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Question No: 56 ( Marks: 5 )
Write down the five advantages of Limited Company.
Answer
1. It is a legal entity created by law and hence has its own recognition, good will and brand equity etc.
2. It is a wide form of business and hence a formal approach for various partners/investors to come and work for
the same objectives in an organized form.
3. Liability limited to company assets only. Investors/partners do not personally liable for any loss or in state of
bankrupty.
4. Being a legal entity, easy to get loans or gather funds from public (for public limited companies only) or financial
institutes.
5. Being a legal entity, it can enjoy more opportunities for mega projects and trade/operations opportunities in
international markets on its on behalf.

Question No: 57 ( Marks: 5 )

ABC Company purchased goods of Rs.150,000 on credit from which goods of Rs.20,000 were defected and returned.
Company received 2% discount at the time of payment from the supplier.
Required:
What will be the amount of discount received by the company?
Also show the journal entries

Solution:
(A)
Discount Received= (150,000-20,000) x (2/100) = 2600

(B)
Particulars Dr. Cr.
Entry for Purchase
Goods 150,000
A/P 150,000

Entry for Return

A/P 20,000
Goods 20,000

While making Payment (@ 2% discount = 2600)

A/P 130,000
Discount income 2,600
Cash 127,400

Question No: 58 ( Marks: 10 )

State clearly how you will deal with Bad Debts Account, Provision for Bad Debts Account, Profit & Loss account
and Balance Sheet in the following case:
The items appearing in the trial balance are bad debts Rs. 300, provision for bad debts Rs. 350 and sundry debtors Rs.
12,000. It is required to increase the provision for bad debts to 5% on sundry debtors.

Question No: 59 ( Marks: 10 )

The unadjusted and adjusted trial balances for Tinker Corporation on December 31, 2007, are shown below:
Tinker Corporation
Trial Balances
December 31, 2007
Unadjusted Adjusted
Debit Credit Debit Credit
Rs. Rs. Rs. Rs.
Cash 35,200 35,200
Accounts receivable 29,120 29,120
Unexpired insurance 1,200 600
Prepaid rent 5,400 5,400
Office supplies 680 380
Equipment 60,000 60,000
Accumulated depreciation: equipment 49,000 50,000
Accounts payable 900 900
Notes payable 5,000 5,000
Interest payable 200 200
Salaries payable - 2,100
Income taxes payable 1,570 1,570
Unearned revenue 6,800 3,800
Capital stock 25,000 25,000
Retained earnings 30,000 30,000
Fees earned 91,530 94,530
Advertising expense 1,500 1,500
Insurance expense 6,600 7,200
Rent expense 19,800 19,800
Office supplies expense 1,200 1,500
Repairs expense 4,800 4,800
Depreciation expense: equipment 11,000 12,000
Salaries expense 26,300 28,400
Interest expense 200 200
Income taxes expense 7,000 7,000
210,000 210,000 213,100 213,100

Journalize the five adjusting entries that the company made on December 31, 2007.

Solution:
Date Particular Dr. Cr.
Dec 31 Insurance expense 600
to Unexpired insurance 600
Dec 31 Office Supplies Expense 300
to Office Supplies 300
Dec 31 Depreciation Expense-Equip. 1000
to Accumulated depreciation-Equip. 1000
Dec 31 Salaries Expense 2100
to Salaries Payable 2100
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Dec 31 Unearned revenue 3000
to Fee Earned 3000

Question No: 55 ( Marks: 3 )

If the capitals of the partners are fixed, Pass Journal Entries for the following:
 Drawings made by partner
 Excess drawn amount is returned by partner
 Profit distribution among partner

Partner’s Current A/c Dr.

Cash/Bank A/c Cr.

Cash/Bank Dr.
Partner’s Current A/c Cr.

Profit & Loss A/c Dr.

Partner’s Current A/c Cr.

Question No: 56 ( Marks: 5 )

ABC Company purchased goods of Rs.150,000 on credit from which goods of Rs.20,000 were defected and returned.
Company received 2% discount at the time of payment from the supplier.

Required:
· What will be the amount of discount received by the company?
· Also show the journal entries

Purchases A/c 150,000

Creditor A/c 150,000
Goods are being purchased

Creditor A/c 20,000

Purchases A/c 20,000
Goods returned to supplier
Creditor A/c 130,000
Discount Received A/c 2600
Cash/Bank A/c 127400
Payment is being made to creditor and 2% discount is received.

Question No: 58 ( Marks: 10 )

On 01-01-2007, the provision for doubtful debts a/c stood at Rs. 12,000 (credit balance). In 2007, the bad debts are
amounted to Rs. 10,000. The debtors on 31-12-2007 are amounted to Rs. 3, 20,000 and a provision for doubtful debt to
be maintained @ 5%.
Required:
Show Journal entries and also show how the items will appear in Profit and Loss account and Balance sheet. (Show
complete working where it is necessary)

Question No: 59 ( Marks: 10 )

The accounting staff of ABC, Inc., has assembled the following information for the year ended December 31, 2007:
Cash and cash equivalents, Jan. 1 Rs.35,800
Cash and cash equivalents, Dec. 31 74,800
Cash paid to acquire plant assets 21,000
Proceeds from short-term borrowings 10,000
Loan made to borrowers 5,000
Collection on loans (excluding interest) 4,000
Interest and dividends received 27,000
Cash received from customers 795,000
Proceeds from sale of plant assets 9,000
Dividends paid 55,000
Cash paid to suppliers and employees 635,000
Interest paid 19,000
Income taxes paid 71,000
Using this information, prepare a statement of cash flows. Include a proper heading for the financial statement, and
classify the given information into the categories of operating, investing and financing activities.

Question No: 55 ( Marks: 3 )

Mr. Hassan is a partner in a partnership firm. His capital on July 1, 2001 was Rs. 400,000. He invested further capital of
Rs. 150,000 on March 01, 2002. Markup rate is @6%p.a. The financial year of such a business is from 1 st July to 30th
June.
Required: You are required to calculate his markup on Capital at the end of 30th June 2002.

a) Capital invested on july 1 2001 = 400,000

Markup rate on 400,000 = 6% of 40,000 = 24,000

b) Further capital introduced / invested = 150000 on March 1, 2002

Markup rate = 6% of 150000 = 9000 x 4/12 = 3000

Total mark up rate = a + b = 24000 + 3000 = 27000

Question No: 57 ( Marks: 5 )

X and Y were partners in a business sharing profits in the ratio of 3:1. Their capital were Rs.30,000 and Rs.10,000
respectively. They earned a net profit of Rs. 160,000. Mr. Y was entitled to a salary of Rs.200 p.m. Prepare Profit
Distribution Account of X & Y Partnership.

X AND Y ARE SHARED WITH the ratio 3:1

X capital = 30000
Y capital = 10000
Net profit = 160,000
Mr. Y salary is = 200 p.m entitled
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Total investment = X + Y capital = 30000 +10000 = 40000

X profit distribution = 30,000/40000 x 160000 = 120,000

Y profit distrubtion = 10,000/40000 x 160000 x 40000 = 40000
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Question No: 56 ( Marks: 5 )
Calculate cost of goods sold with he help of given data.

Particulars Rs.
Purchases 418,000
Carriage inwards 7,900
Discount Allowed 750
debtors 16,000
Sales man commission 2,000
Office expenses 2,000
Carriage outwards 1,700
Salaries 13,000
Direct labor 3,825
FOH 2,100
Plant & Machinery 53,000
Buildings 35,000
Tools 8,650
Helping data:
a. Plant & Machinery depreciate @ 10% and charged to FOH
b. Buildings depreciate @ 5% and 40% charged to Administrative expenses and balance to FOH
c. 40% of salaries will be charge to office and balance to Selling expenses

Question No: 59 ( Marks: 10 )

The following is the trial balance of Sikander’s Photo Studio, Inc., dated December 31, 2007. The net income for the
period is Rs.36,000. You are required to prepare Balance Sheet as on December 31, 2007.
Sikander’s Photo Studio, Inc.
Trial balance
December 31, 2007

Cash Rs.171,100
Accounts receivable 9,400
Prepaid studio rent 3,000
Unexpired insurance 7,200
Supplies 500
Equipment 18,000
Accumulated depreciation: equipment Rs.7,200
Notes payable 10,000
Accounts payable 3,200
Salaries payable 4,000
Income tax payable 6,000
Unearned revenue 8,800
Capital stock 100,000
Retained earnings 34,000
Revenue earned 165,000
Salary expense 85,000
Supply expense 3,900
Rent expense 12,000
Insurance expense 1,900
Advertising expense 500
Depreciation expense: equipment 1,800
Interest expense 900
Income taxes expense 23,000
338,200 338,200

Question No: 54 ( Marks: 10 )

What is the difference between public and private company?

Answer:
Private Limited Company
 Number of members in a private limited company varies from 2 to 50.
 Any 2 members can subscribe their names in memorandum and articles of association along with other
requirements of the companies’ ordinance 1984. They can also apply to security exchange commission for
company’s registration.
 The shareholders of the private limited company elect two members of the company as Directors. These
directors form a board of directors to run the affairs of the company.
 The head of board of directors is called chief executive.
 Private limited company can not offer its shares to general public.
 In case a investor decides to sell his/her/her shares, his/her shares are first offered to existing shareholders. If
all existing shareholders decide not to buy these shares, then an outsider investor can buy.
 Words and digression “(Private) Limited” are added at the end of the name of a private limited company.

Public Limited Company

 Least number of members in a public limited company is 7 with no upper limit in number of members.
 Any 7members can subscribe their names in memorandum and articles of association along with other
requirements of the companies’ ordinance 1984. They can also apply to security exchange commission for
company’s registration.
 The shareholders of the public limited company elect seven members of the company as Directors and these
directors form a board of directors to run the daily affairs.
 The head of board of directors is called Chief Executive.
 Public limited company can offer its shares to general public at large.
 Word “Limited” is added at the end of the name of a public limited company.
 Each subscriber of the memorandum shall write opposite to his name, the number of shares held by him/her.

On top of that there are two types of public limited company:

1. Listed Company
2. Non Listed Company

LISTED COMPANY
Listed company is the one whose shares are quoted and traded on stock exchange. It is also called quoted company.

NON LISTED COMPANY

Non listed company is the one whose shares are not quoted or traded.
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Question No: 52 ( Marks: 10 )
The following Trial Balance was extracted from the books of Naeem & Sons on 31 st December, 2007. From this
you are required to prepare an Income Statement for the year ended on 31st December, 2007,

Debit Credit
Particulars
Rs. Rs.
Cash 5,000
Accounts Receivable 9,000
Merchandise Inventory on 1.1.2007 6,000
Plant and Machinery 24,000
Land and Building 82,000
Furniture and Fixtures 2,600
Capital 136,000
Accounts Payable 3800
Purchases 60,000
Purchases returns and allowances 2,800
Sales 70,000
Sales returns and allowances 4,600
Insurance Prepaid 3,400
Advertisement expenses 4,000
Salaries expenses 12,000
Total 212,600 212,600

ADDITIONAL INFORMATION:
ท Prepaid insurance on 31st December, 2007 is Rs. 1,400
ท Outstanding salaries Rs. 1,000
ท Depreciation on Plant and Machinery @ 10% p.a.
ท Merchandise inventory on 31st December, 2007 was valued at Rs. 6,000

Answer:
Trading Account for the year ending 31.12.2007

Opening stock 6000 Sales 70000

Less : Sales
Return 4600
Purchase 60000 65400
Less Return 2800
57200
Closing Stock 6000

Gross Profit 8200

71400 71400

Profit & Loss Account for the year ending

31.12.2007

Advertisement Exp 4000 Gross Profit 8200

Salaries 12000
Add: Outstanding 1000
13000

Depreciation
Plant & Mach 2400

Insurance 3400
1400
2000
Net Loss 13200

19400 21400

Balance Sheet as on 31.12.2007

Accouts Receivable 9000 Capital 136000

Less :Net Loss 13200
Cash 5000 122800

Plant & Mach 24000 Accounts Payable 3800

Less: Depr 2400
21600 Outstanding salaries 1000

Land & Building 82000

Furniture 2600

Prepaid Insurance 1400

Closing Stock 6000

127600 127600
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Question No: 53 ( Marks: 10 )
Prepare Profit and Loss Account for the year ending 31st December 2007 from the Trial Balance and adjustments
of MS Company given below:

Debit Credit
Particulars
Rs. Rs.
Drawings 14,000
Capital Account 80,000
Opening Stock 55,000
Purchases 485,000
Sales 610,000
Sundry Debtors 80,000
Sundry Creditors 60,500
Sales Returns 5,000
Carriage Inwards 6,000
Salaries 28,000
Rent, Rates, Taxes 15,000
Insurance 4,000
Machinery 50,000
Furniture 5,000
Cash in hand 3,500
Total 750,500 750,500

Adjustments:
ท Depreciate machinery and furniture @20%p.a.
ท Outstanding Salaries Rs. 2,000
ท Insurance paid in advance Rs. 500
ท Maintain @5% reserve for doubtful debts on debtors.
ท Closing Stock was valued at Rs. 60,000

Answer:
Trading Account for the year ending 31.12.2007

Opening stock 55000 Sales 610000

Less : Sales
Return 5000
Purchase 485000 605000
Caririage Inward 6000 Closing Stock 60000

Gross Profit 119000

665000 665000

Profit & Loss Account for the year ending 31.12.2007

Salaries 28000 Gross Profit 119000

Add: Outstanding 2000
30000
Rent, Rates, Taxes 15000

Insurance 4000
Less :Advance 500
3500

Depreciation
Machinery 10000
Furniture 1000
11000

Provision on Doubtful Debts 4000

Net Profit 55500

119000 119000

NOTE: PLEASE CONSIDER ALL ENTRIES ON LEFT SIDE AS ON RIGHT HAND SIDE AND VICE VERSA. JUST
SHOWN BY MISTAKE. I HOPE YOU CONSIDER MY REQUEST DUE TO SHORATGE OF TIME.

Question No: 51 ( Marks: 5 )

With the help of given data prepare Capital account of a sole trader and calculate closing balance of capital.
Rs.
Balance b/f 550,000
Drawings 50,000
Profit & Loss (debit balance) 45,000

CAPITAL ACCOUNT
DEBIT SIDE CREDIT SIDE
PARTICULARS AMOUNT PARTICULARS AMOUNT
Profit and loss 45000 Balance b/f 550,000
Drawings 50,000
Balance c/f 455,000
TOTAL 550,000 TOTAL 550,000
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Question No: 52 ( Marks: 10 )
Briefly explain the financial statements prepared by the organization. Why these are important for manufacturing
concern?

ANSWER: The financial statements prepared by any organization are as follows:

1. Profit and loss account: It shows the performance of the business in a given period. It shows the profitability
of business which shows the success or failure of the business.
2. Balance sheet: Balance sheet shows the position of business at a given point. It shows the resources available
by the business and the resources invested by the owner and other loans.
3. Cash flow statements: Cash flow statements show the generation of cash and its usage over a given period.
IMPORTANCE OF FINANCIAL STATEMENTS FOR MANUFACTURING CONCERN: These financial statements
are important for manufacturing concern organization as they provide information related to financial affairs of the
organization. The profitability and liquidity, the resources available to the company and the generation of cash and its
usage over a given period which provides reasonable information to the management to take decisions.

Question No: 53 ( Marks: 10 )

The comparative financial statement data for XYZ Company is given below:

December 31
Assets: 2007 2006
Rs. Rs.
Cash 4,000 7,000

Accounts receivable 36,000 29,000

Inventory 75,000 61,000
Plant and equipment 210,000 180,000
Accumulated depreciation (40,000) (30,000)
Total Assets 285,000 247,000
Liabilities & Stockholder’s equity:
Accounts payable 45,000 39,000
Common stock 90,000 70,000
Retain earnings 150,000 138,000
Total liabilities & Stockholder’s equity 285,000 247,000

For 2007, the company reported net income as follows:

XYZ Company
Income Statement
For the year ended 31st December, 2007

Rs.
Sales 500,000
Less: Cost of goods sold 300,000
Gross margin 200,000
Less Operating expenses 180,000
Net Income 20,000
Required:
Prepare a Statement of Cash Flows if dividend of Rs. 8,000 was declared and paid during the year 2007. There were no
sales of plant and equipment during the year.

ANSWER:

Starting balance:
Net income 20,000
Add: adjustment for non cash items
Depreciation 38,000
Operating profit before working capital changes: 58,000

Working capital changes:

Add: cash 3,000
Less: accounts receivable (7,000)
Add: accounts payable 7,000
Cash generated from operations 61,000
Cash flow from investing activities

Cash flow from financing activities:

Common Stock 20,000

Net decrease in cash 3,000

Net cash flow 78,000

Question No: 41 ( Marks: 10 )

Calculate depreciation of the asset for five years by using written down value method. Also show accumulated
depreciation.
Cost of the asset Rs. 1,20,000
Depreciation Rate 10%
Expected Life 5 years
ANSWER
YR Written down value RS Accumulated
method depreciation
1 cost 120,000
Depreciation @ 10%... 12,000 12,000
10%*120,000
WDV… 120,000-12,000 108,000
2 Dep @ 10%... 10,800 22800
10%*108000
WDV= 108,000-10,800 97,200
3 Dep @ 10%... 10%*97,200 9,720 32520
WDV= 97,200-9,720 87,480
4 Dep @ 10%...10%*87,480 8,748 41,268
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WDV=87,480-8,748 78,732
5 Dep @ 10%...10%*78,732 7873.2 49,141.2
WDV=78,732-7873.2 70858.8

Question No: 51 ( Marks: 5 )

Following information is extracted from the books of Abrar Ltd as on December 31 st, 2007.
Particulars Rs
Carriage inwards 8,000
Legal charges 6,500
Financial charges 223,500
Tax payable 30,000
Advances from customer 10,000
General reserve 40,000
Accumulated profit brought forward(credit balance ) 95,000
Long term loans 1,00,000

Additional information
The authorized capital is Rs. 50, 00,000 divided into 500,000 shares of Rs. 10 each. Issued and paid up capital 2, 500,000.
You are required to prepare calculate Share holders equity

Share holder equity will have Authorized capital, Paid up capital, General Reserves & Accumulated profit brought forward

Authorized capital = Rs. 50,00,000 divided into 500,000 shares of Rs. 10 each
Issued and paid up capital 2,500,000
General Reserve 40,000
Accumulated profit brought forward (Credit balance) 95,000

Question No: 52 ( Marks: 10 )

Write down the at least ten distinguishing features of a limited company which differentiate it from sole proprietor business

The basic difference between a partnership and a limited company is the concept of limited liability.

1. If a partnership business runs into losses and is unable to pay it’s liabilities, its partners will have to pay the liabilities from
their own wealth.
2. In case of limited company the shareholders don’t lose anything more than the amount of capital they have contributed in
the company. It points that personal wealth is not at stake and their liability is limited to the amount of share capital they
have contributed.
3. The concept of limited company is to mobilize the resources of a large number of people for a project, which they would
not be able to afford independently and then get it managed by experts.
4. Listed Company have more than twenty partners, so problem of extra capital is reduced to minimum.
5. The liabilities of the members of a company is limited to the extent of capital invested by them in the company
6. There are certain tax benefits to the company, which a partnership firm can not enjoy
7. In Pakistan, affairs of limited companies are controlled by “Companies Ordinance” issued in 1984
8. The formation of a company and other matters related to companies are governed by “Securities and Exchange
Commission of Pakistan (SECP)

Question No: 53 ( Marks: 10 )

The following Trail balance is taken out from the books of Rahman & Sons as on 31st December, 2008.
Dr. Cr.
Rs. Rs.
Sales 204,000
Capital 120,000
Bank overdraft 103,560
Sundry Creditors 120,000
Opening Stock 60,400
Purchases 231,600
Sundry Debtors 109,660
Returns Inwards 3,640
General Expenses 6,980
Plant 22,620
Wages & Salaries 16,740
Building 50,000
Cash in Hand 680
Cash at bank 8,720
Drawings 16,960
Motive Power 2,300
Dock &clearing Charges 1,300
Coal, Gas, Water 1,700
Salaries 9,820
Interest on O/D 4,440
Rent rates Taxes 1,400
Discount Allowed 2,000
Interest received 3,400
550,960 550,960
Requirement:
Prepare The Trading and Profit & Loss account of the business for the year ended. Closing Stock is valued at Rs.40, 000.

Question No: 52 ( Marks: 10 )

Write a note on legal documents required for the formation of company.
In Pakistan when someone wants to form a company. He will contact with SECP, its abbreviation for Securities and Exchange
Commission of Pakistan. it came in 1984 in law of Pakistan which is called companies ordinance. It controls all affairs of limited
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companies. For making of private limited company 2 members can submit their names in memorandum and articles of association
along with other requirements of company ordinance 1984. while for public limited company seven members will sent their names.
By this way they can apply and make registration of the company.
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Question No: 54 ( Marks: 10 )
Pass the rectifying entries to correct the following errors:

• Mr. “Ali” purchased goods of Rs. 1,500 on cash, but omitted to enter in the books of accounts.
• An amount of Rs. 5,000 received from Mr. Amir, was credited to the account of Mr. Ameer.
• Goods returned worth Rs. 500 to Mr. “B” wrongly debited to sales Account.
• A purchase of goods from Mr. “B” of Rs. 400 has been wrongly debited to Furniture Account.
• Furniture purchased on cash Rs. 8,000 posted as purchases.

Rectification of Errors

Error 1.
A purchase of goods of Rs. 1,500 on cash was omitted by mistake

Rectification Entry on the date of discovery:

Debit: Purchase Account 1,500
Credit: Cash Account 1,500

Error 2

Debit: Mr. Amir 5,000

Credit: Mr. Ameer 5,000

Debit: Mr. Amir 5,000

Credit: Mr. Ameer 5,000

• Error 3 Goods returned worth Rs. 500 to Mr. “B” wrongly debited to sales Account.

Debit: Mr. B Account Rs. 500

Credit: Sales Account Rs. 500

Error 4 A purchase of goods from Mr. “B” of Rs. 400 has been wrongly debited to Furniture Account.

Debit: Mr. B Account Rs. 400

Credit Furniture Account Rs. 400

Error 5 Furniture purchased on cash Rs. 8,000 posted as purchases.

Debit Furniture Account Rs. 8,000

Credit Purchase Post Account

Question No: 51 ( Marks: 5 )

Financial year decided by partnership agreement is 1 st July to 30th June. Mr. Ali is partner and having a capital of Rs. 1,500,000 on
July 1st 2007 and he introduced more capital on August 1 st 2007 Rs. 10,000 on April 1st 2008, Rs.500,000 and on June 1st 2008 ,
Rs. 5,000. Mark up rate is 10% p.a.

Capital = 1500000 mark up= 1500000

2nd capital= 10000 markup= 1000
3rd capital= 500000 markup= 50000
4th capital= 5000 markup= 500

Total markup= Rs. 201500

Calculate mark up on Mr. Ali’s capital for the year ending on 31th June 2008.

Question No: 53 ( Marks: 10 )

What is the difference between public and private company?
The main difference between public and private company is that in public limited companies there is no restriction on number of
persons to be its members. There is one restriction. That there should be a minimum of three members to form a public limited
company. Public limited company can offer its shares to general public.

While in private company two to fifty persons can form a company. Minimum two members are elected to form a board of directors.
This board is given the responsibility to run day to day business of the company. Private limited company cannot offer its share to
general public.

Question No: 54 ( Marks: 10 )

The following discrepancies were noted on comparing Cash Book with Pass Book.
1. Balance as per Cash Book (Cr) is Rs. 19,000.
2. Cheque for Rs. 5,000 paid into the bank for collection on 20th March, 2008 has not yet been collected.
3. Cheques for Rs. 15,000 Issued on 24th March, 2008, out of which Cheques for Rs. 10,000 presented during March, 2008
4. An amount of Rs. 1,000 for interest on overdraft was debited in the Pass Book but was intimated to Mr. David on 4 th April,
2008.
5. Mr. David paid into his bank account an amount of Rs. 3,000 but it was wrongly credited to Mr. Denial’s Account.
6. On 20th March, 2008 the bank received dividend of Rs. 10,000 from a company where Mr. David's has invested his
money, the same had been recorded in Cash Book on 31st March, 2008.
7. Cheque of Rs. 2,500 was shown in Pass Book as dishonored.

Required: Prepare a Bank Reconciliation Statement as on 31st March, 2008

Balance as per Cash Book Cr 19000

Unpresented cheques Dr 5000
Uncredited cheque Dr 10000
Interest by bank Dr. 1000
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Question No: 41 ( Marks: 10 )
Record the following transactions in the General Journal.

Date: Transactions
Jan 1, 2007 Mr. Asghar started business with cash Rs. 1, 00,000.
Jan 2, 2007 Opened bank account with amount Rs. 50,000.
Jan 4, 2007 Purchased goods for cash Rs. 15,000.
Jan 9, 2007 Payment made to Karachi store (Creditor) Rs. 15,000 by cheque.
Jan14, 2007 Goods returned to Karachi store worth Rs. 1,500.
Jan22, 2007 Goods sold for cash Rs. 2,000.

DR
Bank account 50,000
Purchased goods for cash Rs. 15,000
Payment made to Karachi store (Creditor) Rs. 15,000 by cheque
Goods returned to Karachi store worth Rs. 1,500
Credit balance 20500

Cr
Mr. Asghar started business with cash Rs. 1, 00,000
Goods sold for cash Rs. 2,000.

Question No: 41 ( Marks: 10 )

Prepare Cash and Capital Accounts with the help of given Journal entries.

journal
Date Particulars (Dr.) (Cr.)
Rs. Rs.
2008 jan1 Cash account 50,000
Capital account 50,000
(owner invested cash )

jan.2 Furniture account 10,000

Cash account 10,000
(purchased furniture for cash)

Jan.3 Purchases account 30,000

Cash account 30,000
(goods purchased for cash)

Jan.5 Cash account 40,000

Sales account 40,000
(sold goods for cash)

Jan. 6 Salaries account 5,000

Cash account 5,000
(Salaried paid)

CASH A/C (IN STATEMENT FORM)

Date V. No Detail Ref Debit Credit Balance

01/01/08 CAPITAL A/C 50000 0 50000 DR
02/01/08 FURNITURE A/C 0 10000 40000 DR
03/01/08 PURCHASES A/C 0 30000 10000 DR
05/01/08 SALES A/C 40000 0 50000 DR
06/01/08 SALARIES A/C 0 5000 45000 DR
TOTAL 90000 45000 45000 DR

Question No: 51 ( Marks: 5 )

What is the Purpose of Control Accounts?

A business needs to have accounts created for individual creditors and debtors in its general ledger. Creditors
are people/entity to whom company owes money and debtors are entities/people who owe money to the
business. But when a business grows then the number of creditors and debtors also grows. We know that trial
balance can give us the mathematical accuracy of accounts and if there is any difference in trial balance we can
know it from the general ledger by actually checking each and every transaction for the year. But it is a very time
consuming job to check each and every transaction if the business of the company is huge because it will have
many many transaction to check. So in this control accounts are maintained in general one for total creditors and
one for total debtors. Debtor’s account is called debtor’s control account and creditor’s account is called
creditor’s control account. These accounts will not get hit by individual purchase, purchase returns, payments
to creditor in case of creditor’s control account and by sales, sales return, receipts in case of debtor’s control
account. Periodically this summarized data will be posted from individual ledgers which will be created for each
type of transaction e.g a sales subsidiary ledger, purchase subsidiary ledger etc which will contain actual details
of transactions with invoice number and periodically the amounts will be summarized from these subsidiary
ledgers and posted to the control accounts at a single time. This way the transactions in general ledger will
decrease and will become easy to manage and can be easily checked against creditor’s or debtor’s details in
total creditor’s ledger and total debtor’s ledger for accuracy.
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Question No: 52 ( Marks: 10 )
What is the effect of given adjustments on Trading & Profit & Loss account and Balance Sheet?
1. Accrued Expenses or Outstanding Expenses
2. Prepaid Expenses or Unexpired Expenses
3. Accrued Revenue or Revenue Receivable
4. Unearned Revenue or Revenue Received in Advance
5. Depreciation of Asset

1. Accrued Expenses or Outstanding Expenses

Trading and profit and loss account effect

These expenses will be shown in profit and loss account under administrative expenses and will and be deducted from
gross profit. They will be used to calculate net profit

Balance sheet effect

These expenses will be shown as expense payable or accrued expenses in balance sheet as current liabilities and
will be shown under current liabilities section of liabilities as they have to be paid by business..

2. Prepaid Expenses or Unexpired Expenses

Trading and profit and loss account effect

These will be deducted from relevant expense account to get the actual expenses for the period and that actual
amount of expense will be deducted from gross profit to arrive at net profit. This amount of prepaid expenses will not
be included in profit and loss account as an expense itself but its effect will be on current expenses for the period for
which profit and loss is being calculated.

Balance sheet effect

These prepaid expenses will be show and current assets in balance sheet and will be shown under the section of
current assets in balance sheet.

3. Accrued Revenue or Revenue Receivable

Trading and profit and loss account effect

These will be added to sales in trading account in profit and loss statement and will be treated as a revenue in the
calculation of gross profit by subtracting cost of goods sold from net sales. This will affect gross profit in trading
account.

Balance sheet effect

In balance sheet this revenue will be shown under current assets as receivables from debtors and will be shown
under the section of current assets of the business.

4. Unearned Revenue or Revenue Received in Advance

Trading and profit and loss account effect

This will not be added to the sales as sales is recognized when the actual services have been provided or when
goods have been shipped irrespective of whether payment has been received or not. So this will not affect profit and
loss account as it is still not recognized as sales/revenue.

Balance sheet effect

This is a liability for the company because the company has to give goods or services to the buyer for the advance
payment done by the buyer and will be shown as a liability in the balance sheet under the current liability section of
balance sheet. Also the same amount will be shown in the bank or cash as current asset to offset the liability
because the cash or cheque has been received for goods not given or services not rendered yet.

5. Depreciation of Asset

Trading and profit and loss account effect

The depreciation of asset is an operating expense for the business and will affect profit and loss account. It will be
added to the administrative expense and will be appear in the administrative expense section of profit and loss
account and will be deducted from gross profits to arrive at net profits along with other expenses.

Balance sheet effect

In balance sheet it will appear as deduction from the fixed asset as the fixed assets in balance sheet will be shown at
written down value. So this will be added to previous balance of accumulated depreciation and will be deducted from
the total cost of the fixed assets and will appear in the assets section under the heading of fixed asset. It might
appear in notes as sometimes in balance sheet summarized figure of fixed asset at WDV will be shown. In any case
it is deducted from fixed asset in balance sheet and affects the total assets side