Financial Accounting-I (MB131): July 2006
• Marks are indicated against each question.
1. The funds available with a company after paying all claims including tax and dividend is called
(a) Net profit (b) Net operating profit
(c) Capital profit (d) Retained earnings
(e) Profit before tax.
(1 mark)
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2. Which of the following events/transactions is not recorded in the books of account of a
business?
(a) Withdrawal of goods by the proprietor for personal consumption
(b) Sale of an asset on credit
(c) Purchase of a new asset in exchange of an old asset
(d) Receipt of interest by proprietor on bank fixed deposit held jointly with spouse
(e) Loss of stock by fire.
(1 mark)
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3. Which of the following accounting concepts enables comparison of financial statements over a
period of time?
(a) Cost concept (b) Consistency concept
(c) Materiality concept (d) Money measurement concept
(e) Accounting period concept.
(1 mark)
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4. Under the Companies Act, a company is normally not permitted to have an accounting period
extending beyond
(a) 6 months (b) 12 months (c) 15 months
(d) 18 months (e) 22 months.
(1 mark)
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5. Who of the following is not an internal user of Financial Statements?
(a) Board of Directors (b) Partners (c) Investors
(d) Managers (e) Officers.
(1 mark)
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6. For a trading company which of the following is not a non-trading income or expense?
(a) Rent received (b) Profit from sale of old furniture
(c) Dividend received (d) Interest on borrowings
(e) Interest on Investments.
(1 mark)
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7. Which of the following statements is false?
(a) Accounting principle is general law or rule followed in the preparation of financial
statements
(b) Usefulness, objectivity and feasibility are the three basic norms generally found in
accounting principles
(c) The entity concept does not consider the business and the proprietor as distinct from
each other
(d) In accountancy all business transactions are recorded as having dual aspect
(e) The convention of disclosure implies that all material information should be disclosed in
the accounts.
(1 mark)
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8. When applied to Balance-Sheet the convention of conservatism results in
(a) Understatement of assets
(b) Understatement of liabilities and provisions
(c) Over statement of capital
(d) Understatement of assets and liabilities and provisions
(e) Understatement of assets, liabilities and provisions and capital.
(1 mark)
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9. The total of all the current assets of Intelligent Limited is Rs. 3,00,000. The following
information is also available from the trial balance of the company.
The only other current asset not included in the information above is closing stock. Its value
must be
(a) Rs.2,14,500 (b) Rs.2,04,500 (c) Rs.2,02,000
(d) Rs.1,98,000 (e) Rs.2,41,500.
(2 marks)
Sundry debtors Rs. 30,500
Current liabilities Rs. 16,400
Provision for taxation Rs. 12,000
Cash & bank balance Rs. 30,000
Bills receivable Rs. 25,000
Office typewriter Rs. 39,000
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10.Valuation of inventory on the same basis every year, is based on the principle of
(a) Cost concept (b) Consistency concept
(c) Conservatism concept (d) Matching concept
(e) Accounting period concept.
(1 mark)
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11.Consider the following data pertaining to Volga Ltd.:
While finalizing the annual accounts, if the company values the machinery at Rs.12,00,000,
which of the following concepts is violated by the company?
(a) Cost (b) Matching
(c) Realisation
(d) Periodicity (e) Business Entity.
(1 mark)
Particulars Rs.
Cost of the machinery purchased on April 1, 2005 10,00,000
Installation charges 1,00,000
Market value as on March 31, 2006 12,00,000
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12.As per Accounting Standard-1, which of these accounting assumptions are taken into
consideration while preparing financial statements?
I. Prudence.
II. Going concern.
III. Accrual.
IV. Consistency.
(a) Both (I) and (IV) above (b) Both (II) and (III) above
(c) Both (I) and (III) above (d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
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13.The ending balance of owner’s equity is Rs.21,000. During the year, the owner contributed Rs.
6,000 and withdrew Rs.4,000. If the firm had Rs.8,000 net income for the year, what was the
owner’s equity at the beginning of the year?
(a) Rs.23,000 (b) Rs.21,000 (c) Rs.19,000 (d)
Rs.11,000 (e) Rs.25,000.
(2 marks)
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14.According to money measurement concept, which of the following will be recorded in the
books of accounts?
(a) Health of the Chairman of the company
(b) Quality control in the business
(c) Value of building
(d) ISI certification obtained
(e) Election of board of directors.
(1 mark)
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15.Accounting Standards 12 (AS 12) pertains to
(a) Accounts for Amalgamation
(b) Accounting for Government Grants
(c) Accounting for the Effects of Changes in Foreign Exchange Rates
(d) Accounting for Construction Contracts
(e) Contingencies and Events Occurring after the Balance-Sheet Date.
(1 mark)
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16.The income or expenses which arise in the current year as a result of errors or omissions in the
preparation of financial statements of one or more previous years is known as
(a) Prior period items (b) Extraordinary items
(c) Contingent items (d) Preliminary items
(e) Equity items.
(1 mark)
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17.Which of the following represent(s) Personal accounts in accounting parlance?
I. Sundry creditors.
II. Bank account.
III. Outstanding wages.
IV. Prepaid insurance.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Only (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
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18.M/s. Swapna Enterprises introduced the imprest system of petty cash book, the amount of
imprest being Rs.1,000. The petty cash transactions during the month of June 2006 are as
under:
The amount of cash received on July 01, 2006 to make up the imprest balance is
(a) Rs.678 (b) Rs.294 (c) Rs.906 (d)
Rs.522 (e) Rs.1,100.
(2 marks)
Particulars
Amount
(Rs.)
Stamps 145
Conveyance 186
Repairs 228
Stationery 154
Other office expenses 193
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19.Which of the following is not a nominal A/c?
(a) Purchases (b)
Sales (c) Rent
(d) Trade mark (e) Advertisement.
(1 mark)
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20.Which of the following type of error will not be reflected by a Trial Balance?
(a) Posting of a transaction twice
(b) Omission of a transaction
(c) Wrong calculation of balance in ledger accounts
(d) Omission of an account balance
(e) Wrong totaling in a subsidiary book.
(1 mark)
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21.Consider the following data pertaining to purchases made by Zodiac Ltd., a dealer in electronic
goods, for the month of June 2006:
On June 22, 2006, the company purchased from Indian Stationers on credit for office use 10
dozens of carbon papers at the rate of Rs.35 per dozen and 10 dozens of ball pens at the rate of
Rs.25 per dozen.
The total of purchases for the month of June 2006, was
(a) Rs.2,14,350 (b) Rs.2,38,000 (c) Rs.2,14,950
(d) Rs.2,38,600 (e) Rs.2,14,200.
(2 marks)
Date Particulars No. of units
Rate per unit
Rs.
Trade
Discount
June 01 Black & White TVs 50 3,000 10%
Colour TVs 10 6,000 10%
June 09 Tape Recorders 10 1,000 10%
Two-in-one 10 1,500 10%
June 19 Audio Cassettes 100 30 5%
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22.Consider the following data pertaining to a company for the month of June 2006:
The sales of the company during the month are
(a) Rs.1,41,250 (b) Rs.1,35,600 (c) Rs.1,33,750
(d) Rs.1,28,400 (e) Rs.1,13,000.
Opening stock Rs.22,000
Closing stock Rs.25,000
Purchases less returns Rs.1,10,000
Gross profit margin (on sale) 20%
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(1 mark)
23.Which of the following statements is false?
(a) Credit side total of discount column of cash book is an income
(b) Credit balance of bank pass book is an overdraft
(c) Debit balance of bank column of cash book is an asset
(d) Debit balance of cash column of cash book is an asset
(e) Credit balance of bank column of cash book is a liability.
(1 mark)
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24.Consider the following data pertaining to M/s. Libra Company:
During the year 2005-06, the sales were Rs.3,60,000 and all were on credit. The cash
purchases were Rs.80,000 and credit purchases were Rs.2,00,000. Expenses paid during the
year were Rs.70,000.
The cash and bank balance of M/s. Libra Company as on March 31, 2006 was
(a) Rs.50,000 (b) Rs.90,000 (c) Rs.70,000
(d) Rs.80,000 (e) Rs.60,000.
(2 marks)
Particulars
As on April 01, 2005
Rs.
As on March 31, 2006
Rs.
Cash & bank 60,000 ?
Sundry debtors 50,000 40,000
Sundry creditors 70,000 80,000
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25.Purchases of office furniture on acceptance of a bill of exchange is recorded in
I. Journal proper.
II. Bills payable book.
III. Purchases book.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (I) and (II) above
(e) Both (II) and (III) above.
(1 mark)
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26.In retail inventory method, original selling price may be modified. If the selling price is
lowered below the original selling price, it is known as
(a) Markup (b) Markup cancellation
(c) Net markup (d) Markdown (e)
Net markdown.
(1 mark)
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27.Consider the following information of Make-up Company for the year 2005-2006:
The amount to be debited to profit and loss account to make the estimated provision is
(a) Rs.8,600 (b) Rs.10,400 (c) Rs.10,520 (d) Rs.10,600
(e) Rs.10,680.
(2 marks)
Opening balance of provision for debtors account Rs. 20,000
Bad debts during the year Rs. 18,000
Closing balance of Sundry debtors Rs.2,65,000
Estimated provision for doubtful debts 4%
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28.A company purchased second hand machinery in exchange of its 2,000 shares. The book value
of the machinery is Rs.2,25,000 and similar machinery is available in the market for
Rs.2,50,000. The book value of the company’s share is Rs.90 and its shares are quoted at
Rs.110 in the market. The value of machinery to be taken in the book is
(a) Rs.2,25,000 (b) Rs.2,50,000 (c) Rs.1,80,000
(d) Rs.2,20,000 (e) Rs.2,00,000.
(2 marks)
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29.Which of the following is not included in the cost of land?
(a) Broker’s commission (b) Legal fee (c) Stamp duty
(d) Registration charge (e) Property tax.
(1 mark)
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30.Renewal fee for patent is
(a) Capital expenditure (b) Revenue expenditure
(c) Deferred revenue expenditure (d) Development expenditure
(e) Contingent expenditure.
(1 mark)
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31.The main objective of providing depreciation is to
(a) Calculate the true net profit
(b) Compute the actual cash profit
(c) Create funds for replacement of fixed assets
(d) Reduce tax burden
(e) Value the equity shares of a company.
(1 mark)
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32.Laxman Ltd. recovered bad debts of Rs.20,000 from Mr. Tarun and it was erroneously credited
to Mr. Tarun’s account. The rectification of this error will result in
(a) An increase in net profit by Rs.20,000
(b) A decrease in net profit by Rs.20,000
(c) An increase in net profit by Rs.40,000
(d) A decrease in net profit by Rs.40,000
(e) No change in net profit.
(1 mark)
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33.If the difference in trial balance is controlled in Suspense A/c what will be the Suspense A/c
balance due to the following errors?
I. Debited Purchases A/c Rs.6,500 for furniture purchased.
II. Debited Bansal’s A/c and Salary A/c Rs.3,000 each for salary paid to him.
III. Debited D.Gupta & Co.’s A/c Rs.7,350 for goods purchased from them on credit.
IV. Credited M/s Roy & Co Rs. 100 for cash discount allowed by them.
(a) Rs.16,750 (b) Rs.10,250 (c) Rs.17,500 (d) Rs.24,200
(e) Rs.24,100.
(2 marks)
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34.
Consider the following information of Hyder Ltd. of Hyderabad for the year 2005-2006:
The opening balance of sundry creditors account was
(a) Rs.25,000 (b) Rs.45,000 (c) Rs.75,000
(d) Rs.2,05,000 (e) Rs.1,25,000.
Credit purchases during the year Rs. 9,25,000
Payment made to creditors during the year Rs.10,00,000
Closing balance of sundry creditors account Rs. 40,000
Discount received Rs. 10,000
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(1 mark)
35.Consider the following data pertaining to Wise Ltd. for the month of June2006:
Balance as per bank column of the cash book of Wise Ltd. as on June 30, 2006 was
(a) Rs.4,670 (Debit) (b) Rs.4,700 (Credit)
(c) Rs.5,030 (Debit) (d) Rs.5,300 (Credit)
(e) Rs.5,360 (Credit).
(2 marks)
Particulars Rs.
i. Balance as per Bank pass book (Overdraft) 5,000
ii. Bank charges for collection of up-country cheque 30
iii Amount of interest on UTI deposits directly collected by the bank 330
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36.The following errors were made by the accountant of a company in the profit and loss account
during the year 2005 – 2006.
Salaries overstated by Rs.15,000
Repairs understated by Rs. 7,000
Income from investments understated by Rs. 7,000
The impact on the net profit during the year will be
(a) Rs.22,000 (overstated) (b) Rs.22,000 (understated)
(c) Rs.15,000 (understated) (d) Rs.7,000 (understated)
(e) Rs.7,000 (overstated).
(2 marks)
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37.The following balances are extracted from the books of accounts of Silver Line Ltd. as on
March 31, 2006.
The total of Trial Balance of the company as on March 31, 2006 was
(a) Rs.11,03,300 (b) Rs.13,12,700 (c) Rs.13,09,700
(d) Rs.13,12,300 (e) Rs.11,07,500.
(2 marks)
Particulars Rs. Particulars Rs.
Share capital account 2,68,800 Manufacturing wages 81,940
Preliminary expenses 21,100 Sales 7,10,800
Sundry creditors 1,10,060 Returns inward 5,560
15% Term- Loan 40,000 Salaries 2,79,840
Closing inventory as on
March 31, 2006
2,05,200 Returns outward 2,060
Cash at bank 44,000 Discount allowed 8,200
Sundry debtors 1,43,000 Office administrative expenses 21,740
Bills Payable 1,55,500 Prepaid insurance 1,200
Provision for doubtful
debts
2,000 Insurance 800
Fittings and Fixtures 75,540 Bad debts 7,240
Discount received 9,200 Commission received 11,280
Opening inventory as on
April 01, 2005
1,09,360 Outstanding salaries 3,000
Purchases 3,07,980
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38.Consider the following data pertaining to M/s. Ramu Enterprises as on March 31, 2006:
Additional Information:
Gross profit of M/s.Ramu Enterprises for the year ended March 31, 2006 was
(a) Rs.73,800 (b) Rs.75,800 (c) Rs.74,800
(d) Rs.76,200 (e) Rs.75,200.
(2 marks)
Particulars Rs.
Credit sales 1,40,000
Credit purchases 20,000
Cash sales 20,000
Cash purchases 70,000
Wages paid 5,000
Salaries paid 2,000
Returns inward 3,000
Returns outward 2,000
Carriage inward 1,000
Carriage outward 1,000
Printing and stationery 600
Gas, water and fuel 2,000
Raw materials destroyed by fire 2,000
Particulars
As on April 01, 2005 As on March 31, 2006
Rs. Rs.
Inventory 27,000 40,000
Outstanding wages 500 700
Outstanding salaries 400 300
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39.As per the Profit and loss account of Vardhan Ltd. for the year ended March 31, 2006 the
amount of salary expenditure was Rs.4,15,000. If the balance of outstanding salaries as on
April 01, 2005 and March 31, 2006 was Rs.52,000 and Rs.64,000, respectively, the cash paid
on account of salaries during the year 2005-06 was
(a) Rs.3,63,000 (b) Rs.4,03,000 (c) Rs.4,67,000
(d) Rs.4,27,000 (e) Rs.4,79,000.
(2 marks)
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40.Some financial information pertaining to M/s Storewell Supermarkets are as follows:
The gross profit margin of the firm is
(a) 25.6 % (b) 29.1% (c) 34.35% (d)
39.10% (e) 30.20%.
(2 marks)
Particulars Rs.
Sales 3,66,967
Cost of goods sold 2,73,135
Net profit 8,679
Opening Inventory 43,382
Closing Inventory 56,354
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41.Obsolescence of a depreciable asset may be caused by
I. Technological changes.
II. Improvement in production method.
III. Change in market demand for the product or service output.
IV. Legal or other restrictions.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Only (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
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42.The Balance sheet of Mr. Sam as on March 31, 2006 is as below
Further investigation reveals the following information
i. Closing stock includes damaged goods costing Rs.1000 which have an estimated sale
value of Rs.750.
ii. Debtors include Rs.200 in respect of a customer who is no more.
iii. Bank overdraft charges amounting to Rs.80 not been recorded.
After passing the adjusting entries, the total of revised Balance-Sheet of Mr. Sam was
(a) Rs.30,370 (b) Rs.30,450 (c) Rs.31,430
(d) Rs.31,450 (e) Rs.31,370.
(2 marks)
Particulars Rs. Rs. particulars Rs. Rs.
Liabilities Assets
Capital as on 1-4-
2005
18,900 Land and Building 15,500
Add:Profit for the
year
4,500 Machinery (at cost) 13,000
Less Drawings 1,500 Less depreciation 7,500
21,900 5,500
S. Creditors 6,300 Stock at cost 5,700
Bank Overdraft 2,700 S. debtors 4,200
30,900 30,900
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43.The revised Accounting Standard (AS 2) does not apply to
I. Livestock.
II. Agricultural and forest products.
III. Mineral Oils.
IV. Ores and gases.
V. Machinery spares.
(a) Only (I) above (b) Both (I) and (II) above
(c) (II), (III) and (IV) above (d) (I), (II), (III) and (IV) above
(e) All (I), (II), (III), (IV) and (V) above.
(1 mark)
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44.During a period of steadily declining prices which of the following methods of measuring the
cost of goods sold is likely to result in reporting the lowest gross profit?
(a) LIFO method (b) FIFO method
(c) Simple Average method (d) Weighted Average method
(e) Moving Average method.
(1 mark)
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45.Johnson and Thomson Ltd. sold a depreciable asset for Rs.30,000 payable in cash. The
accumulated depreciation amounted to Rs.50,000 and a loss of Rs.10,000 was recognized on
sale. The original cost of the asset was
(a) Rs.90,000 (b) Rs.70,000 (c) Rs.60,000 (d) Rs.40,000
(e) Rs.30,000.
(1 mark)
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46.Consider the following:
I. Rate of depreciation under the written down method = 20%
II. Original cost of the asset = Rs.1,00,000
III. Residual value of the asset at the end of useful life = Rs. 40,960
The estimated useful life of the asset, in years, is
(a) 4 (b) 5 (c) 6 (d)
7 (e) 8.
(2 marks)
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47.When the claim on account of loss of stock is fully recoverable from the insurance company,
the Journal entry to record the same will be
(a) Cash A/c Dr.
To Insurance company
(b) Insurance claim A/c Dr.
To Trading A/c
(c) Trading A/c Dr.
To Insurance claim A/c.
(d) Insurance claim A/c Dr.
To P & L A/c.
(e) Insurance company A/c Dr.
To Insurance claim A/c
(1 mark)
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48.The rates of depreciation in respect of various assets have been laid down by the
(a) Companies Act
(b) Accounting Standard - 6
(c) Accounting Standard - 10
(d) Institute of Chartered Accountants of India (ICAI)
(e) Institute of Cost and Works Accountant of India (ICWA).
(1 mark)
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49.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 store. The details of the business of Dinakar are as under:
I. The profit for the year 2005-2006 is Rs.2,30,000.
II. The capital employed by Dinakar is Rs.20,00,000.
III. 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.
(2 marks)
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50.The profits of Kavya Ltd. for the past 5 years are as under:
The company noticed the following errors, while computing the weighted average profits for
the purpose of valuation of goodwill:
• On October 01, 2003, repair expenses of Rs.30,000 of machinery were capitalized.
Kavya Ltd. provides depreciation at the rate of 10% on straight-line method.
• The profit for the year 2005-2006 includes profit of Rs.22,500 on sale of plant.
The weighted average profit of the company to be considered for valuation of goodwill is
(a) Rs.4,76,100 (b) Rs.3,79,500 (c) Rs.2,84,100 (d) Rs.5,00,100
(e) Rs.3,78,500.
(3 marks)
Year Rs.
2001-2002 75,000
2002-2003 3,00,000
2003-2004 3,75,000
2004-2005 4,50,000
2005-2006 7,42,500
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51.Almaz Softex Ltd. purchased 12% bonds with a face value of Rs.2,00,000 at a discount of 15%
in the open market as investments and intends to hold them to maturity. The market value of
the investments is Rs.1,80,000. The investments should be accounted at
(a) Rs.2,24,000 (b) Rs.2,00,000 (c) Rs.1,84,000 (d) Rs.1,80,000
(e) Rs1,70,000.
(2 marks)
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52.The following information is extracted from the books of Jeet and Company:
• 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:
The profits included non-recurring profits on an average basis of Rs.1,000 and even 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)
Year Rs.
1 14,400
2 15,400
3 16,900
4 17,400
5 17,900.
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53.Goodwill Limited issued prospectus inviting applications for 1,00,000 equity shares of Rs. 10
each payable as under:
• On Application Rs. 5 (including premium of Rs. 2)
• On allotment Rs. 4
• First & Final Call Balance Amount
Applications were received for 1,30,000 shares. Application Money received on 10,000 shares
were refunded and allotment was made on pro rata basis for the remaining.
Mr.Lazy to whom 1,400 shares were allotted failed to pay allotment money and his shares were
forfeited later when he failed to pay the call money. All forfeited shares were reissued to Mr.
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Active at the rate of Rs. 8 as fully paid up. The amount outstanding to the credit of share
premium account is
(a) Rs.2,00,000 (b) Rs. Nil (c) Rs.2,40,000 (d) Rs.2,60,000
(e) Rs.1,97,200.
(2 marks)
54.The value of the goodwill, according to the simple profit method, is
(a) The product of current years profit and number of years of purchase
(b) The product of last year’s profit and the number of years of purchase
(c) The product of average profit of the given years and number of years of purchase
(d) The product of expected average profit for future years and numbre of years of purchase
(e) The product of average profit of last year, current year and coming year and number of
years of purchase.
(1 mark)
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55.Sundar Ltd., a listed company, proposed to issue 1,000 equity shares of Rs.100 each at par by
way of private placement. The maximum amount of brokerage that can be paid by the company
is
(a) Rs.500 (b)
Rs.1,500 (c) Rs.2,500
(d) Rs.5,000 (e) No brokerage can be paid.
(1 mark)
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56.Sampath Ltd. issued 1,00,000 equity shares of Rs.100 each, payable as under:
The applications received for 1,70,000 shares were dealt with as under:
• Applicants of 20,000 shares were allotted in full.
• Applicants of 1,40,000 shares were allotted 80,000 shares pro-rata.
• Applications for 10,000 shares were rejected.
The excess of application money received that can be adjusted towards allotment money, is
(a) Rs.20,00,000 (b) Rs.8,00,000 (c) Rs.16,00,000
(d) Rs.4,00,000 (e) Rs.24,00,000.
(3 marks)
On application Rs.40
On allotment Rs.20
On first call Rs.20
On final call Rs.20
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57.The Balance Sheet of Moonlight Ltd. disclosed the following financial position as on
March 31, 2006:
Liabilities Rs. Assets Rs.
Paid-up capital Goodwill at cost 30,000
30,000 shares of
Rs.10 each fully paid
3,00,000 Land and buildings at cost
(less depreciation)
1,75,000
Capital reserve 20,000 Plant and machinery at cost
(less depreciation)
90,000
Sundry creditors 71,000 Stock at cost 1,15,000
Provision for taxation 55,000 Book debts Rs.98,000
Profit and loss
account
66,000 Less: Provision for bad debts Rs.3,000 95,000
Cash at bank 7,000
5,12,000 5,12,000
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Additional Information:
i. Adequate provision has been made in the accounts for income tax and depreciation.
ii. The rate of income tax is 50%.
iii. The average rate of dividend declared by the company for the past five years was 15%.
iv. The reasonable return on capital invested in the class of business done by the company is 12%.
The value the Goodwill of Moonlight Ltd. on the basis of four years’ purchase of super profits
was
(a) Rs.63,000 (b) Rs.49,120 (c) Rs.1,16,400
(d) Rs.1,83,600 (e) Rs.33,000.
(3 marks)
58.Kanishk Ltd. issued 1,50,000 equity shares of Rs.10 each at a premium of Rs.2 payable as
under:
Sudha, who applied for 1,000 shares, was allotted 600 shares. She failed to pay the amount due
on first call and final call. The shares allotted to her were forfeited. Out of the forfeited shares,
300 shares were re-issued to Mr.Tarun at Rs.9 per share. The balance in the share forfeiture
account is
(a) Rs.1,500 (b) Rs.1,200 (c) Rs.Nil (d)
Rs.3,000 (e) Rs.4,200.
(2 marks)
On application Rs.2
On allotment (including premium) Rs.5
On first call Rs.3
On final call Rs.2
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59.Zidney Ltd. issued 20,000 equity shares of Rs.100 each at par, out of which, only Rs.85 is
called up. Mr. Arun did not pay the call money of Rs.25 and hence all the 1,000 shares allotted
to him were forfeited. If all these shares are to be re-issued as fully paid-up, the minimum
amount to be collected is
(a) Rs.40,000 (b) Rs.1,00,000 (c) Rs.15,000 (d) Rs.60,000
(e) Rs.25,000.
(1 mark)
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60.Which of the following cannot be utilized for issue of bonus shares?
(a) General reserve (b) Revaluation reserve
(c) Debenture redemption reserve (d) Share premium
(e) Capital redemption reserve.
(1 mark)
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61.Which of the following cannot be utilized for the redemption of Preference Shares of a
company?
(a) Proceeds of fresh issue of shares
(b) Securities premium on fresh issue of shares
(c) General reserve
(d) Profit and loss account
(e) Dividend equalization reserve.
(1 mark)
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62.A company offered 60,000 shares of Rs.10 each at a premium of 50%. 48,000 shares were
underwritten by Feroz. The number of shares subscribed by the public was 54,000, out of
which the marked applications were for 36,000 shares. The liability of Feroz is for
(a) 6,000 shares (b) 12,000 shares
(c) 4,800 shares
(d) 4,000 shares (e) Nil shares.
(1 mark)
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63.Consider the following data pertaining to M/s. Bright Sun Ltd. as on March 31, 2006
If net assets of the company are Rs.25,50,000, the value per share of Rs.7 paid-up share is
(a) Rs.12.72 (b) Rs.14.00 (c) Rs.10.75 (d)
Rs.15.67 (e) Rs.12.75.
(2 marks)
Particulars
Per share
Face value
Rs.
Paid-up value
Rs.
Share Capital:
1,00,000 equity shares 10 10
40,000 equity shares 10 7
40,000 equity shares 10 6
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64.High Power Ltd. invited applications for 5,000 shares of Rs.10 each at a premium of Rs.2 per
share payable as follows:
On application – Rs.5 (including premium)
On allotment – Rs.4
On final call – Rs.3
The company received 7,000 applications. 1,000 applications were rejected by the company
and allotment was made on pro rata basis to the applicants of 6,000 shares. Money overpaid on
applications was adjusted on account of sums due on allotment.
The journal entry for the adjustment and appropriation made to the money received on
application is
(a) Share application account Dr. 35,000
To Share capital account 25,000
To Share premium account 10,000
(b) Share application account Dr. 35,000
To Bank 5,000
To Share capital account 15,000
To Share premium account 10,000
To Share allotment account 5,000
(c) Share application account Dr. 35,000
To Share capital account 18,000
To Share premium account 12,000
To Bank 5,000
(d) Share allotment account Dr. 35,000
To Share capital account 25,000
To Share premium account 10,000
(e) Share application account Dr. 35,000
To Share premium account 10,000
To Share capital account 20,000
To Share first and final call account 5,000.
(2 marks)
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Suggested Answers
Financial Accounting-I (MB131): July 2006
65.Premium on issue of debentures account is transferred to
(a) Capital reserve (b) General reserve
(c) Securities premium account (d) Capital redemption reserve
(e) Debentures account.
(1 mark)
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66.On July 01, 2005, Sign Ltd. issued 50,000, 12% debentures of Rs.10 each. The interest on
debentures is payable on June 30 and December 31, every year. On March 01, 2006 the
company purchased 2,000 own debentures at 98 % cum-interest. On June 30, 2006, the
debenture interest account will be debited with
(a) Rs.28,800 (b) Rs.29,400 (c) Rs.28,000 (d) Rs.29,600
(e) Rs.32,000.
(2 marks)
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67.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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68.Jamuna Ltd. issued 40,000, 12% debentures of Rs.100 each during the year 2004-2005.
Interest on debentures is payable on January 31 and July 31, every year. The company is
authorized to purchase its debentures for cancellation. On September 01, 2005 the company
purchased 5,000 own debentures at cum-interest price of Rs.97. To record the purchase, the
amount debited to own debentures account is
(a) Rs.4,75,000 (b) Rs.4,80,000 (c) Rs.4,85,000
(d) Rs.4,90,000 (e) Rs.5,00,000.
(2 marks)
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69.Komal Ltd. issued 20,000, 8% debentures of Rs.10 each at par, which are redeemable after 5
years at a premium of 20%. The amount of loss on redemption of debentures to be written off
every year is
(a) Rs.40,000 (b) Rs.10,000 (c) Rs.20,000 (d)
Rs.8,000 (e) Rs.5,000.
(1 mark)
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1. Answer : (d)
Reason : The fund available with a company after paying all claims including tax and dividend is
Retained earnings. (d) is the correct answer.
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2. Answer : (d)
Reason : The receipt of interest by proprietor on bank fixed deposit held jointly with spouse cannot be
entered in the books of account of the business. The other items i.e. withdrawal of goods by
the proprietor for personal consumption, sale of an asset on credit, purchase of new asset in
exchange of old asset and loss of stock by fire are all recorded in the books of account.
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3. Answer : (b)
Reason : According to the consistency concept, the financial statements should be prepared on the
basis of accounting principles which are followed consistently. Hence, this concept enables
comparison of financial statements over a period of time. According to cost concept, all
transactions are recorded at cost. All material items should be separately disclosed under
materiality concept. Money measurement concept envisages that a record is made only of
information that can be expressed in monetary terms. According to accounting period concept,
the income or loss of a business is measured periodically for a specific interval of time, called
accounting period.
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4. Answer : (c)
Reason : As per the companies Act, the accounting period of a company in the normal circumstance
shall not exceed 15months. Answer(c)is correct.
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5. Answer : (c)
Reason : Board of Directors, Partners, Managers and Officers are internal users. An investor is an
external user.
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6. Answer : (d)
Reason : Rent received, Profit from sale of old furniture, Dividend received, and Interest on
Investments are non-trading income. Interest paid on borrowings is a trading expense.
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7. Answer : (c)
Reason : The entity concept considers the business and the proprietor as distinct from each other
Accounting principle is general law or rule followed in the preparation of financial statements
Usefulness, objectivity and feasibility are the three basic norms generally found in accounting
principles. In Accountancy all business transactions are recorded as having dual aspect .The
convention of disclosure implies that all material information should be disclosed in the
accounts.
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8. Answer : (a)
Reason : The concept of conservatism involves understating gains and values and overstating losses
and liabilities. Hence when applied to Balance-Sheet the convention of conservatism results in
understatement of assets. Option (a) is correct.
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9. Answer : (a)
Reason : Total of all current assets = Rs.3,00,000
Total of current assets excluding stock
= Sundry Debtors + Bills Receivable + Cash & Bank Balance
= 30,500 + 25,000 + 30,000 = Rs. 85,500
Value of closing stock = Rs.3,00,000 – Rs.85,500 = Rs.2,14,500
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10. Answer : (b)
Reason : The consistency concept requires that once an entity has decided to follow one method of
valuation of inventory, it will follow the same unless there is strong reason to change the
method of valuation, which is in consonance with consistency principle.
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11. Answer : (a)
Reason : In terms of cost concept the value of an asset is to be determined on the basis of acquisition
cost. Valuation of machinery at market value is in violation of cost concept unless the machine
is actually sold, realizable value will give only a hypothetical figure. Market value is highly
subjective because to know the value of the asset one has to chase the uncertain future. The
other concepts matching concept (b) deals with matching costs with revenue, Realization
concept (c) deals with recognition of income at various levels of production, Periodicity
concept (d) explains how the accounting information is to be reported at regular intervals to
foster comparability, Business entity concept (e) explains the owner is different from the
business entity. Thus, the concepts (b), (c), (d), and (e) do not explain how the fixed assets are
to be recorded.
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12. Answer : (d)
Reason : As per AS 1, the accounting assumptions of Going concern, Accrual and Consistency are
taken into consideration while preparing financial statements. (d), the combination of these is
the correct answer.
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13. Answer : (d)
Reason : The owners’ equity at the beginning of the year = Rs.11,000
Closing Capital plus drawings less (contribution plus net income) = Rs.21,000 + Rs.4,000 –
(Rs.6,000 + Rs.8,000) = Rs.25,000- Rs.14,000 = Rs.11,000.
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14. Answer : (c)
Reason : According to money measurement concept the Value of building will be recorded in the
books of accounts. All other events cannot be measured in terms of money and hence not
recorded in books of accounts.
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15. Answer : (b)
Reason : Accounting Standards 12 (AS 12) pertains to Accounting for Government Grants.
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16. Answer : (a)
Reason : According to Accounting Standard-5, the incomes or expenses which arise in the current
period as a result of errors or omissions in the preparation of financial statements of one or
more prior periods is known as prior period items. Extraordinary items are income or
expenses that arise from events or transactions that are clearly distinct from the ordinary
activities of the enterprise and, therefore, are not expected to recur frequently or regularly.
Contingent items are gains or losses, which arise only on the occurrence or non-occurrence of
a one or more uncertain future events. Preliminary items are those expenses incurred for the
incorporation of the company. Equity items are the items like equity share capital, calls-inarrears,
which are related to equity shareholders.
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17. Answer : (e)
Reason : Personal accounts deal with accounts of individuals like creditors, debtors, banks etc. It
shows the balance due to these individuals or due from them on a particular date and
representative personal accounts represent the amounts due on account of accrual concept like
accrued expenses and prepaid expenses or accrued incomes and pre-received incomes. By
virtue of this, the accounts stated in alternatives (a) sundry creditors, (b) Bank account, (c)
outstanding wages and (d) prepaid insurance represents personal accounts.
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18. Answer : (c)
Reason :
Particulars
Amount
(Rs.)
Amount
(Rs.)
Petty cash 1,000
Less : Stamps 145
Conveyance 186
Repairs 228
Stationery 154
Other office expenses 193 906
94
Amount reimbursed 906
1,000
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19. Answer : (d)
Reason : Trade mark is treated as a fixed asset and hence a real account. All others are nominal A/c’s.
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20. 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.
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21. Answer : (a)
Reason : Purchases Day Book
The purchase of stationery is not a part of purchase of goods and it is to be debited to
stationery account.
Date Particulars Details
(Rs.)
Total
(Rs.)
June. 01 50 Black & White T.V. @
Rs.3,000 each
10 Colour T.V. @ Rs.6,000
each
1,50,000
60,000
2,10,000
Less : Trade discount @
10%
21,000 1,89,000
June. 09 10 pieces of Taperecorder @
Rs.1,000 each
10,000
10 pieces of Two-in-one @
Rs.1,500 each
15,000
25,000
Less : Trade discount @
10%
2,500 22,500
June. 19 100 pieces of Audio Casettes
@ Rs.30 each
3,000
Less : Trade discount @
5%
150 2,850
2,14,350
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22. Answer : (c)
Reason :
Gross profit margin = 20% on sales
20% on sales = 25% on cost.
Sales = Rs.1,07,000 × 1.25 = Rs.1,33,750.
Thus, the sales of the company is Rs.1,33,750.
Particulars Rs.
Opening stock 22,000
Add : Purchases less returns 1,10,000
1,32,000
Less : Closing stock 25,000
Cost of goods sold 1,07,000
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23. Answer : (b)
Reason : Credit balance of bank pass book is an overdraft (b) is a false statement because credit
balance as per pass book indicates the favourable balance and it is an asset. Credit balance of
discount column of cash book is an income (a) is true. Debit balance of bank column of cash
book is an asset (c). Debit balance of cash column of cash book is an asset and Credit balance
of bank column of cash book is a liability (e) are the true statements and the alternatives are
not the correct answers. Thus, (b) is the correct answer.
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24. Answer : (b)
Reason : Dr. Sundry debtors account Cr.
Dr. Sundry Creditors Cr.
Cash and Bank balance :
Date Particulars Rs. Date Particulars Rs.
April 01,
2005
To Balance
b/d
50,000
2005-
2006
By Cash
(Balancing
figure)
3,70,000
2005-2006
To Sales 3,60,000
March 31,
2006
By Balance
c/d
40,000
4,10,000 4,10,000
Date Particulars Rs. Date Particulars Rs.
2005-2006 To Cash
(balancing
figure)
1,90,000
April 01,
2005
By Balance
b/d
70,000
March 31,
2006
To Balance
c/d
80,000
2005-
2006
By
Purchases
2,00,000
2,70,000 2,70,000
Particulars Rs.
Opening cash and bank balance 60,000
Add Cash received from sundry
debtors
3,70,000
4,30,000
Less Cash paid to sundry creditors 1,90,000
Cash purchases 80,000
Expenses paid 70,000
Closing cash and bank balance 90,000
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25. Answer : (d)
Reason : Purchase of office furniture against acceptance of a bill of exchange is recorded in Journal
Proper to record the purchase and in Bills payable subsidiary to record the acceptance of bill
of exchange. Thus, it is recorded in both the books (d) is the correct answer.
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26. Answer : (d)
Reason : Markdown means selling price being lowered below the original selling price. Selling price
below the original selling price cannot be mark-up, markup cancellation, net mark-up or net
markdown. Hence (d) is correct.
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27. Answer : (a)
Reason : Make-up Co.
Bad debts Rs.18,000
Add : Closing provision (4% on
Rs.2,65,000)
Rs.10,600
Rs.28,600
Less : Opening provision Rs.20,000
Amount to be debited to profit & loss
account
Rs. 8,600
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28. Answer : (d)
Reason : When machinery is acquired in exchange of shares, the market value of the company’s share
is considered to calculate the value of machinery. Hence (110x2000) = Rs.2,20,000 is the
value of machinery.
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29. Answer : (e)
Reason : Property tax is a revenue expenditure. All other expenses like legal fee, registration charge
stamp duty, broker’s fee etc. can be included in the cost of the building.
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30. Answer : (b)
Reason : Although patent is a capital expenditure, renewal fee paid for patent is treated as revenue
expenditure.
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31. Answer : (c)
Reason : According to AS-6, depreciation is a measure of wearing out, lost usefulness, expired utility,
loss of value of an asset arising from use, efluxion of time or through technology and market
changes. The main objective of providing depreciation is to create funds/generate funds for
replacement of depreciable fixed assets over a period of its useful life and to prevent the
owner of a fixed asset from consuming his capital. The original monetary investment of the
asset should be intact.
The other statements are not correct because they are incidental to the main objective.
(a) Calculation of the true net profit may be one of the objectives of providing depreciation
as per accrual concept, but it is not the primary objective
(b) Cash profit is the actual profit before providing for depreciation. Provision for
depreciation which is a non-cash expense does not affect the calculation of cash
profit.
(d) Some expenses are deducted on tax returns before being deducted in the books.
Depreciation is a citing example. As such the provision for depreciation has no
impact on the tax burden.
(e) The provision of depreciation has no direct impact in valuation of the equity shares of a
company.
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32. Answer : (a)
Reason : The bad debts recovered have to be credited to profit and loss account. As it is erroneously
credited to Tarun’s account, the profit is decreased by Rs.20,000. By rectification of this
mistake, the profit will be increased by Rs.20,000.
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33. Answer : (c)
Reason : Purchase A/c debited for furniture purchased is an error of principle and does not affect trial
balance.
For salary paid Bansal’s A/c is also debited. This is an excess debit of Rs.3000.For goods
purchased D. Gupta’s A/c should have been credited by Rs.7350 instead of debiting their A/c.
The difference in trial balance due to the above error is double the amount
ie,7350x2=14700.For cash discount allowed by Roy & Co., their A/c should have been
debited instead of crediting giving rise to a difference of Rs.200 in the trial balance. So the
Suspense A/c balance will be Excess debit- 3000+ 14700=17,700 Excess credit 200. The net
difference is Rs. 17700 less 200=17,500
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34. Answer : (e)
Reason :
Particulars Rs.
Payment made to creditors 10,00,000
Discount received 10,000
Closing balance 40,000
10,50,000
Less : Credit purchase 9,25,000
Opening balance 1,25,000
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35. Answer : (d)
Reason :
Particulars Rs.
Overdraft balance as per bank pass book 5,000
Less : Bank charges on collection of upcountry cheques 30
4,970
Add : Interest on UTI deposits directly collected by the bank 330
Credit balance as per bank column of the cash book 5,300
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36. Answer : (c)
Reason :
Particulars
Profit increased
(Rs.)
Profit decreased
(Rs.)
Salaries overstated (Profit understated) 15,000
Repairs understated (Profit overstated) 7,000
Income of investment understated (Profit
understated)
7,000
7,000 22,0000
Net profit understated/decreased 15,000 --
22,000 22,000
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37. Answer : (b)
Reason : Trial Balance of Silver Line Ltd. as on March 31, 2006
Particulars
Amount
Debit
(Rs.)
Particulars
Amount
Credit
(Rs.)
Preliminary expenses 21,100 Share capital account 2,68,800
Closing stock 2,05,200 Sundry creditors 1,10,060
Cash at bank 44,000 15% Loan 40,000
Sundry debtors
1,43,000
Provision for doubtful
debts 2,000
Bad debts 7,240 Sales 7,10,800
Fittings and Fixtures 75,540 Commission received 11,280
Insurance premium 800 Outstanding salaries 3,000
Opening inventory as
on April 1, 2005 1,09,360
Returns outward
2,060
Purchases 3,07,980 Discount received 9,200
Manufacturing wages 81,940 Bills payable 1,55,500
Returns inward 5,560
Salaries 2,79,840
Office Administrative
expenses 21,740
Prepaid Insurance 1,200
Discount allowed 8,200
TOTAL 13,12,700 TOTAL 13,12,700
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38. Answer : (b)
Reason : Books of Ramu Enterprises
Dr. Trading Account for the period ending March 31, 2006 Cr.
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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 2,000 By Closing
stock
40,000
(–) Returns
outward
(–)
2,000
86,000
To Wages 5,000
(+)
Outstanding
as on March
31, 2006
700
5,700
(–)
Outstanding
as on April
01, 2005
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
39. Answer : (b)
Reason : Salary as per income statement Rs.4,15,000
Add : Outstanding salary as on April 01, 2005 Rs. 52,000
Rs.4,67,000
Less : Outstanding salary as on March 31, 2006 Rs. 64,000
Cash paid for salary during the year Rs.4,03,000.
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40. Answer : (a)
Reason : Gross profit =Sales minus Cost of goods sold i.e., 366967-273135 = Rs.93,832.Gross profit
margin = Gross profit/sales
=25.6%
93,832 100
3,66,967
×
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41. Answer : (e)
Reason : Obsolescence may occur due to (a) technological changes (b) improvement in production
method (c) change in market demand for the product or service output (d) legal or other
restrictions.
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42. Answer : (b)
Reason : When the adjusting entries are passed, net profit and bank overdraft on the liability side and
sundry debtors and closing stock on the asset side will be affected. On the liability side net
profit will be reduced to the extent of loss due to damage Rs.250 plus bad debt Rs.200 plus
overdraft charge Rs.80 i.e., Rs.530. But bank overdraft will increase by Rs.80 being the
overdraft charge The net reduction in the total of the revised Balance Sheet is 450.So the total
of the revised Balance –Sheet is Rs.30,900 - Rs.450=Rs.30,450.
The revised Balance Sheet of Mr. Sam as on 31-3-2006 is as below
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Particulars Rs. Rs. Particulars Rs. Rs.
Liabilities Assets
Capital as on 1-4-
2005
18,900 Land and Building 15,500
Add:Profit for the
year
3,970 Machinery (at cost) 13,000
Less Drawings 1,500 Less depreciation 7,500
21,370 5,500
S. Creditors 6,300 Stock at cost 5,450
Bank Overdraft 2,780 S. debtors 4,000
30,450 30,450
43. Answer : (e)
Reason : The revised Accounting Standard (AS 2) does not apply to Livestock, agricultural and forest
products, mineral oils, ores and gases and machinery spares.
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44. Answer : (b)
Reason : When prices are declining FIFO results in higher cost of goods sold,lower closing inventory
value and thus the lowest profit.
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45. Answer : (a)
Reason : Original cost = Rs.30,000 + Rs.50,000 + Rs.10,000 = Rs.90,000
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46. Answer : (a)
Reason :
Useful life – 4 years
Particulars Rs.
Original cost of asset 1,00,000
Less : Depreciation 20% 1st year 20,000
80,000
Less : Depreciation 20% 2nd year 16,000
64,000
Less : Depreciation 20% 3rd year 12,500
51,200
Less : Depreciation 20% 4th year 10,240
40,960
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47. Answer : (b)
Reason : The closing stock is reduced by the amount of loss. So to determine the actual gross profit,
the trading account is to be credited by the amount of loss against which the insurance claim
is allowed.
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48. Answer : (a)
Reason : The rates of depreciation in respect of various assets have been laid down by the Companies
Act.
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49. Answer : (b)
Reason :
Particulars Rs.
Profit for the year 2005-2006 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
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50. Answer : (a)
Reason :
Weighted average profits = Rs.71,41,500 / 15 = Rs.4,76,100
2001-
2002
Rs.
2002-2003
Rs.
2003-2004
Rs.
2004-2005
Rs.
2005-2006
Rs.
Total
Rs.
Profit 75000 300000 375000 450000 742500
Less: repair
expenses
- 30000
Add:
Depreciation
1500 3000 3000
Less: profit on
sale of plant
22,500
Adjusted
profits
75000 300000 346500 453000 723000
Weights 1 2 3 4 5
Profits ×
weights
75,000 6,00,000 10,39,500 18,12,000 36,15,000 71,41,500
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51. Answer : (e)
Reason : The price of the bonds is at a discount of 15% on the face value of Rs.2,00,000. Thus, the
acquisition cost (Face value – Discount) Discount = Rs.2,00,000 x = Rs.30,000 =
Rs.2,00,000 – Rs.30,000 = Rs.1,70,000.
15
100
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52. 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
Add : Recurring profit Rs. 600
Average adjusted profit Rs.16,000
Normal profit 1,00,000 x 10/100, Rs.10,000
Super profit = 16,000 – 10,000 = 6,000
a. Goodwill as per annuity method 6,000 x 3.78 = Rs.22,680.
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53. Answer : (a)
Reason : Share premium is received along with the application money and the share premium once
received cannot be reversed. Hence, the share premium received on 1,00,000 shares at the rate
of Rs.2 per share is un affected on account of forfeiture of shares.
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54. Answer : (c)
Reason : The value of the goodwill, according to the simple profit method, is the product of average
profit of the given years and number of years of purchase.
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55. Answer : (a)
Reason : The listed companies are allowed to pay brokerage on private placement of capital at a
maximum rate of 0.5 % of issue price. Hence the maximum amount of brokerage that can be
paid by M/s. Sundar Ltd. is 1,000 shares x Rs. 100x 0.5% = Rs.500.
1000 × Rs.100x0.5% = Rs.500.
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56. Answer : (c)
Reason :
No of
shares
applied
No of
shares
allotted
Amount
received on
application
Amount
adjusted
towards
application
Amount
available for
adjustment to
allotment
money
Amount
available for
adjustment to
first call
money
Amount
refunded
Rs. Rs. Rs. Rs. Rs.
20,000 20,000 8,00,000 8,00,000 - -
1,40,000 80,000 56,00,000 32,00,000 16,00,000 8,00,000 -
10,000 - 4,00,000 - - - 4,00,000
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57. Answer : (b)
Reason : Valuation of goodwill according to purchase of super profits method.
a. Calculation of Capital Employed :
b. Calculation of Normal Profits :
(Normal rate of return x Capital Employed)/100
12/100 X Rs.3,56,000 = Rs.42,720.
c. Calculation of Future Maintainable Profits (based on profits of previous year) :
Actual profit after providing tax Rs.55,000.
(As the provision for taxation @ 50% is Rs.55,000, the profits would be Rs.l,10,000 and
the profits after providing for taxation also would be Rs.55,000.)
d. Calculation of Super Profits
Valuation of goodwill on five years purchase of super profits = Rs.12,280 x 4 = Rs.49,120.
Rs. Amount (Rs.)
Assets
Land and Buildings 1,75,000
Plant and machinery 90,000
Stock 1,15,000
Book debts 98,000
Less : Provision 3,000 95,000
Cash at bank 7,000
Gross total assets 4,82,000
Less : Sundry creditors 71,000
Provision for taxation 55,000 1,26,000
Capital employed 3,56,000
Rs.
Actual profits 55,000
Less : Normal profits 42,720
Super profits 12,280
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58. Answer : (a)
Reason : Amount paid by Sudha (excluding premium) = 600 x Rs.5 = Rs.3,000
\ Balance in forfeited shares account = Rs.3,000.
Amount pertaining to re-issued 300 shares = Rs.1,500
Less: Discount allowed on reissue (300 x Rs.1) = Rs. 300
Amount to be transferred to capital reserve = Rs.1,200
Share premium of Rs.1,200/- on forfeited shares should not be reversed as the amount is
already received and balance remaining in share forfeiture account is Rs.1,500.
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59. Answer : (a)
Reason : The discount on reissue of forfeited shares should not exceed the amount forfeited, since the
discount is written off as a charge against the share forfeiture account.
Mr. Arun has paid Rs.60 (Rs.85 – Rs.25) per share = Rs.60 × 1,000 = Rs.60,000
The maximum discount on reissue should not exceed Rs.60,000.
Hence, the minimum amount to be collected = Rs.1,00,000 – Rs.60,000 = Rs.40,000.
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60. Answer : (b)
Reason : Revaluation reserve cannot be utilized for issuing bonus shares. However, the capital reserve,
debenture redemption reserve, share premium and capital redemption reserve can be utilized
for issue of bonus shares.
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61. Answer : (b)
Reason : Securities Premium on fresh issue of shares (b) cannot be utilized for the redemption of
Preference Shares of a company. As per the Companies Act, the redemption may be done
from the proceeds of fresh issue of shares or undistributed profits which would otherwise be
available for dividend. Thus, proceeds of fresh issue of shares (a), General reserve (c), Profit
and loss account credit balance and Dividend equalization reserve are not the correct answers
since they can be utilized for redemption of preference shares. Alternative (b) is the correct
answer.
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62. Answer : (a)
Reason : In case of partial underwriting, the marked applications are compared with the shares
underwritten to determine the liability of the underwriters.
The liability of Feroz is 12,000 shares subject to a maximum of non-subscribed shares i.e.
6,000 shares (60,000 shares – 54,000 shares). Hence the liability of Feroz is for 6,000 shares.
Gross liability 48,000 shares
Less: marked applications 36,000 shares
12,000 shares
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63. Answer : (a)
Reason :
Value of each fully paid share =
Value of Rs.7 paid up share = Rs.15.72 – Rs.3 = Rs.12.72
Rs.
Net assets 25,50,000
Add: Notional call
40,000 × Rs.3 1,20,000
40,000 × Rs.4 1,60,000
Net assets available to equity share holders 28,30,000
Net assets Rs.28,30,000
Rs.15.72
No. of shares 1,80, 000
= =
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64. Answer : (b)
Reason :
The amount on applications rejected is credited to Bank account.
The amount on applications in respect of 5,000 shares allotted is credited to
Share capital account = 5,000 x 3 = Rs.15,000
Share premium account = 5,000 x 2 = Rs.10,000
Particulars Rs.
Amount received (7,000 × Rs.5) 35,000
Less: Applications rejected (1,000 x Rs.5) 5,000
30,000
Less: Applications money for 5,000 shares (5,000 x
Rs.5)
25,000
Surplus 5,000
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The amount of surplus is credited towards the share allotment amount due.
Share application a/c Dr. Rs.35,000
To Bank a/c Rs. 5,000
To Share capital a/c Rs.15,000
To Share premium a/c Rs.10,000
To Share allotment a/c Rs. 5,000.
65. Answer : (a)
Reason : The premium collected on issue of debentures is recorded in the debenture premium account
and subsequently transferred to capital reserve. It is an income to the issuing company. There
are no restrictions as to its use. It is not transferred to General reserve (b), capital redemption
reserve (d). Securities premium account (c) reflects only premium on issue of shares. It is not
a debt to be transferred to debentures (e). Thus, the correct answer is (a).
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66. Answer : (d)
Reason : Debenture Interest account will be debited with Rs.29,600 calculated as under:
Interest on 48,000 debentures @12% for 6 months = Rs.28,800
Interest on 2,000 debentures @12% for 4 months = Rs.800
The entry will be:
Debenture interest account Dr. Rs.29,600
To Bank a/c Rs.28,800
To Interest on own debentures a/c Rs. 800
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67. Answer : (b)
Reason : Debentures are classified as Registered or Bearer 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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68. Answer : (b)
Reason : Interest for one month from July 31, 2005 to September 01, 2005 is 5,000 debentures x
Rs.100 x 1/12 x 12%= Rs.5,000 Amount debited to own debentures account is (5,000
debentures x Rs.97)- Rs.5,000 = Rs.4,80,000
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69. Answer : (d)
Reason : Amount debited to loss on issue of debentures = Rs,20,000 × Rs.10 × 20% = Rs.40,000
Amount of loss on issue of debentures to be written off every year = Rs.40,000 / 5 = Rs.8,000
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