CWA ICWA Foundation : Financial Accounting Fundamentals - December 2002

CWA ICWA Foundation • Financial Accounting Fundamentals • December 2002

This Paper has 13 answerable questions with 2 answered.

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

Answer Question No. 1 which is necessary and any five from the rest.

Marks

P maintains Accounts under single entry system and furnishes the following information for the year ending 31^st December 2001:

	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 months 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 31^st December 2001 and the Balance Sheet as on that date.

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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 31^st March 2002:

	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 Auditor’s 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
	17,30,610	17,30,610

You are required to prepare Profit and Loss Account for the year ended 31^st March 2002 and a Balance Sheet as at that date after taking into consideration the following adjustments:

(i)	On 31^st 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 31^st March 2002 after a transfer of 5% of the profits to general reserve.

(0)

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:

Liabilities	Rs.	Assets	Rs.	Rs.
Capital Accounts		Premises	40,000
A	42,500	Less: provn.for deprn.	4,000	36,000
B C	30,000 22,500
Current Accounts:		Plant	46,000
A	4,250	Less: provn.for deprn.	13,500	32,500
B C	6,500 5,750	Stock Debtors	21,000	27,000
Loan: A	20,000	Less: Provn. for doubtful debts	3,750	17,250
Creditors	21,250	Bank	40,000
	1,52,750			1,52,750

B and C decided to carry on the business sharing profits and losses in the ratio of 7:5 respectively. The following adjustments 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.

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(a)

Mr. John submits you the following information for the year ended 31.3.2002:-

	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, damageed 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.

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(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 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.

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.

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The following balances appeared in the books of Royco Ltd. on 1.4.2001:

(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 company 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.

(0)

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.

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.

(0)

(a)

In preparing the accounts of your company, you are faced with the following problems:

(i)	The long–term future success of the company is extremely uncertain;
(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.

(0)

(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:

	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 realized 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.

(0)

Distinguish between:

4x4=16

(a)

Capital Expenditure and Revenue expenditure;

(1)

(b)

Trial Balance and Balance Sheet;

(1)

(c)

Bill of exchange and Promissory note;

(0)

(d)

Depreciation and Reserve.

(0)

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