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ACCOUNTING
Test Paper -8
Time: 3 Hrs Marks: 100
Note : Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Question. 1
(a) State with reasons, whether the following statements are True or False:
(i) Expenses in connection with obtaining a license for running the Cinema Hall is Revenue
Expenditure.
(ii) Re-issue of forfeited shares is allotment of shares but not a sale.
(iii) If the effect of errors committed cancel out, the errors will be called compensating errors and the
trial balance will disagree.
(iv) Books of accounts are closed in dissolution of partnership
(v) A Trial Balance cannot be drawn up from books kept under Single Entry.
(vi) Expenses of dissolution on realization of assets are credited to the Realization Account.
(6 x 2 = 12 Marks)
(b) Differentiate between provision and contingent liability, (4 Marks)
(c) Give journal entries (narrations not required) to rectify the following:
(i) Purchase of Furniture on credit from Nigam for Rs. 3,000 posted to Subham account as Rs. 300.
(ii) A Sales Return of Rs. 5,000 to Jyothy was not entered in the financial accounts though it was duly
taken in the stock book.
(iii) Investments were sold for Rs. 75,000 at a profit of Rs. 15,000 and passed through Sales account.
(iv) An amount of Rs. 10,000 withdrawn by the proprietor (Darshan) for his personal use has been
debited to Trade Expenses account. (4 Marks)

Question. 2
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(a) A Firm sold 20% of the goods on cash basis and the balance on credit basis. Debtors are allowed 1
2
Month’s credit and their balance as on 31.03.2021 is ₹ 1,25,000. Assume that the sale is uniform
throughout the year. Calculate the credit sales and total sales of the company for the year ended
31.03.2022 (5 Marks)
(b) Seema , Meena & Tina are partners sharing profits and losses in the ratio of 5 : 3 :2 , There capitals
were ₹ 13,440, ₹ 8,400, ₹ 11,760 respectively.
Liability and assets of the firm are as under :
Liabilities ₹
Trade creditors 2,800
Loan From partners 1,400
Assets : ₹
Patent 1,400
Furniture 2,800
Machinery 1,680
Stock 5,600

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 The assets realized in full in the order in which they are listed above. Meena is insolvent.
You are required to prepare a statement showing the distribution of cash as and when available ,
applying maximum possible loss procedure. (15 Marks)

Question. 3
The following are the balances extracted from the books of Shri Raghuram as on 31.03.2018, who
carries on business under the name and style of M/s Raghuram and Associates at Chennai:
Particulars Debit (Rs.) Credit (Rs.)
Capital A/c 14,11,400
Purchases 12,00,000
Purchase Returns 18,000
Sales 15,00,000
Sales Returns 24,000
Freight Inwards 62,000
Carriage Outwards 8,500
Rent of Godown 55,000
Rates and Taxes 24,000
Salaries 72,000
Discount allowed 7,500
Discount received 12,000
Drawings 20,000
Printing and Stationery 6,000
Insurance premium 48,000
Electricity charges 14,000
General expenses 11,000
Bank charges 3,800
Bad debts 12,200
Repairs the Motor vehicle 13,000
Interest on loan 4,400
Provision for Bad-debts 10,000
Loan from Mr. Rajan 60,000
Sundry creditors 62,000
Motor vehicles 1,00,000
Land and Buildings 5,00,000
Office equipment 2,00,000
Furniture and Fixtures 50,000
Stock as on 31.03.2017 3,20,000
Sundry debtors 2,80,000
Cash at Bank 22,000
Cash in Hand 16,000
Total 30,73,400 30,73,400
Prepare Trading and Profit and Loss Account for the year ended 31.03.2018 and the Balance Sheet as
at that date after making provision for the following:
(a) Depreciate Building by 5%, Furniture and Fixtures by 10%, Office Equipment by 15% and Motor
Car by 20%.
(b) Value of stock at the close of the year was Rs. 4,10,000.
(c) One month rent for godown is outstanding.
(d) Interest on loan from Rajan is payable @ 10% per annum. This loan was taken on 01.07.2017
(e) Reserve for bad debts is to be maintained at 5% of Sundry debtors.
(f) Insurance premium includes Rs. 42,000 paid towards proprietor's life insurance policy and the
balance of the insurance charges cover the period from 01 04.2017 to 30.06.2018. (20 Marks)

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Question. 4
(a) Piyush Limited is a company with an authorized share capital of Rs. 2,00,00,000 in equity shares of Rs. 10 each, of which
15,00,000 shares had been issued and fully paid on 30th June, 2017. The company proposed to make a further issue of
1,30,000 shares of Rs. 10 each at a price of Rs. 12 each, the arrangements for payment being:
(i) Rs. 2 per share payable on application, to be received by 1st July, 2017;
(ii) Allotment to be made on 10th July, 2017 and a further Rs. 5 per share (including the premium) to be payable;
(iii) The final call for the balance to be made, and the money received by 30th April, 2018.
Applications were received for 4,20,000 shares and were dealt with as follows:
(1) Applicants for 20,000 shares received allotment in full;
(2) Applicants for 1,00,000 shares received an allotment of one share for every two applied for; no money was
returned to these applicants, the surplus on application being used to reduce the amount due on allotment;
(3) Applicants for 3,00,000 shares received an allotment of one share for every five shares applied for; the money due
on allotment was retained by the company, the excess being returned to the applicants; and
(4) The money due on final call was received on the due date.
You are required to record these transactions (including cash items) in the journal of Piyush limited. (10 Marks)

(b) A, B and C are partners sharing profits in the ratio of 3:2:1. Their Balance Sheet as at 31st March, 2018 stood as:
Liabilities Rs. Assets Rs.
Capital Accounts Building 10,00,000
A 8,00,000 Furniture 2,40,000
B 4,20,000 Office equipments 2,80,000
C 4,00,000 16,20,000 Stock 2,50,000
Sundry Creditors 3,70,000 Sundry debtors 3,00,000
General Reserves 3,60,000 Less: Provision for
Doubtful debts 30,000 2,70,000
Joint life policy 1,60,000
Cash at Bank 1,50,000
23,50,000 23,50,000
B retired on 1st April, 2018 subject to the following conditions:
(i) Office Equipments revalued at Rs. 3,27,000.
(ii) Building revalued at Rs. 15,00,000. Furniture is written down by Rs. 40,000 and Stock is reduced to Rs,2,00,000 .
(iii) Provision for Doubtful Debts is to be created @ 5% on Debtors.
(iv) Joint Life Policy will appear in the Balance Sheet at surrender value after B's retirement. The surrender value is
Rs. 1,50,000
(v) Goodwill was to be valued at 3 years purchase of average 4 years profit which were:
Year Rs.
2014 90,000
2015 1,40,000
2016 1,20,000
2017 1,30,000
(vi) Amount due to B is to be transferred to his Loan Account.
Prepare the Revaluation Account, Partners' Capital Accounts and the Balance Sheet immediately after B's retirement.
(10 Marks)
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 Question. 5
A, B, C, and D sharing profits in the ratio of 4:3:2:1 decided to dissolve their partnership on 31st March 2022 when their
balance sheet was as under:
Liabilities Rs. Assets Rs.
Creditors 15,700 Bank 535
Employees Provident Fund 6,300 Debtors 15,850
Capital Accounts: Stock 25,200
A 40,000 Prepaid Expenses 800
B 20,000 60,000 Plant & Machinery 20,000
Patents 8,000
C’s Capital A/c 3,200
D’s Capital A/c 8,415
82,000 82,000

Following information is given to you: -

1. One of the creditors took some of the patents whose book value was Rs. 5,000 at a valuation of Rs. 3,200. Balance
of the creditors were paid at a discount of Rs. 400.
2 There was a joint life policy of Rs. 20,000 (not mentioned in the balance sheet) and this was surrendered for Rs.
4,500.
3 The remaining assets were realized at the following values: - Debtors Rs. 10,800; Stock Rs. 15,600; Plant and
Machinery Rs. 12,000; and Patents at 60% of their book-values. Expenses of realization amounted to Rs. 1,500.
D became insolvent and a dividend of 25 paise in a rupee was received in respect of the firm's claim against his estate.
Prepare necessary ledger accounts. (20 Marks)

Question. 6
(a) The Bank Pass Book of Account No.5678 of Mrs. Rani showed an overdraft of Rs. 33,575 on 31st March 2018. On going
through the Pass Book, the accountant found the following:
(i) A Cheque of Rs,1,080 credited in the pass book on 28th March 2018 being dishonoured is debited again in the
pass book on 1st April 2018. There was no entry in the cash book about the dishonour of the cheque until 15 th
April 2018.
(ii) Bankers had credited her account with Rs. 2,800 for interest collected by them on her behalf, but the same has not
been entered in her cash book.
(iii) Out of Rs. 20,500 paid in by Mrs. Rani in cash and by cheques on 31 st March 2018 cheques amounting to Rs.
7,500 were collected on 7th April, 2018.
(iv) Out of Cheques amounting to Rs. 7,800 drawn by her on 27th March, 2018 a cheque for Rs. 2,500 was encashed on
3rd April, 2018.
(v) Bankers seems to have given here wrong credit for Rs. 500 paid in by her in Account No. 8765 and a wrong debit
in respect of a cheque for Rs. 300 against her account No.8765.
(vi) A cheque for Rs. 1,000 entered in Cash Book but omitted to be banked on 31st March, 2018.
(vii) A Bill Receivable for Rs. 5,200 previously dishonoured (Discount Rs. 200) with the Bank had been dishounoured
but advice was received on 1st April, 2018.
(viii) A Bill for Rs. 10,000 was retired /paid by the bank under a rebate of Rs. 175 but the full amount of the bill was
credited in the bank column of the Cash Book.
(ix) A Cheque for Rs. 2,400 deposited into bank but omitted to be recorded in Cash Book and was collected by the
bank on 31st March, 2018.
Prepare Bank Reconciliation Statement as on 31st March, 2018. (10 Marks)

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(b) Miss Daisy was unable to agree the Trial Balance last year and wrote off the difference to the profit and loss account of
that year. On verifying the old books by a Chartered Accountant next year, the following mistakes were found.
(i) Purchase account was undercast by Rs. 8,000.
(ii) Sale of goods to Mr. Rahim for Rs. 2,500 was omitted to be recorded.
(iii) Receipt of cash from Mr. Asok was posted to the account of Mr. Anbu Rs. 1,200.
(iv) Amount of Rs. 4,167 of sales was wrongly posted as Rs. 4,617.
(v) Repairs to Machinery was debited to Machinery Account Rs. 1,800.
(vi) A credit purchase of goods from Mr. Paul for Rs. 3,000 entered as sale.
Suggest the necessary rectification entries. (10 Marks)