Question Paper

Financial Accounting (111) - January 2004

Section A : Basic Concepts (40 Marks)
• • This section consists of questions with serial number 1 - 40.
• • Answer all questions.
• • Each question carries one mark.
< Answer
1. Which of the following statements is true? >
a. Going concern concept assumes that business will be carried on for a definite period
b. Time period concept facilitates the comparison of the results of one accounting period of a
business with that in the past
c. The capital losses need not be deducted to ascertain net income
d. Provision for bad and doubtful debts is created in recognition of conservatism concept
e. Materiality concept states that all business transactions are to be recorded however insignificant
they may be.
< Answer
2. Which of the following is not an asset? >
a. Stock of stationery b. Goodwill
c. Profit and loss account (credit balance) d. Accounts Receivable
e. Cash at bank.
< Answer
3. The accountant of Leo Ltd. recorded a payment by cheque to a creditor for supply of materials as >
Rs.1,340.56. The bank recorded the cheque at its correct amount of Rs.3,140.56. The company has not
passed any rectification entries and the error is not detected through the bank reconciliation. The impact
of this error is
a. The trial balance will not agree
b. The balance of creditors is understated
c. The purchases are understated
d. The favorable bank balance as per pass book is less than the bank balance as per cash book
e. Both (b) and (c) above.
< Answer
4. Which of the following accounts appear(s) in the Balance Sheet of a business? >
I. Stock at the end of the financial year
II. Stock at the beginning of the financial year
III. Drawings
IV. Prepaid Rent
V. Interest received but not yet earned.
a. Only (I) above b. Only (III) above
c. Both (I) and (III) above d. (I), (III), (IV) and (V) above
e. All (I), (II), (III), (IV) and (V) above.
< Answer
5. Computers taken on hire by a business for a period of twelve months should be classified as >
a. Fixed assets b. Current assets
c. Intangible assets d. Deferred revenue expenditure
e. Not an asset.
< Answer
6. The process of balancing of an account involves equalization of both sides of the account. If the debit >
side of an account exceeds the credit side, the difference is put on the credit side. The said balance is
I. A debit balance II. A credit balance
III. An expenditure or an asset IV. An income or a liability.

a. Only (II) above b. Only (IV) above

c. Both (I) and (III) above d. Both (II) and (III) above
e. Both (II) and (IV) above.
 < Answer
7. Which of the following statements is false? >
a. Wages paid on installation of machinery should be credited to cash account
b. A sale of computer that has been used in the business should be debited to cash account
c. Error of posting of a correctly recorded transaction affects one or more accounts
d. Repairs of a machinery purchased second hand should be debited to machinery account
e. Withdrawal of goods by the proprietor of the business should be credited to capital account.
< Answer
8. Which of the following transactions of a business is/are recorded in journal proper? >
I. Purchase of goods on credit
II. Sale of office furniture for cash
III. Discounting of bill of exchange with a bank
IV. Endorsement of a bill of exchange in settlement of debt of the business.
a. Only (I) above b. Only (IV) above
c. Both (II) and (IV) above d. (I), (III) and (IV) above
e. All (I), (II) (III) and (IV) above.
< Answer
9. The portion of the acquisition cost of the asset yet to be allocated is known as >
a. Written down value b. Accumulated value c. Realisable value
d. Salvage value e. Residual value.
< Answer
10. Which of the following statements is true with regard to written down value method of depreciation? >
I. The rate at which the asset is written off reduces year after year
II. The amount of depreciation provided reduces from year to year
III. The rate of depreciation as well as the amount of depreciation reduce year after year
IV. The value of the asset gets reduced to zero over a period of time.
a. Only (I) above b. Only (II) above
c. Both (I) and (II) above d. (I), (II) and (III) above
e. (II), (III) and (IV) above.
< Answer
11. Which of the following errors affects the agreement of a trial balance? >
a. Mistake in balancing an account
b. Omitting to record a transaction entirely in the subsidiary books
c. Recording of a wrong entry in the subsidiary books
d. Recording a correct entry in wrong subsidiary book
e. Posting an entry on the correct side but in the wrong account.
< Answer
12. Which of the following statements is/are true? >
I. An error in casting the subsidiary books is an error of commission
II. An error in wrong casting of the sales day book will not affect the personal accounts of debtors
III. Mistake in transferring the balance of an account to the trial balance will not affect the agreement
of the trial balance
IV. The mistake of treating a liability as an income or vice versa will not affect the agreement of a trial
balance.

a. Only (I) above b. Only (II) above

c. Both (I) and (II) above d. Both (I) and (III) above
e. (I), (II) and (IV) above.
< Answer
13. The expenses and incomes pertaining to full trading period are taken to the Profit and Loss account of a >
business, irrespective of their payment or receipt. This is in recognition of
a. Time period concept b. Business entity concept
c. Going concern concept d. Accrual concept
e. Duality concept.
< Answer
14. Which of the following is an example of capital expenditure? >
 a. Insurance premium b. Taxes and legal expenses
c. Depreciation on machinery d. Discount allowed
e. Customs duty on import of machinery.
< Answer
15. Which of the following items is/are covered under Accounting Standard-2 with regard to accounting for >
inventory?
I. Financial instruments held as stock-in-trade
II. Work in progress arising under construction contracts
III. Work in progress of service providers
IV. Work in progress of a manufacturing industry.

a. Only (I) above b. Only (IV) above

c. Both (I) and (II) above d. Both (III) and (IV) above
e. (II), (III) and (IV) above.
< Answer
16. Which of the following statements is/are true? >
I. Drawings account is a nominal account
II. Capital account is a real account
III. Sales account is a nominal account
IV. Outstanding salaries account is a nominal account
V. Patents account is a personal account.
a. Only (I) above b. Only (III) above
c. Both (II) and (IV) above d. Both (II), (IV) and (V) above
e. (I), (II), (III) and (IV) above.
< Answer
17. The entry to record the collection of cash from sundry debtors would involve a >
I. Debit to sundry debtors II. Debit to cash account
III. Credit to sundry debtors IV. Credit to cash account.

a. Only (I) above b. Only (II) above

c. Only (III) above d. Both (II) and (III) above
e. Both (I) and (IV) above.
< Answer
18. Which of the following statements is true? >
a. Bank charges increase debit balance shown as per bank column of the cash book
b. Bank charges increase debit balance as per bank pass book
c. A cash sale of a non-trading asset is recorded in the journal proper
d. Cash discount allowed by the business will appear on the debit side of the debtor’s account
e. Bank reconciliation statement is prepared by a bank.
< Answer
19. In the books of the drawer, the accounting treatment involved on receipt of a bill of exchange duly >
accepted by the drawee is
I. Debit Bills Receivable account II. Debit drawee’s account
III. Credit drawee’s account IV. Credit Sales account.

a. Only (I) above b. Both (II) and (IV) above

c. Both (I) and (III) above d. Both (I) and (IV) above
e. (I), (III), and (IV) above.
< Answer
20. The noting charges levied on dishonour of an endorsed bill by the Notary Public are to be borne by >
a. The drawer of the billb. The person responsible for dishonour
c. The holder of the bill d. The endorser of the bill
e. The endorsee of the bill.
< Answer
21. XYZ Ltd. has a branch at Bangalore. The branch sells goods only for cash and the Head Office >
maintains the accounts of the branch in its books. At the beginning of the year, the company debits its
Banagalore Branch Account with which of the following accounts?
 I. Goods sent to branch II. Opening balance of cash at the
branch
III. Opening assets of the branch IV. Opening stock at the branch
V. Opening debtors of the branch.
a. Only (I) above b. Both (II) and (III) above
c. Both (II) and (IV) above d. (II), (III) and (IV) above
e. All (I), (II), (III), (IV) and (V) above.
< Answer
22. ABC Ltd. makes payments to its sundry creditors through cheques and the cash discount received on >
these payments is recorded in the triple columnar cash book. In the event of dishonour of any such
cheques, the discount so received should be written back through
I. A debit to discount column of the cash book
II. A credit to discount column of the cash book
III. A credit to bank column of the cash book
IV. A debit to discount account through journal proper
V. A credit to creditor’s account through journal proper.
a. Only (I) above b. Only (II) above
c. Only (IV) above d. Both (I) and (III) above
e. Both (IV) and (V) above.
< Answer
23. RS Ltd. makes purchases on credit. If the purchases are not as per the specifications, the company >
returns them to the suppliers. The book, that is used to record such returns is
a. Returns inward book b. Returns outward book
c. Cash book d. Journal proper
e. Purchases day book.
< Answer
24. The drawer of a trade bill passes relevant entries with regard to the transaction involved in it. But, in >
case of an accommodation bill, he passes an entry in addition to the usual entries. The additional entry
so passed is with respect to
a. Discounting of the bill with the bank b. Payment of the bill on due date
c. Remitting or receiving the amount d. Sending the bill to bank for collection
e. Both (b) and (d) above.
< Answer
25. Which of the following assets is/are to be valued at the lower of cost and net realizable value? >
a. Goodwill b. Inventories
c. Investments d. Sundry debtors e. Both (b) and (c) above.
< Answer
26. Under which of the following situations, is journal entry not passed in the books of the drawer? >
a. When a discounted bill is honoured by the drawee on the due date
b. When a bill is sent to the bank for collection
c. When a bill is renewed at the request of the drawee
d. When a debtor accepts a bill drawn by the drawer
e. When an accommodation bill is discounted with a bank.
< Answer
27. The balances of which of the following accounts do not disappear, once they are debited/credited to >
Trading Account.
a. Sales b. Purchases c. Inward returns
d. Closing stock e. Outward returns.
< Answer
28. Which of the following events is/are not recorded in the books of a business? >
a. Significant monetary events after the balance sheet date
b. Death of a chief executive of the business
c. Government investigations into the pricing policies of the business
d. Both (b) and (c) above
e. (a), (b) and (c) above.
 < Answer
29. If office equipment is purchased for cash, what effect will this transaction have on the financial position >
of the company?
a. There is no change in the assets, liabilities and owners’ equity
b. There is a decrease in assets, increase in liabilities and no change in owners' equity
c. There is a decrease in assets, no change in liabilities and a decrease in owners' equity
d. There is an increase in assets, decrease in liabilities and no change in owners’ equity
e. There is an increase in assets, no change in liabilities and an increase in owners’ equity.
< Answer
30. The accounting process of gradually converting the unexpired cost of fixed assets into expenses over a >
series of accounting periods is
a. Depreciation b. Physical deterioration of the asset
c. Decrease in market value of the asset d. Valuation of an asset at a point of time
e. All of the above.
< Answer
31. The periodical total of discount column on receipts side of a triple column cash book is recorded to the >
a. Credit side of discount account b. Credit side of provision for discount account
c. Debit side of discount account d. Credit side of debtor’s account
e. Credit side of creditor’s account.
< Answer
32. 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.
< Answer
33. Under trading method of branch accounting, the branch account shows >
a. The profit made by the branch
b. The opening and closing balances of assets at the branch
c. The opening and closing balances of liabilities at the branch
d. Both (b) and (c) above
e. (a), (b) and (c) above.
< Answer
34. Which of the following statements is false with regard to short workings? >
a. The short workings in a particular year may be adjusted against the surplus royalty as per the terms
of agreement
b. The short workings are recouped to the debit of landlord’s account
c. The short workings are the losses of the lessee in the year of occurrence
d. The recoverable short workings are shown as an asset in the books of the lessee
e. The question of short workings does not arise, if the royalty agreement does not contain a clause
for minimum rent.
< Answer
35. If goods are returned by a customer to branch, the entry to be passed in the books of head office is >
a. Debit Branch Stock a/c., Credit Returns Inward a/c.
b. Debit Branch Stock a/c., Credit Branch Debtors a/c.
c. Debit Branch Debtors a/c., Credit Returns Inward a/c.
d. Debit Branch Debtors a/c., Credit Branch Stock a/c.
e. Debit Returns Inward a/c., Credit Branch Stock a/c.
< Answer
36. In case of manufacturing concerns, the balance in ‘goods sent to branch’ account will be transferred to >
a. Purchases account b. Sales account c. Trading account
d. Branch account e. Branch stock account.
37. Which of the following methods is not a practical way of realizing revenue? < Answer
>
a. Delivery method b. Percentage-of-completion method
c. Production method d. Installment method
e. Moving average method.
 < Answer
38. Under the direct write-off method of recognizing a bad debt expense, which of the following statements >
is/are true?
a. The bad debt expense is not matched with the related sales
b. Accounts receivables are overstated in the year of sales
c. Revenue is overstated in the year of sales
d. It violates the matching principle of accounting
e. All of the above.
< Answer
39. Which of the following statements is true? >
I. Recoupable shortworkings is a current asset
II. Lapsed shortworkings is a nominal account
III. Shortworkings is the part of minimum rent not represented by the use of rights
IV. Shortworkings is the amount by which the minimum rent exceeds the actual royalty
V. The occurrence of shortworkings in any period indicates that the lessee is liable to pay the
minimum rent.

a. Both (I) and (II) above b. Both (II) and (III) above
c. (I), (II) and (IV) above d. (II), (IV) and (V) above
e. All (I), (II), (III), (IV) and (V) above.
40. The inventory method where the cost per unit is recomputed after every addition in the inventory is < Answer
>
known as
a. Simple average method b. Specific identification method
c. Moving average method d. Last-in-First-out method
e. First-in-First-out method.

END OF SECTION A

Section B : Problems (60 Marks)

• • This section consists of questions with serial number 41 - 74.
• • Answer all questions.
• • Marks are indicated against each question.
< Answer >
41. Consider the following information pertaining to Vikram Company for the year 2002-2003:
Opening balance of provision for bad and doubtful debts account Rs. 20,000
Bad debts during the year Rs. 18,000
Closing balance of sundry debtors Rs.2,65,000 If the
company has the practice of maintaining provision at the rate of 4 % on sundry debtors, the amount to
be debited to profit and loss account for the period ended March 31,2003, is
a. Rs. 8,600 b. Rs.10,400 c. Rs.10,520 d. Rs.10,600 e. Rs.10,680.
(1 mark)
42. At the beginning of the current year, the owner’s equity of a firm is Rs.1,80,000. During the year, the < Answer >

assets and liabilities of the firm have increased by Rs.1,80,000 and Rs.2,20,000 respectively. Owner’s
equity at the end of the year will be
a. Rs.3,60,000 b. Rs.4,00,000 c. Rs.2,20,000 d. Rs.1,40,000 e. Rs.1,80,000.
(1 mark)
< Answer >
43. While preparing the final accounts of the company, the accountant of Pioneer Company located the
 following errors:
• • The Returns Inward book was undercast by Rs.1,377.
• • A purchase of Rs.1,252 was posted to the debit of the supplier’s account as Rs.125.
• • Wages of Rs.500 paid for installation of a new machine was debited to wages account.
• • Sales returns of Rs.877 were taken into stock but no entry in respect of the transaction was
passed in the books.
The difference in Trial Balance of the company on account of the above errors is
a. Rs. Nil b. Rs. 877 c. Rs.1,377 d. Rs.3,631 e. Rs.4,131.
(2 marks)
< Answer >
44. Consider the following data pertaining to Dileep Company for the period 2002-2003:

Particulars Rs.
Opening inventory 5,00,000
Purchases during the year 25,00,000
Sales during the year 32,00,000
A physical inventory taken on March 31,
2003 showed an ending inventory of Rs.5,75,000. Company’s gross profit on sales was constant at 25%
through out the year. The management of the company suspects pilferage of inventory. The estimated
cost of missing inventory on the last day of the financial year was
a. Rs.2,25,000 b. Rs.2,00,000 c. Rs.1,75,000 d. Rs.1,00,000 e. Rs. 25,000.
(1 mark)
< Answer >
45. Mitra Company of Hyderabad, opened a branch at Dehradun on April 01, 2002. During the period April
01, 2002 to December 31, 2003, the Head Office invoiced goods at selling price to the Branch which
was 120% of the cost price of the Head Office. The company has furnished the following information
pertaining to the transactions of its Dehradun branch.

Particulars Rs. Rs.

Goods sent to branch (at cost to Head Office) 8,00,000
Amount paid to branch for:
Salaries Rs.68,000
Rent Rs.15,000
Other expenses Rs. 7,000 90,000
Sales – Cash 2,50,000
Credit 6,50,000
Returns from debtors 15,000
Cash collected from debtors 4,90,000
Discount allowed to debtors 22,000
Spoiled goods written off at invoice price 4,800
Stock as on December 31, 2003 at invoice price 60,000
The Head Office maintains necessary accounts under stock and debtors system in its books to arrive at
the profit or loss made by the branch. The profit made by the branch for the period ended December 31,
2003 is
a. Rs. 6,533 b. Rs.23,000 c. Rs.45,000 d. Rs.55,200 e. Rs.28,533.
 (3 marks)
< Answer >
46. Ruthven Limited has two accounts with Everest Bank Ltd. The accounts were numbered as I and II. On
December 31, 2003, as per the bank column of cash book of the company, the balances in both the
accounts were as under:
Account No. I. (Debit) Rs. 1,28,250 and Account No. II. (Credit) Rs.1,11,250.
The above balances were not agreeing with the balances shown by the bank. On scrutiny, the following
discrepancies were noticed:
i. Outstation cheques for Rs1,32,000 and Rs.1,17,500 deposited in Account No. I and II respectively
in the bank on December 22, 2003 were not collected by the bank as on December 31, 2003.
ii. Bank charges amounting to Rs.150 and Rs.1,125, respectively for Account No. I and II and Bank interest
amounting to Rs. 11,375 on Account No. II were not recorded in the cash book.
iii. Cheques amounting to Rs.1,50,000 and Rs.15,000 issued respectively from Account No. I and II
were not presented for payment as on December 31, 2003.
iv. Interest on investments of Rs.5,200 collected and credited in Account No. I by the banker appeared
only in the bank statement.
v. A deposit of Rs.17,500 in Account No. I was wrongly entered in Account No. II in the cash book.
The bank balance as per pass book in Account No. II as on December 31, 2003 was
a. Rs.2,29,000(debit) b. Rs.2,61,250(credit) c. Rs.2,31,250(debit) d. Rs.2,43,750(debit)
e. Rs.2,43,750(credit).
(3 marks)
< Answer >
47. On April 01, 2002, Sneha Limited showed a balance of Rs.5,600 to the credit of Provision for bad and
doubtful debts. On March 31, 2003 the Sundry Debtors showed a balance of Rs.2,50,400. Out of the
total debtors, the status of the following debtors is as follows:
Sinha Rs.3,800 - identified as bad debt and is to be written off
Gupta Rs.9,000 - expected to realize only 80%
Patel Rs.8,000 - expected to realize only 60%
Iyer Rs.5,500 - filed insolvency petition and the recovery chances are remote.
All other debts as on the date of finalisation of accounts are estimated to be good. The company
maintains a suitable provision for doubtful debts. The amount debited to the profit and loss account in
respect of provision for bad and doubtful debts for the year ended March 31, 2003 was
a. Rs.14,300 b. Rs. 8,700 c. Rs.15,700 d. Rs.10,500 e. Rs. 4,900.
(2 marks)
< Answer >
48. On December 31, 2003, the debit balance as per bank statement of Rainbow Ltd. is Rs.12,500. On
December 20, 2003, the company deposited two cheques aggregating to Rs.8,500, out of which, one
cheque for Rs.2,800 was dishonoured on December 25, 2003 which was entered in the cash book on
January 02, 2004. The bank balance as per cash book of the company as on December 31, 2003 is
a. Rs. 4,000 (credit) b. Rs.15,300(debit)
c. Rs.12,500(credit) d. Rs. 9,700(debit) e. Rs. 9,700(credit).
(1 mark)
< Answer >
49. Consider the following information pertaining to Blue Sky Ltd. for the year 2002-2003:
Particulars 1st April 2002 31st March 2003
Inventory Rs. 52,200 Rs. 65,800
Sundry debtors Rs. 37,000 Rs. 60,000
Sundry creditors Rs. 50,000 Rs. 48,000 Total
credit sales made during the year was Rs.6,75,000. The amount of discount allowed to the sundry
debtors during the period was Rs.2,800. The cost of goods sold of the company was 80% of the sales.
Cash collected from the sundry debtors during the year was
a. Rs. 7,22,000 b. Rs. 6,95,200 c. Rs. 6,75,000 d. Rs. 6,49,200 e. Rs. 5,14,200.
 (1 mark)
< Answer >
50. The closing stock of Aravali Ltd. for the year ended March 31, 2002 was undervalued by Rs.1,120,
while for the year ended March 31, 2003 it is overvalued by Rs.1,120. The gross profit of the company
for the year ended March 31, 2003 is Rs.2,23,240. On rectification of these errors, the gross profit of the
company will be
a. Rs.2,23,240 b. Rs.2,22,120 c. Rs.2,21,000 d. Rs.2,25,480 e. Rs.2,24,360.
(1 mark)
< Answer >
51. On April 01, 1999 Mr. Mahendra took on lease a coal mine on the following terms:
Minimum rent per annum Rs.50,000
Royalty 10% of sales
Shortworkings of any year can be recouped in the next two years.
Mr. Mahendra sells coal at the rate of Rs.50 per ton
The production and closing inventory details are as under:

Year Production in tonnes Closing stock in tonnes

1999-2000 2,700 700
2000-2001 5,800 500
2001-2002 8,300 800
2002-2003 11,000 1,800 The amount of
shortworkings shown on the assets side of Balance Sheet of the company as at March 31, 2003 was
a. Rs.40,000 b. Rs.70,000 c. Rs.10,000 d. Rs.30,000 e. Rs.66,000.
(2 marks)
< Answer >
52. Sanyo Ltd. transfers goods to its branch at cost plus 25%. It maintains the branch accounts under Stock
and debtors system. The following are the details pertaining to its Kanpur Branch for the year 2002-
2003:
Particulars Rs.
Opening stock at branch 12,000
Goods sent to branch 58,000
Cash sent to branch for
Rent 3,300
Salaries 1,500
Other expenses 1,200
Cash sales 22,500
Credit sales 42,500
Closing stock at branch 5,000 The amount transferred to general profit & loss
account for the year ended March 31, 2003 was
a. Rs.13,000 b. Rs. 7,000 c. Rs 8,000 d. Rs. 9,500 e. Rs.15,000.
(2 marks)
Questions 53 and 54 are based on the following data:
The following is the trial balance of Mythili Ltd. as on March 31, 2003:
 Credit
Particulars Debit (Rs.) Particulars
(Rs.)
Equity share capital
Land & building 3,65,000 5,00,000
(Face value Rs.10 each)
Plant & machinery 6,72,000 Sundry creditors 1,50,000
Furniture & fixtures 2,85,000 Sales 16,15,000
Sundry debtors 1,80,000 Purchases returns 49,000
Bank overdraft
Purchases 6,72,000 (Rate of Interest-13% per 3,00,000
annum)
Sales returns 22,000 Discount received 21,000
Opening stock
48,000 Reserves & Surplus 3,12,000
(as on April 01, 2002)
Bad debts 19,000 12% Debentures 2,80,000
Salaries and wages 5,10,000
Interest on bank overdraft 30,000
Advertisement 1,20,000
Annual fire insurance
premium (with effect from 18,000
May 01, 2002)
Investments (8% p.a.) 2,00,000
Discount allowed 12,000
General expenses 54,000
Cash at bank 20,000
32,27,00 Total
Total 32,27,000
0
The company
has furnished the following additional information:
 Closing stock as on March 31, 2003 was Rs.50,000.
 Depreciation is to be provided on plant & machinery at the rate of 20% per annum and on furniture and
fixtures at the rate of 12% per annum.
 Stock worth Rs.6,000 was destroyed by fire on March 11, 2003 and the insurance company admitted a
claim of Rs.5,000.
 A provision for discount on debtors is to be made at the rate of 5% on sundry debtors.
Goods worth Rs,5,000 are distributed as samples.
< Answer >
53. Considering the above trial balance and the additional information, the net profit of the company for the
year ended March 31, 2003 was
a. Rs.58,900 b. Rs.32,300 c. Rs.37,300 d. Rs.41,300 e. Rs.49,900.
(3 marks)
< Answer >
54. The total of Balance Sheet of Mythili Ltd.as on March 31, 2003 was
a. Rs.15,78,300 b. Rs.15,91,900 c. Rs.16,00,900 d. Rs.16,16,900 e. Rs.15,83,300.
 (3 marks)
< Answer >
55. Pioneer Company, a dealer in cosmetics, records its inventory under first-in-first-out method, so as to
minimize accumulation of outdated stock. The opening stock as on December 01, 2003 is 150 units at
the rate of Rs.20 per unit. The purchases and sales made during the month are:
Purchases:
Date No. of units Cost price per unit
04-12-2003 200 Rs.25
14-12-2003 100 Rs.22
21-12-2003 300 Rs.30
26-12-2003 150 Rs.40 Sales:
Date No. of units
03-12-2003 100
10-12-2003 150
15-12-2003 100
25-12-2003 200
28-12-2003 200 With effect from December 01, 2003, the
company decided to change the method of inventory valuation from the FIFO method to LIFO method.
The change in the value of inventory consequent upon the change in the method of valuation is
a. Increase in the value of closing stock by Rs.1,500
b. Decrease in the value of closing stock by Rs.1,500
c. Increase in the value of closing stock by Rs.3,000
d. Decrease in the value of closing stock by Rs.500
e. Decrease in the value of closing stock by Rs.3,000.
(2 marks)
< Answer >
56. Aryan Ltd. purchased furniture for Rs.60,000 two years ago. The current book value of the furniture is
Rs.43,350. If the company charges depreciation on furniture under written down value method, the rate
of depreciation charged was
a. 35% b. 30% c. 25% d. 20% e. 15%.
(1 mark)
< Answer >
57. Mr. Abhinav owes Rs.12,500 to Mr. Abhijith and accepted a bill for 3 months drawn by Mr. Abhijith.
Subsequently, after one month Mr. Abhijith discounted the bill with a bank at a rate of 24% p.a. On the
due date, the bill was dishonored and this fact was noted by the notary public at a cost of 2.5% of bill
amount. The journal entry to record the payment of noting charges and the dishonor of the bill in the
books of Abhijith is
a. Mr. Abhinav’s a/c. Dr. Rs.12,500.00
To Bills receivable Rs.12,500.00
b. Mr. Abhinav’s a/c. Dr. Rs.12,500.00
To Bank a/c. Rs.12,500.00
c. Mr. Abhinav’s a/c. Dr. Rs.12,812.50
To Bank a/c. Rs.12,812.50
d. Mr. Abhinav’s a/c. Dr. Rs.12,812.50
To Bills receivable Rs.12,812.50
e. Mr. Abhinav’s a/c. Dr. Rs. 13,125.00
To Bank a/c. Rs.12,812.50
To Noting charges a/c. Rs. 312.50.

(1 mark)
< Answer >
58. Consider the following data pertaining to Windsor Ltd. for the month of December 2003:
 As on December 01, 2003 As on December 31, 2003
Particulars
(Rs.) (Rs.)
Stock 1,80,000 90,000
Sundry creditors 80,000 60,000 The company
makes all purchases on credit. During the month of December 2003, the company paid a sum of
Rs.3,50,000 to the suppliers. The goods are sold at 25% above the cost. The sales for the month of
December 2003 were
a. Rs.4,12,500 b. Rs.5,25,000 c. Rs. 90,000 d. Rs.3,15,000 e. Rs.3,30,000.
(2 marks)
< Answer >
59. During the year 2002-2003, Deepak Ltd. paid Rs.1,20,000 as rent. If the outstanding rent as on March
31, 2002 and March 31, 2003 was Rs.24,000 and Rs.36,000 respectively, the amount of rent charged to
profit & loss account for the year ended March 31, 2003 was
a. Rs.1,08,000 b. Rs.1,20,000 c. Rs.1,32,000 d. Rs.1,44,000 e. Rs.1,56,000.
(1 mark)
Questions 60 and 61 are based on the following information:
Fair Pal Company with its head office at Chennai has a branch at Pondichery. Goods are invoiced to the branch at cost
plus 33 1/3% which is the selling price. The following information is the summary of transactions of the branch during
the year 2002-2003:.

Particulars Rs.
Goods sent to branch (at invoice price) 9,60,000
Stock at branch (at invoice price) as on April 01, 2002 48,000
Cash sales 3,60,000
Returns from customers 12,000
Branch expenses paid in cash 1,07,000
Branch debtors balance as on April 01, 2002 60,000
Discount allowed 2,000
Bad debts 3,000
Stock at branch (at invoice price) as on March 31, 2003 96,000
Branch debtors balance as on March 31, 2003 73,000
Collection from debtors 5,40,000
Branch debtors’ cheques dishonoured 10,000
< Answer >
60. The cost of stock lost in transit was
a. Rs.3,000 b. Rs.4,000 c. Rs.2,667 d. Rs.1,333 e. Rs.Nil.
(1 mark)
< Answer >
61. The amount of credit sales made by the branch during the year 2002-03 was
a. Rs.5,64,000 b. Rs.5,60,000 c. Rs.5,59,000 d. Rs.5,72,000 e. Rs.5,75,000.
(2 marks)
< Answer >
62. Sukanya Ltd. purchased a machinery on April 01, 1998 for Rs.1,50,000. It was estimated that the
machinery will have a useful life of 5 years after which it will have no salvage value. If the company
follows sum-of-the-years’-digits method of depreciation, the amount of depreciation charged during the
 year 2002-2003 was
a. Rs.50,000 b. Rs.40,000 c. Rs.30,000 d. Rs.20,000 e. Rs.10,000.
(1 mark)
< Answer >
63. In the month of April 2003, the accountant of Aditya & Co. found the following errors in the books of
accounts for the year 2002-2003, in spite of the agreed balance sheet:
• • Goods worth Rs.20,050 sold to Mr. Dutta was entered in the sales day book as Rs.20,500
and it was debited to Mr. Dutta’s account as Rs.25,000
• • Goods worth Rs.16,000 were purchased from M/s.Philip & Company on March 30, 2003.
The invoice was not passed through the purchases day book
• • Goods to the value of Rs.2,750 returned by Mr. Rajkumar, was debited to his account and
also to sales returns account
• • The purchases day book for the month of March 2003 was undercast by Rs.10,000
• • Bank interest on overdraft for the month of March 2003, amounting to Rs.3,750 was not
recorded in the books of accounts.
• • A credit sale of goods worth Rs.20,000 on March 29, 2003, was completely omitted to be
recorded in the sales day book.
The effect of rectification of the above transactions on the profit for the year 2002-2003 will be
a. Profit will increase by Rs.10,200 b. Profit will decrease by Rs.30,450
c. Profit will decrease by Rs.3,750 d. Profit will increase by Rs.36,450
e. Profit will decrease by Rs.10,200.
(3 marks)
< Answer >
64. Navneeth, a sole proprietor, maintains a three columnar cash book to record his business transactions.
Consider the following data pertaining to his business for the month of December, 2003:
Particulars Rs.
Opening cash on 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 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 14,850
allowed a discount of 10%)
Paid M/s. Bharani and Co. in full settlement of their dues of Rs. 28,500 26,250
Received from Rama & Bros. (as against 38,900) in full and final settlement 36,200
The total amount of discount recorded on the debit side of the three columnar cash book for the month
of December 2003 is
a. Rs. 5,200 b. Rs. 4,150 c. Rs. 6,850 d. Rs. 12,250 e. Rs. 13,900.
(2 marks)
< Answer >
65. On April 01, 2002, the debit balance of the machinery account of Bright Light Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2000.The company charged depreciation at the rate of 10% per
annum under diminishing balance method. On October 01, 2002, the company acquired a new machine
at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine.
The company decided to change the system of providing depreciation from the diminishing balance
method to the straight-line method with retrospective effect from April 01, 2000. The rate of
depreciation will remain the same. The company decided to make necessary adjustments in respect of
depreciation due to the change in the method in the year 2002-2003.

The balance outstanding to the debit of machinery account as at March 31, 2003 after effecting the
above changes was

a. Rs.5,45,700 b. Rs.5,52,700 c. Rs.5,46,000 d. Rs.5,49,400 e. Rs.5,43,000.

 (2 marks)
< Answer >
66. Bhaya Ltd. granted a lease to Bharani Ltd., a mining company for extracting minerals from its property
for a period of 12 years from April 01, 1999. The terms of agreement are:
• • Royalty - at the rate of Rs.25 per ton of output
• • Minimum rent - Rs.6,00,000 per annum.
It was further agreed that the shortfall in any year may be recouped from any excess of royalty over the
minimum rent in the next 2 years subject to a maximum of Rs.50,000 per annum.
The following is the data pertaining to output of the Bharani Ltd., for the past four years:
Year Output (tonnes)
1999-2000 18,000
2000-2001 20,000
2001-2002 25,000
2002-2003 32,000 The amount of shortworkings lapsed during the year
2002-2003 was
a. Rs. 25,000 b. Rs.1,75,000 c. Rs. 50,000 d. Rs.Nil e. Rs.1,00,000.
(2 marks)
< Answer >
67. For mutual accommodation of Mr. Sarath and Mr. Verma, Mr. Sarath had drawn a bill of Rs.24,000 for 2
months on October 01, 2003. On the same day Mr. Verma accepted the bill and sent to Mr. Sarath. On
October 04, 2003, Mr. Sarath discounted the bill with Bank of Hyderabad Ltd. at the rate of 12% per
annum and remitted one third proceeds to Mr. Verma. On the due date Mr. Sarath was unable to remit
his share. On the same day he accepted a bill of Rs.18,000 for 2 months drawn by Mr. Verma.
Mr. Verma discounted the bill at the rate of 12% per annum with Syndicate Bank.
Mr. Verma honored his acceptance and sent Rs.1,000 to Mr. Sarath. On January 01, 2004,
Mr. Sarath became insolvent. A dividend of 40 paise in a rupee was realized from his estate on January
20, 2004.
In the books of Mr.verma, the entry to record the recovery of 40 paise from the estate of Sarath is
a. Bank account Dr. Rs. 6,938
Bad debts account Dr. Rs.10,409
To Sarath’s account Rs.17,347
b. Bank account Dr. Rs. 7,200
Bad debts account Dr. Rs.10,800
To Bills Receivable account Rs.18,000
c. Bank account Dr. Rs. 7,200
Bad debts account Dr. Rs.10,800
To Sarath’s account Rs.18,000
d. Bad debts account Dr. Rs. 7,200
Bank account Dr. Rs.10,800
To Sarath’s account Rs.18,000
e. Bad debts account Dr. Rs. 6,938
Bank account Dr. Rs.10,409
To Bills Receivable account Rs.17,347.
(3 marks)
< Answer >
68. For mutual accommodation of Monty and Ronty, Monty accepted a bill drawn on him by Ronty for 2
months for Rs.4,500 on November 01, 2003. Ronty discounted the bill on the same day with his bank
for Rs.4,410 and remitted 1/3rd of the proceeds to Monty. Ronty did not send his share to Monty in order
to enable him to meet the bill. Monty also did not honour the bill on the due date. Noting charges at the
rate of 3% of the bill amount was paid by the bank. The amount of noting charges borne by the drawer
was
a. Rs.135.00 b. Rs. 90.00 c. Rs. 45.00 d. Rs. 88.20 e. Rs.132.30.
(1 mark)
 < Answer >
69. Anand drew a bill for Rs.12,000 on Arvind who accepted the same for mutual accommodation in the ratio
of 2:1. Anand discounted the bill for Rs.11,100 and remitted one third proceeds to Arvind. Before the
due date, Arvind drew another bill for Rs.18,000 on Anand in order to provide funds to meet the first
bill. The second bill was discounted for Rs.17,400 by Arvind and a sum of Rs.3,600 was remitted to
Anand for meeting the first bill. The second bill was honored by Anand. The share of discount that was
borne by Anand on the second bill was
a. Rs. 400 b. Rs. 600 c. Rs. 300 d. Rs. 900 e. Rs.1,200.
(1 mark)
< Answer >
70. The following balances are extracted from the books of accounts of Silver Line Ltd. as on March 31,
2003.

Particulars Rs. Particulars Rs.

Share capital account 2,68,800 Manufacturing wages 81,940
Preliminary expenses 21,10 Sales 7,10,800
0
Sundry creditors 1,10,060 Returns inward 5,560
15% Term- Loan 40,000 Salaries 2,79,840
Closing inventory as on Returns outward 2,060
March 31, 2003 2,05,200
Cash at bank 44,00 Discount allowed 8,200
0
Sundry debtors 1,43,00 Office administrative expenses 21,740
0
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 Outstanding salaries 3,000
April 01, 2002 1,09,360
Purchases 3,07,980
The total of Trial Balance of the company as on March 31, 2003 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)
< Answer >
71. The sundry debtors of M/s.Neelam & Co. includes a balance of Rs.80,000 to the debit of Mahajan
Traders in respect of which it has been negotiated and settled to receive from the party after allowing a
discount of 2.5%. The settled amount was received by a cheque. The transaction will be recorded in the
books of Neelam & Co. as
a. Bank a/c. Dr. Rs.80,000
To Mahajan Traders a/c. Rs.80,000
b. Bank a/c. Dr. Rs.80,000
To Mahajan Traders a/c. Rs.78,000
To Discount a/c. Rs. 2,000
c. Mahajan Traders a/c. Dr. Rs.78,000
To Bank a/c. Rs.78,000
d. Bank a/c Dr. Rs.78,000
Discount a/c. Dr. Rs. 2,000
To Mahajan Traders a/c Rs.80,000
e. Bank a/c. Dr. Rs.78,000
 To Mahajan Traders a/c. Rs.78,000.
(1 mark)
< Answer >
72. Mr. Madhav sold goods to Mr. Rajan for Rs.1,900. The catalogue price of the goods is Rs.2,100. Mr.
Madhav also offered a further discount of Rs.50 for spot payment of cash. Mr. Rajan took delivery of
goods by paying cash.
The journal entry to record the transaction in the books of Mr. Madhav is
a. Cash a/c. – Dr. Rs.1,850
Trade discount a/c. – Dr. Rs. 200
Cash discount a/c. – Dr. Rs. 50
To Sales a/c. Rs.2,100
b. Cash a/c. – Dr. Rs.1,850
Discount a/c. – Dr. Rs. 250
To Sales a/c. Rs.2,100
c. Cash a/c. – Dr. Rs.1,850
Discount a/c. – Dr. Rs. 50
To Sales a/c. Rs.1,900
d. Cash a/c. – Dr. Rs.1,850
To Sales a/c. Rs.1,850
e. Mr. Rajan’s a/c._ Dr. Rs.1,850
To Sales a/c. Rs.1,850
(1 mark)
< Answer >
73. Consider the following extract of Trial Balance of Nilgiri Ltd. as on March 31, 2003:
Particulars Rs.
Share Capital 5,76,900
12%Bank loan 1,50,000
Sundry creditors 50,000
Bills payable 10,000
Land & building 4,36,000
Cash at bank 23,500
Office equipment 1,99,700
Furniture 2,00,000
Closing stock 38,000
Bills receivable 9,000
Sundry debtors 55,000
Petty cash 210
Cash on hand 9,400 For the year ending March 31, 2003, the following
adjustments were effected.
• • Depreciation on – Office equipment: Rs.19,970; Furniture:Rs.30,000
• • Reserve for discount on Sundry creditors is Rs.720. Provision for discount on Sundry
debtors is Rs.779
• • Sundry creditors include a debt of Rs.8,000 due to Mr.Madhukar who is also in the list of
Sundry debtors for the same amount
• • Accrued commission receivable amounted to Rs.13,000 and Prepaid printing charges
aggregated to Rs.1,850; Accrued interest on bank loan is of Rs.15,000.
After effecting the adjustments, the net profit was Rs.1,33,731.
The total of Balance Sheet of the company as at March 31, 2003 was
a. Rs.9,36,911 b. Rs.9,27,631 c. Rs.9,26,911 d. Rs.9,13,911 e. Rs.9,26,970.
(3 marks)
< Answer >
74. Consider the following data pertaining to Joy Ltd. for the year ended March 31, 2003:
Cash sales Rs 4,00,000
Decrease in inventory Rs. 40,000
 Plant & Machinery Rs.1,70,000
Rent received Rs. 55,000
Purchases Rs 2,85,000
Sales commission paid Rs. 12,000
The company noticed the following:
o o An amount Rs.2,500 is the amount of rent received in advance.
o o A credit purchase of Rs.15,000 was wrongly recorded in sales day book as Rs.51,000.
o o The company has the practice of depreciating the Plant and Machinery at the rate of
15% per annum on straight line method. The original cost of the Plant and Machinery was
Rs.2,00,000.
o o Sales commission was paid only to the extent of two thirds of the amount payable.

Considering the above data and the additional information, the net profit of the company for the period
ended March 31, 2003 was

a. Rs 18,000 b. Rs.19,500 c. Rs.13,500 d. Rs.28,000 e. Rs.18,500.

(2 marks)

END OF SECTION B
 Suggested Answers
Financial Accounting (111) - January 2004
1. Answer : (d) < TOP
>
Reason :According to the conservatism concept, ‘anticipate no profit and provide for all
possible losses’. Thus, in recognition of conservatism concept, provision for bad
and doubtful debts is created in anticipation of actual bad debts. The statements in
other alternatives are incorrect because Going concern concept assumes that
business will be carried on for a indefinite period and not for definite period (a).
The capital losses are to be deducted to ascertain net income (c). Materiality
concept states that insignificant events need not be recorded and the statement in
alternative (e) is incorrect. Thus, the correct answer is (d).
2. Answer : (c) < TOP
>
Reason :Stock of stationery (a), Goodwill (b), Accounts receivable (d) and cash at bank (e)
are the assets and not the correct answers. Profit and loss account (credit balance)
(c) is the amount belongs to the owner of the business and it is a liability to the
business. Hence it is not an asset and (c) is the correct answer.
3. Answer : (d) < TOP
>
Reason :The favorable bank balance as per pass book will be less than the bank balance as
per cash book, since the debit in the bank account is more than the debit in the cash
book (d). As debit and credit are for equal amount there is no disagreement of the
trial balance; Creditors balance is overstated but not understated: The favorable
bank balance as per pass book will be less than the bank balance as per cash book,
since the debit in the bank account is more than the debit in the cash book.
Purchases are not affected, as it is a payment to the creditor. Thus, the correct
answer is (d).
4. Answer : (d) < TOP
>
Reason :Stock at the end of the financial year is the closing stock, drawings are the amounts
withdrawn by the owner of the business for personal use; and prepaid rent is the
amount of rent which is paid in advance of the current financial year and interest
received but not yet earned is the amount of interest received which does not
pertain to the current year are the items that appear in the balance sheet of a
business. Stock at the beginning of the financial year is the opening stock that
appears in Trading Account of a business and not in the balance sheet. Thus,(d),
the combination of all the accounts in alternatives (I), (III), (IV) and (V) is the
correct answer.
5. Answer : (e) < TOP
>
Reason :Computers taken on hire by a business for a period of twelve months is not an
asset because it is not owned by the business to be classified as asset. Thus, the
correct answer is (e). Since it is not an asset it cannot be classified as any asset and
other alternatives are not the correct answers.
6. Answer : (c) < TOP
>
Reason :The process of balancing of an account involves equalization of both sides of the
account. If the debit side of an account exceeds the credit side, the difference is put
 on the credit side. The said balance is a debit balance and it represents either
expenditure or an asset or both. Thus, the combination of items under I and III i.e.
alternative (c) is the correct answer. The other alternatives are incorrect because,
the excess of debit over credit side is not a credit balance and it is neither an
income nor a liability. Thus, alternatives (b): (d) and (e) the combination of II with
III and IV are incorrect.
7. Answer : (e) < TOP
>
Reason :The statement in alternative (e) is incorrect because, withdrawal of goods by the
proprietor of the business should be debited to drawings and credited to purchases
account and not credited to capital account and is the false statement and is the
correct answer. Wages paid on installation of machinery should be credited to cash
account and debited to machinery account (a);A sale of computer that has been
used in the business should be debited to cash account and credited to office
equipment account (b); Error of posting of a correctly recorded transaction affects
only one account or more accounts (c); Repairs of a machinery purchased
second hand should be debited to machinery account (d) are the correct statements
and not the correct answers.
8. Answer : (b) < TOP
>
Reason :Endorsement of a bill receivable in settlement of a debt of the business is recorded
in the journal proper (b) is the correct answer. The transactions in other
alternatives are not recorded in journal proper and they are recorded in other
subsidiary books specified for them like alternative (a) Purchase of goods on credit
is recorded in purchases book Sale of office furniture for cash (II) and
Discounting of a bill receivable with a bank (III) are recorded in cash book and
not in the journal proper. Thus, the combination of these transactions in
alternatives (a), (c), (d) and (e) are not the correct answers.
9. Answer : (a) < TOP
>
Reason :The portion of the acquisition cost of the asset yet to be allocated is known as
written down value (a) Accumulated value (b) is the value of a thing accumulated
over a period of time and not the correct answer. Realizable value (c) is the value
which can be realized in the event of sale and is not correct answer. Salvage value
(d) is the value of an asset that remains as scrap value after its usage over a period
of time and is not the correct answer. Residual value (e) is the value remaining
residue and is not the correct answer. Alternative (a) is the correct answer.
10 Answer : (b) < TOP
>
. Reason :Under written down value method of depreciation, the amount on which
depreciation is provided reduces from year to year. Thus the statement under
alternative (b) is the correct answer. The statements in other alternatives are
incorrect because, the rate of depreciation does not change year after year it
remains fixed (a): The rate of depreciation and the amount of depreciation reduce
from year to year is incorrect because only the amount of depreciation reduces and
not the rate. Thus, the alternative with the combination of statements (I) and (III) is
incorrect. Under diminishing balance method of depreciation, the amount of the
asset never becomes to zero over a period of time. Thus, the combination of
statements (I), (III) and (IV) i.e. a, c, d and e are incorrect.
11. Answer : (a) < TOP
>
Reason :The mistake in balancing an account affects the agreement of a trial balance(a) is
the correct answer. The other mistakes do not affect the agreement of trial balance.
The Omission to record a transaction entirely in the subsidiary books (b) will not
affect the agreement of a trial balance because both the aspects of a transaction are
omitted to be recorded: Recording of a wrong entry in the subsidiary books (c) will
not cause disagreement of a trial balance because, the wrong entry so recorded has
the effect of posting the transaction in the manner it is recorded. Recording a
correct entry in wrong subsidiary book (d) has the effect of posting the transaction
in the manner it is recorded and has no impact on the agreement of a trial balance:
Posting an entry on the correct side in the wrong account (e) does not affect the
tallying of a trial balance because the aspect of the transaction is posted to the
correct side of an account. Thus, (a) is the correct answer.
12 Answer : (e) < TOP
>
. Reason :An error in casting the subsidiary books is an error of commission (I),An error in
wrong casting of the sales day book will not affect the personal accounts of debtors
(II) and The mistake of treating a liability as an income or vice versa will not affect
the agreement of a trial balance (IV) are the true statements and the combination of
these statements alternative (e) is the correct answer. The other alternatives are
incorrece because (a) states only the statement in (I); (b) states only the statement
(II) and the alternative (c) is the combination of (I) and (II) which is incomplete
(d) combination of (I) and (III) wherein the statement (III) Mistake in transferring
the balance of an account to the trial balance will not affect the agreement of the
trial balance is incorrect because such mistake affects the agreement of the trial
balance is incorrect. Thus, the correct answer is (e).
13 Answer : (d) < TOP
>
. Reason :The expenses and incomes for the full trading period are taken to the Profit and
Loss account of a business, irrespective of their payment or receipt is in
recognition of accrual concept. The concepts in other alternatives are incorrect
because according to the Time period concept (a) the income or loss of a business
is measured periodically for a specified interval of time usually one year and it
does not speak about how expenses and incomes are accounted for the entire
period irrespective of the cash involvement.
According to the Business entity concept (b) the transactions of the business are
treated distinctly from that of the owners of the business and it explains that all the
expenses and incomes of business are to be accounted for distinctly from that of
the owners. The Going concern concept (c), which necessitates distinction between
expenditure that will render benefit over a long period and that whose benefit will
be exhausted within the accounting period. The Duality concept (e) says that every
transaction has dual aspect and explains that Capital + outside liability =Assets.
This is the basis for fundamental equation. Thus, the correct answer is (d).
14 Answer : (e) < TOP
>
. Reason :Customs duty on import of machinery is a capital expenditure and is to be
capitalized along with the cost of the asset. The other expenditures stated in
alternatives (a) Insurance premium (b) taxes and legal expenses (c) Depreciation
on machinery and (d) discount allowed are of revenue nature whose benefit expires
with in the financial year and are not the correct answers. Thus, the correct answer
 is (e).
15 Answer : (b) < TOP
>
. Reason :The Accounting Standard-2 deals with regard to accounting for inventory.
According to the statement, Work in progress of a manufacturing industry is
covered. Thus, the alternative (b) is the correct answer. The items of inventory
stated in other alternatives are not covered under AS-2 Financial instruments held
as stock-in-trade: Work in progress arising under construction contracts and Work
in progress of service providers. Hence, alternatives (a) reflecting statement (I);
(c) combination of statements (I) and (II); alternative (d) combination of
statements (III) and (IV) and alternative (e) combination Of statements II, III and
IV are incorrect.
16 Answer : (b)
. Reason :Sales account is a nominal account is the correct statement and alternative (b) is
the correct answer. The alternative (a) is incorrect because drawings is not a
nominal account and it is a personal account of the owner which indicates the
value of money or goods withdrawn by him for personal consumption. The
alternative (c) is incorrect because the combinations of wrong statement (II)
Capital account is a personal account and not a real account with (III) correct
statement. The alternative (d) is incorrect because the statement IV is incorrect as
outstanding salaries is a representative personal account and not a nominal account
and the statement V is incorrect as patents account is a rela account and not
personal account and the combination of II, IV and V is not the correct answer. The
alternative (e) is incorrect because the combination of one correct statement (III)
with incorrect statements in (I), (II) and (IV). Thus, the correct answer is (b).
17 Answer : (d) < TOP
>
. Reason :The entry to record the collection of cash from sundry debtors will be
Cash account Dr.
To Sundry debtors
the entry is stated in the alternative (d) which is the combination of statement (II)
and (III). The other alternatives (a), (b) and (c) only one aspect of the transaction
and not the correct answers. The alternative (e) the combination of two incorrect
treatments is not the correct answer. Thus, (d) is the correct answer.
18 Answer : (b)
. Reason :Bank charges increase debit balance as per bank pass book (b) is the correct
answer. The debit balance as per bank pass book indicates the overdraft balance
and the bank charges being the expenditure increase the debit balance. The
alternative (a) is incorrect because, the Bank charges decrease the debit balance
shown as per bank column of the cash book and do not increase the debit balance
as debit balance as per cash book signifies the favourable balance. A cash sale of a
non-trading asset is recorded in the journal proper is incorrect (c) because all in
transactions involving cash receipts and payments are recorded in the cash book
Cash discount allowed by the business will appear on the debit side of the debtor’s
account (d) is incorrect because, the cash discount allowed is a reduction in the
balance of a debtor’s account which appears on the credit side. Bank reconciliation
statement is prepared by a bank (e) is incorrect because bank reconciliation
statement is prepared by the business and not by the bank. Thus, (b) is the correct
answer.