CWA/ICWA Foundation :: Financial Accounting Fundamentals : December 2002

C-2(FAF)
Revised Syllabus

Time Allowed : 3 Hours Full Marks : 100
Working notes should form part of the answer.
Answer Question No. 1 which is necessary and any five from the rest.
Marks
1. P maintains Accounts under single entry system and furnishes the following information for the year ending 31st December 2001: 2x10=20
1.1.2001
Rs.
31.12.2001
Rs.
Bank balance
Stock
Debtors
Furniture (After depreciation)
Building
Creditors
28,000
30,000
45,000
15,000
1,50,000
32,000
?
40,000
33,000
18,000
?
36,000
Cost of goods sold during the year was Rs. 3,60,000, which constituted 75% of the Sales for the year. The rate of Gross Profit is 25% on Sales.
All purchases and sales are on credit and amounts received from customers and payments to suppliers are by cheque. P realised Rs. 10,000 in cash on the sale of scrap from which he paid Rs. 6,000 as freight on purchases and the balance was retained for his personal use.
Details of his other transactions with the bank are as under:
Rs.
Receipts
Sale of Private Investment brought in as Capital
Sale of Office Furniture (book value Rs. 1,000)
1,50,000
800
Payments
10% Govt. Bonds (face value Rs. 1,40,000 purchased on 1.7.2001)
Salaries
Taxes (11 monthsa ending 30.11.2001)
Printing and Stationary
Miscellaneous Expenses
Drawings
1,50,000
60,000
11,000
7,800
12,000
26,000
Bad Debts written off during the year were Rs. 7,000. Furniture has been depreciated by 10% and Building is to be depreciated by 2%.
The Shop assistant is entitled to a commission of 10% of net profit after charging his commission.
Prepare the Trading and Profit and Loss Account of his business for the year ending 31st December 2001 and the Balance Sheet as on that date.
2. X Co. Ltd. was registered with an authorised Capital of Rs. 10,00,000 divided into shares of Rs. 10 each, of which 40,000 shares had been issued and fully paid.
The following is the Trial Balance extracted on 31st March 2002:
16
Dr.
Rs.
Cr.
Rs.
Stock (1.4.2004)
Returns
Sundry manufacturing expenses
18% Bank Loan (secured)
Office salaries and Expenses
Directors' Remuneration
Freehold premises
Furniture
Debtors and Creditors
Cash at Bank
Profit and Loss Account on 1.4.2001
Share Capital
Purchases and Sales
Manufacturing Wages
Carriage Inwards
Interest on bank loan
Auditors' Fees
Preliminary Expenses
Plant and machinery
Loose Tools
Cash in hand
Advance payment of Tax
1,86,420
12,680
19,240

17,870
26,250
1,64,210
5,000
1,05,400
96,860


7,18,210
1,09,740
4,910
4,500
8,600
6,000
1,28,400
12,500
19,530
84,290

9,850

50,000




62,220

38,640
4,00,000
11,69,900
17,30,61017,30,610
You are required to prepare Profit and Loss Account for the year ended 31st March 2002 and a Balance Sheet as at that date after taking into consideration the following adjustments:
(i) On 31st March 2002, outstanding manufacturing wages and outstanding office salaries stood at Rs. 1,890 and Rs. 1,200 respectively. On the same date stock was valued at Rs. 1,24,840 and loose tools at Rs. 10,000.
(ii) Provide for interest on bank loan for 6 months.
(iii) Depreciation on plant and machinery is to be provided @ 15% while on office furniture it is to be @ 10%.
(iv) Write-off one-third balance of preliminary expenditure.
(v) Make a provision for income tax @ 50%.
(vi) The directors recommended dividend @ 15% for the year ending 31st March 2002 after a transfer of 5% of the profits to general reserve.
 

( 2 )

C—2(FAF)
Revised syllabus
Marks
3. A, B, and C were partnership sharing profits and losses in the ratio of 5:4:3 respectively. A died on 31.12.2001, on which date the balance sheet of the firm was as under: 16
LiabilitiesRs.AssetsRs.Rs.
Capital AccountsPremises40,000
A42,500Less: provn.for deprn.4,00036,000
B
C
30,000
22,500
Current Accounts:Plant46,000
A4,250Less: provn.for deprn.13,50032,500
B
C
6,500
5,750
Stock
Debtors

21,000
27,000
Loan: A20,000Less: Provn.
for doubtful debts

3,750

17,250
Creditors21,250Bank40,000
1,52,7501,52,750
B and C decided to carry on the business sharing profits and losses in the ratio of 7:5 respectively. The following adjestments were made on 31.12.2001.
(a) Plant, stock, and debtors were valued at Rs. 34,500, Rs. 24,300 and Rs. 16,850 respectively.
(b) Valuer's charges of Rs. 700 was to be provided for.
(c) Goodwill was to be valued as equal to 3 years' purchase of super profits. The required return was to be calculated at 25% on partners' capital, current and loans accounts, and was to be set against weighted average profits of the last three years. Profits were : 2001 = Rs. 52,000; 2000 = Rs. 46,000; 1999 = Rs. 45,250. Adjustments for goodwill were to be made in and out of the capital accounts.
Rs. 25,000 was repaid to A's executors on 1.1.2002, the balance owing to be a loan to the partnership.
Prepare necessary ledger accounts and the balance sheet on 1.1.2002.
4. (a) Mr. John submits you the following information for the year ended 31.3.2002:- 8
Rs.
Stock as on 1.4.2001
Purchases
Manufacturing expenses
Expenses on sales
Expenses on administration
Financial charges
Sales
1,50,500
4,37,000
85,000
33,000
18,000
6,000
6,25,000
During the year, damaged goods costing Rs. 12,000 were sold for Rs. 5,000. Barring the above transaction, the gross profit has been @ 20% on sales.
Compute the net profit of Mr. John for the year ended 31.3.2002.
(b) On 1st. July 2002, G drew a bill for Rs. 80,000 for 3 months on H for mutual accommodation. He accepted the bill of exchange, G had purchased goods worth Rs. 81,000 from J on the same date. G endorsed H's acceptance to J in full settlement. On 1st September 2002, J purchased goods worth Rs. 90,000 from settlement. On 1st September 2002, J purchased goods worth Rs. 90,000 from H. J endorsed the bill of exchange received from G to H and paid Rs. 9,000 in full settlement of the amount due to H. 8
On 1st October 2002, H purchased goods worth Rs. 1,00,000 from G, H paid the amount due to G by Cheque. Give the necessary Journal entries in the books of H.
5. The following balances appeared in the books of Royco Ltd. on 1.4.2001: 16
(a) Debenture Redemption Fund Rs. 60,000 represented by investments of an equal amount (nominal value Rs. 75,000).
(b) The 12% debentures stood at Rs. 90,000.
The comapny sold required amount of investments at 90% for redemption of Rs. 30,000 Debentures at a premium of 20% on the above date.
Show the:
(i)12% Debenture Account;
(ii)Debenture Redemption Fund Account;
(iii)Debenture Redemption Fund Investments Accounts;
(iv)Debenture-holders account.
6. P of Kolkata consigned goods costing Rs. 45,000 to Q of Delhi. The invoice was made so as to show a profit of 331/3% on cost. P paid Rs. 300 as carriage and Rs. 1,200 as insurance. Goods costing Rs. 5,000 were destroyed in transit and insurance company admitted the full claim. 16
In Delhi Q paid Rs. 240 as carriage and Rs. 600 as godown rent. Two-thirds of the goods received by Q were sold by him. Q sent a cheque to P for the sale proceeds after deducting the expenses incurred by him and the commission due to him—ordinary 5% and del credere 2.5%.
Show the consignment account and Q account in P's ledger.
7. (a) In preparing the accounts of your company, you are faced with the following problems: 8
(i)The long-term future success of the company is extremely unertain;
(ii)Fixed assets would now cost a great deal more than they did when they were originally purchased:
(iii)Although the sales have not yet actually taken place, some reliable customers have placed several large orders that are likely to be extremely profitable;
(iv)The company has had a poor trading year and owners believe that a more balanced result could be presented if a LIFO stock valuation method was adopted instead of present FIFO method.
You are required to:-
(i)State which accounting concept the accountant should follow in dealing with each of the above problems:
(ii) Explain briefly what each concept means.
(b) AB and C are partners sharing profits and losses in the ratio 5:3:2. Their capital were Rs. 9,600, Rs. 6,000 and Rs. 8,400 respectively.
After paying creditors, the liabilities and assets of the firm were:
8
Rs.Rs.
Liabilities for interest for
loans from Spouses of partners
Partners

2,000
1,000
Investments
Furniture
Machinery
Stock
1,000
2,000
1,200
4,000
The assets realised in full in the order in which they are listed above. B is insolved.
You are required to prepare a statement showing the distribution of cash as and when available applying maximum possible loss procedure.
8. Distinguish between:
(a)Capital Expenditure and Revenue expenditure;
(b)Trial Balance and Balance Sheet;
(c)Bill of exchange and Promisory note;
(d)Depreciation and Reserve.
4x4=16

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