Test Series: August, 2018 Foundation Course Mock Test Paper - 1 Paper - 1: Principles and Practice of Accounting (Time Allowed: 3 Hours) (100 Marks)

Test Series: August, 2018
FOUNDATION COURSE
MOCK TEST PAPER - 1
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING
(Time allowed: 3 Hours) (100 Marks)
Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
1. (a) State with reasons whether the following statements are True or False:
i. Inventory Turnover Ratio indicates the firm’s ability of generating sales per rupee of long term
investment.
ii. The Sales book is kept to record both cash and credit sales.
iii. In the calculation of average due date, only the due date of first transaction must be taken as the
base date.
iv. If a partner retires, then other partners have a gain in their profit sharing ratio.
v. When shares are forfeited, the share capital account is debited with called up capital of shares
forfeited and the share forfeiture account is credited with calls in arrear of shares forfeited.
vi. Accrual concept implies accounting on cash basis. (6 Statements x 2 Marks = 12 Marks)
(b) Discuss the limitations which must be kept in mind while evaluating the Financial Statements.
(4 Marks)
(c) Calculate the missing amount for the following.
Assets Liabilities Capital
(a) 30,00,000 5,00,000 ?
(b) ? 3,00,000 1,50,000
(c) 29,00,000 ? 27,50,000
(d) 1,14,00,000 (5,60,000) ? (4 Marks)
2. (a) The M/s LG Transport purchased 10 trucks at Rs. 45,00,000 each on 1st April 2014. On October
1st, 2016, one of the trucks is involved in an accident and is completely destroyed and
Rs. 27,00,000 is received from the insurance in full settlement. On the same date, another truck is
purchased by the company for the sum of Rs. 50,00,000. The company write off 20% on the original
cost per annum. The company follows the calendar year as its financial year. You are required to
prepare the motor truck account for two year ending 31 Dec, 2017.
(b) On 30th September, 2017, the bank account of Neel, according to the bank column of the Cash-
Book, was overdrawn to the extent of Rs. 8,124. On the same date the bank statement showed a
debit balance of Rs. 41,516 in favour of Neel. An examination of the Cash Book and Bank.
© The Institute of Chartered Accountants of India

Statement reveals the following:
1. A cheque for Rs. 26,28,000 deposited on 29th September, 2017 was credited by the bank
only on 3rd October, 2017
2. A payment by cheque for Rs. 32,000 has been entered twice in the Cash Book.
3. On 29th September, 2017, the bank credited an amount of Rs. 2,34,800 received from a
customer of Neel, but the advice was not received by Neel until 1st October, 2017.
4. Bank charges amounting to Rs. 1,160 had not been entered in the Cash Book.
5. On 6th September, 2017, the bank credited Rs. 40,000 to Neel in error.
6. A bill of exchange for Rs. 2,80,000 was discounted by Neel with his bank. This bill was
dishonoured on 28th September, 2017 but no entry had been made in the books of Neel.
7. Cheques issued upto 30th September, 2017 but not presented for payment upto that date
totalled Rs. 26,52,000.
You are required :
(a) to show the appropriate rectifications required in the Cash Book of Neel, to arrive at the correct
balance on 30th September, 2017 and
(b) to prepare a bank reconciliation statement as on that date.
(10 Marks +10 Marks= 20 Marks)
3. (a) Gagan of Mumbai consigns 2,000 cases of goods costing Rs. 1,000 each to Kumar of Chennai.
Gagan pays the following expenses in connection with consignment:
Rs.
Carriage 20,000
Freight 60,000
Loading charges 20,000
Kumar sells 1,400 cases at Rs. 1,400 per case and incurs the following expenses:
Clearing charges 17,000
Warehousing and storage 34,000
Packing and selling expenses 12,000
It is found that 100 cases have been lost in transit and 200 cases are still in transit.
Kumar is entitled to a commission of 10% on gross sales. You are required to prepare the
Consignment Account and Kumar’s Account in the books of Gagan.
(b) A and B entered into a joint venture agreement to share the profits and losses in the ratio of 2:1. A
supplied goods worth Rs. 60,000 to B incurring expenses amounting to Rs. 2,000 for freight and
insurance. During transit goods costing Rs. 5,000 became damaged (having no residual value) and
a sum of Rs. 3,000 was recovered from the insurance company. B reported that 90% of the
remaining goods were sold at a profit of 30% of their original cost. Towards the end of the venture,
a fire occurred and as a result the balance Inventories lying unsold with B was damaged. The
goods were not insured and B agreed to compensate A by paying in cash 80% of the aggregate of
the original cost of such goods plus proportionate expenses incurred by A. Apart from the share of
profit of the joint venture, B was also entitled under the agreement to a commission of 5% of net
profits of joint venture after charging such commission. Selling expenses incurred by B totalled

Rs. 1,000. B had earlier remitted an advance of Rs. 10,000. B duly paid the balance due to A by
Bank Draft.
You are required to prepare the following accounts in A’s books:
(i) Joint Venture Account and
(ii) B’s Account. (10 + 10 = 20 Marks)
4. Laurel and Hardy are partners of the firm LH & Co., from 1.4.2013. Initially both of them contributed
Rs. 1,00,000 each as capital. They did not contribute any capital thereafter. They maintain accounts
of the firm on mercantile basis. They were sharing profits and losses in the ratio of 5:4. After the
accounts for the year ended 31.3.2017 were finalized, the partners decided to share profits and losses
equally with effect from 1.4.2013.
It was also discovered that in ascertaining the results in the earlier years certain adjustments, details of
which are given below, had not been noted.
2014 2015 2016 2017
Year ended 31st March
Rs. Rs. Rs. Rs.
Profit as per accounts prepared and finalized 1,40,000 2,60,000 3,20,000 3,60,000
Expenses not provided for (as at 31st March) 30,000 20,000 36,000 24,000
Incomes not taken into account (as at 31st March) 18,000 15,000 12,000 21,000
The partners decided to admit Chaplin as a partner with effect from 1.4.2017. It was decided that
Chaplin would be allotted 20% share in the firm and he must bring 20% of the combined capital of Laurel
and Hardy.
Following is the Balance sheet of the firm as on 31.3.2017 before admission of Chaplin and before
adjustment of revised profits between Laurel and Hardy.
Balance Sheet of LH & Co. as at 31.3.2017
Liabilities Rs. Assets Rs.
Capital Accounts: Plant and machinery 60,000
Laurel 2,11,500 Cash on hand 10,000
Hardy 1,51,500 Cash at bank 5,000
Trade Payables 2,27,000 Stock in trade 3,10,000
Trade Receivables 2,05,000
5,90,000 5,90,000
You are required to prepare:
(i) Profit and Loss Adjustment account;
(ii) Capital accounts of the partners; and
(iii) Balance Sheet of the firm after the admission of Chaplin. (20 Marks)
5. (a) Smith Library Society showed the following position on 31 st March, 2017:
Balance Sheet as on 31st March, 2017

Capital fund 7,93,000 Electrical fittings 1,50,000
Expenses payable 7,000 Furniture 50,000
Books 4,00,000
Investment in securities 1,50,000

Cash at bank 25,000
Cash in hand 25,000
8,00,000 8,00,000
The receipts and payment account for the year ended on 31 st March, 2018 is given below:
Rs. Rs.
To Balance b/d By Electric charges 7,200
Cash at bank 25,000 By Postage and stationary 5,000
Cash in hand 25,000 50,000 By Telephone charges 5,000
To Entrance fee 30,000 By Books purchased 60,000
To Membership subscription 2,00,000 By Outstanding expenses paid 7,000
To Sale proceeds of old papers 1,500 By Rent 88,000
To Hire of lecture hall 20,000 By Investment in securities 40,000
To Interest on securities. 8,000 By Salaries 66,000
By Balance c/d
Cash at bank 20,000
Cash in hand 11,300
3,09,500 3,09,500
You are required to prepare income and expenditure account for the year ended 31 st March, 2018
after making the following adjustments:
Membership subscription included Rs. 10,000 received in advance.
Provide for outstanding rent Rs. 4,000 and salaries Rs. 3,000.
Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be
depreciated at the same rate.
75% of the entrance fees is to be capitalized.
Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10. 2017 for
Rs. 40,000.
(b) (i)
Share capital 18,00,000
Preference shareholders 10,00,000
10% debentures 4,00,000
Loan from bank 24,00,000
Reserves 8,00,000
You are required to compute the Capital Gearing Ratio.

(ii) From the following information, calculate inventory turnover ratio:
Inventory in the beginning 108,000 Inventory at the end 1,32,000
Net purchases 2,76,000 Carriage inwards 24,000
Wages 84,000
(12 + 4+4 = 20 Marks)

6. (a) On 1st June, 2017, Suraj Ltd. issued 86,000 shares of Rs. 100 each payable as follows:
Rs. 20 on application;
Rs. 20 on allotment;
First call of Rs. 30 on 1st Dec, 2017; and
Second and final call of Rs. 30 on 1st March, 2018.
By 20th July, 80,000 shares were applied for and all applications were accepted. Allotment was
made on 1st Aug. All sums due on allotment were received on 15th Sept; those on 1st call were
received on 20th Dec.
You are required to journalise the transactions when accounts were closed on 31 st March, 2018.
(10 Marks)
(b) Pihu Ltd. issued 50,00,000, 9% debentures of Rs. 100 each at a discount of 10% redeemable at
par at the end of 10th year. Money was payable as follows :
Rs. 40 on application
Rs. 50 on allotment
Record necessary journal entries regarding issue of debenture. (5 Marks)
(c) Explain in brief objectives of preparing Trial Balance.
Or
What are the rules of posting of journal entries into the Ledger? Explain in brief. (5 Marks)

Test Series: August, 2018
FOUNDATION COURSE
MOCK TEST PAPER - 1
SUGGESTED ANSWERS/HINTS
1. (a) (i) False - Inventory Turnover Ratio measures the efficiency of the firm to manage its inventory
Capital Turnover Ratio indicates the firm’s ability of generating sales per rupee of long term
investment.
(ii) False- The Sales book is a register specially kept to record credit sales of goods dealt in by
the firm, cash sales are entered in the cash book and not in the sales book.
(iii) False- While calculating the average due date, any transaction date may be taken as the base
date.
(iv) True- If a partner retires, his share of profit or loss will be shared by the other partners in their
profit sharing ratio.
(v) False- When shares are forfeited, the share capital account is debited with c alled up capital
of shares forfeited and the share forfeiture account is credited with amount received on shares
forfeited.
(vi) False- Accrual concept implies accounting on ‘due’ or ‘accrual’ basis. Accrual basis of
accounting involves recognition of revenues and costs as and when they accrue
irrespective of actual receipts or payments.
(b) Limitations which must be kept in mind while evaluating the Financial Statements are as follows:
• The factors which may be relevant in assessing the worth of the enterprise don’t find place in
the accounts as they cannot be measured in terms of money.
• Balance Sheet shows the position of the business on the day of its preparation and not on the
future date while the users of the accounts are interested in knowing the position of the
business in the near future and also in long run and not for the past date.
• Accounting ignores changes in some money factors like inflation etc.
• There are occasions when accounting principles conflict with each other.
• Certain accounting estimates depend on the sheer personal judgement of the accountant.
• Different accounting policies for the treatment of same item adds to the probability of
manipulations.
(c) Using the Accounting Equation:
Assets = Capital + Liabilities
(i) 25,00,000
(ii) 4,50,000
(iii) 1,50,000
(iv) 1,19,60,000

2. (a) Motor Truck A/c
Date Particulars Amount Date Particulars Amount
2016 2016
Jan-01 To balance b/d 2,92,50,000 Oct-01 By bank A/c 27,00,000
Oct-01 To Profit & Loss A/c Oct-01 By Depreciation on lost
(Profit on settlement 4,50,000 assets 6,75,000
of Truck)
Oct-01 To Bank A/c 50,00,000 Dec-31 By Depreciation A/c 83,50,000
Dec-31 By balance c/d 2,29,75,000
3,47,00,000 3,47,00,000
2017 2017
Jan-01 To balance b/d 2,29,75,000 Dec-31 By Depreciation A/c 91,00,000
2,29,75,000 2,29,75,000
Working Note:
To find out loss on Profit on settlement of truck
Original cost as on 1.4.2014 45,00,000
Less: Depreciation for 2014 6,75,000
38,25,000
29,25,000
Less: Depreciation for 2016 (9 months) 6,75,000
22,50,000
Less: Amount received from Insurance company 27,00,000
4,50,000
(b) (i) Cash Book (Bank Column)
2017 Rs. 2017
Sept. Sept.
30 30
To Party A/c 32,000 By Balance b/d 8,124
To Customer A/c By Bank charges 1,160
(Direct deposit) 2,34,800 By Customer A/c 2,80,000
To Balance c/d 22,484 (B/R dishonoured)
2,89,284 2,89,284
(ii) Bank Reconciliation Statement as on 30th September, 2017

Particulars Amount
Rs.
Overdraft as per Cash Book 22,484

Add: Cheque deposited but not collected upto 30 th Sept., 2017 26,28,000
26,50,484
Less: Cheques issued but not presented for payment upto 30th Sept., 2017 (26,52,000)
Credit by Bank erroneously on 6th Sept. (40,000)
Overdraft as per bank statement 41,516
Note: Bank has credited Neel by 40,000 in error on 6 th September, 2017. If this mistake is
rectified in the bank statement, then this will not be deducted in the above statement along
with Rs. 26,52,000 resulting in debit balance of Rs. 1,516 as per pass-book.
3. (a) In the books of Gagan
Consignment to Kumar of Chennai Account
Particulars Rs. Particulars Rs.
To Goods sent on By Kumar (Sales) 19,60,000
Consignment 20,00,000 By Loss in Transit 100 cases
@ Rs. 1,050 each 1,05,000
To Bank (Expenses) 1,00,000 By Consignment Inventories
To Kumar (Expenses) 63,000 In hand 300 @ Rs. 1,060
each 3,18,000
To Kumar (Commission) 1,96,000 In transit 200 @ Rs. 1,050
each 2,10,000 5,28,000
To Profit on Consignment to 2,34,000
Profit & Loss A/c
25,93,000 25,93,000
Kumar’s Account
To Consignment to Chennai A/c 19,60,000 By Consignment A/c
(Expenses) 63,000
By Consignment A/c -
(Commission) 1,96,000
By Balance c/d 17,01,000
19,60,000 19,60,000
Working Notes:
(i) Consignor’s expenses on 2,000 cases amounts to Rs. 1,00,000; it comes to Rs. 50 per case.
The cost of cases lost will be computed at Rs. 1,050 per case.
(ii) Kumar has incurred Rs. 17,000 on clearing 1,700 cases, i.e., Rs. 10 per case; while valuing
closing inventories with the agent Rs. 10 per case has been added to cases in hand with the
agent.
(iii) It has been assumed that balance of Rs. 17,01,000 is not yet paid.

(b) In the books of A
Joint Venture Account
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Purchases (Cost of goods supplied) 60,000 By Bank (Insurance claim) 3,000
To Bank (Expenses) 2,000 By B (Sales) 64,350
To B (Expenses) 1,000 By B (agreed value 4,546
To B (Commission - 1/21 of for damaged goods)
Rs. 8,896) 424
To Profit transferred to:
Profit & Loss A/c 5,648
B 2,824
71,896 71,896
B’s Account
(Rs.) (Rs.)
To Joint Venture A/c 64,350 By Bank (Advance) 10,000
(Sales) By Joint Venture A/c (Expenses) 1,000
To Joint Venture A/c (Claim 4,546 By Joint Venture A/c (Commission) 424
Portion) By Joint Venture A/c (Share of Profit) 2,824
By Bank (Balance received) 54,648
68,896 68,896
Working Note:
Computation of Sales:
Rs.
Cost of goods sent 60,000
Less: Cost of damaged goods (5,000)
55,000
Less: Cost of goods remaining unsold (5,500)
Cost of goods sold 49,500
Add: Profit @ 30% 14,850
Sales 64,350
Claim for loss of fire admitted by B
Cost of goods 5,500
Add: Proportionate expenses [(2,000 x 5,500)/60,000] 183
5,683
Less: 20% (1,137)
4,546

4. (i) Profit and Loss Adjustment Account 
Rs. Rs.
To Expenses not provided By Income not considered
for (years 2014-2017) 1,10,000 (for years 2014-2017) 66,000
By Partners’ capital accounts (loss)
Laurel 22,000
Hardy 22,000
1,10,000 1,10,000
(ii) Partners’ Capital Accounts
Laurel Hardy Chaplin Laurel Hardy Chaplin
Rs. Rs. Rs. Rs. Rs. Rs.
To P & L 22,000 22,000 - By Balance b/d 2,11,500 1,51,500 -
Adjustment
A/c
To Hardy 60,000 By Laurel - 60,000 -
To Balance By Cash - - 63,800
c/d 1,29,500 1,89,500 63,800
2,11,500 2,11,500 63,800 2,11,500 2,11,500 63,800
By Balance b/d 1,29,500 1,89,500 63,800
(iii) Balance Sheet of LH & Co.

as on 1.4.2017
(After admission of Chaplin)
Capital accounts: Plant and machinery 60,000
Laurel 1,29,500 Trade receivables 2,05,000
Hardy 1,89,500 Stock in trade 3,10,000
Chaplin 63,800 Accrued income 66,000
Trade payables 2,27,000 Cash on hand (10,000 + 63,800) 73,800
Outstanding expenses 1,10,000 Cash at bank 5,000
7,19,800 7,19,800
Working Notes:
1. Computation of Profit and Loss distributed among partners
Rs.
Profit for the year ended 31.3.2014 1,40,000
31.3.2015 2,60,000
31.3.2016 3,20,000
31.3.2017 3,60,000
Total Profit 10,80,000

It is assumed that expenses and incomes not taken into account in earlier years were fully ignored.
5

Laurel Hardy Total
Rs. Rs. Rs.
Profit shared in old ratio i.e 5:4 6,00,000 4,80,000 10,80,000
Profit to be shared as per new ratio i.e. 1:1 5,40,000 5,40,000 10,80,000
Excess share 60,000
Deficit share (60,000)
Laurel to be debited by Rs. 60,000 and Hardy to be credited by Rs. 60,000.

2. Capital brought in by Chaplin
Rs.
Capital to be brought in by Chaplin must be equal to 20% of the
combined capital of Laurel and Hardy
Capital of Laurel (2,11,500 – 22,000 – 60,000) 1,29,500
Capital of Hardy (1,51,500 – 22,000 + 60,000) 1,89,500
Combined Capital 3,19,000
20% of the combined capital brought in by Chaplin 63,800
(20% of Rs. 3,19,000)
5. (a) Smith Library Society
Income and Expenditure Account
for the year ended 31st March, 2018
Dr. Cr.
Expenditure Rs. Rs. Income Rs.
To Electric charges 7,200 By Entrance fee (25% of 7,500
To Postage and 5,000 Rs. 30,000)
stationary
To Telephone charges 5,000 By Membership subscription 2,00,000
To Rent 88,000 Less: Received in 10,000 1,90,000
Add: Outstanding 4,000 92,000 advance
To Salaries 66,000 By Sale proceeds of old 1,500
Add: Outstanding 3,000 69,000 papers
To Depreciation By Hire of lecture hall 20,000
(W.N.1)
Electrical fittings 15,000 By Interest on securities 8,000
Furniture 5,000 (W.N.2)
Books 46,000 66,000 Add: Receivable 500 8,500
By Deficit- excess of 16,700
expenditure over income
2,44,200 2,44,200
Working Notes:
1. Depreciation Rs.
Electrical fittings 10% of Rs. 1,50,000 15,000
Furniture 10% of Rs. 50,000 5,000
Books 10% of Rs. 4,60,000 46,000
6

2. Interest on Securities
Interest @ 5% p.a. on Rs. 1,50,000 for full year 7,500
Interest @ 5% p.a. on Rs. 40,000 for half year 1,000 8,500
Less: Received (8,000)
Receivable 500
(b) (i) Capital Gearing Ratio = (Preference Share Capital + Debentures + Other Borrowed funds)
(Equity Share Capital + Reserves & Surplus - Losses)
= 10,00,000  4,00,000  24,00,000

18,00,000  8,00,000
= 38, 00,000/26, 00,000

= 19: 13 (highly geared)
(ii) Inventory Turnover Ratio = Cost of goods sold/ Average Inventory
Inventory Turnover Ratio = Rs. 3,60,000/ Rs. 1,20,000
= 3 Times
Working notes:
1. Cost of goods sold= Inventory in the beginning + Net Purchases + Wages + Carriage
inwards – Inventory at the end
= Rs. 1,08,000 + Rs. 2,76,000 + Rs. 84,000 + Rs. 24,000 – Rs. 1,32,000
= Rs. 3,60,000
2. Average Inventory = (Inventory in the beginning + Inventory at the end)/ 2
= (Rs. 1,08,000 + Rs. 1,32,000)/ 2
= Rs. 1,20,000
6. (a) Suraj Ltd.
Journal
2017 Dr. Cr.
Rs. Rs.
July 20 Bank Account Dr. 16,00,000
To Share Application A/c 16,00,000
(Application money on 80,000 shares at
Rs. 20 per share received.)
Aug 1 Share Application A/c Dr. 16,00,000
To Share Capital A/c 16,00,000
(The amount transferred to Capital
Account on 80,000 shares Rs. 20 on
application. Directors’ resolution no........
dated ......)
Share Allotment A/c Dr. 16,00,000
(Being share allotment made due at Rs. 20
per share. Directors’ resolution no......
dated ......)
7

Sept15 Bank Account Dr. 16,00,000
To Share Allotment A/c 16,00,000
(The sums due on allotment received.)
Dec. 1 Share First Call Account Dr. 24,00,000
To Share Capital Account 24,00,000
(Amount due from members in respect of
first call-on 80,000 shares at Rs. 30 as per
Directors, resolution no... dated...)
Dec. 20 Bank Account Dr. 24,00,000
To Share First Call Account 24,00,000
(Receipt of the amounts due on first call.)
2018
March 1 Share Second and Final Call A/c Dr. 24,00,000
(Amount due on 80,000 share at Rs. 30
per share on second and final call, as per
Directors resolution no... dated...)
March 31 Bank Account Dr. 24,00,000
To Share Second & Final Call A/c 24,00,000
(Amount received against the final call on
80,000 shares at Rs. 30 per share.)
(b) Books of Pihu Ltd.
Journal
Particulars L.F. Debit Credit
(Rs. ) (Rs. )
Bank A/c Dr. 20,00,00,000
To Debenture Application A/c 20,00,00,000
(Debenture application money received)
Debenture Application A/c Dr. 20,00,00,000
To 9% Debentures A/c 20,00,00,000
(Application money transferred to 9% debentures
account consequent upon allotment)
Debenture allotment A/c Dr. 25,00,00,000
Discount on issue of debentures A/c Dr. 5,00,00,000
To 9% Debentures A/c 30,00,00,000
(Amount due on allotment)
Bank A/c Dr. 25,00,00,000
To Debenture Allotment A/c 25,00,00,000
(Money received consequent upon allotment)

(c) The preparation of trial balance has the following objectives:
1 Checking of the arithmetical accuracy of the accounting entries: Trial Balance enables
one to establish whether the posting and other accounting processes have been carried out
without committing arithmetical errors. In other words, the trial balance helps to establish the
arithmetical accuracy of the books.
2. Basis for preparation of financial statements: Trial Balance forms the basis for preparing
financial statements such as the Income Statement and the Balance Sheet. The Trial Balance
represents all transactions relating to different accounts in a summarized form for a particular
period. In case, the Trial Balance is not prepared, it will be almost impossible to prepare the
financial statements to know the profit or loss made by the business during a particular period
or its financial position on a particular date.
3. Summarized ledger: Trial Balance contains the ledger balances on a particular position of a
particular account can be judged simply by looking at the Trial Balance. The ledger may be
seen only when details regarding the accounts are required.
Or
Rules regarding posting of entries in the ledger
1. Separate account is opened in ledger book for each account and entries from journal are
posted to respective account accordingly.
2. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledger.
3. The concerned account debited in the journal should also be debited in the ledger but
reference should be of the respective credit account.

Test Series: October, 2018
FOUNDATION COURSE
MOCK TEST PAPER - 2

1. (a) State with reasons, whether the following statements are true or false:
1 When shares are forfeited, the share capital account is debited with called up capital of shares
forfeited and the share forfeiture account is credited with Calls in arrear of shares forfeited.
2. Accrual concept implies accounting on cash basis.
3 Fixed Assets Turnover ratio indicates the firm’s ability of generating sales per rupee of long
term investment
4 Capital + Long Term Liabilities= Fixed Assets + Current Assets + Cash- Current Liabilities.
5 Partners can share profits or losses in their capital ratio, when there is no agreement.
6. Consignment account is of the nature of real account.
(6 statements x 2 Marks= 12 Marks)
(b) “Change in accounting policy may have a material effect on the items of financial statements.”
Explain the statement with the help of an example. (4 Marks)
(c) Classify the following errors under the three categories – Errors of Omission, Errors of Commission
and Errors of Principle.
(i) Sale of furniture credited to Sales Account.
(ii) Purchase worth Rs. 500 from M not recored in subsidiary books.
(iii) Credit sale wrongly passed through the Purchase Book.
(iv) Machinery sold on credit to Mohan recored in Journal Proper but omitted to be po sted.
(v) Goods worth Rs. 5000 purchased on credit from Ram recorded in the Purchase Book as
Rs. 500. (4 Marks)
2 (a) M/s Ram took lease of a quarry on 1-1-2016 for Rs. 2,00,00,000. As per technical estimate the
total quantity of mineral deposit is 4,00,000 tonnes. Depreciation was charged on the basis of
depletion method. Extraction pattern is given in the following table:
Year Quantity of Mineral extracted
2016 4,000 tonnes
2017 20,000 tonnes
2018 30,000 tonnes
Required
Show the Quarry Lease Account and Depreciation Account for each year from 2016 to 2018.
1

(b) Physical verification of stock in a business was done on 23 rd June, 2018. The value of the stock
was Rs. 48,00,000. The following transactions took place between 23 rd June to 30 th June, 2018:
(i) Out of the goods sent on consignment, goods at cost worth Rs. 2,40,000 were unsold.
(ii) Purchases of Rs. 4,00,000 were made out of which goods worth Rs. 1,60,000 were delivered
on 5th July, 2018.
(iii) Sales were Rs. 13,60,000, which include goods worth Rs. 3,20,000 sent on approval. Half of
these goods were returned before 30 th June, 2018, but no information is available regarding
the remaining goods.
(iv) Goods are sold at cost plus 25%. However goods costing Rs. 2,40,000 had been sold for
Rs. 1,20,000.
You are required to determine the value of stock on 30 th June, 2018.
(10 Marks +10 Marks = 20 Marks)
3 (a) From the following details calculate the average due date:
Date of Bill Amount (Rs.) Usance of Bill
28thJanuary, 2018 5,000 1 month
20th March, 2018 4,000 2 months
12th July, 2018 7,000 1 month
10th August, 2018 6,000 2 months
(5 Marks)
(b) Deepak and Om enter into a joint venture to take a building contract for Rs. 12,00,000. They provide
the following information regarding the expenditure incurred by them:
Deepak Om
Rs. Rs.
Materials 3,40,000 2,50,000
Cement 65,000 85,000
Wages - 1,35,000
Architect’s fees 50,000 -
License fees - 25,000
Plant - 1,00,000
Plant was valued at ` 50,000 at the end of the contract and Om agreed to take it at that value.
Contract amount ` 12,00,000 was received by Deepak. Profits or losses to be shared equally. You
are asked to show:
(i) Joint Venture Account and Om’s Account in the books of Deepak.
(ii) Joint Venture Account and Deepak’s Account in the books of Om.. (15 Marks)
4. (a) The Balance Sheet of Amitabh, Abhishek and Amrish as at 31.12.2017 stood as follows:
Liabilities Amount Assets Amount
Rs. Rs.
Capital: Land & Buildings 74,000
Amitabh 60,000 Investments 10,000
Abhishek 40,000 Advertisement 37,800
suspense

Amrish 40,000 1,40,000 Life Policy (at
surrender value):
Creditors 25,800 Amitabh 2,500
General Reserve 8,000 Abhishek 2,500
Investment Fluctuation Amrish 1,000
Reserve 2,400 Stock 20,000
Debtors 20,000
Less: Provision for
doubtful debts (1,600) 18,400
Cash & bank balance 10,000
1,76,200 1,76,200
Amrish died on 31 March, 2018, due to this reason the following adjustments were agreed upon:
(i) Land and Buildings be appreciated by 50%.
(ii) Investment be valued at 6% less than the cost.
(iii) All debtors (except 20% which are considered as doubtful) were good.
(vi) Stock to be reduced to 94%.
(v) Goodwill to be valued at 1 year’s purchase of the average profits of the past five years.
(vi) Amrish’s share of profit to the date of death be calculated on the basis of average profits of
the three completed years immediately preceeding the year of death.
The profits of the last five years are as follows:
Year Rs.
2013 23,000
2014 28,000
2015 18,000
2016 16,000
2017 20,000
1,05,000
The life policies have been shown at their surrender values representing 10% of the sum assured
in each case. The annual premium of Rs.1,000 is payable every year on 1 st August.
You are required to pass necessary Journal Entries in the books of account of the reconstituted
firm.
(b) The following information of M/s. TT Club are related for the year ended 31 st March, 2018:
(1)
Balances As on 01-04-2017 As on 31-3-2018
(Rs. ) (Rs. )
Stock of Sports Material 75,000 1,12,500
Amount due for Sports Material 67,500 97,500
Subscription due 11,250 16,500
Subscription received in advance 9,000 5,250
(2) Subscription received during the year Rs. 3,75,000
(3) Payments for Sports Material during the year Rs. 2,25,000
3

You are required to:
(A) Ascertain the amount of Subscription and Sports Material that will appear in Income &
Expenditure Account for the year ended 31.03.2018 and
(B) Also show how these items would appear in the Balance Sheet as on 31.03.2018.
(12 + 8 =20 Marks)
5 (a) The trial balance of Kumar as at 31st December, 2017 is as follows:
Dr. Cr.
Rs. Rs.
Kumar’s capital account - 38,345
Stock 1st January, 2017 23,400 -
Sales - 1,94,800
Returns inward 4,300 -
Purchases 1,60,850 -
Returns outward - 2,900
Carriage inwards 9,800 -
Rent & taxes 2,350 -
Salaries & wages 4,650 -
Sundry debtors 12,000 -
Sundry creditors - 7,400
Bank loan @ 14% p.a. - 10,000
Bank interest 550 -
Printing and stationary expenses 7,200 -
Bank balance 4,000 -
Discount earned - 2,220
Furniture & fittings 2,500 -
Discount allowed 900 -
General expenses 5,725 -
Insurance 650 -
Postage & telegram expenses 1,165 -
Cash balance 190 -
Travelling expenses 435 -
Drawings 15,000 -
2,55,665 2,55,665
The following adjustments are to be made:
(1) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry
debtors.
(2) Personal purchases of Kumar amounting to Rs. 300 had been recorded in the purchases day
book.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Included amongst the debtors is Rs. 1,500 due from Dyal and included among the creditors
Rs. 500 due to him.
4

(5) A quarter of the amount of printing and stationary expenses is to be carried forward to the
next year.
(6) Credit purchase invoice amounting to Rs. 200 had been omitted from the books.
(7) Stock on 31.12.2017 was Rs. 39,300.
(8) Interest on bank loan shall be provided for the whole year.
You are required to prepare Trading & profit and loss account for the year ended 31.12.2017.
(b) With the help of the following information complete the Balance Sheet of MNOP Ltd.:
Equity share capital Rs. 1,00,000
The relevant ratios of the company are as follows:
Current debt to total debt 0.40
Total debt to owner’s equity 0.60
Fixed assets to owner’s equity 0.60
Total assets turnover 2 Times
Inventory turnover 8 Times
(12 + 8= 20 Marks)
6. (a) On 1st April, 2017, A Ltd. issued 43,000 shares of Rs. 100 each payable as follows:
Rs. 25 on 1st October, 2017; and
Rs. 25 on 1st February, 2018.
By 20th May, 40,000 shares were applied for and all applications were accepted. Allotment was
made on 1st June. All sums due on allotment were received on 15th July; those on 1st call were
received on 20th October. Journalise the transactions when accounts were closed on
31st March, 2018. (10 Marks)
(b) Simmons Ltd. issued 1,00,000, 12% Debentures of Rs.100 each at par payable in full on application
by 1st April, Application were received for 1,10,000 Debentures. Debentures were allotted on 7th
April. Excess money refunded on the same date.
You are required to pass necessary Journal Entries (including cash transactions) in the books of
the company. (5 Marks)
(c) State the causes of difference between the balance shown by the pass book and the cash book.
OR
Which subsidiary books are normally used in a business? (5 Marks)

FOUNDATION COURSE
MOCK TEST PAPER - 2
ANSWERS
1. (a) 1 False- When shares are forfeited, the share capital account is debited with called up capital
forfeited.
2. False - Accrual concept implies accounting on ‘due’ or ‘accrual’ basis. Accrual basis of
accounting involves recognition of revenues and costs as and when they accrue irrespective
of actual receipts or payments.
3 False - Fixed Assets Turnover ratio measures the efficiency with which the firm uses its fix ed
assets. Capital Turnover Ratio indicates the firm’s ability of generating sales per rupee of long
term investment.
4 False- The right hand side of the equation includes cash twice- once as a part of current
assets and another separately. The basic accounting equation is
Equity + Long Term Liabilities = Fixed Assets + Current Assets - Current Liabilities
5 False - According to Partnership Act, in the absence of any agreement to the contrary profits
and losses are to be shared equally among partners.
6. False: Consignment account is a nominal account
(b) Change in accounting policy may have a material effect on the items of financial statements. For
example, if cost formula used for inventory valuation is changed from weighted average to FIFO,
or if interest is capitalized which was earlier not in practice, or if proportionate amount of interest
is changed to inventory which was earlier not the practice, all these may increase or decrease the
net profit. Unless the effect of such change in accounting policy is quantified, the financial
statements may not help the users of accounts. Therefore, it is necessary to quantify the effect of
change on financial statement items like assets, liabilities, profit/loss.
The examples in this regard may be given as follows:
Omega Enterprises revised its accounting policy relating to valuation of inventories to include
applicable production overheads.
(c) (i) Error of Principle.
(ii) Error of Omission.
(iii) Error of Commission.
(iv) Error of Omission.
(v) Error of Commission
2. (a) Quarry Lease Account
Dr. Cr.
2016 Rs. 2016 Rs.
Jan. To Bank A/c 2,00,00,000 Dec. 31 By Depreciation A/c 2,00,000
[(4,000/4,00,000) ×
Rs. 2,00,00,000]
Dec. 31 By Balance c/d 1,98,00,000

2,00,00,000 2,00,00,000
2017 2017
Jan. 1 To Balance b/d 1,98,00,000 Dec. 31 By Depreciation A/c 10,00,000
1,98,00,000 1,98,00,000
2018 2018
1,88,00,000 1,88,00,000
Depreciation Account
Dr. Cr.
2016 Rs. 2016 Rs.
Dec. To Quarry lease A/c 2,00,000 Dec. 31 By Profit & Loss A/c 2,00,000
31
2,00,000 2,00,000
2017 2017
31
10,00,000 10,00,000
2018 2018
31
15,00,000 15,00,000
(b) Statement of Valuation of Stock on 30 th June, 2018

Rs.
Value of stock as on 23rd June, 2018 48,00,000
Add: Unsold stock out of the goods sent on consignment 2,40,000
Purchases during the period from 23rd June, 2018 to 30th June, 2,40,000
2018
Goods in transit on 30th June, 2018 1,60,000
Cost of goods sent on approval basis (80% of Rs. 1,60,000) 1,28,000 7,68,000
55,68,000
Less: Cost of sales during the period from 23rd June, 2018 to 30th June,
2018
Sales (Rs. 13,60,000-Rs. 1,60,000) 12,00,000
Less: Gross profit 96,000
11,04,000
Value of stock as on 30th June, 2018 44,64,000
Working Notes:
2

1. Calculation of normal sales: Rs. Rs.
Actual sales 13,60,000
Less: Abnormal sales 1,20,000
Return of goods sent on approval 1,60,000 2,80,000
10,80,000
2. Calculation of gross profit:
Gross profit or normal sales 2,16,000
20/100 x Rs. 10,80,000
Less: Loss on sale of particular (abnormal) goods 1,20,000
(2,40,000 less 1,20,000)
Gross profit 96,000
3. (a) Calculation of Average Due Date
(Taking 3rd March, 2018 as base date)
Date of bill Term Due date Amount No. of days from Product
2018 2018 the base date i.e.
3rd March,2018
(Rs.) (Rs.) (Rs.)
28th January 1 month 3rd March 5,000 0 0
20th March 2 months 23rd May 4,000 81 3,24,000
12th July 1month 14th Aug. 7,000 164 11,48,000
10th August 2 months 13th Oct. 6,000 224 13,44,000
22,000 28,16,000
Sum of Products
Average due date = Base date + Days equal to
Sum of Amounts
28,16,000
= 3rd March, 2018 +
22,000
= 3rd March, 2018 + 128 days = 9 th July, 2018
Working Note:
Bill dated 12 th July, 2018 has the maturity period of one month, due date (after adding 3 days of
grace) falls on 15 th August, 2018. 15 th August being public holiday, due date would be preceding
date i.e. 14 th August, 2018.
(b) In the books of Deepak
Particulars Amount (`) Particulars Amount (`)
To Bank A/c: By Bank A/c 12,00,000
Material 3,40,000 By Om’s A/c (plant) 50,000
Cement 65,000
Architect’s fee 50,000 4,55,000
To Om’s A/c: -
3

Material 2,50,000
Cement 85,000
Wages 1,35,000
License fees 25,000
Plant 1,00,000 5,95,000
To Net profit
transferred to: -
Om’s A/c 1,00,000
Profit & Loss 2,00,000
A/c 1,00,000
12,50,000 12,50,000
Om’s Account
Particulars Amount Particulars Amount (` )
(` )
To Joint Venture By Joint Venture A/c
A/c (plant) 50,000 (sundries) 5,95,000
To Bank A/c By Joint Venture A/c (profit)
6,45,000 1,00,000
6,95,000 6,95,000
In the books of Om
Particulars ` Amount Particulars Amount (` )
(` )
To Deepak’s By Deepak’s A/c (contract 12,00,000
A/c: amount)
Material 3,40,000 By Plant A/c 50,000
Cement 65,000
Architect’ 4,55,000
s fee 50,000
To Bank A/c: -
Material 2,50,000
Cement 85,000
Wages 1,35,000
License
fees 25,000
Plant 1,00,000 5,95,000
To Net profit

transferre
d to:
Deepak’s 1,00,000
A/c
Profit & 100,000 2,00,000
Loss A/c
12,50,000 12,50,000
Dr. Deepak’s Account Cr.
Particulars Amount (` ) Particulars Amount (` )
To Joint Venture A/c 12,00,000 By Joint Venture A/c
(contract (sundries)
amount) 4,55,000
By Joint Venture A/c (profit) 1,00,000
By Bank A/c 6,45,000
12,00,000 12,00,000
4. (a) Journal Entries
Particulars Amount Amount
1. Insurance Company’s A/c Dr. 10,000
To Life Policy A/c 10,000
(Being the policy on the life of Amrish matured on his
death)
2. Life Policy A/c Dr. 9,000
To Amitabh’s Capital A/c 3,000
To Abhishek’s Capital A/c 3,000
To Amrish’s Capital A/c 3,000
(Being the transfer of balance in life policy account to all
partners’ capital accounts)
3. Amitabh’s Capital A/c Dr. 12,600
Abhishek’s Capital A/c Dr. 12,600
Amrish’s Capital A/c Dr. 12,600
To Advertisement suspense A/c 37,800
(Being Advertisement suspense standing in the books
written off fully)
4. Land & Buildings A/c Dr. 37,000
To Revaluation A/c 37,000
(Being an increase in the value of assets recorded)
5. Investment Fluctuation Reserve A/c Dr. 600
To Investment A/c 600

(Being reduction in the cost of investment adjusted
through Investment Fluctuation Reserve)
6. Revaluation A/c Dr. 3,600
To Stock A/c 1,200
To Provision for Doubtful Debts A/c 2,400
(Being the fall in value of assets recorded)
7. Amitabh’s Capital A/c Dr. 3,500
Abhishek’s Capital A/c Dr. 3,500
(Being the share of Amrish’s revalued goodwill adjusted
through capital accounts of the remaining partners)
8. Profit & Loss Suspense Account Dr. 1,500
(Being Amrish’s Share of profit to date of death credited
to his account)
9. Revaluation A/c Dr. 33,400
To Amrish’s Capital A/c 11,134•
(Being the transfer of profit on revaluation)
10. General Reserve A/c Dr. 8,000
Investment Fluctuation Reserve A/c (Rs. 2,400 - Rs. 600) Dr. 1,800
(Being the transfer of accumulated profits to capital
accounts)
11. Amrish’s Capital A/c Dr. 53,300
To Amrish’s Executor’s A/c 53,300
(Being the transfer of Amrish’s Capital A/c to his Executor’s
A/c)
Working Notes:
(i) Calculation of Amrish’s Share of Profit
Total profit for last three years Rs. 18,000 + Rs. 16,000 + Rs. 20,000 =
Rs. 54,000
Average profit 54,000/3 = Rs. 18,000
Profit for 3 months = 18,000 x 3/12 = Rs. 4,500
Amrish’s share of Profit = 4,500 x 1/3 = Rs. 1,500
•
Rounded off.
6

(ii) Calculation of Goodwill
Total profits for last five years Rs. 1,05,000
Average profit 1,05,000/5 = Rs. 21,000
Goodwill at one year’s purchase Rs. 21,000 x 1 =Rs. 21,000
(b) Subscription for the year ended 31.3.2018

Rs.
Subscription received during the year 3,75,000
Less: Subscription receivable on 1.4.2017 11,250
Less: Subscription received in advance on 31.3.2018 5,250 (16,500)
3,58,500
Add: Subscription receivable on 31.3.2018 16,500
Add: Subscription received in advance on 1.4.2017 9,000 25,500
Amount of Subscription appearing in Income & Expenditure Account 3,84,000
Sports material consumed during the year end 31.3.2018
Rs.
Payment for Sports material 2,25,000
Less: Amounts due for sports material on 1.4.2017 (67,500)
1,57,500
Add: Amounts due for sports material on 31.3.2018 97,500
Purchase of sports material 2,55,000
Sports material consumed:
Stock of sports material on 1.4.2017 75,000
Add: Purchase of sports material during the year 2,55,000
3,30,000
Less: Stock of sports material on 31.3.2018 (1,12,500)
Amount of Sports Material appearing in Income & Expenditure Account 2,17,500
Balance Sheet of M/s TT Club For the year ended 31 st March, 2018(An extract)
Unearned Subscription 5,250 Subscription receivable 16,500
Amount due for sports material 97,500 Stock of sports material 1,12,500
5. (a) Trading and Profit and Loss Account of Mr. Kumar

for the year ended 31st December, 2017
Rs. Rs. Rs. Rs.
To Opening stock 23,400 By Sales 1,94,800
To Purchases 1,60,850 Less: Returns 4,300 1,90,500
Add: Omitted 200 By Closing stock 39,300
invoice 1,61,050
Less: Returns 2,900
1,58,150
Less: Drawings 300 1,57,850
To Freight & carriage 9,800
7

To Gross profit c/d 38,750
2,29,800 2,29,800
To Rent and taxes 2,350 By Gross profit b/d 38,750
To Salaries and wages 4,650 By Discount 2,220
To Bank interest 550
Add: Due 850 1,400
To Printing and stationary 7,200
Less: Prepaid (1/4) 1,800 5,400
To Discount allowed 900
To General expenses 5,725
To Insurance 650
To Postage & telegram
1,165
expenses
To Travelling expenses 435
To Provision for bad debts 575
[W.N.]
To Provision for discount
219
on debtors [W.N.]
To Depreciation on
250
furniture & fittings
To Net profit 17,251
40,970 40,970
Working Note:
Provision for bad & doubtful debts:
@ 5% on Rs. 11,500 575
Provision for discount:
2% on Rs. 10,925 (11,500 -575) 219
(b) MNOP Ltd Balance Sheet

Owner equity 1,00,000 Fixed assets 60,000
Current debt 24,000 Cash 60,000
Long term debt 36,000 Inventory 40,000
1,60,000 1,60,000
Working Notes
1. Total debt = 0.60  Owners equity = 0.60  Rs. 1,00,000 = Rs. 60,000
Current debt to total debt = 0.40, hence current debt = 0.40  60,000 = 24,000
2. Fixed assets = 0.60  Owners equity = 0.60  Rs. 1,00,000 = Rs. 60,000
3. Total capital employed = Total debt + Owners equity = Rs. 60,000 + Rs. 1,00,000 =
Rs. 1,60,000
4. Total assets consisting of fixed assets and current assets must be equal to
Rs. 1,60,000 (Assets = Liabilities + Owners equity). Since Fixed assets are
Rs. 60,000, hence, current assets should be Rs. 1,00,000
8

Total assets turnover 2 Times
5. =
Inventory turnover 8 Times
Hence , Inventory /Total assets = 2/8=1/4,
Total assets = 1,60,000
Therefore Inventory = 1,60,000/4 = 40,000
Balance on Asset side = 1,20,000:
Cash = 1,60,000 – 60,000 – 40,000 = 60,000
6. (a) A Ltd.
Journal
2017 Dr. Cr.
Rs. Rs.
May 20 Bank Account Dr. 8,00,000
(Application money on 40,000 shares at Rs. 20
per share received.)
June 1 Share Application A/c Dr. 8,00,000
(The amount transferred to Capital Account on
40,000 shares Rs. 20 on application. Directors’
resolution no........ dated ......)
(Being share allotment made due at Rs. 30 per
share. Directors’ resolution no...... dated ......)
To Share Application and Allotment A/c 12,00,000
Oct. 1 Share First Call Account Dr. 10,00,000
(Amount due from members in respect of first
call-on 40,000 shares at Rs. 25 as per Directors,
resolution no... dated...)
Oct. 20 Bank Account Dr. 10,00,000
2018
Feb. 1 Share Second and Final Call A/c Dr. 10,00,000
(Amount due on 40,000 share at Rs. 25
per share on second and final call, as per
Directors resolution no... dated...)
Mar. 31 Bank Account Dr. 10,00,000
(Amount received against the final call on
40,000 shares at Rs.25 per share.)

(b) In the books of Simmons Limited
Date Particulars Rs. '000 Rs. '000
April 1 Bank A/c Dr. 11,000
To 12% Debentures Application A/c 11,000
(Being money received on 1,10,000 debentures)
April 7 12% Debentures Application A/c Dr. 1,000
To Bank A/c 1,000
(Being money on 10,000 debentures refunded as
per Board’s Resolution No…..dated…)
To 12% Debentures A/c 10,000
(Being the allotment of 1,00,000 debentures of Rs.
100 each at par, as per Board’s Resolution
No….dated…)
(c) The difference between the balance shown by the passbook and the cashbook may arise on
account of the following:
(i) Cheques issued but not yet presented for payment.
(ii) Cheques deposited into the bank but not yet cleared.
(iii) Interest allowed by the bank.
(iv) Interest and expenses charged by the bank.
(v) Interest and dividends collected by the bank.
(vi) Direct payments by the bank.
(vii) Direct deposits into the bank by a customer.
(viii) Dishonour of a bill discounted with the bank.
(ix) Bills collected by the bank on behalf of the customer.
(x) An error committed by the bank etc.
OR
(c) Normally, the following subsidiary books are used in a business:
(i) Cash book to record receipts and payments of cash, including receipts into and payments out
of the bank.
(ii) Purchases book to record credit purchases of goods dealt in or of the materials and stores
required in the factory.
(iii) Purchase Returns Books to record the returns of goods and materials previously purchased.
(iv) Sales Book to record the sales of the goods dealt in by the firm.
(v) Sale Returns Book to record the returns made by the customers.
(vi) Bills receivable books to record the receipts of promissory notes or hundies from various
parties.
(vii) Bills Payable Book to record the issue of the promissory notes or hundies to other parties.
(viii) Journal (proper) to record the transactions which cannot be recorded in any of the seven
books mentioned above.
10

Test Series: April, 2019
FOUNDATION COURSE
MOCK TEST PAPER 2
(i) Debenture interest is payable after the payment of preference dividend but before the
payment of equity dividend.
(ii) Amount paid to Management company for consultancy to reduce the working expenses is
capital expenditure if the reduced working expenses will generate long term benefits to the
entity.
(iii) The additional commission to the consignee who agrees to bear the loss on account of bad
debts is called overriding commission.
(iv) When there is no agreement among the partners, the profit or loss of the firm will be shared
in their capital ratio.
(v) Goods worth Rs. 600 taken by the proprietor for personal use should be credited to Capital
Account.
(vi) Quick ratio is also known as Cash Ratio. (6 statements x 2 Marks = 12 Marks)
(b) Explain in brief objective and advantages of setting Accounting Standards. (4 Marks)
(c) A trader prepared his accounts on 31st March, each year. Due to some unavoidable reasons, no
stock taking could be possible till 15th April, 2018 on which date the total cost of goods in his
godown came to Rs. 50,000. The following facts were established between 31st March and 15th
April, 2018.
(i) Sales Rs. 41,000 (including cash sales Rs. 10,000)
(ii) Purchases Rs. 5,034 (including cash purchases Rs. 1,990)
(iii) Sales Return Rs. 1,000.
(iv) On 15th March, goods of the sale value of Rs. 10,000 were sent on sale or return basis to a
customer, the period of approval being four weeks. He returned 40% of the goods on 10th
April, approving the rest; the customer was billed on 16th April.
Goods are sold by the trader at a profit of 20% on sales.
You are required to ascertain the value of Inventory as on 31st March, 2018. (4 Marks)

2. (a) Prepare a Petty Cash Book on the Imprest System from the following:
2017 Rs.
April 1 Received Rs. 20,000 for petty cash
“ 2 Paid auto fare 500
“ 3 Paid cartage 2,500
“ 4 Paid for Postage & Telegrams 500
“ 5 Paid wages 600
“ 5 Paid for stationery 400
“ 6 Paid for the repairs to machinery 1,500
“ 6 Bus fare 100
“ 7 Cartage 400
“ 7 Postage and Telegrams 700
“ 8 Cartage 3,000
“ 9 Stationery 2,000
“ 10 Sundry expenses 5,000
(b) On 30th Sept. 2018 my Cash Book (Bank Column of Account No. 1) shows a Bank Overdraft of
Rs. 49,350. On going through the Bank Pass book for reconciling the Balance, I found the following:
(a) Out of cheques drawn on 26 th Sept, those for Rs. 3,700 were cashed by the bankers on 2nd
October.
(b) A crossed cheque for Rs. 750 given to Abdul was returned by him and a bearer cheque was issued
to him in lieu on 1st Oct.
(c) Cash and cheques amounting to Rs. 3,400 were deposited in the Bank on 29 th Sept., but cheques
worth Rs. 1,300 were cleared by the Bank on 1 st Oct., and one cheque for Rs. 250 was returned
by them as dishonoured on the latter date.
(d) According to my standing instructions, the bankers have on 30 th Sept, paid Rs. 320 as interest to
my creditors, paid quarterly premium on my policy amounting to Rs. 160 and have paid a second
call of Rs. 600 on shares held by me and lodged with the bankers for safe custody. They have
also received Rs. 150 as dividend on my shares and recovered an Insurance Claim of Rs. 800, as
their charges and commission on the above being Rs. 15. On receipt of information of the above
transaction, I have passed necessary entries in my Cash Book on 1 st Oct.
(e) My bankers seem to have given me a wrong credit for Rs. 500 paid in by me in No. 2 account and
wrong debit in respect of a cheque for Rs. 300 drawn against my No. 2 account.
Prepare a Bank Reconciliation Statement as on 30 th September, 2018.
(10 Marks + 10 Marks= 20 Marks)
3 (a) Manoj of Noida consigned to Kiran of Jaipur, goods to be sold at invoice price which represents
125% of cost. Kiran is entitled to a commission of 10% on sales at invoice price and 25% of any
excess realised over invoice price. The expenses on freight and insurance incurred by Manoj were
Rs. 15,000. The account sales received by Manoj shows that Kiran has effected sales amounting
to Rs. 1,50,000 in respect of 75% of the consignment. His selling expenses to be reimbursed were
Rs. 12,000. 10% of consignment goods of the value of Rs. 18,750 were destroyed in fire at the
Jaipur godown. Kiran remitted the balance in favour of Manoj.

You are required to prepare consignment account in the books of Manoj along with the necessary
calculations. (10 Marks)
(b) A and B entered into a joint venture to buy and sell mobile sets, on 1st July, 2017.
On 1.7.2017, A sent a draft for Rs. 3,75,000 in favour of B, and on 4.7.2017, the latter purchased
200 sets each at a cost of Rs. 3,000 each. The sets were sent to A by lorry under freight “to pay”
for Rs. 3,000 and were cleared by A on 15.7.2017.
A effected sales in the following manner:
Date No. of sets Sale price Discount on
per set sale price
16.7.2017 3 4,500 10%
31.7.2017 80 4,200 -
15.8.2017 80 4,050 5%
On 25.8.2017, A settled the account by sending a draft in favour of B, profits being shared equally.
B does not maintain any books.
You are required to prepare in A’s books:
(i) Joint Venture with B A/c; and
(ii) Memorandum Joint Venture A/c. (10 Marks)
4. Smith Library Society showed the following position on 31 st March, 2018:
Balance Sheet as on 31 st March, 2018
Expenses payable 7,000 Furniture 50,000
Books 4,00,000
Investment in securities 1,50,000
Cash at bank 25,000
______ Cash in hand 25,000
8,00,000 8,00,000
The receipts and payment account for the year ended on 31 st March, 2019 is given below:
Rs. Rs.
To Balance b/d By Electric charges 7,200
Cash at bank 25,000 By Postage and stationary 5,000
Cash in hand 25,000 50,000 By Telephone charges 5,000
To Entrance fee 30,000 By Books purchased 60,000
To Membership subscription 2,00,000 By Outstanding expenses paid 7,000
To Sale proceeds of old papers 1,500 By Rent 88,000
To Hire of lecture hall 20,000 By Investment in securities 40,000
To Interest on securities. 8,000 By Salaries 66,000
By Balance c/d
Cash at bank 20,000
_______ Cash in hand 11,300
3,09,500 3,09,500
3

You are required to prepare income and expenditure account for the year ended 31 st March, 2019 and
a balance sheet as at 31 s, March, 2019 after making the following adjustments:
Membership subscription included Rs. 10,000 received in advance.
Provide for outstanding rent Rs. 4,000 and salaries Rs. 3,000.
Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be
depreciated at the same rate.
75% of the entrance fees is to be capitalized.
Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10.2018 for
Rs. 40,000. (20 Marks)
5 (a) Neha & Co. is a partnership firm with partners Mr. P, Mr. Q and Mr. R, sharing profits and losses
in the ratio of 10:6:4. The balance sheet of the firm as at 31st March, 2019 is as under:
Capitals: Land 10,000
Mr. P 80,000 Buildings 2,00,000
Mr. Q 20,000 Plant and machinery 1,30,000
Mr. R 30,000 1,30,000 Furniture 43,000
Reserves Investments 12,000
(un-appropriated profit) 20,000 Inventories 1,30,000
Long Term Debt 3,00,000 Trade receivables 1,39,000
Bank Overdraft 44,000
Trade payables 1,70,000
6,64,000 6,64,000
It was mutually agreed that Mr. Q will retire from partnership and in his place Mr. T will be admitted
as a partner with effect from 1 st April, 2019. For this purpose, the following adjustments are to be
made:
(a) Goodwill is to be valued at Rs.1 lakh but the same will not appear as an asset in the books of
the reconstituted firm.
(b) Buildings and plant and machinery are to be depreciated by 5% and 20% respectively.
Investments are to be taken over by the retiring partner at Rs.15,000. Provision of 20% is to
be made on Trade receivables to cover doubtful debts.
(c) In the reconstituted firm, the total capital will be Rs. 2 lakhs which will be contributed by Mr.
P, Mr. R and Mr. T in their new profit sharing ratio, which is 2:2:1.
(i) The surplus funds, if any, will be used for repaying bank overdraft.
(ii) The amount due to retiring partner shall be transferred to his loan account.
You are required to prepare
(a) Revaluation account;
(b) Partners’ capital accounts;
(c) Bank account; and

(b) The following information of Hari Ltd. as on Dec 31 st 2017 is given as below:
Equity and Liabilities Assets Rs.
Shareholder’s Funds 1,12,500 Current Assets 1,50 ,000
Current Liabilities 1,50,000 Fixed Assets 2,25,000
Long Term Liabilities 1,12,500 2,62,500 _______
3,75,000 3,75,000
Net sales 5,62,500
Interest Expense 6,000
Net Profit 39,375
On Dec 31 2016, Total Assets were Rs.3,00,000 and the tax rate is 40%.
st
You are required to compute the following ratios of Hari Ltd. as on Dec. 31 st 2017.
(i) Long Term Debt to Total Assets Ratio
(ii) Net Profit Ratio
(iii) Return on Average Total Assets
(iv) Return on Equity
(v) Net Sales to Total Assets. (10 + 10 = 20 Marks)
6. (a) Abhijeet who was the holder of 4,000 preference shares of Rs. 100 each, on which Rs. 75 per
share has been called up could not pay his dues on Allotment and First call each at Rs. 25 per
share. The Directors forfeited the above shares and reissued 3,000 of such shares to Mr. X at
Rs. 65 per share paid-up as Rs.75 per share.
You are required to prepare journal entries to record the above forfeiture and re-issue in the books
of the company. (10 Marks)
(b) Pihu Ltd. issued 300 lakh 8% debentures of Rs.100 each at a discount of 6%, redeemable at a
premium of 5% after 3 years payable as : Rs. 50 on application and Rs. 44 on allotment.
You are required to prepare the necessary journal entries for issue of debentures. (5 Marks)
(c) Explain the differences between Money measurement concept and Matching Concept
Or
Explain, in brief, the basic considerations for distinguishing between capital and revenue
expenditures? (5 Marks)

Test Series: April, 2019
FOUNDATION COURSE
MOCK TEST PAPER 2
ANSWERS
1. (a) (i) False - Debenture interest is payable before the payment of any dividend on shares.
(ii) True: Amount paid to management company for consultancy to reduce the working expenses
is capital expenditure as this expenditure will generate long-term benefit to the entity.
(iii) False: The additional commission to the consignee who agrees to bear the loss on account
of bad debts is called del credere commission.
(iv) False: According to the Indian Partnership Act, in the absence of any agreement to the
contrary, profits and losses of the firm are shared equally among partners.
(v) False: Goods taken by the proprietor for personal use should be credited to Purchases
Account as less goods are left in the business for sale.
(vi) False: Quick ratio is known as Acid Test Ratio and not Cash Ratio.
(b) Objective and Advantages of Accounting Standards: An Accounting Standard is a selected set
of accounting policies or broad guidelines regarding the principles and methods to be chosen out
of several alternatives. The Accounting Standards Board formulates Accounting Standards to be
established by the Council of the Institute of Chartered Accountants of India.
The main objective of Accounting Standards is to establish standards which have to be complied
with to ensure that financial statements are prepared in accordance with generally accepted
accounting standards. Accounting Standards seek to suggest rules and criteria of accounting
measurements. These standards harmonize the diverse accounting policies and practices at
present in use in India.
The main advantage of setting accounting standards is that the adoption and application of
Accounting Standards ensure uniformity, comparability and qualitative improvement in the
preparation and presentation of financial statements.
The other advantages are as follows:
(i) Reduction in variations.
(ii) Disclosure beyond that required by law.
(iii) Facilities comparison.
(c) Statement of Valuation of Stock on 31st March, 2018
Rs. Rs.
Value of stock as on 15th April, 2018 50,000
Add: Cost of sales during the period from 31st March, 2018 to 15th April,
2018
Sales (Rs. 41,000 – Rs. 1,000) 40,000
Less: Gross Profit (20% of Rs. 40,000) 8,000 32,000
Cost of goods sent on approval basis
(80% of Rs. 6,000) 4,800
86,800

Less: Purchases during the period from 31st March, 2018 to 15th April,
2018 5,034
81,766
2. (a) PETTY CASH BOOK
Receipts Date V. Particulars Total Con- Cartage Statio- Postage & Wages Sundries
No. veyance nery Telegrams
Rs. 2017 Rs. Rs. Rs. Rs. Rs. Rs. Rs.
20,000 April1 To Cash
2 1 By Conveyance 500 500
3 2 By Cartage 2,500 2,500
4 3 By Postage and 500 500
Telegrams
5 4 By Wages 600 600
5 5 By Stationery 400 400
6 6 By Repairs to 1,500 1,500
machine
6 7 By Conveyance 100 100
7 8 By Cartage 400 400
7 9 By Postage and 700 700
Telegrams
8 10 By Cartage 3,000 3,000
9 11 By Stationery 2,000 2,000
10 12 By Sundry 5,000 5,000
Expenses
17,200 600 5,900 2,400 1,200 600 6,500
By Balance c/d 2,800
20,000 20,000
2800 To Balance b/d
17,200 11 To Cash
(b)
Balance as per Cash Book (49,350)
Add : Cheques issued but not presented for payment 3,700
Crossed Cheque issued to Abdul not presented for
750
payment
Amounts collected by Bank on our behalf but
not entered in the Cash Book
Dividend 150
Insurance claim 800
950
(-) Bank Commission 15 935
Amount paid in A/c No. 2 credited by the
Bank wrongly to this A/c 500 5885
(43,465)
Less : Cheques deposited in the bank but no cleared 1550
(Rs. 1,300 + Rs. 250)
2

Payments made by Bank on our behalf but not
entered in the Cash Book
Interest 320
Premium 160
Second call 600 1,080
Cheques issued against A/c No. 2 but wrongly
debited by the Bank to this A/c 300 (2,930)
Overdraft as per Pass Book 46,395
3. (a) Books of Manoj

Consignment to Jaipur Account
To Goods sent on 1,87,500 By Goods sent on 37,500
Consignment A/c Consignment A/c (loading)
To Cash A/c 15,000 By Abnormal Loss 16,500
To Kiran(Expenses) 12,000 By Kiran(Sales) 1,50,000
To Kiran(Commission) 16,406 By Inventories on Consignment 30,375
A/c
To Inventories Reserve A/c 5,625 By General Profit & Loss A/c 2,156
2,36,531 2,36,531
Working Notes:
1. Calculation of value of goods sent on consignment:
Abnormal Loss at Invoice price = Rs. 18,750
Abnormal Loss as a percentage of total consignment = 10%.
Hence the value of goods sent on consignment = Rs. 18,750 X 100/ 10 = Rs. 1,87,500
Loading of goods sent on consignment = Rs. 1,87,500 X 25/125 = Rs. 37,500
2. Calculation of abnormal loss (10%):
Abnormal Loss at Invoice price = Rs. 18,750.
Abnormal Loss at cost = Rs. 18,750 X 100/125 = Rs. 15,000
Add: Proportionate expenses of Manoj (10 % of Rs. 15,000) = Rs. 1,500
Rs. 16,500
3. Calculation of closing Inventories (15%):
Manoj’s Basic Invoice price of consignment= Rs. 1,87,500
Manoj’s expenses on consignment = Rs. 15,000
Rs. 2,02,500
Value of closing Inventories = 15% of Rs. 2,02,500= Rs. 30,375
Loading in closing Inventories = Rs. 37,500 x 15/100= Rs. 5,625
Where Rs. 28,125 (15% of Rs. 1,87,500) is the basic invoice price of the goods sent on
consignment remaining unsold.
3

4. Calculation of commission:
Invoice price of the goods sold = 75% of Rs. 1,87,500 = Rs. 1,40,625
Excess of selling price over invoice price = Rs. 9,375 ( Rs. 1,50,000 - Rs. 1,40,625)
Total commission = 10% of Rs. 1,40,625 + 25% of Rs. 9,375
= Rs. 14,062.5 + Rs. 2,343.75
= Rs. 16,406
(b) A’s Books
Joint Venture with B A/c
2017 Particulars Amount 2017 Particulars Amount
(Rs.) (Rs.)
July 1 To Bank - draft sent July 16 By Bank-sale proceeds 1,21,500
on A/c 3,75,000
July 15 To Bank - freight 3,000 July 31 By Bank-sale proceeds 3,36,000
Aug 25 To Profit and Loss A/c
share of profit 81,150 Aug 14 By Bank-sale proceeds 3,07,800
To Bank - draft sent
in settlement 3,06,150
7,65,300 7,65,300
Memorandum Joint Venture A/c
(Rs.) (Rs.)
To Cost of 200 sets 6,00,000 By Sales proceeds (net)
To Freight 3,000 30 sets @ Rs. 4,050 1,21,500
To Profit : 80 sets @ Rs. 4,200 3,36,000
A 81,150 80 sets @ Rs. 3,847.5 3,07,800
B 81,150 1,62,300
7,65,300 7,65,300
4. Smith Library Society
for the year ended 31 st March, 2019
Dr. Cr.
Expenditure Rs. Rs. Income Rs.
To Electric charges 7,200
By By Entrance fee (25% of 7,500
To Postage and stationary 5,000 Rs. 30,000)
To Telephone charges 5,000
By By Membership subscription 2,00,000
To Rent 88,000 Less: Received in advance 10,000 1,90,000
Add: Outstanding 4,000 92,000
To Salaries 66,000 By Sale proceeds of old papers 1,500
Add: Outstanding 3,000 69,000 By Hire of lecture hall
To Depreciation (W.N.1) 20,000
4

Electrical fittings 15,000 By By Interest on securities 8,000
Furniture 5,000 (W.N.2)
Books 46,000 66,000 Add: Receivable 500 8,500
By By Deficit- excess of 16,700
expenditure over income
2,44,200 2,44,200
Balance Sheet of Smith Library Society

as on 31st March, 2019
Liabilities Rs. Rs. Asset Rs. Rs.
Add: Entrance fees _22,500 Less: Depreciation (15,000) 1,35,000
8,15,500 Furniture 50,000
Less: Excess of expenditure Less: Depreciation (5,000) 45,000
over income (16,700) 7,98,800 Books 4,60,000
Outstanding expenses: Less Depreciation (46,000) 4,14,000
Rent 4,000 Investment:
Salaries 3,000 7,000 Securities 1,90,000
Membership subscription in Accrued interest 500 1,90,500
advance 10,000 Cash at bank 20,000
_______ Cash in hand 11,300
8,15,800 8,15,800
Working Notes:
1. Depreciation Rs.
Electrical fittings 10% of Rs. 1,50,000 15,000
Furniture 10% of Rs. 50,000 5,000
Books 10% of Rs. 4,60,000 46,000
2. Interest on Securities
Interest @ 5% p.a. on Rs. 1,50,000 for full year 7,500
Interest @ 5% p.a. on Rs. 40,000 for half year 1,000 8,500
Less: Received (8,000)
Receivable 500
5. (a) Revaluation Account
Rs. Rs.
To Buildings A/c 10,000 By Investments A/c 3,000
To Plant and Machinery A/c 26,000 By Loss to Partners:
To Provision for Doubtful Debts A/c 27,800 P 30,400
Q 18,240
R 12,160 60,800
63,800 63,800

Capital Accounts of Partners
Particulars P Q R T Particulars P Q R T
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To Revaluation 30,400 18,240 12,160 - By Balance b/d 80,000 20,000 30,000 -
A/c
To Investments - 15,000 -- By Reserves A/c 10,000 6,000 4,000 -
A/c
To Q’s Loan - 22,760 -- By R and T’s Capital 10,000 30,000 - -
A/c A/c
To P and Q’s 20,000 20,000 By Bank A/c 10,400 - 78,160 60,000
Capital A/c (balancing
figure)
To Balance c/d 80,000 - 80,000 40,000
1,10,400 56,000 1,12,160 60,000 1,10,400 56,000 1,12,160 60,000
Bank Account
Rs. Rs.
To P’s capital A/c 10,400 By Bank Overdraft A/c 44,000
To R’s capital A/c 78,160 By Balance c/d 1,04,560
To T’s capital A/c 60,000
1,48,560 1,48,560
Long Term Debt
(b) Long Term Debt to Total assets =
Total Assets
1,12,500
=
3,75,000
= 1:3.33
(i) Net Profit Ratio = Net Profit 100
Net Sales
39,375 100
=
5,62,500
= 7%
(ii) Return on Average Total Assets Ratio = Net Profit Interest(1 t) 100
Average Total Assets
39,375 6,000(1 0.40) 100

=
(3,00,000 3,75,000) / 2
42,975 100
=
3,37,500
= 12.73%
Net Profit 100
(iii) Return on Equity =
Shareholders' Funds
= 39,375 100
1,12,500
= 35%
6

(iv) Net Sales to Total Assets Ratio = Net Profit
Total Assets
= 5,62,500
3,37,500
= 1.67: 1
6. (a)
Journal Dr. Cr.
Rs. Rs.
Preference Share Capital A/c (4,000 x Rs.75) Dr. 3,00,000
To Preference Share Allotment A/c 1,00,000
To Preference Share First Call A/c 1,00,000
To Forfeited Share A/c 1,00,000
(Being the forfeiture of 4,000 preference shares Rs.75 each
being called up for non-payment of allotment and first call
money as per Board’s Resolution No.... dated.....)
Bank A/c (3,000 x Rs.65) Dr. 1,95,000
Forfeited Shares A/c (3,000 x Rs.10) Dr. 30,000
To Preference Share Capital A/c 2,25,000
(Being re-issue of 3,000 shares at Rs. 65 per share paid-up
as Rs. 75 as per Board’s Resolution No…..dated….)
Forfeited Shares A/c Dr. 45,000
To Capital Reserve A/c (Note 1) 45,000
(Being profit on re-issue transferred to
Capital/Reserve)
Working Note:
Calculation of amount to be transferred to Capital Reserve
Forfeited amount per share =Rs. 1,00,000/4,000 = Rs. 25
Loss on re-issue =Rs. 75 – Rs. 65 = Rs. 10
Surplus per share re-issued Rs. 15
Transferred to capital Reserve Rs. 15 x 3,000 = Rs. 45,000.
(b) Books of Pihu Ltd.
Journal Entries
Date Particulars L.F. Debit Credit
Amount Amount
(Rs.' Lakhs) (Rs.' Lakhs)
Bank A/c Dr. 15,000
To Debenture Application A/c 15,000
(Debentures application money received)
Debenture Application A/c Dr. 15,000
(Application money transferred to 8% debentures
account)
Debenture Allotment A/c Dr. 13,200
7

Loss on issue of debenture A/c Dr. 3,300
To Debenture redemption premium A/c 1,500
(Call made consequent upon allotment of
debentures issued at discount and redeemable at
premium)
Bank A/c Dr. 13,200
To Debenture Allotment A/c 13,200
(Allotment amount received)
Working Notes :
Loss on issue of debentures =
(Amount of discount on issue + Premium payable on redemption) x No. of Debentures
= (6% of Rs.100 + 5% of Rs.100) x 300 lakh
= (Rs. 6 + Rs. 5) x 300 lakh
= Rs. 3,300 lakh
(c) Difference between Money measurement concept and matching concept
As per Money Measurement concept, only those transactions, which can be measured in terms
of money are recorded. Since money is the medium of exchange and the standard of economic
value, this concept requires that those transactions alone that are capable of being measured in
terms of money be only to be recorded in the books of accounts. Transactions and events that
cannot be expressed in terms of money are not recorded in the business books.
In Matching concept, all expenses matched with the revenue of that period should only be taken
into consideration. In the financial statements of the organization if any revenue is recognized then
expenses related to earn that revenue should also be recognized.
Or
The basic considerations in distinction between capital and revenue expenditures are:
(i) Nature of business: For a trader dealing in furniture, purchase of furniture is revenue
expenditure but for any other trade, the purchase of furniture should be treated as capital
expenditure and shown in the balance sheet as asset.
(ii) Recurring nature of expenditure: If the frequency of an expense is quite often in an accounting
year then it is said to be an expenditure of revenue nature while non-recurring expenditure is
infrequent in nature and do not occur often in an accounting year.
(iii) Purpose of expenses: Expenses for repairs of machine may be incurred in course of normal
maintenance of the asset. Such expenses are revenue in nature. On the other hand,
expenditure incurred for major repair of the asset so as to increase its productive capacity is
capital in nature.
(iv) Materiality of the amount involved: Relative proportion of the amount involved is another
important consideration in distinction between revenue and capital.

Test Series: March, 2019
FOUNDATION COURSE
MOCK TEST PAPER
(i) When shares are forfeited, the share capital account is debited with c alled up capital of shares
(iii) Accrual concept implies accounting on cash basis.
(iii) Finished goods are normally valued at cost or market price whichever is higher.
(iv) Discount at the time of retirement of a bill is a gain for the drawee.
(v) Partners can share profits or losses in their capital ratio, when there is no agreement.
(vi) Receipts and Payments Account highlights total income and expenditure.
(6 Statements x 2 Marks = 12 Marks)
(b) Explain Cash and Mercantile system of accounting. (4 Marks)
(c) Prepare Journal Entries for the following transactions in the books of Gamma Bros.
(i) Employees had taken stock worth Rs. 10,000 (Cost price Rs. 7,500) on the eve of Deepawali
and the same was deducted from their salaries in the subsequent month.
(ii) Wages paid for erection of Machinery Rs. 8,000.
(iii) Income tax liability of proprietor Rs. 1,700 was paid out of petty cash.
(iv) Purchase of goods from Naveen of the list price of Rs. 2,000. He allowed 10% trade discount,
Rs. 50 cash discount was also allowed for quick payment. (4 Marks)
2. (a) M/s Kedar, Profit and loss account showed a net profit of Rs. 8,00,000, after considering the closing
stock of Rs. 7,50,000 on 31st March, 2017. Subsequently the following information was obtained
from scrutiny of the books:
(i) Purchases for the year included Rs. 30,000 paid for new electric fittings for the shop.
(ii) M/s Kedar gave away goods valued at Rs. 80,000 as free samples for which no entry was
made in the books of accounts.
(iii) Invoices for goods amounting to Rs. 5,00,000 have been entered on 27 th March, 2017, but the
goods were not included in stock.
(iv) In March, 2017 goods of Rs. 4,00,000 sold and delivered were taken in the sales for
April, 2017.
(v) Goods costing Rs. 1,50,000 were sent on sale or return in March, 2017 at a margin of profit
of 33-1/3% on cost. Though approval was given in April, 2017 these were taken as sales for
March, 2017.

You are required to determine the adjusted net profit for the year ended on 31.3.2017 and calculate
the value of stock on 31 st March, 2017.
(b) The M/s LG Transport purchased 10 trucks at Rs. 45,00,000 each on 1st April 2014. On October
1st, 2016, one of the trucks is involved in an accident and is completely destroyed and
Rs. 27,00,000 is received from the insurance in full settlement. On the same date, another truck is
purchased by the company for the sum of Rs. 50,00,000. The company write off 20% on the original
cost per annum. The company observe the calendar year as its financial year.
You are required to prepare the motor truck account for two year ending 31 Dec, 2017.
(10 Marks +10 Marks = 20 Marks)
3. (a) On 1st January, 2018, X’s account in Y’s ledger showed a debit balance of Rs. 5,000. The following
transactions took place between Y and X during the quarter ended 31 st March, 2018:
2018 Rs.
Jan. 11 Y sold goods to X 6,000
Jan. 24 Y received a promisso ry note from X due after 3 mont h s 5,000
Feb. 01 X sold goods to Y 10,000
Feb. 04 Y sold goods to X 8,200
Feb. 07 X returne d goods to Y 1,000
March 01 X sold goods to Y 5,600
March 18 Y sold goods to X 9,200
March 23 X sold goods to Y 4,000
Accounts were settled on 31 March, 2018 by means of a cheque. Prepare an Account Current to
st
be submitted by Y to X as on 31 st March, 2018, taking interest into account @ 10% per annum.
Calculate interest to the nearest multiple of a rupee.
(b) Mr. B accepted a bill for Rs. 10,000 drawn on him by Mr. A on 1 st August, 2017 for 3 months. This
was for the amount which B owed to A. On the same date Mr. A got the bill discounted at his bank
for Rs. 9,800.
On the due date, B approached A for renewal of the bill. Mr. A agreed on condition that Rs. 2,000
be paid immediately along with interest on the remaining amount at 12% p.a. for 3 months and that
for the remaining balance B should accept a new bill for 3 months. These arrangements were
carried through. On 31 st December, 2017, B became insolvent and his estate paid 40%.
Prepare Journal Entries in the books of Mr. A (10 Marks +10 Marks = 20 Marks)
4. (a) The Balance Sheet of a Partnership Firm M/s AB & Co consisted of two partners A and B who
were sharing Profits and Losses in the ratio of 5 : 3 respectively. The position as on 31 -03-2018
was as follows:
A's Capital 4,10,000 Land & Building 3,80,000
B's Capital 3,30,000 Plant & Machinery 1,70,000
Profit & Loss A/c 1,12,000 Furniture 1,09,480
Trade Creditors 54,800 Stock 1,45,260
Sundry debtors 60,000
Cash at Bank. 42,060
9,06,800 9,06,800

On the above date, C was admitted as a partner on the following terms:
(a) C should get 1/5th of share of profits.
(b) C brought Rs. 2,40,000 as his capital and Rs. 32,000 for his share of Goodwill.
(c) Plant and Machinery would be depreciated by 15% and Land & Buildings would be
appreciated by 40%.
A provision for doubtful debts to be created at 5% on sundry debtors.
An unrecorded liability of Rs. 6,000 for repairs to Buildings would be recorded in the books of
accounts.
(d) Immediately after C’s admission, Goodwill brought by him would be adjusted among old
partners. Thereafter, the capital accounts of old partners would be adjusted through the
current accounts of partners in such a manner that the capital accounts of all the partners
would be in their profit sharing ratio.
Prepare Revaluation A/c, Capital Accounts of the partners, New profit sharing ratio and Balance
Sheet of the Firm after the admission of C.
(b) Mr. Kotriwal is engaged in business of selling magazines. Several of his customers pay money in
advance for subscribing his magazines. Information related to year ended 31st March 2017 has
been given below:
On 1.4.2016 he had a balance of Rs.2,00,000 advance from customers of which Rs.1,50,000 is
related to year 2016-17 while remaining pertains to year 2017-18. During the year 2016-17 he
made cash sales of Rs. 5,00,000. You are required to compute:
(i) Total income for the year 2016-17.
(ii) Total money received during the year if the closing balance in Advance from customers
Account is Rs. 1,70,000. (12 Marks + 8 Marks = 20 Marks)
5. (a) A doctor, after retiring from govt. service, started private practice on 1 st April, 2017 with Rs. 20,000
of his own and Rs. 30,000 borrowed at an interest of 15% per annum on the security of his life
policies. His accounts for the year were kept on a cash basis and the following is his summarized
cash account:
Rs. Rs.
Own capital 20,000 Medicines purchased 24,500
Loan 30,000 Surgical equipments 25,000
Prescription fees 52,500 Motor car 32,000
Gifts from patients 13,500 Motor car expenses 12,000
Visiting fees 25,000 Wages and salaries 10,500
Fees from lectures 2,400 Rent of clinic 6,000
Pension received 30,000 General charges 4,900
Household expenses 18,000
Household Furniture 2,500
Expenses on daughter’s 21,500
marriage
Interest on loan 4,500
Balance at bank 11,000
_______ Cash in hand 1,000
1,73,400 1,73,400
3

You are required to prepare his capital account and income and expenditure account for the year
ended 31st March, 2018 and balance sheet as on that date. One-third of the motorcar expense may
be treated as applicable to the private use of car and Rs. 3,000 of the wages and salaries are in
respect of domestic servants.
The stock of mediciness in hand on 31 st March, 2018 was valued at Rs. 9,500.
(b) From the information given below, calculate (i) Current Ratio and (ii) Debt to Equity Ratio:
Net Profit of the year Rs. 80,000, Fixed Assets Rs. 2,00,000; Closing Inventory Rs. 10,000; Other
Current Assets Rs. 1,00,000; Current Liabilities Rs. 30,000; Share Capital Rs. 1,70,000; 12%
Debenture Rs. 60,000. (15 Marks +5 Marks = 20 Marks)
6. (a) Mohan Ltd. invited applications for 15 lakhs shares of Rs. 100 each payable as follows :
Rs.
On Application 20
On Allotment (on 1st June, 2017) 30
On First Call (on 1st Nov., 2017) 30
On Final Call (on 1st March., 2018) 20
All the shares were applied for and allotted. A shareholder holding 30,000 shares paid the whole
of the amount due along with allotment.
You are required to prepare the journal entries for the above-mentioned transactions, assuming
all sums due were received. Interest was paid to the shareholder concerned on 1 st March, 2018.
(b) Riya Limited issued 20,000 14% Debentures of the nominal value of Rs.1,00,00,000 as follows:
(a) To sundry persons for cash at 90% of nominal value of Rs. 50,00,000.
(b) To a vendor for purchase of fixed assets worth Rs. 20,00,000 – Rs. 25,00,000 nominal value.
(c) To the banker as collateral security for a loan of Rs. 20,00,000 – Rs. 25,00,000 nominal value.
You are required to prepare necessary journal entries Journal Entries.
(c) From the following particulars, prepare a Bank Reconciliation Statement for Pathak Ltd. As on
31.3.2017
(1) Balance as per cash book is Rs. 1,20,000.
(2) Cheques issued but not presented in the bank amounts to Rs. 68,000.
(3) Bank charges amounts to Rs. 300.
(4) Interest credited by bank amounts to Rs. 1,500. (10 + 5 + 5 = 20 Marks)
OR
(c) Difference between Going Concern Concept and Cost Concept.

FOUNDATION COURSE
MOCK TEST PAPER
ANSWERS
1. (a) (i) False- When shares are forfeited, the share capital account is debited with called up capital
forfeited.
(ii) False- Accrual concept implies accounting on ‘due’ or ‘accrual’ basis. Accrual basis of
(iii) False - Finished goods are normally valued at cost or net realizable value whichever is lower.
(iv) True - Discount at the time of retirement of a bill is a gain for the drawee and loss for the
drawer.
(v) False - According to Partnership Act, in the absence of any agreement to the contrary profits
(vi) False- Receipts and payments account is a classified summary of cash receipts and
payments over a certain period together with cash and bank balances at the beginning and
close of the period.
(b) Cash and mercantile system: Cash system of accounting is a system by which a transaction is
recognized only if cash is received or paid. In cash system of accounting, entries are made only
when cash is received or paid, no entry being made when a payment or receipt is merely due. Cash
system is normally followed by professionals, educational institutions or non-profit making
organizations.
On the other hand, mercantile system of accounting is a system of classifying and summarizing
trandsactions into assets, liabilities, equity (owner’s fund), costs, revenues and recording thereof.
A transaction is recognized when either a liability is created/ impaired and an asset is created
/impaired. A record is made on the basis of amounts having become due for payment or receipt
irrespective of the fact whether payment is made or received actually.
Mercantile system of accounting is generally accepted accounting system by business entities
(c) Journal Entries in the books of Gamma Bros.
Particulars Dr. Cr.
Amount Amount
(Rs.) (Rs.)
(i) Salaries A/c 7,500

To Purchase A/c 7,500
(Being entry made for stock taken by employees)
(ii) Machinery A/c 8,000
To Cash A/c 8,000
(Being wages paid for erection of machinery)
1

(iii) Drawings A/c 1,700
To Petty Cash A/c 1,700
(Being the income tax of proprietor paid out of business
money)
(iv) Purchase A/c 1,800
To Cash A/c 1,750
To Discount Received A/c 50
(Being the goods purchased from Naveen for Rs. 2,000
@ 10% trade discount and cash discount of Rs. 50)
2. (a) Profit and Loss Adjustment Account
Rs. Rs.
To Advertisement (samples) 80,000 By Net profit 8,00,000
To Sales 2,00,000 By Electric fittings 30,000
(goods approved in April to By Samples 80,000
be taken as April sales) By Stock (Purchases of March 5,00,000
To Adjusted net profit 16,80,000 not included in stock)
By Sales (goods sold in March 4,00,000
wrongly taken as April sales)
By Stock (goods sent on approval basis 1,50,000
not included in stock)
19,60,000 19,60,000
Calculation of value of inventory on 31st March, 2017
Rs.
Stock on 31 March, 2017 (given)
st 7,50,000
Add: Purchases of March, 2017 not included in the stock 5,00,000
Goods lying with customers on approval basis 1,50,000
14,00,000
(b) Motor Truck A/c

2016 2016
Jan-01 To balance b/d 2,92,50,000 Oct-01 By bank A/c 27,00,000
Oct-01 To Profit & Loss A/c Oct-01 By Depreciation on lost
(Profit on settlement of 4,50,000 assets 6,75,000
Truck)
3,47,00,000 3,47,00,000
2017 2017
Jan-01 To balance b/d 2,29,75,000 Dec-31 By Depreciation A/c 91,00,000
2,29,75,000 2,29,75,000

Working Note:
1. To find out loss on Profit on settlement of truck Rs.
38,25,000
29,25,000
Less: Depreciation for 2016 (9 months) 6,75,000
22,50,000
Less: Amount received from Insurance 27,00,000
company
4,50,000
3. (a) In the books of Y
X in Account Current with Y
(Interest to 31st March, 2018 @ 10% p.a)
Date Particulars Amount Days Product Date Particulars Amount Days Product
2018 Rs. Rs. 2018 Rs. Rs.
Jan.1 To Balance 5,000 90 4,50,000 Jan.24 By Promissiory 5,000 (27) (1,35,000)
b/d Note (due date
27th April)
Jan.11 To Sales 6,000 79 4,74,000 Feb. 1 By Purchases 10,000 58 5,80,000
Feb. 4 To Sales 8,200 55 4,51,000 Feb. 7 By Sales 1,000 52 52,000
Return
Mar.18 To Sales 9,200 13 1,19,600 Mar. 1 By Purchases 5,600 30 1,68,000
Mar.31 To Interest 219 Mar.23 By Purchases 4,000 8 32,000
Mar.31 By Balance of 7,97,600
Products
Mar.31 By Bank 3,019
28,619 14,94,600 28,619 14,94,600
Working Note:
Calculation of interest:
7,97,600 10
Interest =  = Rs. 219 (approx.)
365 100
(b). Journal Entries in the Books of Mr. A
Date Particulars L.F. Dr. Cr.
Amount Rs. Amount Rs.
2017
August 1 Bills Receivable A/c Dr. 10,000
To B 10,000
(Being the acceptance received from B to settle
his account)

August 1 Bank A/c Dr. 9,800
Discount A/c Dr. 200
To Bills Receivable 10,000
(Being the bill discounted for Rs. 9,800 from bank)
November 4 B Dr. 10,000
To Bank Account 10,000
(Being the B’s acceptance is to be renewed)
November 4 B Dr. 240
To Interest Account 240
(Being the interest due from B for 3 months i.e.,
8000x3/12 12%=240)
November 4 Cash A/c Dr. 2,240
Bills Receivable A/c Dr. 8,000
To B 10,240
(Being amount and acceptance of new bill
received from B)
December 31 B A/c Dr. 8,000
To Bills Receivable A/c 8,000
(Being B became insolvent)
December 31 Cash A/c Dr. 3,200
Bad debts A/c Dr. 4,800
To B 8,000
(Being the amount received and written off on B’s
insolvency)
4. (a) Revaluation Account
Rs. Rs.
To Plant & Machinery 25,500 By Land & Building A/c 1,52,000
(1,70,000 x 15%)
To Provision for Bad & Doubtful Debts
(60,000 x 5%) 3,000
To Outstanding Repairs to Building 6,000
To A’s Capital A/c (5/8) 73,438
To B’s Capital A/c (3/8) 44,062
1,52,000 1,52,000
Capital Accounts of Partners
A B C A B C
To A’s Capital - - 20,000 By Balance b/d 4,10,000 3,30,000 -
A/c
To B’s Capital
12,000 By Revaluation A/c 73,438 44,062 -
A/c
To B’s Current By Profit & Loss
- 68,062 70,000 42,000 -
A/c A/c
To Balance c/d 6,00,000 3,60,000 2,40,000 By Bank - - 2,72,000
By C’s Capital A/c 20,000 12,000 -
By A’s Current A/c 26,562 - -
6,00,000 4,28,062 2,72,000 6,00,000 4,28,062 2,72,000
4

Calculation of New Profit Sharing Ratio and gaining ratio:
C’s Share of Profit = 1/5 = 2/10
Remaining Share = 1 – 1/5 = 4/5
A’s Share = 5/8 x 4/5 = 20/40 = 5/10
B’s Share = 3/8 x 4/5 = 12/40 = 3/10
New Profit sharing Ratio = 5:3:2
Gaining ratio = 5:3 (same as old profit sharing ratio among old partners)
Balance sheet of AB & Co. as on 31.3.2018
Liabilities Rs. Assets
Capital Accounts: Land & Buildings 5,32,000
A 6,00,000 Plant & Machinery 1,70,000
B 3,60,000 Less: Depreciation 25,500 1,44,500
C 2,40,000 12,00,000 Furniture 1,09,480
B’s Current A/c 68,062 Stock 1,45,260
Trade Creditors 54,800 Sundry Debtors 60,000
Outstanding Repairs to 6,000 Less: Provision 3,000
57,000
Building
Cash at Bank 3,14,060
A’s current A/c 26,562
13,28,862 13,28,862
Working Note:
Required Balance of Capital Accounts
C’s Capital after writing off Goodwill = 2,72,000 – 32,000 = 2,40,000
C’s Share of Profit = 1/5
Thus Capital of the firm shall be = 2,40,000 x 5 = 12,00,000
A’s Capital = 12,00,000 x 5/10 = 6,00,000 and
B’s Capital = 12,00,000 x 3/10 = 3,60,000
(b) (i) Computation of Income for the year 2016-17:
Rs.
Money received during the year related to 2016-17 5,00,000
Add: Money received in advance during previous years 1,50,000
Total income of the year 2016-17 6,50,000
(ii) Advance from Customers A/c

Date Particulars Rs. Date Particulars Rs.
To Sales A/c 1,50,000 1.4.2016 By Balance b/d 2,00,000
(Advance related to current
year transferred to sales)

By Bank A/c 1,20,000
31.3.17 To Balance c/d 1,70,000 (Balancing
Figure)
3,20,000 3,20,000
So, total money received during the year is:
Rs.
Cash Sales during the year 5,00,000
Add: Advance received during the year 1,20,000
Total money received during the year 6,20,000
5. (a) Capital Account

Rs. Rs.
To Drawings: By Cash/bank 20,000
Motor car expenses 4,000 By Cash bank (pension) 30,000
(one-third of Rs. 12,000) By By Net income from practice 47,500
Household expenses 18,000 (derived from income and
Daughter’s marriage exp. 21,500 expenditure a/c)
Wages of domestic servants 3,000
Household furniture 2,500
To Balance c/d 48,500 _____
97,500 97,500

Rs. Rs.
To Medicines consumed By Prescription fees 52,500
Purchases 24,500 By Gift from patients 13,500
Less: Stock on 31.3.11 (9,500) 15,000 By Visiting fees 25,000
To Motor car expense 8,000 By Fees from lectures 2,400
To Wages and salaries (Rs. 10,500 – Rs. 3,000) 7,500
To Rent for clinic 6,000
To General charges 4,900
To Interest on loan 4,500
To Net Income 47,500 ______
93,400 93,400
Balance Sheet as on 31st March, 2018
Capital 48,500 Motor car 32,000
Loan 30,000 Surgical equipment 25,000
Stock of medicines 9,500

Cash at bank 11,000
______ Cash in hand 1,000
78,500 78,500
Current Assets ` 1,10,000
(b) (i) Current Ratio =   11 : 3 or 3.67 : 1
CurrentLiabilitie s ` 30,000
Current Assets= Closing Inventory + Other Current Assets

= Rs. 10,000 + Rs. 1,00,000 = Rs. 1,10,000
Long term Debt
(ii) Debt to Equity Ratio =
Sharholders' Equity
Debentures
=
Share Capital  Profit
` 60,000
=  0.24 : 1
` 2,50,000
6. (a) Journal of Mohan Ltd.
Dr. Cr.
2017 Rs. in lakhs Rs. in lakhs
June 1 Bank A/c Dr. 300
To Shares Application A/c 300
(Receipt of applications for 15 lakh shares along
with application money of Rs. 20 per share.)
June 1 Share Application and Allotment A/c Dr. 300
Share Allotment A/c Dr. 450
To Share Capital A/c 750
(The allotment of 15 lakh shares : payable on
application Rs. 20 share and Rs. 30 on allotment
as per Directors’ resolution no... dated...)
To Shares Allotment A/c 450
To Calls in Advance A/c 15
[Receipt of money due on allotment @ Rs. 30, also
the two calls (Rs. 30 and Rs. 20) on 30,000
shares.]
Nov. 1 Share First Call A/c Dr. 450
(The amount due on 15 lakh shares @ Rs. 30 on
first call, as per Directors, resolution no... dated...)
Bank A/c Dr. 441
Calls in Advance A/c Dr. 9
To Share First Call A/c 450
(Receipt of the first call on 14.7 lakh shares, the
balance having been previously received
and now debited to call in advance account.)

2018
March 1 Share Final Call A/c Dr. 300
(The amount due on Final Call on 15 lakh shares
@ Rs. 20 per share, as per Directors’ resolution
no... dated...)
March1 Bank A/c Dr. 294
Calls in Advance A/c Dr. 6
To Share Final Call A/c 300
(Receipt of the moneys due on final call on 14.7
lakhs shares, the balance having been previously
received.)
March 1 Interest on calls in Advance A/c Dr. 0.99
To Shareholder A/c 0.99
(Being interest on call in advance made due)
Feb 1 Shareholder A/c Dr. 0.99
To Bank A/c 0.99
(Being interest paid)
Working Note:
The interest on calls in advance paid @ 12% on : Rs.
Rs. 9,00,000 (first call) from 1st June to 1st Nov., 2017–5 months 45,000
Rs. 6,00,000 (final call) from 1st June to 1st March., 2018–9 months 54,000
Total Interest Amount Due 99,000
(b) In the books of Riya Company Ltd.

Journal Entries
Date Particulars Dr. Cr.
Rs. Rs.
(a) Bank A/c Dr. 45,00,000
To Debentures Application A/c 45,00,000
(Being the application money received on 10,000
debentures @ Rs. 450 each)
Debentures Application A/c Dr. 45,00,000
Discount on issue of Debentures A/c Dr. 5,00,000
To 14% Debentures A/c 50,00,000
(Being the issue of 10,000 14% Debentures @ 90%
as per Board’s Resolution No….dated….)
(b) Fixed Assets A/c Dr. 20,00,000
To Vendor A/c 20,00,000
(Being the purchase of fixed assets from vendor)
Vendor A/c Dr. 20,00,000
Discount on Issue of Debentures A/c Dr. 5,00,000
(Being the issue of debentures of Rs. 25,00,000 to
vendor to satisfy his claim)
8

(c) Bank A/c Dr. 20,00,000
To Bank Loan A/c (See Note) 20,00,000
(Being a loan of Rs. 20,00,000 taken from bank by
issuing debentures of Rs.25,00,000 as collateral
security)
Note: No entry is made in the books of account of the company at the time of making issue of such
debentures. In the “Notes to Accounts” of Balance Sheet, the fact that the debentures being issued
as collateral security and outstanding are shown by a note under the liability secured.
(c) Pathak Ltd.
Bank Reconciliation Statement as on 31.3.2017
Particulars Rs.
Balance as per cash book 1,20,000
Add : Cheque issued but not presented 68,000
Interest credited 1,500
1,89,500
Less : Bank charges (300)
Balance as per pass book 1,89,200
Or
(c) Going Concern concept: The financial statements are normally prepared on the assumption that
an enterprise is a going concern and will continue in operation for the foreseeable future. Hence,
it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail
materially the scale of its operations; if such an intention or need exists, the financial statements
may have to be prepared on a different basis and, if so, the basis used is disclosed.
The valuation of assets of a business entity is dependent on this assumption. Traditionally,
accountants follow historical cost in majority of the cases.
Cost Concept: By this concept, the value of an asset is to be determined on the basis of historical
cost, in other words, acquisition cost. Although there are various measurement bases, accountants
traditionally prefer this concept in the interests of objectivity. When a machine is acquired by paying
Rs. 5,00,000, following cost concept the value of the machine is taken as Rs. 5,00,000. It is highly
objective and free from all bias. Other measurement bases are not so objective. Current cost of an
asset is not easily determinable. If the asset is purchased on 1.1.1995 and such model is not
available in the market, it becomes difficult to determine which model is the appropriate equivalent
to the existing one. Similarly, unless the machine is actually sold, realisable value will give only a
hypothetical figure. Lastly, present value base is highly subjective because to know the value of
the asset one has to chase the uncertain future.

MOCK TEST PAPER
FOUNDATION COURSE
i. Capital + Long Term Liabilities= Fixed Assets + Current Assets + Cash- Current Liabilities.
ii. Consignment account is of the nature of real account.
iii. The Sales book is kept to record both cash and credit sales.
iv. In the calculation of average due date, only the due date of first transaction must be taken as
the base date.
v. If a partner retires, then other partners have a gain in their profit sharing ratio.
vi. Net income in case of persons practicing vocation is determined by preparing profit and loss
account. (6 Statements x 2 Marks = 12 Marks)
(4 Marks)
(c) Classify the following errors under the three categories – Errors of Omission, Errors of Commission
and Errors of Principle.
(i) Sale of furniture credited to Sales Account.
(ii) Purchase worth Rs. 500 from M not recorded in subsidiary books.
(iii) Credit sale wrongly passed through the Purchase Book.
(iv) Machinery sold on credit to Mohan recored in Journal Proper but omitted to be posted.
(v) Goods worth Rs. 5,000 purchased on credit from Ram recorded in the Purchase Book as
Rs. 500. (4 Marks)
2. (a) M/s Ram took lease of a quarry on 1-1-2016 for Rs. 2,00,00,000. As per technical estimate the
total quantity of mineral deposit is 4,00,000 tonnes. Depreciation was charged on the basis of
depletion method. Extraction pattern is given in the following table:
Year Quantity of Mineral extracted
2016 4,000 tonnes
2017 20,000 tonnes
2018 30,000 tonnes
Required
Show the Quarry Lease Account and Depreciation Account for each year from 2016 to 2018.

(b) On 30th September, 2017, the bank account of Neel, according to the bank column of the Cash -
Book, was overdrawn to the extent of Rs. 8,124. On the same date the bank statement showed a
debit balance of Rs. 41,516 in favour of Neel. An examination of the Cash Book and Bank
1. A cheque for Rs. 26,28,000 deposited on 29 th September, 2017 was credited by the bank only
on 3rd October, 2017
customer of Neel, but the advice was not received by Neel until 1 st October, 2017.
5. On 6th September, 2017, the bank credited Rs. 40,000 to Neel in error.
6. A bill of exchange for Rs. 2,80,000 was discounted by Neel with his bank. This bill was
dishonoured on 28th September, 2017 but no entry had been made in the books of Neel.
7. Cheques issued upto 30 th September, 2017 but not presented for payment upto that date
You are required :
(a) to show the appropriate rectifications required in the Cash Book of Neel, to arrive at the correct
balance on 30th September, 2017 and
(b) to prepare a bank reconciliation statement as on that date.
(10 Marks +10 Marks= 20 Marks)
3. (a) Gagan of Mumbai consigns 2,000 cases of goods costing Rs. 1,000 each to Kumar of Chennai.
Gagan pays the following expenses in connection with consignment:
Rs.
Carriage 20,000
Freight 60,000
Loading charges 20,000
Kumar sells 1,400 cases at Rs. 1,400 per case and incurs the following expenses:
Clearing charges 17,000
Warehousing and storage charges 34,000
Packing and selling expenses 12,000
It is found that 100 cases have been lost in transit and 200 cases are still in transit.
Kumar is entitled to a commission of 10% on gross sales. You are required to prepare the
Consignment Account and Kumar’s Account in the books of Gagan.
(b) From the following details calculate the average due date:
Date of Bill Amount (Rs.) Usance of Bill
28th January, 2018 5,000 1 month
20th March, 2018 4,000 2 months
12th July, 2018 7,000 1 month
10th August, 2018 6,000 2 months

(c) Prepare Journal entries for the following transactions in K. Katrak’s books.
(i) Katrak’s acceptance to Basu for Rs. 2,500 discharged by a cash payment of Rs. 1,000 and a
new bill for the balance plus Rs. 50 for interest.
(ii) G. Gupta’s acceptance for Rs. 4,000 which was endorsed by Katrak to M. Mehta was
dishonoured. Mehta paid Rs. 20 noting charges. Bill withdrawn against cheque.
(iii) D. Dalal retires a bill for Rs. 2,000 drawn on him by Katrak for Rs. 10 discount.
(iv) Katrak’s acceptance to Patel for Rs. 5,000 discharged by Patel Mody’s acceptance to Katrak
for a similar amount. (10 + 5 + 5 = 20 Marks)
4. A, B and C are partners in a firm sharing profits and losses as 8:5:3. Their balance sheet as at
31st December, 2018 was as follows:
Rs. Rs.
Sundry creditors 1,50,000 Cash 40,000
General reserve 80,000 Bills receivable 50,000
Partners’ loan accounts: Sundry debtors 60,000
A 40,000 Stock 1,20,000
B 30,000 Fixed assets 2,80,000
Partners’ capital accounts:
A 1,00,000
B 80,000
C 70,000 _______
5,50,000 5,50,000
From 1st January, 2019 they agreed to alter their profit-sharing ratio as 5:6:5. It is also decided that:
(a) the fixed assets should be valued at Rs. 3,31,000;
(b) a provision of 5% on sundry debtors to be made for doubtful debts;
(c) the goodwill of the firm at this date be valued at three years’ purchase of the average net profits of
the last five years before charging insurance premium; and
(d) the stock be reduced to Rs. 1,12,000.
There is a joint life insurance policy for Rs. 2,00,000 for which an annual premium of Rs. 10,000 is paid,
the premium being charged to profit and loss account. The surrender value of the policy on
31st December, 2018 was Rs. 78,000.
The net profits of the firm for the last five years were Rs. 14,000, Rs. 17,000, Rs. 20,000, Rs. 22,000
and Rs. 27,000.
Goodwill and the surrender value of the joint life policy was not to appear in the books.
Draft journal entries necessary to adjust the capital accounts of the partners and prepare the revised
balance sheet. (20 Marks)
5. (a) From the following receipts and payments account of Mumbai Club, prepare income and
expenditure account for the year ended 31.12.2018 and its balance sheet as on that date:
Receipts Rs. Payments Rs.
Cash in hand 4,000 Salary 2,000
Cash at bank 10,000 Repair expenses 500
3

Donations 5,000 Purchase of furniture 6,000
Subscriptions 12,000 Misc. expenses 500
Entrance fees 1,000 Purchase of 6,000
investments
Interest on investments 100 Insurance premium 200
Interest received from bank 400 Billiard table 8,000
Sale of old newspaper 150 Paper, ink etc. 150
Sale of drama tickets 1,050 Drama expenses 500
Cash in hand (closing) 2,650
_____ Cash at bank (closing) 7,200
33,700 33,700
Information:
1. Subscriptions in arrear for 2018 Rs. 900 and subscriptions in advance for 2019 Rs. 350.
2. Insurance premium outstanding Rs. 40.
3. Misc. expenses prepaid Rs. 90.
4. 50% of donation is to be capitalized.
5. Entrance fees are to be treated as revenue income.
6. 8% interest has accrued on investment for five months.
7. Billiard table costing Rs. 30,000 was purchased during the last year and Rs. 22,000 were paid
for it.
(b) From the below mentioned information, prepare a Trading Account of M/s. Ketan Traders for the
year ended 31st March, 2019:
Rs.
Opening Inventory 1,50,000
Purchases 10,08,000
Carriage Inwards 45,000
Wages 75,000
Sales 16,50,000
Returns inward 1,50,000
Returns outward 1,08,000
Closing Inventory 3,00,000
(c) Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end of each quarter
and the valuation is taken at cost. The company’s year ends on 31 st March, 2018 and their accounts
have been prepared to that date. The stock valuation taken on 31 st March, 2018 was however,
misleading and you have been advised to value the closing stocks as on 31st March, 2018 with the
stock figure as on 31st December, 2017 and some other information is available to you:
(i) The cost of stock on 31 st December, 2017 as shown by the inventory sheet was
Rs. 80,000.
(ii) On 31st December, stock sheet showed the following discrepancies:

(a) A page total of Rs. 5,000 had been carried to summary sheet as Rs. 6,000.
(b) The total of a page had been undercast by Rs. 200.
(iii) Invoice of purchases entered in the Purchase Book during the quarter from January to March,
2018 totalled Rs. 70,000. Out of this Rs. 3,000 related to goods received prior to
31st December, 2017. Invoices entered in April 2018 relating to goods received in March,
2018 totalled Rs. 4,000.
(iv) Sales invoiced to customers totalled Rs. 90,000 from January to March, 2018. Of this
Rs. 5,000 related to goods dispatched before 31 st December, 2017. Goods dispatched to
customers before 31st March, 2018 but invoiced in April, 2018 totalled Rs. 4,000.
(v) During the final quarter, credit notes at invoiced value of Rs. 1,000 had been issued to
customers in respect of goods returned during that period. The gross margin earned by the
company is 25% of cost.
You are required to prepare a statement showing the amount of stock at cost as on
31st March, 2018. (12 + 4+4 = 20 Marks)
6. (a) On 1st April, 2017, A Ltd. issued 43,000 shares of Rs. 100 each payable as follows:
Rs. 25 on 1st October, 2017; and
Rs. 25 on 1st February, 2018.
By 20th May, 40,000 shares were applied for and all applications were accepted. Allotment was
made on 1st June. All sums due on allotment were received on 15th July those on 1st call were
received on 20th October. Journalise the transactions when accounts were closed on
31st March, 2018. (10 Marks)
(b) Simmons Ltd. issued 1,00,000, 12% Debentures of Rs.100 each at par payable in full on application
by 1st April, Application were received for 1,10,000 Debentures. Debentures were allotted on 7th
April. Excess money refunded on the same date.
You are required to pass necessary Journal Entries (including cash transactions) in the books of
the company. (5 Marks)
OR

MOCK TEST PAPER
FOUNDATION COURSE
ANSWERS
1. (a) (i) False- The right hand side of the equation includes cash twice- once as a part of current
(ii) False: Consignment account is a nominal account
(iii) False- The Sales book is a register specially kept to record credit sales of goods dealt in by
the firm, cash sales are entered in the cash book and not in the sales book.
(iv) False- While calculating the average due date, any transaction date may be taken as the base
date.
(v) True- If a partner retires, his share of profit or loss will be shared by the other partners in their
profit sharing ratio.
(vi) False: Net income is determined by preparing income and expenditure in case of persons
practicing vocation.
manipulations.
(c) (i) Error of Principle.
(ii) Error of Omission.
(iii) Error of Commission.
(iv) Error of Omission.
(v) Error of Commission
2. (a) Quarry Lease Account
Dr. Cr.
Rs. Rs.
2016 2016
Jan. To Bank A/c 2,00,00,000 Dec. 31 By Depreciation A/c 2,00,000
[(4,000/4,00,000) ×
1

Rs. 2,00,00,000]
2,00,00,000 2,00,00,000
2017 2017
1,98,00,000 1,98,00,000
2018 2018
1,88,00,000 1,88,00,000
Depreciation Account
Dr. Cr.
Rs. Rs.
2016 2016
Dec. 31 To Quarry lease A/c 2,00,000 Dec. 31 By Profit & Loss A/c 2,00,000
2,00,000 2,00,000
2017 2017
10,00,000 10,00,000
2018 2018
15,00,000 15,00,000

2017 Rs. 2017 Rs.
Sept. Sept.
30 30
2,89,284 2,89,284
Particulars Amount
Rs.
26,50,484

Less: Cheques issued but not presented for payment upto 30th Sept., 2017 (26,52,000)
Note: Bank has credited Neel by 40,000 in error on 6 th September, 2017. If this mistake is
with Rs. 26,52,000 resulting in debit balance of Rs. 1,516 as per pass-book.
3. (a) In the books of Gagan
Consignment to Kumar of Chennai Account
To Goods sent on By Kumar (Sales) 19,60,000
Consignment 20,00,000 By Loss in Transit 100 cases
@ Rs. 1,050 each 1,05,000
To Bank (Expenses) 1,00,000 By Consignment Inventories
To Kumar (Expenses) 63,000 In hand 300 @ Rs. 1,060
each 3,18,000
To Kumar (Commission) 1,96,000 In transit 200 @ Rs. 1,050
each 2,10,000 5,28,000
To Profit on Consignment to 2,34,000
Profit & Loss A/c
25,93,000 25,93,000
Kumar’s Account
To Consignment to Chennai A/c 19,60,000 By Consignment A/c
(Expenses) 63,000
By Consignment A/c
(Commission) 1,96,000
19,60,000 19,60,000
Working Notes:
(i) Consignor’s expenses on 2,000 cases amounts to Rs. 1,00,000; it comes to Rs. 50 per case.
The cost of cases lost will be computed at Rs. 1,050 per case.
(ii) Kumar has incurred Rs. 17,000 on clearing 1,700 cases, i.e., Rs. 10 per case; while valuing
closing inventories with the agent Rs. 10 per case has been added to cases in hand with the
agent.
(iii) It has been assumed that balance of Rs. 17,01,000 is not yet paid.
(b) Calculation of Average Due Date
(Taking 3r d March, 2018 as base date)
Date of bill Term Due date Amount No. of days from Product
2018 2018 the base date i.e.
3rd March,2018
(Rs.) (Rs.) (Rs.)
28 January
th 1 month 3 March
rd 5,000 0 0

20th March 2 months 23rd May 4,000 81 3,24,000
12th July 1month 14th Aug. 7,000 164 11,48,000
10th August 2 months 13th Oct. 6,000 224 13,44,000
22,000 28,16,000
Sum of Products
Average due date = Base date + Days equal to
Sum of Amounts
28,16,000
= 3rd March, 2018 +
22,000
= 3rd March, 2018 + 128 days = 9 th July, 2018

Working Note:
Bill dated 12th July, 2018 has the maturity period of one month, due date (after adding 3 days of
grace) falls on 15th August, 2018. 15th August being public holiday, due date would be preceding
date i.e. 14th August, 2018.
(c) Books of K. Katrak
Journal Entries
Dr. Cr.
Rs. Rs.
(i) Bills Payable Account Dr. 2,500
Interest Account Dr. 50
To Cash A/c 1,000
To Bills Payable Account 1,550
(Bills Payable to Basu discharged by cash payment of
Rs. 1,000 and a new bill for Rs.1,550 including Rs. 50 as
interest)
(ii) (a) G. Gupta Dr. 4,020
To M. Mehta 4,020
(G. Gupta’s acceptance for Rs. 4,000 endorsed to M. Mehta
dishonoured, Rs. 20 paid by M. Mehta as noting charges)
(b) M. Mehta Dr. 4,020
(Payment to M. Mehta on withdrawal of bill earlier received
from Mr. G. Gupta)
(iii) Bank Account Dr. 1,990
Discount Account Dr. 10
To Bills Receivable Account 2,000
(Payment received from D. Dalal against his acceptance for
Rs. 2,000. Allowed him a discount of Rs. 10)
(iv) Bills Payable Account Dr. 5,000
To Bills Receivable Account 5,000
(Bills Receivable from Mody endorsed to Patel in settlement
of bills payable issued to him earlier)

4. In the books of M/s ABC
Journal Entries
Date Particulars Dr. (Rs.) Cr.(Rs.)
2019 Fixed assets A/c Dr. 51,000
January 1 To Revaluation A/c 51,000
(Revaluation of fixed assets)
Revaluation A/c Dr. 11,000
To Stock A/c 8,000
To Provision for doubtful debts A/c 3,000
(Reduction in the value of stock and provision @ 5% on
sundry debtors created for doubtful debts)
B’s capital A/c Dr. 10,500
C’s capital A/c Dr. 21,000
To A’s capital A/c 31,500
(Adjustment for goodwill and joint life policy (W.N.1))
Revaluation A/c Dr. 40,000
To B’s capital A/c 12,500
To C’s capital A/c 7,500
(Transfer of profit on revaluation)
General reserve A/c Dr. 80,000
To B’s capital A/c 25,000
To C’s capital A/c 15,000
(Transfer of general reserve)
Balance Sheet (revised)
as on 1st January, 2019
Liabilities Amount Assets Amount
Rs. Rs.
Sundry creditors 1,50,000 Cash 40,000
Partners’ loan A/cs: Bills receivable 50,000
A 40,000 Sundry debtors 60,000
B 30,000 70,000 Less: Provision 3,000 57,000
Partners’ capital A/cs: Stock 1,12,000
(W.N.2)
Fixed assets 3,31,000
A 1,91,500
B 1,07,000
C 71,500 3,70,000 _______
5,90,000 5,90,000

Working Notes:
(1) Adjustment for goodwill and joint life policy
Rs.
Average profit of last five years 20,000
Add: Insurance premium per annum 10,000
Average profit before charging premium 30,000
Value of goodwill (3x Rs. 30,000) 90,000
Add: Surrender value of joint life policy 78,000
Total amount for adjustment 1,68,000
A B C
Rs. Rs. Rs.
Raised in old profit sharing ratio (8:5:3) 84,000 52,500 31,500
Written off in new profit sharing ratio (5:6:5) 52,500 63,000 52,500
Net effect in capital accounts 31,500 10,500 21,000
(Cr.) (Dr.) (Dr.)
Alternatively, the net effect in partners’ capital accounts due to adjustment for goodwill and joint
life policy can be shown on the basis of profit sacrificing ratio. Profit sacrificing ratios are:
A = (8/16) - (5/16) = 3/16
B = (5/16) - (6/16) = (1/16)
C = (3/16) - (5/16) = (2/16)
Therefore, adjustments in partner’s capital account:
A = 3/16 x Rs. 1,68,000 = Rs. 31,500 (Cr.)
B = (1/16) x Rs. 1,68,000 = Rs. 10,500 (Dr.)
C = (2/16) x Rs. 1,68,000 = Rs. 21,000 (Dr.)
(2) Partners’ Capital Accounts
A B C A B C
2019 Rs. Rs. Rs. 2019 Rs. Rs. Rs.
Jan 1 To A’ capital - 10,500 21,000 Jan 1 By Balance b/d 1,00,000 80,000 70,000
A/c
To Balance 1,91,500 1,07,000 71,500 By B and C’s capital 31,500 - -
c/d A/c (as per contra)
By Revaluation A/c 20,000 12,500 7,500
(revaluation profit)
_______ _______ _____ By General reserve 40,000 25,000 15,000
1,91,500 1,17,500 92,500 1,91,500 1,17,500 92,500

5. (a) Income and Expenditure Account of Mumbai Club
for the year ended 31 st December, 2018
Dr. Cr.
Expenditure Rs. Rs. Income Rs. Rs.
To Salary 2,000 By Donation 5,000
To Repair expenses 500 Less: Capitalised (50%) 2,500 2,500
To Misc. expenses 500 By Subscriptions 12,000
Less: Prepaid 90 410 Add: Outstanding 900
To Insurance premium 200 12,900
Add: Outstanding 40 240 Less: Advance for 2019 350 12,550
To Paper, ink etc. 150 By Entrance fees 1,000
To Drama expenses 500 By Interest on investment 300
To Surplus-excess of 14,150 [100+8/100x6,000x5/12]
income over expenditure
By Interest received from bank 400
By Sale of old newspapers 150
_____ By Sale of drama tickets 1,050
17,950 17,950
Balance Sheet of Mumbai Club
as on 31st December, 2018
Liabilities Rs. Rs. Assets Rs.
Capital fund Billiard table 30,000
Opening balance 36,000 Furniture 6,000
Add: Surplus 14,150 Investments 6,000
Donations 2,500 52,650 Interest accrued 200
Outstanding insurance premium 40 Prepaid expenses 90
Subscription received in advance 350 Subscriptions receivable 900
Cash in hand 2,650
______ Cash at bank 7,200
53,040 53,040
Working Note:
Balance Sheet of Mumbai Club
as on 31st December, 2017
Liabilities Rs. Assets Rs
Capital fund 36,000 Billiard table 30,000
(balancing figure) Cash in hand 4,000
Creditors for billiard table 8,000 Cash at bank 10,000
44,000 44,000

(b) In the books of M/s. Ketan Traders
Trading Account for the year ended 31 st March, 2019
Rs. Rs. Rs. Rs.
To Opening Inventory 1,50,000 By Sales 16,50,000
To Purchases 10,08,000 Less: Returns Inward (1,50,000) 15,00,000
Less: Returns
(1,08,000) 9,00,000 By Closing Inventory 3,00,000
outward
To Carriage Inwards 45,000
To Wages 75,000
To Gross profit 6,30,000
18,00,000 18,00,000
(c) Valuation of Physical Stock as at March 31, 2018
Rs.
Stock at cost on 31.12.2017 80,000
Add: (1) Undercasting of a page total 200
(2) Goods purchased and delivered during January – March, 2018
Rs. (70,000 – 3,000 + 4,000) 71,000
(3) Cost of sales return Rs. (1,000 – 200) 800 72,000
1,52,000
Less:(1) Overcasting of a page total Rs. (6,000 – 5,000) 1,000
(2) Goods sold and dispatched during January – March, 2018
Rs. (90,000 – 5,000 + 4,000) 89,000
 25 
Less: Profit margin  89,000   17,800 71,200 (72,200)
 125 
Value of stock as on 31st March, 2018 79,800
Note: In the above solution, transfer of ownership is assumed to take place at the time of delivery
of goods. If it is assumed that transfer of ownership takes place on the date of invoice, then
Rs. 4,000 goods delivered in March 2018 for which invoice was received in April, 2018, would be
treated as purchases of the accounting year 2017-2018 and thus excluded. Similarly, goods
dispatched in March, 2018 but invoiced in April, 2018 would be excluded and treated as sale of the
year 2017-2018
6. (a) A Ltd.
Journal
2017 Dr. Cr.
Rs. Rs.
May 20 Bank Account Dr. 8,00,000
(Application money on 40,000 shares at Rs. 20
per share received.)
June 1 Share Application A/c Dr. 8,00,000

(The amount transferred to Capital Account on
40,000 shares Rs. 20 on application. Directors’
resolution no........ dated ......)
(Being share allotment made due at Rs. 30 per
share. Directors’ resolution no...... dated ......)
To Share Application and Allotment A/c 12,00,000
Oct. 1 Share First Call Account Dr. 10,00,000
(Amount due from members in respect of first
call-on 40,000 shares at Rs. 25 as per Directors,
Oct. 20 Bank Account Dr. 10,00,000
2018
Feb. 1 Share Second and Final Call A/c Dr. 10,00,000
(Amount due on 40,000 share at Rs. 25 per share
on second and final call, as per Directors
Mar. 31 Bank Account Dr. 10,00,000
(Amount received against the final call on 40,000
shares at Rs.25 per share.)
(b) In the books of Simmons Limited
Date Particulars Rs. '000 Rs. '000
April 1 Bank A/c Dr. 11,000
To 12% Debentures Application A/c 11,000
(Being money received on 1,10,000 debentures)
To Bank A/c 1,000
(Being money on 10,000 debentures refunded as
per Board’s Resolution No…..dated…)
(Being the allotment of 1,00,000 debentures of
Rs. 100 each at par, as per Board’s Resolution
No….dated…)
9

OR
of the bank.
parties.
10

MOCK TEST PAPER
FOUNDATION COURSE
2. Discount at the time of retirement of a bill is a gain for the drawee.
3 Receipts and Payments Account highlights total income and expenditure .
4 Capital + Long Term Liabilities = Fixed Assets + Current Assets + Cash - Current Liabilities.
5 Partners can share profits or losses in their capital ratio, when there is no agreement.
6. Accrual concept implies accounting on cash basis. (6 Statements x 2 Marks = 12 Marks)
(b) Prepare Journal Entries for the following transactions in the books of Symphony Bros. for the year
ending 31 st March, 2020
(i) Employees had taken stock worth ` 10,000 (Cost price ` 7,500) on the eve of Deepawali and
the same was deducted from their salaries in the subsequent month.
(ii) Goods distributed by way of free samples ` 2,000.
(iii) Income tax liability of proprietor ` 1,400 was paid out of petty cash.
(iv) Purchase of goods from Naveen of the list price of ` 2,000. He allowed 10% trade discount,
` 50 cash discount was also allowed for quick payment. (4 Marks)
(c) Discuss the limitations which must be kept in mind while evaluating the Financial Statements .
(4 Marks)
2. (a) Physical verification of stock in a business was done on 14th June, 2020. The value of the stock
was `96,00,000. The following transactions took place between 14th June to 30 th June, 2020:
(i) Out of the goods sent on consignment, goods at cost worth ` 4,80,000 were unsold.
(ii) Purchases of ` 8,00,000 were made out of which goods worth ` 3,20,000 were delivered on
5th July, 2020.
(iii) Sales were `27,20,000, which include goods worth ` 6,40,000 sent on approval. Half of these
goods were returned before 30 th June, 2020, but no information is available regarding the
remaining goods.

(iv) Goods are sold at cost plus 25%. However goods costing ` 4,80,000 had been sold for
` 2,40,000.
You are required to determine the value of stock on 30 th June, 2020.
(b) On 31st March 2020, the bank account of Chandan, according to the bank column of the Cash-
Book, was overdrawn to the extent of ` 4,062. On the same date the bank statement showed a
debit balance of ` 20,758 in favour of Chandan. An examination of the Cash Book and Bank
statement reveals the following:
1. A cheque for ` 13,14,000 deposited on 29 th March,2020 was credited by the bank only on
4th April ,2020
2. A payment by cheque for ` 16,000 has been entered twice in the Cash Book.
3. On 29th March, 2020, the bank credited an amount of ` 1,17,400 received from a customer
of Chandan, but the advice was not received by Chandan until 1 st April, 2020.
4. Bank charges amounting to ` 580 had not been entered in the Cash Book.
5. On 6th March, 2020, the bank credited ` 20,000 to Chandan in error.
6. A bill of exchange for ` 1,40,000 was discounted by Chandan with his bank. This bill was
dishonoured on 28 th March, 2020 but no entry had been made in the books of Chandan.
7. Cheques issued upto 31st March, 2020 but not presented for payment upto that date totalled
` 13,26,000.
You are required :
(a) to show the appropriate rectifications required in the Cash Book of Chandan, to arrive at the
correct balance on 31st March,2020 and
(b) to prepare a bank reconciliation statement as on that date. (10 +10 = 20 Marks)
3 (a) Gagandeep of Delhi consigned to Mandeep of Ludhiana, goods to be sold at invoice price which
represents 125% of cost. Mandeep is entitled to a commission of 10% on sales at invoice price and
25% of any excess realised over invoice price. The expenses on freight and insurance incurred by
Gagandeep were ` 15,000. The account sales received by Gagandeep shows that Mandeep has
effected sales amounting to ` 1,50,000 in respect of 75% of the consignment. His selling expenses
to be reimbursed were ` 12,000. 10% of consignment goods of the value of ` 18,750 were
destroyed in fire at the Ludhiana godown. Mandeep remitted the balance in favour of Gagandeep.
You are required to prepare consignment account in the books of Gagandeep along with the
necessary calculations.
(b) On 1st January, 2020, Ankur account in Varun ledger showed a debit balance of ` 2,500. The
following transactions took place between Varun and Ankur during the quarter ended 31 st March,
2020:
2020 `
Jan. 11 Varun sold goods to Ankur 3,000
Jan. 24 Varun received a promissory note from Ankur due after 3 months 2,500
Feb. 01 Ankur sold goods to Varun 5,000
Feb. 04 Varun sold goods to Ankur 4,100
Feb. 07 Ankur returned goods to Varun 500
2

March 01 Ankur sold goods to Varun 2,800
March 18 Varun sold goods to Ankur 4,600
March 23 Ankur sold goods to Varun 2,000
Accounts were settled on 31 st March, 2020 by means of a cheque. Prepare an Account Current to
be submitted by Varun to Ankur as on 31 st March, 2020, taking interest into account @ 10% per
annum. Calculate interest to the nearest multiple of a rupee. (12 + 8 = 20 Marks)
4. (a) The following information of M/s. Rose Club are related for the year ended 31 st March, 2020:
(1)
Balances As on 01-04-2019 As on 31-3-2020
(`) (`)
Stock of Sports Material 2,25,000 3,37,500
Amount due for Sports Material 2,02,500 2,92,500
Subscription due 33,750 49,500
Subscription received in advance 27,000 15,750
(2) Subscription received during the year ` 11,25,000
(3) Payments for Sports Material during the year ` 6,75,000
You are required to ascertain the amount of Subscription and Sports Material that will appear in
Income & Expenditure Account for the year ended 31.03.2020.
(b) P and Q are partners in a firm, sharing Profits and Losses in the ratio of 3 : 2. The Balance Sheet
of P and Q as on 31.3.2020 was as follow:
Liabilities Amount ` Assets Amount `
Sundry Creditors 25,800 Building 52,000
Bill Payable 8,200 Furniture 11,600
Bank Overdraft 18,000 Stock-in-Trade 42,800
Capital Accounts: Debtors 70,000
P 88,000 Less: Provision 400 69,600
Q 72,000 1,60,000 Investment 5,000
_______ Cash 31,000
2,12,000 2,12,000
‘R’ was admitted to the firm on the above date on the following terms:
(i) He is admitted for 1/6th share in future profits and to introduce a Capital of ` 50,000.
(ii) The new profit sharing ratio of P, Q and R will be 3 : 2 : 1 respectively.
(iii) ‘R’ is unable to bring in cash for his share of goodwill, partners therefore, decide to raise
goodwill account in the books of the firm. They further decide to calculate goodwill on the
basis of ‘R’s share in the profits and the capital contribution made by him to the firm.
(iv) Furniture is to be written down by ` 1,740 and Stock to be depreciated by 5%. A provision is
required for Debtors @ 5% for Bad Debts. A provision would also be made for outstanding
wages for `3,120. The value of Buildings having appreciated be brought upto ` 58,400. The
value of investment is increased by ` 900.

(v) It is found that the creditors included a sum of ` 2,800, which is not to be paid off.
Prepare the following:
(i) Revaluation Account.
(ii) Partners’ Capital Accounts.
(iii) Balance Sheet of New Partnership firm after admission of ‘R’. (5+15= 20 Marks)
5 (a) M/s Surya Transport purchased 10 Innova cars at ` 4,50,000 each on 1 st April 2017. On October
1st 2019, one of the car is involved in an accident and is completely destroyed and
` 2,70,000 is received from the insurance in full settlement. On the same date, another car is
purchased by the company for the sum of ` 5,00,000. The company writes off 20% on the original
cost per annum. The company observe the calendar year as its financial year.
You are required to prepare the Innova cars account for years ended 31st Dec, 2019 and 31 st Dec.
2020.
(b) The following are the balances as at 31 st March, 2020 extracted from the books of Mr. Sanjeev.
` `
Plant and Machinery 39,100 Bad debts recovered 900
Furniture and Fittings 20,500 Salaries 45,100
Bank Overdraft 1,60,000 Salaries payable 4,900
Capital Account 1,30,000 Prepaid rent 600
Drawings 16,000 Rent 8,600
Purchases 3,20,000 Carriage inward 2,250
Opening Stock 64,500 Carriage outward 2,700
Wages 24,330 Sales 4,30,600
Provision for doubtful debts 6,400 Advertisement Expenses 6,700
Provision for Discount on Printing and Stationery 2,500
debtors 2,750 Cash in hand 2,900
Sundry Debtors 2,40,000 Cash at bank 6,250
Sundry Creditors 95,000 Office Expenses 20,320
Bad debts 2,200 Interest paid on loan 6,000
Additional Information:
1. Purchases include sales return of ` 5,150 and sales include purchases return of ` 3,450.
2. Goods withdrawn by Mr. Sanjeev for own consumption ` 7,000 included in purchases.
3. Create a provision for doubtful debts @ 5% and provision for discount on debtors @ 2.5%.
4. Free samples distributed for publicity costing ` 1,650.
5. Wages paid in the month of April for installation of plant and machinery amounting to ` 900
were included in wages account.
6. Bank overdraft is secured against hypothecation of stock. Bank overdraft outstanding as on
31.3.2020 has been considered as 80% of real value of stock (deducting 20% as margin) and
after adjusting the marginal value 80% of the same has been allowed to draw as an overdraft.

7. Depreciation is to be provided on plant and machinery @ 15% p.a. and on furniture and fittings
@ 10% p.a.
Prepare a Trading and Profit and Loss Account for the year ended 31 st March, 2020 and a Balance
Sheet as on that date. (6 + 14 = 20 Marks)
6. (a) Alpha Limited registered with an authorized equity capital of ` 4,00,000 divided into 2,000 shares
of ` 100 each, issued for subscription of 1,000 shares payable at ` 25 per share on application,
` 30 per share on allotment, ` 20 per share on first call and the balance as and when required.
Application money on 1,000 shares was duly received and allotment was made to them. The
allotment amount was received in full, but when the first call was made, two shareholders failed to
pay the amount on 100 shares each held by them and another shareholder with 100 shares, paid
the entire amount on his shares. The company did not make any other call. Give the necessary
journal entries in the books of the company to record these transactions.
(b) Aditya Limited issued 20,000 9% Debentures of the nominal value of `1,00,00,000 as follows:
(a) To sundry persons for cash at 90% of nominal value of ` 50,00,000.
(b) To a vendor for purchase of fixed assets worth ` 20,00,000 – ` 25,00,000 nominal value.
(c) To the banker as collateral security for a loan of ` 20,00,000 – ` 25,00,000 nominal value.
You are required to prepare necessary journal entries Journal Entries.
(c) Distinguish between Money Measurement concept and Matching concept.
(10 + 5 + 5 = 20 Marks)

MOCK TEST PAPER
FOUNDATION COURSE
ANSWERS
1. (a) 1 False- When shares are forfeited, the share capital account is debited with called up capital
forfeited.
2. True - Discount at the time of retirement of a bill is a gain for the drawee and loss for the
drawer.
3 False- Receipts and payments account is a classified summary of cash receipts and
payments over a certain period together with cash and bank balances at the beginning and
close of the period.
4 False- The right hand side of the equation includes cash twice- once as a part of current
5 False - According to Partnership Act, in the absence of any agreement to the contrary profits
6. False- Accrual concept implies accounting on ‘due’ or ‘accrual’ basis. Accrual basis of
(b) Journal Entries in the books of Symphony Bros.
Particulars Dr. Cr.
Amount (`) Amount (`)
(i) Salaries A/c 7,500
To Purchase A/c 7,500
(Being entry made for stock taken by employees)
(ii) Advertisement Expenses A/c 2,000
To Purchases A/c 2,000
(Being distribution of goods by the way of free samples)
(iii) Drawings A/c 1,400
To Petty Cash A/c 1,400
(Being the income tax of proprietor paid out of business money)
(iv) Purchase A/c 1,800
To Cash A/c 1,750
To Discount Received A/c 50
(Being the goods purchased from Naveen for ` 2,000 @ 10%
trade discount and cash discount of ` 50)

(c) Limitations which must be kept in mind while evaluating the Financial Statements are as follows:
manipulations.
2. (a) Statement of Valuation of Stock on 30 th June, 2020
`
Value of stock as on 14th
June, 2020 96,00,000
Add: Unsold stock out of the goods sent on consignment 4,80,000
Purchases during the period from 14th June, 2020 to 30th 4,80,000
June, 2020
Goods in transit on 30th June, 2020 3,20,000
Cost of goods sent on approval basis (80% of ` 3,20,000) 2,56,000 15,36,000
1,11,36,000
Less: Cost of sales during the period from 14th June, 2020 to 30th
June, 2020
Sales (` 27,20,000-` 3,20,000) 24,00,000
Less: Gross profit 1,92,000
22,08,000
Value of stock as on 30th June, 2020 89,28,000
Working Notes:
1. Calculation of normal sales: ` `
Actual sales 27,20,000
Less: Abnormal sales 2,40,000
Return of goods sent on approval 3,20,000 5,60,000
21,60,000
2. Calculation of gross profit:
Gross profit or normal sales 4,32,000
20/100 x ` 21,60,000
Less: Loss on sale of particular (abnormal) goods 2,40,000
(4,80,000 less 2,40,000)
Gross profit 1,92,000

2020 ` 2020 `
March March
31 31
To Customer A/c By Bank charges 580
1,44,642 1,44,642
(ii) Bank Reconciliation Statement as on 31st March,2020

Particulars Amount
`
Add: Cheque deposited but not collected upto 31st March,2020 13,14,000
13,25,242
Less: Cheques issued but not presented for payment upto 31st March,2020 (13,26,000)
Credit by Bank erroneously on 6th March,2020 (20,000)
Note: Bank has credited Chandan by 20,000 in error on 6 th March, 2020. If this mistake is rectified
in the bank statement, then this will not be deducted in the above statement along with ` 13,26,000
resulting in debit balance of ` 758 as per pass-book.
3. (a) Books of Gagandeep
Consignment to Ludhiana Account
Particulars ` Particulars `
To Goods sent on 1,87,500 By Goods sent on 37,500
Consignment A/c Consignment A/c (loading)
To Cash A/c 15,000 By Abnormal Loss 16,500
To Mandeep (Expenses) 12,000 By Mandeep (Sales) 1,50,000
To Mandeep (Commission) 16,406 By Inventories on Consignment 30,375
A/c
To Inventories Reserve A/c 5,625 By General Profit & Loss A/c 2,156
2,36,531 2,36,531
Working Notes:
1. Calculation of value of goods sent on consignment:
Abnormal Loss at Invoice price = ` 18,750
Abnormal Loss as a percentage of total consignment = 10%
Hence the value of goods sent on consignment = ` 18,750 X 100/ 10 = ` 1,87,500
Loading of goods sent on consignment = ` 1,87,500 X 25/125 = ` 37,500
3

2. Calculation of abnormal loss (10%):
Abnormal Loss at Invoice price = ` 18,750.
Abnormal Loss at cost = ` 18,750 X 100/125 = ` 15,000
Add: Proportionate expenses of Gagandeep (10 % of ` 15,000) =` 1,500
` 16,500
3. Calculation of closing Inventories (15%):
Gagandeep’s Basic Invoice price of consignment= ` 1,87,500
Gagandeep’s expenses on consignment = ` 15,000
` 2,02,500
Value of closing Inventories = 15% of ` 2,02,500 = ` 30,375
Loading in closing Inventories = ` 37,500 x 15/100 = ` 5,625
Where ` 28,125 (15% of ` 1,87,500) is the basic invoice price of the goods sent on
consignment remaining unsold.
4. Calculation of commission:
Invoice price of the goods sold = 75% of ` 1,87,500 = ` 1,40,625
Excess of selling price over invoice price = ` 9,375 ( ` 1,50,000 - ` 1,40,625)
Total commission = 10% of ` 1,40,625 + 25% of ` 9,375
= ` 14,062.5 + ` 2,343.75
= ` 16,406
(b) In the books of Varun
Ankur in Account Current with Varun
(Interest to 31 st March, 2020 @ 10% p.a)
Date Particulars Amount Days Product Date Particulars Amount Days Product
2020 ` ` 2020 ` `
Jan.1 To Balance 2,500 90 2,25,000 Jan.24 By Promissor Varun Note 2,500 (27) (67500)
b/d (due date 27 th April)
Jan. 11 To Sales 3,000 79 2,37,000 Feb. 1 By Purchases 5,000 58 2,90,000
Feb. 4 To Sales 4,100 55 2,25,500 Feb. 7 By Sales Return 500 52 26,000
Mar. 18 To Sales 4,600 13 59,800 Mar. 1 By Purchases 2,800 30 84,000
Mar. 31 To Interest 110 Mar. 23 By Purchases 2,000 8 16,000
Mar. 31 By Balance of Products 3,98,800
Mar. 31 By Bank 1,510
14,310 7,47,300 14,310 7,47,300
Working Note:
𝟑,𝟗𝟖,𝟖𝟎𝟎 𝟏𝟎
Calculation of interest: 𝟑𝟔𝟓
× 𝟏𝟎𝟎= ` 110 (approx.)

4. (a) Subscription for the year ended 31.3.2020
`
Subscription received during the year 11,25,000
Less: Subscription receivable on 1.4.2019 33,750
Less: Subscription received in advance on 31.3.2020 15,750 (49,500)
10,75,500
Add: Subscription receivable on 31.3.2020 49,500
Add: Subscription received in advance on 1.4.2019 27,000 76,500
Amount of Subscription appearing in Income & Expenditure Account 11,52,000
Sports material consumed during the year end 31.3.2020

`
Payment for Sports material 6,75000
Less: Amounts due for sports material on 1.4.2019 (2,02,500)
4,72,500
Add: Amounts due for sports material on 31.3.2020 2,92,500
Purchase of sports material 7,65,000
Sports material consumed:
Stock of sports material on 1.4.2019 2,25,000
Add: Purchase of sports material during the year 7,65,000
9,90,000
Less: Stock of sports material on 31.3.2020 (3,37,500)
Amount of Sports Material appearing in Income & Expenditure Account 6,52,500
(b) (i) Revaluation Account
` `
To Furniture 1,740 By Building 6,400
To Stock 2,140 By Sundry creditors 2,800
To Provision of doubtful debts By Investment 900
(` 3,500 – ` 400) 3,100
To Outstanding wages 3,120 ____
10,100 10,100
(ii) Partners' Capital Accounts
P Q R P Q R
` ` ` ` ` `
To Balance 142,000 108,000 50,000 By Balance b/d 88,000 72,000 –
c/d
By Cash A/c – – 50,000
By Goodwill A/c
(Working
____ ___ ____ Note) 54,000 36,000
142,000 108,000 50,000 142,000 108,000 50,000

(iii) Balance Sheet of New Partnership Firm
(after admission of R) as on 31.3.2020
Liabilities ` Assets `
Capital Accounts: Goodwill 90,000
P 1,42,000 Building (52,000 + 6,400) 58,400
Q 1,08,000 Furniture (11,600 – 1,740) 9,860
R 50,000 3,00,000 Stock-in-trade (42,800 – 2,140) 40,660
Bills Payable 8,200 Debtors 70,000
Bank Overdraft 18,000 Less: Provision for bad Debts (3,500) 66,500
Sundry creditors 23,000 Investment (5,000 + 900) 5,900
(25,800-2,800)
Outstanding wages 3,120 Cash (31,000 + 50,000) 81,000
3,52,320 3,52,320
Working Note:
Calculation of goodwill
R's contribution of ` 50,000 consists only 1/6th of capital.
Therefore, total capital of firm should be ` 50,000 × 6 = ` 3,00,000.
But combined capital of P, Q and R amounts ` 88,000 + 72,000 + 50,000 = ` 2,10,000.
Thus Hidden goodwill is ` 90,000 (` 3,00,000 – ` 2,10,000).
5. (a) Innova Cars A/c
2019 2019
Jan-01 To balance b/d 29,25,000 Oct-01 By bank A/c 2,70,000
Oct-01 To Profit & Loss A/c 45,000 Oct-01 By Depreciation on lost
(Profit on settlement of car) assets 67,500
Dec-31 By balance c/d 22,97,500
34,70,000 34,70,000
2020 2020
Jan-01 To balance b/d 22,97,500 Dec-31 By Depreciation A/c 9,10,000
Dec-31 By balance c/d 13,87,500
22,97,500 22,97,500
Working Note:
1. To find out loss on Profit on settlement of Innova Car `
Less: Depreciation for 2017 67,500
3,82,500
6

Less: Depreciation for 2018 90,000
2,92,500
Less: Depreciation for 2019 (9 months) 67,500
2,25,000
Less: Amount received from Insurance company 2,70,000
45,000
(b) Trading and Profit and Loss Account of Mr. Sanjeev
.Dr. Cr.
Amount Amount
` ` ` `
To Purchases 3,062,00 Less: Sales 5,150 4,22,000
return
Less: Purchases return 3,450 3,02,750 By Closing stock
To Carriage inward 2,250  100 100  2,50,000
 `1,60,000   
To Wages 23,430  80 80 
To Gross profit c/d 2,79,070
6,72,000 6,72,000
To Salaries 45,100 By Gross profit b/d 2,79,070

To Rent 8,600 By Bad debts 900
recovered
To Advertisement expenses 8,350
To Printing and stationery 2,500
To Bad debts 2,200
To Carriage outward 2,700
To Provision for doubtful debts
5% of ` 2,40,000 12,000
Less: Existing provision 6,400 5,600
To Provision for discount on
debtors
2.5% of ` 2,28,000 5,700
To Depreciation:
Plant and machinery 6,000
Furniture and fittings 2,050 8,050
To Office expenses 20,320
To Net profit
(Transferred to capital
account) 1,67,600 _______
2,79,970 2,79,970

Balance Sheet of Mr. Sanjeev as on 31st March, 2020
Amount Amount
Liabilities ` ` Assets ` `
Capital account 1,30,000 Plant and machinery 40,000
Add: Net profit 1,67,600 Less: Depreciation 6,000 34,000
2,97,600 Furniture and fittings 20,500
Less: Drawings 23,000 2,74,600 Less: Depreciation 2,050 18,450
Bank overdraft 1,60,000 Closing stock 2,50,000
Sundry creditors 95,000 Sundry debtors 2,40,000
Payable salaries 4,900 Less: Provision for doubtful debts 12,000
Provision for bad debts 5,700 2,22,300
Prepaid rent 600
Cash in hand 2,900
_______ Cash at bank 6,250
5,34,500 5,34,500
Working Note:
Rectification Entries
Particulars Dr. Cr.
Amount Amount
` `
(i) Returns inward account Dr. 5,150
Sales account Dr. 3,450
To Purchases account 5,150
To Returns outward account 3,450
(Being sales return and purchases return wrongly included
in purchases and sales respectively, now rectified)
(ii) Drawings account Dr. 7,000
(Being goods withdrawn for own consumption included in
purchases, now rectified)
(iii) Plant and machinery account Dr. 900
To Wages account 900
(Being wages paid for installation of plant and machinery
wrongly debited to wages, now rectified)
(iv) Advertisement expenses account Dr. 1,650
(Being free samples distributed for publicity out of
purchases, now rectified)

6. (a)
Bank A/c Dr. 25,000
To Equity Share Application A/c 25,000
(Money received on application for 1,000 shares @ ` 25 per
share)
Equity Share Application A/c Dr. 25,000
To Equity Share Capital A/c 25,000
(Transfer of application money on 1,000 shares to share capital)
Equity Share Allotment A/c Dr. 30,000
(Amount due on the allotment of 1,000 shares @ ` 30 per share)
Bank A/c Dr. 30,000
To Equity Share Allotment A/c 30,000
(Allotment money received)
Equity Share First Call A/c Dr. 20,000
(First call money due on 1,000 shares @ ` 20 per share)
Bank A/c Dr. 18,500
Calls-in-Arrears A/c Dr. 4,000
To Equity Share First Call A/c 20,000
To Calls-in-Advance A/c 2,500
(First call money received on 800 shares and calls-in-advance on
100 shares @ ` 25 per share)
(b) In the books of Aditya Company Ltd.

Journal Entries
` `
(a) Bank A/c Dr. 45,00,000
(Being the application money received on 10,000
debentures @ ` 450 each)
Discount on issue of Debentures A/c Dr. 5,00,000
(Being the issue of 10,000 9% Debentures @ 90%
as per Board’s Resolution No….dated….)
(Being the purchase of fixed assets from vendor)
Discount on Issue of Debentures A/c Dr. 5,00,000
9

(Being the issue of debentures of ` 25,00,000 to
vendor to satisfy his claim)
(c) Bank A/c Dr. 20,00,000
(Being a loan of ` 20,00,000 taken from bank by
issuing debentures of `25,00,000 as collateral
security)
(c) Distinction between Money Measurement concept and Matching concept
As per Money Measurement concept, only those transactions, which can be measured in terms
of money are recorded. Since money is the medium of exchange and the standard of economic
value, this concept requires that those transactions alone that are capable of being measured in
terms of money should be recorded in the books of accounts. Transactions and events that cannot
be expressed in terms of money are not recorded in the business books.
In Matching concept, all expenses matched with the revenue of that period should only be taken
into consideration. In the financial statements of the organization if any revenue is recognized then
expenses related to earn that revenue should also be recognized.
10

Test Series: March , 2021
MOCK TEST PAPER - 1
FOUNDATION COURSE
ANSWERS
1. (a) 1. True - The balance represents the cash physically in existence and is therefore an asset.
2. False - Finished goods are normally valued at cost or net realizable value whichever is lower.
3. False - Current year subscription shall be shown in the credit side of the income and
expenditure account and not in the balance sheet, as it is not a capital item.
4. False - When shares are forfeited, the share capital account is debited with called up capital
forfeited.
5. True - Discount at the time of retirement of a bill is a gain for the drawee and loss for the
drawer.
6. True - Yes they are types of subsidiary books which is alternate to the journals.
manipulations.
(c) (i) Purchase of Rs. 1,620 is wrongly recorded through sales day book as Rs. 1,260.
Correct Entry Entry Made Wrongly
Purchase A/c Dr. 1,620 Anupam & Co. Dr. 1,260
To Anupam & Co. 1,620 To Sales 1,260
Rectification Entry
Before Trial Balance After Trial Balance After Final Accounts
Sales A/c Dr. 1,260 Sales A/c Dr. 1,260 Profit & Loss Adj. A/c Dr. 2,880
Purchase A/c Dr. 1,620 Purchase A/c Dr. 1,620 To Anupam & Co. 2,880
To Anupam & Co. 2,880 To Anupam & Co. 2,880
(ii) This is one sided error. Soni & Co. account is credited instead of debit. Amount posted to the
wrong side and therefore while rectifying the account, double the amount (Rs. 3200) will be
taken.

Before Trial Balance After Trial Balance After Final Accounts
No Entry Soni & Co. A/c Dr. 3200 Soni & Co. A/c Dr. 3200
Debit Soni A/c with Rs. To Suspense A/c 3200 To Suspense A/c 3200
3200
2. (a) In the books of M/s. JP Wires Co.
Machinery Account
Rs. Rs.
1.1.2017 To Bank A/c 3,20,000 31.12.2017 By Depreciation A/c 96,000
To Bank A/c 80,000 (Rs.80,000+ Rs. 16,000)
(Erection charges) 31.12.2017 By Balance c/d 4,64,000
1.7.2017 To Bank A/c 1,60,000 (Rs.3,20,000+
Rs.1,44,000) _______
5,60,000 5,60,000
01.01.18 To Balance b/d 4,64,000 31.12.2018 By Depreciation A/c 1,12,000
(Rs.80,000+ Rs. 32,000)
31.12.2018 By Balance c/d 3,52,000
(Rs.2,40,000+Rs.
1,12,000)
4,64,000 4,64,000
01.01.19 To Balance b/d 3,52,000 01.07.2019 By Bank A/c 1,60,000
30.9.19 To Bank A/c 60,000 By Profit and Loss A/c 40,000
(Loss on Sale – W.N. )
31.12.2019 By Depreciation A/c 75,000
(Rs. 40,000 + Rs.
32,000 + Rs. 3,000)
(Rs. 80,000 + Rs.
57,000)
4,12,000 4,12,000
01.01.20 To Balance b/d 1,37,000 31.12.2020 By Depreciation A/c 20,550
(Rs. 12,000 + Rs. 8,550)
(Rs. 68,000 + Rs.
48,450)
1,37,000 1,37,000
Working Notes:
Book Value of machines (Straight line method)
Machine I Machine II Machine III
Rs. Rs. Rs.
Cost 4,00,000 1,60,000 60,000
Depreciation for 2017 80,000 16,000

Written down value as on 31.12.2017 3,20,000 1,44,000
Depreciation for 2018 80,000 32,000
Written down value as on 31.12.2018 2,40,000 1,12,000
Depreciation for 2019 40,000 32,000 3,000
Written down value as on 31.12.2019 2,00,000 80,000 57,000
Sale proceeds 1,60,000
Loss on sale 40,000
(b) Valuation of Physical Stock as at March 31, 2021

Rs.
Stock at cost on 31.12.2020 2,40,000
Add: (1) Undercasting of a page total 600
(2) Goods purchased and delivered during January – March, 2021
Rs. (2,10,000 – 9,000 + 12,000) 2,13,000
(3) Cost of sales return Rs. (3,000 – 600) 2,400
2,16,000
4,56,000
Less:(1) Overcasting of a page total Rs. (18,000 – 15,000) 3,000
(2) Goods sold and dispatched during January – March, 2021
Rs. (2,70,000 – 15,000 + 12,000) 2,67,000
25
Less: Profit margin 2,67,000  53,400 2,13,600
125
(2,16,600)
Value of stock as on 31st March, 2021
2,39,400
Note: In the above solution, transfer of ownership is assumed to take place at the time of delivery
of goods. If it is assumed that transfer of ownership takes place on the date of invoice, then
Rs. 12,000 goods delivered in March 2021 for which invoice was received in April, 2021, would be
treated as purchases of the accounting year 2020-2021 and thus excluded. Similarly, goods
dispatched in March, 2021 but invoiced in April, 2021 would be excluded and treated as sale of the
year 2020-2021.
3. (a) Journal Entries in the Books of Mr. Y
Date Particulars L.F. Dr. Cr.
Amount Rs. Amount Rs.
2020
August 1 Bills Receivable A/c Dr. 50,000
To Z A/c 50,000
(Being the acceptance received from Z to settle
his account)
August 1 Bank A/c Dr. 49,000
Discount A/c Dr. 1,000
To Bills Receivable 50,000
(Being the bill discounted for Rs. 49,000 from
bank)
November 4 Z A/c Dr. 50,000

(Being the Z’s acceptance is to be renewed)
November 4 Z A/c Dr 1,200
To Interest Account 1,200
(Being the interest due from Z for 3 months i.e.,
40,000x3/12 12%=12,000)
November 4 Cash A/c Dr. 11,200
Bills Receivable A/c Dr. 40,000
To Z A/c 51,200
(Being amount and acceptance of new bill
received from Z)
December 31 Z A/c Dr. 40,000
To Bills Receivable A/c 40,000
(Being Z became insolvent)
December 31 Cash A/c Dr. 16,000
Bad debts A/c Dr. 24,000
To Z A/c 40,000
(Being the amount received and written off on Z’s
insolvency)
(b) Journal Entries
2021 Rs. Rs.
31st Sales A/c Dr. 30,000
March To Sapan A/c 30,000
(Being cancellation of entry for sale of
goods, not yet approved)
Inventories with customers A/c (Refer Dr. 19,200
W.N.)
To Trading A/c 19,200
(Being Inventories with customers
recorded at market price)
Working Note:
Calculation of cost and market price of Inventories with customer
Sale price of goods sent on approval Rs.30,000
Less: Profit (30,000 x 25/125) Rs. 6,000
Cost of goods Rs.24,000
Market price = 24,000 - (24,000 x 20%) = Rs. 19,200.
(c) Calculation of average due date (Base date: 8th September)
Due Date Amount No. of days from base date Product
Rs. Rs.
8th September 600 0 0
18th October 400 40 16,000
13th November 550 66 36,300
4

10th December 800 93 74,400
2,350 1,26,700
Total Product
Average due date = Base date ±
Total Amount
= 8th September + 1,26,700/2,350
= 8th September + 54 days = 1st November
4. (a) New Max Hospital
Income & Expenditure Account
for the year ended 31 December, 2020
Expenditure (Rs.) Income (Rs.)
To Salaries 12,000 By Subscriptions 12,250
To Diet expenses 7,800 By Govt. Grants (Maintenance) 10,000
To Rent & Rates 850 By Fees, Sundry Patients 2,400
To Printing & Stationery 1,200 By Donations 4,000
To Electricity & Water-charges 1,200 By Benefit shows (net collections) 3,000
To Office expenses 1,000 By Interest on Investments 400
To Excess of Income over 8,000
expenditure transferred to
Capital Fund
32,050 32,050
Balance Sheet as at 31st Dec., 2020

Liabilities Rs. Rs. Assets Rs. Rs.
Capital Fund : Building :
Opening balance 24,650 Opening balance 45,000
Excess of Income Addition 25,000 70,000
Over Expenditure 8,000 32,650 Hospital Equipment :
Building Fund : Opening balance 17,000
Opening balance 40,000 Addition 8,500 25,500
Add : Govt. Grant 40,000 80,000 Furniture 3,000
Subscriptions Investments-
received in advance 1,200 8% Govt. Securities 10,000
Subscriptions receivable 700
Accrued interest 400
Prepaid expenses (Rent) 150
Cash at Bank 3,400
Cash in hand 700
1,13,850 1,13,850

Working Notes:
(1) Balance sheet as at 31st Dec., 2019
Capital Fund Building 45,000
(Balancing Figure) 24,650 Equipment 17,000
Building Fund 40,000 Subscription Receivable 3,250
Creditors for Expenses : Cash at Bank 2,600
Salaries payable 3,600 Cash in hand 400
68,250 68,250
(2) Value of Building Rs.

Balance on 31st Dec. 2020 70,000
Paid during the year (25,000)
(3) Value of Equipment
Paid during the year (8,500)
(4) Subscription due for 2019
Receivable on 31st Dec. 2019 3,250
Received in 2020 2,550
Still Receivable for 2019 700
5. (a) Trading and Profit and Loss Account of Mr. Vijay

Dr. Cr.
Rs. Rs. Rs. Rs.
To Purchases 3,06,200 Less: Sales return 5,150 4,22,000
Less: Purchases return 3,450 3,02,750 By Closing stock 2,50,000
To Carriage inward 2,250

To Wages 23,430
To Gross profit c/d 2,79,070
6,72,000 6,72,000
To Salaries 45,100 By Gross profit b/d 2,79,070

To Rent 8,600 By Bad debts 900
recovered
To Advertisement expenses 8,350

To Printing and stationery 2,500
To Bad debts 2,200
To Carriage outward 2,700
To Provision for doubtful
debts
5% of Rs. 2,40,000 12,000
To Provision for discount on
debtors
2.5% of Rs. 2,28,000 5,700
To Depreciation:
Plant and machinery 6,000
Furniture and fittings 2,050 8,050
To Office expenses 20,320
To Net profit
(Transferred to capital account) _______
1,67,600
2,79,970 2,79,970
Balance Sheet of Mr. Vijay as on 31st March, 2021
Liabilities Rs. Amount Assets Rs. Amount Rs.

Rs.
Capital account 1,30,000 Plant and machinery 40,000

Add: Net profit 1,67,600 Less: Depreciation 6,000 34,000
2,97,600 Furniture and fittings 20,500
Less: Drawings 23,000 2,74,600 Less: Depreciation 2,050 18,450
Bank overdraft 1,60,000 Closing stock 2,50,000
Sundry creditors 95,000 Sundry debtors 2,40,000
Payable salaries 4,900 Less: Provision for 12,000
doubtful debts
Less: Provision for bad 5,700 2,22,300
debts
Prepaid rent 600
Cash in hand 2,900
Cash at bank 6,250
_______
5,34,500 5,34,500

(b) (i) Journal Entry in the books of the M/s Krishna
Dr. Cr.
Date Particulars Rs. Rs.
April, 1 Amit’s Capital A/c Dr. 3,000
2021 Lalit’s Capital A/c Dr. 3,000
To Sumit’s Capital A/c 6,000
(Being the required adjustment for goodwill
through partner’s capital accounts)
(ii) Revaluation Account
Dr. Cr.
To Furniture A/c 3,000 By Machinery A/c 5,100
(Rs. 16,800 – 13,800) (Rs. 35,100 - 30,000)
To Inventory A/c 1,200
(Rs 5,700 – 4,500)
To Partners’ Capital A/cs 900
(Amit - Rs. 300, Lalit - Rs. 300,
Sumit - Rs. 300)
5,100 5,100
Partners’ Capital Accounts
Particulars Amit Lalit Sumit Particulars Amit Lalit Sumit
To Sumit 3,000 3,000 – By Balance b/d 24,600 24,600 27,000
(Goodwill)
To Cash A/c – – 6,000 By General Reserve 3,000 3,000 3,000
A/c
To Executors – – 30,300 By Revaluation A/c 300 300 300
A/c (Profit)
To Balance C/d 24,900 24,900 – By Amit (Goodwill) – – 3,000
By Lalit (Goodwill) – – 3,000
27,900 27,900 36,300 27,900 27,900 36,300
Working Note:
Statement showing the Required Adjustment for Goodwill
Particulars Amit Lalit Sumit
Right of goodwill before death 1/3 1/3 1/3
Right of goodwill after death 1/2 1/2 –
Gain / (Sacrifice) (+) 1/6 (+) 1/6 (-) 1/3
6. (a) Journal of Deepak Chemicals Ltd.
Dr. Cr.
2020 Rs. in lakhs Rs. in lakhs
To Shares Application A/c 100
(Receipt of applications for 10 lakh shares along
with application money of Rs. 10 per share.)
8

June 1 Share Application and Allotment A/c Dr. 100
Share Allotment A/c Dr. 300
(The allotment of 10 lakh shares : payable on
application Rs. 10 share and Rs. 30 on allotment
as per Directors’ resolution no... dated...)
To Shares Allotment A/c 300
To Calls in Advance A/c 9
[Receipt of money due on allotment @ Rs. 30, also
the two calls (Rs. 30 and Rs. 30) on 15,000
shares.]
Nov. 1 Share First Call A/c Dr. 300
(The amount due on 10 lakh shares @ Rs. 30 on
first call, as per Directors, resolution no... dated...)
Bank A/c Dr. 295.5
Calls in Advance A/c Dr. 4.5
To Share First Call A/c 300
(Receipt of the first call on 9.85 lakh shares, the
balance having been previously received
and now debited to call in advance account.)
2021
March 1 Share Final Call A/c Dr. 300
(The amount due on Final Call on 10 lakh shares
@ Rs. 30 per share, as per Directors’ resolution
no... dated...)
March1 Bank A/c Dr. 295.5
Calls in Advance A/c Dr. 4.5
To Share Final Call A/c 300
(Receipt of the moneys due on final call on 9.85
lakhs shares, the balance having been previously
received.)
March 1 Interest on calls in Advance A/c Dr. 0.63
To Shareholder A/c 0.63
(Being interest on call in advance made due)
March 1 Shareholder A/c Dr. 0.63
To Bank A/c 0.63
(Being interest paid)

Working Note:
The interest on calls in advance paid @ 12% on : Rs.
Rs. 4,50,000 (first call) from 1st June to 1st Nov., 2020–5 months 22,500
Rs. 4,50,000 (final call) from 1st June to 1st March., 2021–9 months 40,500
Total Interest Amount Due 63,000
(b) In the books of Tim Tim Ltd.

Journal Entries
Rs. Rs.
(a) Bank A/c Dr. 4,50,000
(Being the application money received on
5,000 debentures @ Rs. 90 each)
Discount on issue of Debentures A/c Dr. 50,000
(Being the issue of 5,000 8% Debentures @
90% as per Board’s Resolution
No….dated….)
(Being the purchase of fixed assets from
vendor)
Discount on Issue of Debentures A/c Dr. 50,000
(Being the issue of debentures of Rs.
2,50,000 to vendor to satisfy his claim)
(c) Bank A/c Dr. 2,00,000
(Being a loan of Rs. 2,00,000 taken from bank
by issuing debentures of Rs.2,50,000 as
collateral security)
10

OR
of the bank.
parties.
11

MOCK TEST PAPER - 1
FOUNDATION COURSE
1 The balance in petty cash book represents an asset.
2. Finished goods are normally valued at cost or market price whichever is higher.
3 Subscriptions received for the current year shall be shown in the balance sheet as a current
asset.
forfeited and the share forfeiture account is credited with Calls in arrear of shares forfeited.
5 Discount at the time of retirement of a bill is a gain for the drawee.
6. Bills receivable and bills payable books are type of subsidiary books.
(6 statements x 2 Marks= 12 Marks)
(4 Marks)
(c) The following errors were committed by the Accountant of Hari Om Toys.
(i) Purchase of Rs. 1620 from Anupam & Co. passed through Sales Day Book as Rs. 1260
(ii) Credit sale of Rs. 1600 to Soni & Co. was posted to the credit of their account.
How would you rectify the errors assuming that :
(a) they were detected before preparation of Trial Balance.
(b) they were detected after preparation of Trial Balance but before preparing Final Accounts, the
difference was taken to Suspense A/c.
(c) they were detected after preparing Final Accounts. (4 Marks)
2. (a) M/s. JP Wires Co. purchased a second-hand machine on 1st January, 2017 for Rs. 3,20,000.
Overhauling and erection charges amounted to Rs. 80,000.
Another machine was purchased for Rs. 1,60,000 on 1 st July, 2017.
On 1st July, 2019, the machine installed on 1st January, 2017 was sold for Rs. 1,60,000. Another
machine amounted to Rs. 60,000 was purchased and was installed on 30 th September, 2019.
Under the existing practice the company provides depreciation @ 20% p.a. on original cost. However,
from the year 2020 it decided to adopt WDV method and to charge depreciation @ 15% p.a. You are
required to prepare Machinery account for the years 2017 to 2020.

(b) Universe Ltd. keeps no stock records but a physical inventory of stock is made at the end of each
quarter and the valuation is taken at cost. The company’s year ends on 31 st March, 2021 and their
accounts have been prepared to that date. The stock valuation taken on 31 st March, 2021 was
however, misleading and you have been advised to value the closing stocks as on 31st March,
2021 with the stock figure as on 31st December, 2020 and some other information is available to
you:
(i) The cost of stock on 31 st December, 2020 as shown by the inventory sheet was Rs. 2,40,000.
(ii) On 31st December, stock sheet showed the following discrepancies:
(a) A page total of Rs. 15,000 had been carried to summary sheet as Rs. 18,000.
(b) The total of a page had been undercast by Rs. 600.
(iii) Invoice of purchases entered in the Purchase Book during the quarter from January to March,
2021 totalled Rs. 2,10,000. Out of this Rs. 9,000 related to goods received prior to
31st December, 2020. Invoices entered in April, 2021 relating to goods received in March,
2021 totalled Rs. 12,000.
(iv) Sales invoiced to customers totalled Rs. 2,70,000 from January to March, 2021. Of this
Rs. 15,000 related to goods dispatched before 31 st December, 2020. Goods dispatched to
customers before 31 st March, 2021 but invoiced in April, 2021 totalled Rs. 12,000.
(v) During the final quarter, credit notes at invoiced value of Rs. 3,000 had been issued to
customers in respect of goods returned during that period. The gross margin earned by the
company is 25% of cost.
You are required to prepare a statement showing the amount of stock at cost as on
31st March, 2021. (10 +10 = 20 Marks)
3. (a) Mr. Z accepted a bill for Rs. 50,000 drawn on him by Mr. Y on 1st August, 2020 for 3 months. This
was for the amount which Z owed to Y. On the same date Mr. Y got the bill discounted at his bank
for Rs. 49,000.
On the due date, Z approached Y for renewal of the bill. Mr. Y agreed on condition that Rs. 10,000
be paid immediately along with interest on the remaining amount at 12% p.a. for 3 months and that
for the remaining balance Z should accept a new bill for 3 months. These arrangements were
carried through. On 31st December, 2020, Z became insolvent and his estate paid 40%.
Prepare Journal Entries in the books of Mr. Y. (10 Marks)
(b) On 31st March, 2021 goods sold at a sale price of Rs. 30,000 were lying with customer, Sapan to
whom these goods were sold on ‘sale or return basis’ were recorded as actual sales. Since no
consent has been received from Sapan, you are required to pass adjustment entries presuming
goods were sent on approval at a profit of cost plus 25%. Present market price is 20% less than
the cost price. (5 Marks)
(c) Meera purchases goods on credit. His due dates for payments are given below. You are required
to calculate average due date.
Transaction Date Rs. Due Date
August 5 600 Sept. 08
Sept. 15 400 Oct. 18
Oct. 10 550 Nov. 13
Nov. 5 800 Dec. 10
(5 Marks)
2

4. From the following data, prepare an Income and Expenditure Account for the year ended
31st December 2020, and Balance Sheet as at that date of the New Max Hospital:
Receipts and Payments Account for the
year ended 31 December, 2020
RECEIPTS Rs. PAYMENTS Rs.
To Balance b/d By Salaries:
Cash 400 (Rs. 3,600 for 2019) 15,600
Bank 2,600 3,000 By Hospital Equipment 8,500
To Subscriptions: By Furniture purchased 3,000
For 2019 2,550 By Additions to Building 25,000
For 2020 12,250 By Printing and Stationery 1,200
For 2021 1,200 By Diet expenses 7,800
To Government Grant: By Rent and rates (Rs. 150 for 1,000
For building 40,000 2021)
For maintenance 10,000 By Electricity and water charges 1,200
Fees from sundry 2,400 By Office expenses 1,000
Patients By Investments 10,000
To Donations (not to be 4,000 By Balances:
capitalized) Cash 700
To Net collections from 3,000 Bank 3,400 4,100
benefit shows
78,400 78,400
Additional information : Rs.
Value of building under construction as on 31.12.2020 70,000
Value of hospital equipment on 31.12.2020 25,500
Building Fund as on 1.1. 2020 40,000
Subscriptions in arrears as on 31.12.2019 3,250
Investments in 8% Govt. securities were made on 1st July, 2020.
(20 Marks)
5. (a) The following are the balances as at 31st March, 2021 extracted from the books of Mr. Vijay.
Plant and Machinery 39,100 Bad debts recovered 900
Furniture and Fittings 20,500 Salaries 45,100
Bank Overdraft 1,60,000 Salaries payable 4,900
Capital Account 1,30,000 Prepaid rent 600
Drawings 16,000 Rent 8,600
Purchases 3,20,000 Carriage inward 2,250
Opening Stock 64,500 Carriage outward 2,700
Wages 24,330 Sales 4,30,600
Provision for doubtful debts 6,400 Advertisement Expenses 6,700
3

Provision for Discount on debtors 2,750 Printing and Stationery 2,500
Sundry Debtors 2,40,000 Cash in hand 2,900
Sundry Creditors 95,000 Cash at bank 6,250
Bad debts 2,200 Office Expenses 20,320
Interest paid on loan 6,000
Additional Information:
1. Purchases include sales return of Rs. 5,150 and sales include purchases return of
Rs. 3,450.
2. Free samples distributed for publicity costing Rs. 1,650.
3. Goods withdrawn by Mr. Vijay for own consumption Rs. 7,000 included in purchases.
4. Wages paid in the month of April for installation of plant and machinery amounting to Rs. 900
were included in wages account.
5. Create a provision for doubtful debts @ 5% and provision for discount on debtors
@ 2.5%.
6. Depreciation is to be provided on plant and machinery @ 15% p.a. and on furniture and fittings
@ 10% p.a.
7. Closing stock as on 31 st March, 2021 is Rs. 2,50,000.
Prepare a Trading and Profit and Loss Account for the year ended 31st March, 2021, and a Balance
Sheet as on that date.
(b) The following is the Balance Sheet of M/s. Krishna Bros as at 31st March, 2021, they share profit
and losses equally:
Balance Sheet as at 31st March, 2021
Capital Amit 24,600 Machinery 30,000
Lalit 24,600 Furniture 16,800
Sumit 27,000 Fixture 12,600
General Reserve 9,000 Cash 9,000
Trade payables 14,100 Inventories 5,700
Trade receivables 27,000
Less: Provision for 1,800 25,200
Doubtful debts
99,300 99,300
Sumit died on 1st April, 2021 and the following agreement was to be put into effect.
(a) Assets were to be revalued: Machinery to Rs. 35,100; Furniture to Rs. 13,800; Inventory to
Rs. 4,500.
(b) Goodwill was valued at Rs. 18,000 and was to be credited with his share, without using a
Goodwill Account.
(c) Rs. 6,000 is to be paid to the executors of the dead partner on 5th April, 2021.
(d) After death of Sumit, Amit and Lalit share profit equally.
4

You are required to prepare:
(i) Journal Entry for Goodwill adjustment.
(ii) Revaluation Account and Capital Accounts of the partners. (12 + 8 = 20 Marks)
6. (a) Deepak Chemicals Ltd. invited applications for 10 lakhs shares of Rs. 100 each payable as follows:
Rs.
On Application 10
On Allotment (on 1st June, 2020) 30
On First Call (on 1st Nov., 2020) 30
On Final Call (on 1st March., 2021) 30
All the shares were applied for and allotted. A shareholder holding 15,000 shares paid the whole
of the amount due along with allotment.
You are required to prepare the journal entries for the above-mentioned transactions, assuming all
sums due were received. Interest was paid to the shareholder concerned on 1 st March, 2021.
(10 Marks)
(b) Tim Tim Limited issued 10,000 8% Debentures of the nominal value of Rs.10,00,000 as follows:
(a) To sundry persons for cash at 90% of nominal value of Rs. 5,00,000.
(b) To a vendor for purchase of fixed assets worth Rs. 2,00,000 – Rs. 2,50,000 nominal value.
(c) To the banker as collateral security for a loan of Rs. 2,00,000 – Rs. 2,50,000 nominal value.
You are required to prepare necessary Journal Entries. (5 Marks)
OR

Test Series: April,2021
MOCK TEST PAPER II
FOUNDATION COURSE
ANSWERS
1. (a) (i) True: Salary paid in advance relates to the coming accounting period. It has nothing to do
with the current period. Hence it is not taken in the Profit and Loss Account as an expense. It
is shown as a Current Asset in the Balance Sheet.
(ii) True: In the early periods of useful life of a fixed assets, repairs and maintenance expenses
are relatively low because the asset is new. Whereas in later periods, as the asset become
old, repairs and maintenance expenses increase continuously. Under written d own value
method, depreciation charged is high in the initial period and reduces continuously in the later
periods. Thus, depreciation and repair and maintenance expenses become more or less
uniform throughout the useful life of the asset.
(iii) True: The financial statements must disclose all the relevant and reliable information in
accordance with the Full Disclosure Principle.
(iv) False: According to the Indian Partnership Act, in the absence of any agreement to the
contrary, profits and losses of the firm are shared equally among partners.
(v) False: Debenture interest is payable before the payment of any dividend on shares.
(vi) False: Net income is determined by preparing income and expenditure in case of persons
practicing vocation.
(b) Change in accounting policy may have a material effect on the items of financial statements. For
example, cost formula used for inventory valuation is changed from weighted average to FIFO.
Unless the effect of such change in accounting policy is quantified, the financial statements may
not help the users of accounts.
(c) Calculation of depreciation for 5 th year
Depreciation per year charged for four years = Rs. 40,00,000 / 10 = Rs. 4,00,000
WDV of the machine at the end of fourth year = Rs. 40,00,000 – Rs. 4,00,000 × 4
= Rs. 24,00,000.
Depreciable amount after revaluation = Rs. 24,00,000 + Rs. 1,60,000 = Rs. 25,60,000
Remaining useful life as per previous estimate = 6 years
Remaining useful life as per revised estimate = 8 years
Depreciation for the fifth year and onwards = Rs. 25,60,000 / 8 = Rs. 3,20,000.
2. (a)
(i) Bills Receivables A/c Dr. 1,550
Bills Payable A/c Dr. 1,550
To Ram A/c 3,100
(Correction of error by which Bills Receivable account of Rs
1,550 was wrongly posted through Bills Payable book)
(ii) Suspense A/c Dr. 15,000
To Manan 7,500
1
To Tapan 7,500
(Removal of wrong debit to Tapan and giving credit to Manan
from whom cash was received)
(iii) Suspense A/c Dr. 3,600
To P & L Adjustment A/c 3,600
(Correct of error by which general expenses of Rs. 2,600 was
wrongly posted as Rs. 6,200)
(iv) P&L Adjustment A/c Dr. 5,000
To Suspense 5,000
(Correction of error by which Sales account was overcast last
year)
(v) P & L Adjustment A/c Dr. 7,670
To Mr. Gupta 7,670
(Correction of error by which legal expenses paid to Mr. Gupta
was wrongly debited to her personal account)
(vi) Tina Dr. 25,000
To Hina 25,000
(Correction of error by which sale of Rs. 25,000 to Tina was
wrongly debited to Hina’s account)
(vii) Suspense A/c Dr. 270
To P&L Adjustment A/c 270
(Correction of error by which Purchase A/c was excess
debited by Rs.270 i.e. Rs.1,960 – Rs.1,690)
(vii) Trade Receivable A/c Dr. 7,000
To Suspense A/c 7,000
(Rs. 7,000 due by Mr. Somdev not taken into trial balance
now rectified)
Suspense A/c
Rs. Rs.
To P & L Adjustment A/c 3,600 By P & L Adjustment A/c 5,000
To Manan 7,500 By Trade Receivable (Mr. Somdev) 7,000
To Tapan 7,500 By Difference in Trial Balance 6,870
(Balancing figure)
To P&L Adjustment A/c 270
18,870 18,870
2020 Rs. 2020 Rs.
Sept. Sept.
30 30
5,78,568 5,78,568
2
Particulars Amount
Rs.
53,00,968
Less: Cheques issued but not presented for payment upto 30 th Sept., 2020 (53,04,000)
Credit balance as per bank statement 83,032
Note: Bank has credited Sameer by 80,000 in error on 6 th September, 2020. If this mistake is
with Rs. 53,04,000 resulting in credit balance of Rs. 3,032 as per pass-book.
3. (a) In the books of Devender
Consignment Account
Dr. Cr.
Amount Amount
2020 Rs. 2020 Rs.
Feb. 16 To Goods sent on March By Satender’s account
consignment 50,000 15 (Sales) 48,000
account (300  Rs. 160)
Feb. 16 To Cash/Bank account May 20 By Satender’s account
(Expenses) 750 (Sales) 25,500
(150  Rs. 170)
Feb. 16 To Satender’s account Sep 30 By Consignment Stock
(Clearance 1,500 (Working note 2) 5,225
charges)
Sep 30 To Satender’s account:
Selling expenses
(450  Rs. 20) 9,000
Commission
(Working note 1) 12,450
Sep 30 To Profit and loss
account (profit on
consignment
transferred) 5,025
78,725 78,725
Satender’s Account
Dr. Cr.
Amount Amount
2020 Rs. 2020 Rs.
March To Consignment account Feb 16 By Consignment account
15 (Sales) 48,000 (Clearance charges) 1,500
3
May 20 To Consignment account Sep 30 By Consignment account:
(Sales) 25,500 Selling expenses 9,000
Commission 12,450
Sep 30 By Cash/Bank account 50,550
______
73,500 73,500
Working Notes:
1. Calculation of total commission:
Let total commission be x
1
x = 450  Rs. 25 + [(Rs. 48,000 + Rs. 25,500) – x – (450  Rs. 125)]
4
1
x = Rs. 11,250 + [Rs. 73,500 – x – Rs. 56,250]
4
1
x = Rs. 11,250 + [Rs. 17,250 – x]
4
4x + x = Rs. 45,000 + Rs. 17,250
5x = Rs. 62,250
x = Rs. 12,450
2. Valuation of consignment stock:
Rs.
50 Pen Drives @ Rs. 100 each 5,000
(`1,500  50)
Add: Proportionate expenses of Satender 150
500
Proportionate expenses paid by Devender
(`750  50) 75
500
5,225
(b) Taking 19.6.2020 as a Base date
Transaction Date Due Date Amount Days Amount
8.3.2020 11.7.2020 12,000 22 2,64,000
16.3.2020 19.6.2020 15,000 0 0
7.4.2020 10.9.2020 18,000 83 14,94,000
17.5.2020 20.8.2020 15,000 62 9,30,000
60,000 26,88,000
Total of Product
Average Due Date = Base date 
Total of Amount
= 19.6.2020 + Rs. 26,88,000/Rs.60,000
= 19.6.2020 + 44.8 days (or 45 days approximately)
= 3.8.2020
4
Hari wants to save interest of Rs. 471. The yearly interest is Rs. 60,000  9% = Rs. 5,400.
Assume that days corresponding to interest of Rs. 471 are Y.
Then, 5,400  Y/365 = Rs. 471 or Y = 471  365/5,400 = 31.8 days or 32 days (Approx.)
Hence, if Hari wants to save Rs. 471 by way of interest, he should prepone the payment of amount
involved by 32 days from the Average Due Date. Hence, he should make the payment on 2.7.2020
(3.8.2020 – 32 days).
(c) Sale or Return Account
2020 2020
Oct 31 To Sundries: Sales 22,500 Oct 31 By Sundries
Nov 15 To Sundries: Returned 28,000 (Goods sent on sale or 71,500
return basis)
Nov 15 To Balance c/d 21,000
71,500 71,500
Nov 16 By Balance b/d 21,000
W’s Account
2020 2020
Oct 31 To Sale or Return A/c 18,000 Nov 15 By Sale or Return A/c 18,000
4. (i) Revaluation Account
Rs. Rs.
To Furniture 1,740 By Building 6,400
To Stock 4,280 By Sundry creditors 2,800
To Provision of doubtful debts (Rs. By Investment 900
3,500 – Rs. 400) 3,100 By Revaluation Loss 2,140
To Outstanding wages 3,120 ____
12,240 12,240
(ii) Partners' Capital Accounts

Alpha Beta Gama Alpha Beta Gama
Rs. Rs. Rs. Rs. Rs. Rs.
To Revaluation 1,284 856 By Balance b/d 88,000 72,000 –
Loss
To Goodwill 45,000 30,000 15,000 By Cash A/c – – 50,000
To Balance c/d 95,716 77,144 35,000
By Goodwill A/c 54,000 36,000
(Working Note)
1,42,000 1,08,000 50,000 1,42,000 1,08,000 50,000
5
(iii) Balance Sheet of New Partnership Firm
(after admission of Gama) as on 1.1.21
Capital Accounts:
A lpha 95,716 Building (52,000 + 6,400) 58,400
Beta 77,144 Furniture (11,600 – 1,740) 9,860
Gama 35,000 2,07,860 Stock-in-trade (42,800 – 4,280) 38,520
Bills Payable 8,200 Debtors 70,000
Bank Overdraft 18,000 Less: Provision for bad debts (3,500) 66,500
Sundry creditors 23,000 Investment (5,000 + 900) 5,900
(25,800-2,800)
Outstanding wages 3,120 Cash (31,000 + 50,000) 81,000
2,60,180 2,60,180
Working Note:
Calculation of goodwill
Gama's contribution of Rs. 50,000 consists only 1/6th of capital.
Therefore, total capital of firm should be Rs. 50,000 × 6 = Rs. 3,00,000.
But combined capital of Alpha, Beta and Gama amounts Rs. 88,000 + 72,000 + 50,000 = Rs.
2,10,000.
Thus Hidden goodwill is Rs. 90,000 (Rs. 3,00,000 – Rs. 2,10,000).
(b) In the Books of Mr. Surya
Manufacturing Account for the Year ended 31.03.2021
Particulars Units Amount Particulars Units Amount
Rs. Rs.
To Opening Work- 27,000 78,000 By Closing Work- 42,000 1,44,000
in-Process in-Process
To Raw Materials By Trading A/c – 15,00,000 58,00,800
Consumed: Cost of finished
goods transferred
Opening 7,80,000
Inventory
Add: Purchases 24,60,000
32,40,000
Closing Inventory (9,60,000) 22,80,000
To Direct Wages
– W.N. (1) 12,16,800
To Direct
expenses:
Hire charges
on Machinery
– W.N. (2) 10,50,000
6
To Indirect
expenses:
Hire charges of
Factory 7,80,000
Repairs &
Maintenance 5,40,000 ________
59,44,800 59,44,800
Working Notes:
(1) Direct Wages – 1,500,000 units @ Rs.0.80 = Rs.12,00,000
42,000 units @ Rs.0.40 = Rs. 16,800
Rs. 12,16,800
(2) Hire charges on Machinery – 15,00,000 units @ Rs.0.70 = Rs.10,50,000
5. (a) Receipts and Payments Account for the year ended 31-03-2021
Receipts Rs. Payments Rs.
To balance b/d By Salaries 30,000
Cash and bank 55,000 By Purchase of sports goods 5,000
To Subscription received (W.N.1) 1,22,500 Rs. (12,500-7,500)
To Sale of investments (W.N.2) 35,000 By Purchase of machinery 5,000
To Interest received on investment 7,000 Rs. (10,000-5,000)
To Sale of furniture 4,000 By Sports expenses 25,000
By Rent paid 11,000
Rs. (12,000 -1,000)
By Miscellaneous expenses 2,500
By Balance c/d
Cash and bank 1,45,000
2,23,500 2,23,500
Income and Expenditure account for the year ended 31-03-2021
Expenditure Rs. Rs. Income Rs. Rs.
To Salaries 30,000 By Subscription 1,50,000
Add: Outstanding for 2021 9,000 By Interest on
Investment
39,000 Received 7,000
Less: Outstanding for (7,500) 31,500 Accrued 1,750 8,750
2020 (W.N.5)
To Sports expenses 25,000
To Rent 12,000
To Miscellaneous exp. 2,500
To Loss on sale of 3,000
furniture (W.N.3)
To Depreciation (W.N.4)
7
Furniture 700
Machinery 750
Sports goods 1,125 2,575
To Surplus 82,175
1,58,750 1,58,750
Working Notes:
1. Calculation of Subscription received during the year 2020-21
Rs.
Subscription due for 2020-21 1,50,000
Add: Outstanding of 2020 70,000
Less: Outstanding of 2021 (1,00,000)
Add: Subscription of 2021 received in advance 15,000
Less: Subscription of 2020 received in advance (12,500)
1,22,500
2. Calculation of Sale price and profit on sale of investment

Face value of investment sold: Rs. 87,500 × 50% = Rs. 43,750
Sales price: Rs. 43,750 × 80% = Rs. 35,000
Cost price of investment sold: Rs. 70,000 × 50% = Rs. 35,000
Profit/loss on sale of investment: Rs. 35,000 - Rs. 35,000 = NIL
3. Loss on sale of furniture
Rs.
Value of furniture as on 01-04-2020 14,000
Value of furniture as on 31-03-2021 7,000
Value of furniture sold at the beginning of the year 7,000
Less: Sales price of furniture (4,000)
Loss on sale of furniture 3,000
4. Depreciation
Furniture - Rs.7,000 × 10% = 700
Machinery - Rs.5,000 × 15% = 750
Sports goods - Rs.7,500 × 15% = 1,125
5. Interest accrued on investment

Rs.
Face value of investment on 01-04-2020 87,500
Interest @ 10% 8,750
Less: Interest received during the year (7,000)
Interest accrued during the year 1,750
Note: It is assumed that the sale of investment has taken place at the end of the year.
8
(b) Journal Proper in the Books of M/s. Ritu Manufacturers
Date Particulars Amount Amount
2020 Rs. Rs.
Dec. 31 Returns outward A/c Dr. 2,16,000
To Purchases A/c 2,16,000
(Being the transfer of returns to purchases account)
Sales A/c Dr. 3,00,000
To Returns Inward A/c 3,00,000
(Being the transfer of returns to sales account)
. Sales A/c Dr. 30,00,000
To Trading A/c 30,00,000
(Being the transfer of balance of sales account to
trading account)
Trading A/c Dr. 23,40,000
To Opening Inventory A/c 3,00,000
To Purchases A/c 18,00,000
To Wages A/c 1,50,000
To Carriage Inwards A/c 90,000
(Being the transfer of balances of opening
inventory, purchases, carriage inwards and wages
accounts)
Closing Inventory A/c Dr. 6,00,000
To Trading A/c 6,00,000
(Being the incorporation of value of closing
Inventory)
Trading A/c Dr. 12,60,000
To Gross Profit 12,60,000
(Being the amount of gross profit)
Gross profit Dr. 12,60,000
To Profit and Loss A/c 12,60,000
(Being the transfer of gross profit to Profit and Loss
Account)
6. (a) In the books of Daniel Ltd.
Journal Entries
Dr. Cr.
Rs. Rs.
Bank A/c Dr. 9,00,000
To Equity Share Application A/c 9,00,000
(Being the application money received for 1,50,000
shares at Rs. 6 per share)
Equity Share Application A/c Dr. 9,00,000
To Equity Share Capital A/c (1,00,000 x Rs. 6) 6,00,000
To Share allotment A/c 3,00,000
(Being share allotment made for 1,00,000 shares and
excess adjusted towards allotment)
9
Equity Share Allotment A/c Dr. 10,00,000
To Equity Share Capital A/c 10,00,000
(Being allotment amount due on 1,00,000 equity shares
at Rs. 10 per share as per Directors’ resolution no...
dated...)
Bank A/c Dr. 7,00,000
To Equity Share Allotment A/c 7,00,000
(Being balance allotment money received for 1,00,000
shares)
Equity Share first and final call A/c Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
(Being first and final call amount due on 1,00,000 equity
shares at Rs. 4 per share as per Directors’ resolution no...
dated...)
Bank A/c Dr. 3,88,000
Calls in arrears A/c 12,000
To Equity Share first and final call A/c 4,00,000
(Being final call received on 97,000 shares)
Share capital A/c (3,000 x Rs. 20) Dr. 60,000
To Forfeited shares A/c (3,000 x Rs. 16) 48,000
To Calls in arrears A/c (3,000 x Rs. 4) 12,000
(Being forfeiture of 3,000 shares of Rs. 20 each fully
called-up for non payment of first and final call @ Rs. 4
as per Directors’ resolution no... dated..)
Bank A/c (2,500 x Rs.16) Dr. 40,000
Forfeited shares A/c (2,500 x Rs.4) 10,000
To Equity Share Capital A/c (2,500 x Rs. 20) 50,000
(Being re-issue of 2,500 shares @ Rs. 16)
Forfeited share A/c (2,500 x Rs. 12) 30,000
To capital reserve A/c (2,500 x Rs. 12) 30,000
(Being profit on re-issue transferred to capital reserve)
Working Note:
Calculation of amount to be transferred to Capital reserve A/c Rs.
Forfeited amount per share = 48,000/3,000 = 16
Loss on re issue (20-16) 4
Surplus per share 12
Transfer to capital reserve Rs. 12 x 2,500 Rs. 30,000
(b) Journal Entries
Dr. (Rs.) Cr. (Rs.)
1-1-2020 Bank A/c Dr. 36,00,000
10
Discount/Loss on Issue of Debentures Dr. 4,00,000
A/c
To Premium on Redemption of 2,00,000
Debentures A/c
(For issue of debentures at discount
redeemable at premium)
30-6-2020 Debenture Interest A/c Dr. 4,80,000
To Debenture holders A/c 4,32,000
To Tax Deducted at Source A/c 48,000
(For interest payable)
Debenture holders A/c Dr. 4,32,000
Tax Deducted at Source A/c Dr. 48,000
To Bank A/c 4,80,000
(For payment of interest and TDS)
31-12-2020 Debenture Interest A/c Dr. 4,80,000
To Debenture holders A/c 4,32,000
To Tax Deducted at Source A/c 48,000
(For interest payable)
Debenture holders A/c Dr. 4,32,000
Tax Deducted at Source A/c Dr. 48,000
To Bank A/c 4,80,000
(For payment of interest and tax)
Profit and Loss A/c Dr. 9,60,000
To Debenture Interest A/c 9,60,000
(For transfer of debenture interest to
profit and loss account at the end of the
year)
Profit and Loss A/c Dr. 80,000
To Discount/Loss on issue of 80,000
debenture A/c
(For proportionate debenture discount
and premium on redemption written off,
i.e., 4,00,000 x 1/5)
(c) (i) Double entry system may be defined as that system which recognizes and records both the
aspects of a transaction.
Every transaction has two aspects and according to this system, both the aspects are
recorded. This system was developed in the 15 th century in Italy by Luca Pacioli. It has proved
to be systematic and has been found of great use for recording the financial affairs for all
institutions requiring use of money.
(ii) Banks are essential to modern society, but for an industrial unit, it serves as a necessary
instrument in the commercial world. Most of the transactions of the business are done through
bank whether it is a receipt or payment. Rather, it is legally necessary to operate the
11
transactions through bank after a certain limit. All the transactions, which have been operated
through bank, if not verified properly, the industrial unit may not be sure about its liquidity
position in the bank on a particular date. There may be some cheques which have been
issued, but not presented for payment, as well as there may be some deposits which has
been deposited in the bank, but not collected or credited so far. Some expenses might have
been debited or bills might have been dishonoured. It is not known to the industrial unit in
time, it may lead to wrong conclusions. The errors committed by bank may not be known
without preparing bank reconciliation statement. Preparation of bank reconciliation statement
prevents the chances of embezzlement. Hence, bank reconciliation statement is very
important and is a necessity of an industrial unit as it plays a key role in the liquidity control
of the industry.
(iii) A bill of exchange is an instrument in writing containing an unconditiona l order, signed by the
maker, directing a certain person to pay a certain sum of money to or to the order of certain
person or to the bearer of the instrument. When such an order is accepted by the drawee on
the face of the order itself, it becomes a valid bill of exchange.
There are three parties to a bill of exchange:
(i) The drawer, who draws the bill, that is, the creditor to whom the money is owing;
(ii) The drawee, the person to whom the bill is addressed or on whom it is drawn and who
accepts the bill that is, the debtor; and
(iii) The payee, the person who is to receive the payment. The drawer in many cases is also
the payee.
(iv) Retirement of bills of exchange: Sometimes, the acceptor of a bill of exchange has spare
funds much before the maturity date of the bill of exchange accepted by him. He may,
therefore, desire to pay the bill before the due date. In such a circumstance, the acceptor
shall ask the payee or the holder of the bill to accept cash before the maturity date. If the
payee agrees, the acceptor may be allowed a rebate or discount on such early payment. This
rebate is generally the interest at an agreed rate for the period between the date of payment
and date of maturity. The interest/rebate/discount becomes the income of the a cceptor and
expense of the payee. It is a consideration for premature payment. When a bill is paid before
due date, it is said to be retired under rebate.
12
Test Series: April,2021
MOCK TEST PAPER II
FOUNDATION COURSE
i. “Salary paid in advance” is not an expense because it neither reduces assets nor increases
liabilities.
ii. Reducing balance method of depreciation is followed to have a uniform charge for depreciation
and repairs and maintenance together.
iii. The financial statements must disclose all the relevant and reliable information in accordance
with the Full Disclosure Principle.
iv. When there is no agreement among the partners, the profit or loss of the firm will be shared in
their capital ratio.
v. Debenture interest is payable after the payment of preference dividend but before the
payment of equity dividend.
vi. Net income in case of persons practicing vocation is determined by preparing profit and loss
account. (6 Statements x 2 Marks = 12 Marks)
(b) Change in accounting policy may have a material effect on the items of financial statements.”
Explain the statement with the help of an example. (4 Marks)
(c) A Plant & Machinery costing Rs. 40,00,000 is depreciated on straight line basis assuming 10 year
working life and zero residual value, for four years. At the end of the fourth year, the machinery
was revalued upwards by Rs. 1,60,000. The remaining useful life was reassessed at 8 years.
Calculate Depreciation for the fifth year. (4 Marks)
2. (a) The following mistakes were located in the books of a concern after its books were closed and a
Suspense Account was opened in order to get the Trial Balance agreed:
(i) A Bill Receivable for Rs. 1,550 was passed through Bills Payable Book. The Bill was given by
Ram.
(ii) Cash received from Manan was debited to Tapan Rs. 7,500.
(iii) General expenses Rs. 2600 was posted in the General Ledger as Rs. 6200.
(iv) Sales Day Book was overcast by Rs. 5,000.
(v) Legal Expenses Rs. 7,670 paid to Mr. Gupta was debited to her personal account.
(vi) A sale of Rs. 25,000 to Tina was wrongly debited to the Account of Hina.

(vii) While carrying forward the total of one page of the Purchases Book to the next, the amount
of Rs. 1,690 was written as Rs. 1,960.
(viii) Rs 7,000 due to Mr. Somdev was omitted to be taken to trial balance.
Find out the nature and amount of the Suspense Account and Pass entries (including narration)
for the rectification of the above errors in the subsequent year’s books.
(b) On 30th September, 2020, the bank account of Sameer, according to the bank column of the Cash-
Book, was overdrawn to the extent of Rs. 16,248. On the same date the bank statement showed
a credit balance of Rs. 83,032 in favour of Sameer. An examination of the Cash Book and Bank
1. A cheque for Rs. 52,56,000 deposited on 29 th September, 2020 was credited by the bank only
on 3rd October, 2020
customer of Sameer, but the advice was not received by Sameer until 1 st October, 2020.
5. On 6th September, 2020, the bank credited Rs. 80,000 to Sameer in error.
6. A bill of exchange for Rs. 5,60,000 was discounted by Sameer with his bank. This bill was
dishonoured on 28 th September, 2020 but no entry had been made in the books of Sameer.
7. Cheques issued upto 30 th September, 2020 but not presented for payment upto that date
You are required :
(a) to show the appropriate rectifications required in the Cash Book of Sameer, to arrive at the
correct balance on 30 th September, 2020 and
(b) to prepare a bank reconciliation statement as on that date. (10 +10 = 20 Marks)
3. (a) Mr. Devender of Dehradun sent on 16th February, 2020 a consignment of 500 Pen drives to Mr.
Satender of Bengal costing Rs. 100 each. Expenses of Rs. 750 were met by the consignor.
Satender spent Rs. 1,500 for clearance and selling expenses were Rs. 20 per Pen Drive.
Satender sold on 15th March, 2020, 300 Pen drives @ Rs. 160 per Pen drive and again on 20th
May, 2020, 150 Pen drives @ Rs. 170 each.
Satender is entitled to a commission of Rs. 25 per Pen drive sold plus ¼ of the amount by which
the gross sale proceeds less total commission thereon exceeded a sum calculated @ Rs. 125 per
Pen drive sold. Satender sent the amount due to Devender on 30th September, 2020.
You are required to prepare the consignment account and Satender’s account in the books of
Devender.
(b) Hari accepted the following bills drawn by Vinny:
On 8th March, 2020 Rs. 12,000 for 4 months.
On 16th March, 2020 Rs. 15,000 for 3 months.
On 7th April, 2020 Rs. 18,000 for 5 months.
On 17th May, 2020 Rs. 15,000 for 3 months.

He wants to pay all the bills on a single day. Find out this date. Interest is charged @ 9 % p.a.
and Hari wants to save Rs. 471 by way of interest. Calculate the date on which he has to effect
the payment to save interest of Rs. 471.
(c) A firm sends good on "Sale or Return basis. Customers have the choice of returning the goods
within a month. During October,2020 the following are the details of goods sent:
Date (Oct) 2 8 12 18 20 27
Customers U V W X Y Z
Value (Rs.) 10,000 15,000 18,000 5,500 2,000 21,000
Within the stipulated time, U and W returned the goods and V, X and Y signified that they have
accepted the goods.
Show in the books of the firm, the Sale or Return Account and Customer W for Sale or Return
Account as on 15 th November 2020. (10 + 5 + 5 = 20 Marks)
4. (a) Alpha and Beta are partners in a firm, sharing Profits and Losses in the ratio of 3 : 2. The Balance
Sheet of Alpha and Beta as on 1.1.2021 was as follows:
Liabilities Amount Rs. Assets Amount Rs.

Sundry Creditors 25,800 Building 52,000
Bill Payable 8,200 Furniture 11,600
Bank Overdraft 18,000 Stock-in-Trade 42,800
Capital Account: Debtors 70,000
Alpha 88,000 Less: Provision 400 69,600
Beta 72,000 1,60,000 Investment 5,000
_______ Cash 31,000
2,12,000 2,12,000
‘Gama’ was admitted to the firm on the above date on the following terms:
(i) He is admitted for 1/6th share in future profits and to introduce a Capital of
Rs. 50,000.
(ii) The new profit sharing ratio of Alpha, Beta and Gama will be 3 : 2 : 1 respectively.
(iii) ‘Gama’ is unable to bring in cash for his share of goodwill, partners therefore, decide to raise
goodwill account in the books of the firm. They further decide to calculate goodwill on the
basis of ‘Gama’s share in the profits and the capital contribution made by him to the firm.
Later, the goodwill was written off among all the partners in the new profit sharing ratio.
(iv) Furniture is to be written down by Rs. 1,740 and Stock to be depreciated by 10%. A provision
is required for Debtors @ 5% for Bad Debts. A provision would also be made for outstanding
wages for Rs. 3,120. The value of Buildings having appreciated be brought upto Rs. 58,400.
The value of investment is increased by Rs. 900.
(v) It is found that the creditors included a sum of Rs. 2,800, which is not to be paid off.
Prepare the following:
(i) Revaluation Account.
(ii) Partners’ Capital Accounts.
3

(iii) Balance Sheet of New Partnership firm after admission of ‘Gama’.
(b) Mr. Surya runs a factory, which produces detergents. Following details were available in respect
of his manufacturing activities for the year ended 31-03-2021.
Opening work-in-progress (27,000 units) 78,000
Closing work-in-progress (42,000 units) 1,44,000
Opening inventory of Raw Materials 7,80,000
Closing inventory of Raw Materials 9,60,000
Purchases 24,60,000
Hire charges of Machinery @ Rs. 0.70 per unit manufactured
Hire charges of factory 7,80,000
Direct wages-contracted @ Rs. 0.80 per unit manufactured
and @ Rs. 0.40 per unit of closing W.I.P.
Repairs and maintenance 5,40,000
Units produced - 15,00,000 units
You are required to prepare a Manufacturing Account of Mr. Surya for the year ended 31-03-2021.
(15+5= 20 Marks)
5. (a) From the following information supplied by New Punjabi Bagh Club, prepare Receipts and
Payments account and Income and Expenditure Account for the year ended 31 st March 2021.
01.04.2020 31.03.2021
Rs. Rs.
Outstanding subscription 70,000 1,00,000
Advance subscription 12,500 15,000
Outstanding salaries 7,500 9,000
Cash in Hand and at Bank 55,000 ?
10% Investment 70,000 35,000
Furniture 14,000 7,000
Machinery 5,000 10,000
Sports goods 7,500 12,500
Subscription for the year amount to Rs. 1,50,000/-. Salaries paid Rs. 30,000. Face value of the
Investment was Rs. 87,500, 50% of the Investment was sold at 80% of Face Value. Interest on
investments was received Rs. 7,000. Furniture was sold for Rs. 4000 at the beginning of the year.
Machinery and Sports Goods purchased and put to use at the last date of the year. Charge
depreciation @ 15% p.a. on Machinery and Sports goods and @10% p.a. on Furniture.
Following Expenses were made during the year:
Sports Expenses: Rs. 25,000
Rent: Rs. 12,000 out of which Rs. 1,000 outstanding
Misc. Expenses: Rs. 2,500
(b) Following information is provided for M/s. Ritu Manufacturers for the year ended 31 st Dec, 2020:
Rs.
Opening Inventory 3,00,000
4

Purchases 20,16,000
Carriage Inwards 90,000
Wages 1,50,000
Sales 33,00,000
Returns inward 3,00,000
Returns outward 2,16,000
Closing Inventory 6,00,000
You are required to pass necessary closing entries in the journal proper of M/s. Ritu Manufacturers.
(15 + 5 = 20 Marks)
6. (a) Daniel Ltd. invited applications for issuing 1,00,000 equity shares of Rs. 20 each.
The amounts were payable as follows:
On application - Rs. 6 per share
On allotment - Rs. 10 per share
On first and final call - Rs. 4 per share
Applications were received for 1,50,000 shares and pro-rata allotment was made to all the
applicants. Money overpaid on application was adjusted towards allotment money. X, who was
allotted 3,000 shares, failed to pay the first and final call money. His shares were forfeited. Out of
the forfeited shares, 2,500 shares were reissued as fully paid-up @ Rs. 16 per share.
Pass necessary Journal entries to record the above transactions in the books of Daniel Ltd.
(10 Marks)
(b) On 1st January 2020 Pigeon Ltd. issued 12% debentures of the face value of Rs. 40,00,000 at 10%
discount. Debenture interest after deducting tax at source @10% was payable on 30th June and
31st December every year. All the debentures were to be redeemed after the expiry of five year
period at 5% premium.
Pass necessary journal entries for the accounting year 2020. (5 Marks)
(c) Write short notes on any two of the following:
(i) Double entry system.
(ii) Importance of bank reconciliation to an industrial unit.
(iii) Bill of exchange and the various parties to it.
(iv) Retirement of bills of exchange.
(5 Marks)

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Test Series: August, 2018

(Time allowed: 3 Hours) (100 Marks)

Question No. 1 is compulsory.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Liabilities Rs. Assets Rs.

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You are required to compute the Capital Gearing Ratio.

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(ii) Bank Reconciliation Statement as on 30th September, 2017

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(iii) Balance Sheet of LH & Co.

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Laurel to be debited by Rs. 60,000 and Hardy to be credited by Rs. 60,000.

© The Institute of Chartered Accountants of India

= 10,00,000  4,00,000  24,00,000

= 38, 00,000/26, 00,000

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Question No. 1 is compulsory.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(b) Statement of Valuation of Stock on 30 th June, 2018

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(b) Subscription for the year ended 31.3.2018

5. (a) Trading and Profit and Loss Account of Mr. Kumar

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(b) MNOP Ltd Balance Sheet

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

3. (a) Books of Manoj

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© The Institute of Chartered Accountants of India

Balance Sheet of Smith Library Society

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39,375 6,000(1 0.40) 100

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India