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46.
Answer : (a)
Reason :
Particulars
(Rs.)
Face value of shares to be redeemed (2,000 × Rs.100)
2,00,000
Less: Proceeds from fresh issue (1,500 × Rs.100)
1,50,000
Balance to be utilized from profit & loss a/c. Hence, amount to be transferred to capital redemption reserve
50,000
The premium received on fresh issue of shares should not be used for redemption of preference shares.
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However, the same can be used for the premium payable on redemption of preference shares.
47.
Answer : (a)
Reason : Issue price = Rs.100 × 125% = Rs.125
Number of shares to be issued =
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48.
Answer : (b)
Reason : The entry on reissue of forfeited shares which were originally issued at a discount would be
Bank account Dr. Rs.600
Discount on issue of shares account Dr.Rs.100
Forfeited shares account Dr.Rs.300
To Share Capital account Rs.1,000.
Thus, the shares forfeited account will be debited with Rs.300.
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49.
Answer : (b)
Reason : Debentures are classified as Registered or Bearer instruments from the recording point of view (e). They are transferable by mere delivery (c). They are just like bearer cheques or government currency notes and treated as negotiable instruments (a) Interest coupons are attached to such debentures and their payment is made to the holder irrespective of identity (d). Thus, the alternatives (a), (c), (d) and (e) are features of bearer debentures. Their transfer does not require a deed of transfer. Thus, the alternative (b) is not a characteristic of Bearer Debentures.
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50.
Answer : (b)
Reason : The consolidated balance sheet shows Rs.5,80,000 against profit and loss account being the profit of parent company of Rs.5,00,000 and 80% share in the post acquisition profit of subsidiary company of Rs.1,00,000. Thus, Rs.5,80,000 alternative (b) is the correct answer.
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51.
Answer : (b)
Reason : Books of A
Dr. Stock Account Cr.
Date
Particulars
Rs.
Date
Particulars
Rs.
Mar 01, 05
To Opening balance
1,40,000
Mar 31, 05
By Cost of goods sold (bal. Fig)
4,40,000
To Purchases
3,70,000
By Closing balance
70,000
5,10,000
5,10,000
Dr. Accounts payable Account Cr.
Date
Particulars
Rs.
Date
Particulars
Rs.
Mar 31, 05
To Cash paid
3,60,000
Mar 01, 05
By Opening balance
40,000
To Closing balance
50,000
By Purchases (balancing figure)
3,70,000
4,10,000
4,10,000
Sales = Rs.4,40,000 + 25% (Rs.4,40,000) = Rs.5,50,000
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52.
Answer : (b)
Reason : Since bank pass book shows overdraft balance the cash book should show credit balance. O.D balance as per pass book is Rs.5450 less cheque dishonored but not informed to the customer Rs.5000=Rs.450 (Cr)
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53.
Answer : (d)
Reason :
Assets increased by
Rs.3,68,000
Liabilities increased by
Rs.3,25,000
Net increase of assets
Rs.43,000
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Rs.7,50,000 =6,000 shares
Rs.125
Owners’ equity at the end of the year
Rs.5,63,000
Less : Net increase of assets
Rs.43,000
Owners’ equity at the beginning of the current year
Rs.5,20,000
54.
Answer: (b)
Reason: Dr Cash Account in the books of Mr. Naik Cr
To Capital Account
40,000
By Purchases
25,000
To Sales
32,000
By Misc. expenses
2,700
By Drawings (450 x 12)
5,400
By Other expenses
1,700
By balance c/d
37,200
72,000
72,000
To balance b/d 37,200
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55.
Answer : (b)
Reason : i. Difference in sales a/c because of taking Rs.58726 instead of Rs.58762=Rs. 36 whereby credit is less by the amount
ii. Discount not debited of Rs.52 on account of which debit balance is less by the amount
iii. Sale of old furniture credited to machinery a/c instead of old furniture is not affecting the trial balance difference
iv. Sale debited twice to S a/c has increased the debit balance by Rs.250
So excess debit of Rs.250 plus short credit of Rs.36 minus short debit of Rs.52 makes debit balance more by Rs.234 in the Trial balance.
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56.
Answer : (b)
Reason : The wrong posting of cash sales by Rs.3,550 as Rs.3,505 is to be rectified by debiting Suspense account with Rs.45 and crediting Sales account with Rs.45. (b) is the correct answer.
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57.
Answer : (d )
Reason : Purchases = cost of goods sold plus closing stock minus opening stock
Rs.80,700+Rs. 6,000 –Rs.5,800=Rs.80,900
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58.
Answer : (c)
Reason : Generally a provision is made against a possible expense or loss and reserve against a probable gain or income. Discount receivable being an income, Reserve for Discount Receivable would be the right terminology.
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59.
Answer : (d)
Reason : Dividends may be termed as the share of profits that is payable to the shareholders of a company. The Companies Act lays down the do’s and don’ts associated with declaration/payment of dividends. As per the Companies Act, that dividends are paid on paid up capital which is part of the called up capital that has been paid up by the shareholders and made available with the company for utilization. Hence, it is proper to pay dividends on paid-up capital. Thus, alternative (d) is the correct answer.
The other alternatives–
(a) Authorized capital is the capital authorized to issue by its memorandum. It is only nominal in nature unless and until the entire amount is issued, called up and paid up. Since the entire amount is not made available for utility, dividends cannot be declared on authorized capital.
(b) Issued capital is the part of nominal capital that is offered to the public for subscription and the entire amount is not available for claiming dividend.
(c) Called-up capital is that part of the subscribed capital which has been called-up and cannot be a base for calculation of dividend.
(e) Reserve capital is that part of uncalled capital, which is to be called up in the event of winding up of a company and under any circumstances, dividend cannot be declared on it.
Thus, the statements (a), (b), (c) and (e) are not correct.
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60.
Answer : (a)
Reason : Analyzing return ratios is referred to as Du Pont Analysis. This system highlights the inter-relationships in the contents of financial statements. Hence, the answer is (a). The other alternatives
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compare the financial statements by taking the individual items of different financial statements and reviewing the changes that have occurred from year to year and over the years. Break – even analysis is related to the production/sales where a business incurrs neither loss nor profit.
61.
Answer : (c)
Reason : A construction contractor usually takes up revenue and earnings on his project on completion basis
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62.
Answer : (e)
Reason :
Depreciation before revision
Rs.1,500
Depreciation after revision
Rs.1,200
Difference per year
Rs.300
Total adjustment for 5 years = 5 × Rs.300 = Rs.1,500.
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63.
Answer : (a)
Reason : Conservatism concept means the early recognition of unfavorable events. Under this concept, the business must provide all expected losses but does not account for anticipated profit. In the given situation, provision for bad debts is made out of profit for future bad debt losses is as per the conservative approach.
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64.
Answer : (c)
Reason : An expenditure the benefit of which is expected to be derived over a longer period say more than one accounting period is treated as a capital expenditure. So, (c) is the answer.
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65.
Answer : (b)
Reason : If sales day book is undercast, gross profit will be decreased, simultaneously net profit will be decreased with the same amount. Therefore (b) is correct.
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66.
Answer : (e)
Reason : According to Generally Accepted Accounting Principles, materiality concept, cost concept, consistency concept and matching concept are considered as basic principles of accounting. Logical principle is not considered as basic principle of accounting
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67.
Answer : (c)
Reason : According to the ‘purchase of Super-Profit Method’ of valuing goodwill, goodwill is the product of the super profit and the number of years’ purchase. For calculating the amount of goodwill by the super profit method, it is necessary that the fair value of the capital employed should be determined. These two statements are true. Hence, the answer is (c ).
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68.
Answer : (d)
Reason : Quick ratio =
Hence, option (d) is the correct choice.
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69.
Answer : (c)
Reason : Annual installment set aside for the redemption of debentures is debited to profit and loss appropriation account. The other two statements are true. Hence the answer is (c).
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70.
Answer : (c)
Reason : The balance of the share forfeited account after the reissue of the forfeited shares is transferred to Capital reserve.
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71.
Answer : (e)
Reason :
(No.ofshares)
Particulars
Anil
Vimal
Sunil
Total
Liability
30,000
40,000
30,000
1,00,000
Less: Unmarked applications in the
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
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Current assets other than inventories 3 5 2.5.
Current liabilities 3.2
+
= =
23
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
72.
Answer : (b)
Reason : Accounts receivable = Debtors + Bills receivable
= Rs.42,500 + Rs.7,500 = Rs.50,000.
Average daily sales = Rs.3,65,000/ 365 days = Rs.1,000
Debt collection period = Accounts receivable / Average daily sales = 50,000 / 1,000 = 50 days
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73.
Answer : (b)
Reason : Earnings per share is a profitability ratio. It measures the level of profitability of the firm on a per share basis. Option (a) is incorrect because as liquidity ratios indicate the ability of an enterprise to meet short term liabilities. Option (c) measure the impact of debt on profitability and risk. Option (d) is incorrect as it measures managements efficiency in using specific resources. Option (e) is not a classification of ratio, it is a ratio itself, a capital structural ratio.
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