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Accounting I Mock Test I May 2024 I Answers I CA Foundation

Mock Test Paper - Series II: May, 2024 Date of Paper: 22nd May, 2024 Time of Paper: 2 P.M. to 5 P.M. MOCK TEST PAPER II FOUNDATION COURSE PAPER – 1: ACCOUNTING ANSWERS 1. (a) (i) True: Insurance claim received on account of plant and machinery completely damaged by fire is a capital receipt as it is not obtained in course of normal business activities. (ii) True: According to Section 52 of the Companies Act, 2013, Securities Premium Account may be used by the company to write off preliminary expenses of the company. Thus, the accountant can use the balance in securities premium account to write off the preliminary expenses amounting ` 15 lakhs. (iii) True: The financial statements must disclose all the relevant and reliable information in accordance with the Full Disclosure Principle. (iv) False: In case of admission of new partner in a partnership firm, profit/loss on revaluation account is transferred to old partners in their old profit-sharing ratio. (v) False: The debit notes issued are used to prepare purchases return book. (vi) False: Debenture holder does not enjoy voting rights in company. He is only a creditor of the company. (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 5th year Depreciation per year charged for four years = ` 80,00,000 / 10 = ` 8,00,000 WDV of the machine at the end of fourth year = ` 80,00,000 – ` 8,00,000 × 4 = ` 48,00,000. Depreciable amount after revaluation = ` 48,00,000 + ` 3,20,000 = ` 51,20,000 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 = ` 51,20,000 / 8 = ` 6,40,000. 2. (a) Profit and Loss Adjustment A/c ` ` To Advertisement (samples) 3,20,000 By Net profit 32,00,000 To Sales 8,00,000 By Electric fittings 1,20,000 (goods approved in April to By Samples 3,20,000 be taken as April sales) By Stock (Purchases of March 20,00,000 To Adjusted net profit 67,20,000 not included in stock) By Sales (goods sold in March wrongly taken as April sales) 16,00,000 By Stock (goods sent on approval basis not included in stock) 6,00,000 78,40,000 78,40,000 Calculation of value of inventory on 31st March, 2024 ` Stock on 31st March, 2024 (given) 30,00,000 Add: Purchases of March, 2024 not included in the stock 20,00,000 Goods lying with customers on approval basis 6,00,000 56,00,000 (b) (i) Cash Book (Bank Column) Date Particulars Amount Date Particulars Amount 2023 ` 2023 ` Sept. 30 To Party A/c 64,000 Sept. 30 By Balance b/d 16,248 To Customer A/c By Bank charges 2,320 (Direct deposit) 4,69,600 By Customer A/c 5,60,000 To Balance c/d 44,968 (B/R dishonoured) 5,78,568 5,78,568 (ii) Bank Reconciliation Statement as on 30th September, 2023 Particulars Amount ` Overdraft as per Cash Book 44,968 Add: Cheque deposited but not collected upto 30th Sept., 2023 52,56,000 Less: Cheques issued but not presented for payment upto 30th Sept., 2023 53,00,968 (53,04,000) Credit by Bank erroneously on 6th Sept. (80,000) Credit balance as per bank statement 83,032 Note: Bank has credited Akhil by 80,000 in error on 6th September, 2023. If this mistake is rectified in the bank statement, then this will not be deducted in the above statement along with ` 53,04,000 resulting in credit balance of ` 3,032 as per pass-book. 3. (a) Manufacturing A/c Particulars ` Particulars ` To Raw Material Consumed (Balancing Figure) 9,15,000 By Trading A/c (W.N. 4) 18,32,000 To Wages (W.N. 2) 3,15,000 To Depreciation (W.N. 1) 3,95,000 To Direct Expenses (W.N. 3) 2,07,000 18,32,000 18,32,000 Raw Material A/c Particulars ` Particulars ` To Opening Stock A/c 1,27,000 By Raw Material Consumed (from Manufacturing A/c above) 9,15,000 To Creditors A/c (W.N. 5) 14,40,000 By Closing Stock A/c (Balancing Figure) 6,52,000 15,67,000 15,67,000 Working Notes: (1) Since purchase of Machinery worth ` 12,00,000 has been omitted. So, depreciation omitted from being charged = 12,00,000 X 15% = ` 1,80,000 Correct total depreciation expense = ` (2,15,000+1,80,000) = 3,95,000 (2) Wages worth ` 50,000 will be excluded from manufacturing account as they pertain to office and hence will be charged P&L A/c. So the revised wages amounting ` 3,15,000 will be shown in manufacturing account. (3) Expenses to be excluded from direct expenses: Office Electricity Charges (80,000 X 25%) 20,000 Delivery Charges to Customers 22,000 Total expenses not part of Direct Expenses 42,000 => Revised Direct Expenses = ` (2,49,000 - 42,000) = ` 2,07,000 Fuel charges are related to factory expenses and also freight inwards are incurred for bringing goods to factory/ godown so they are part of direct expenses. (4) Revised Balance to be transferred to Trading A/c: Particulars ` Current Balance transferred 17,44,000 Add: Depreciation charges not recorded earlier 1,80,000 Less: Wages related to Office (50,000) Less: Office Expenses (42,000) Revised balance to be transferred 18,32,000 (5) Creditors A/c Particulars ` Particulars ` To Bank A/c 23,50,000 By Balance b/d 15,70,000 To Balance c/d 6,60,000 By Raw Materials A/c (Bal. figure) 14,40,000 30,10,000 30,10,000 (b) Particulars Ram Lakhan Bharat Total Profit of firm I. Amount already credited: 78,000 78,000 78,000 2,34,000 Share of profit (in the ratio of 1:1:1) (2022-23, 2023-24) II. Amount which should have been credited: C’s Salary (2022-23, 2023-24) 30,000 Interest on Capital (2022-23, 2023-24) 15,000 7,500 7,500 Share of Profit 87,000 43,500 43,500 1,74,000 1,02,000 51,000 81,000 Net effect (I-II) (24,000) 27,000 (3,000) - The necessary journal entry will be: Particulars Debit (`) Credit (`) Lakhan’s Current A/c 27,000 To Ram’s Current A/c 24,000 To Bharat’s Current A/c 3,000 (Salary to Bharat, Interest on capital charged and profit shared among partners in the ratio of capital) (c) Total Profit for 3 years = (` 17,000) + ` 50,000+` 75,000= ` 1,08,000. Average profits = TotalProit  `1,08,000 `36,000 No. of years 3 Average Profits for Goodwill = ` 36,000 – Proprietor Remuneration = ` 36,000 – ` 6,000 = ` 30,000 Normal Profit=Interest on Capital employed = ` 20,000 (i.e. ` 2,00,000 x10/100) = ` 20,000 Super Profit = Average Profit-Normal Profit = ` 30,000 – ` 20,000 = ` 10,000 Goodwill = Super Profit x No of years purchases = ` 10,000 x 2 = ` 20,000 4. (a) Revaluation A/c ` ` To Plant & Machinery (1,70,000 x 15%) 25,500 By Land & Building A/c 1,52,000 To Provision for Bad & Doubtful Debts (60,000 x 5%) 3,000 To Outstanding Repairs to Building 6,000 To X’s Capital A/c (5/8) 73,438 To Y’s Capital A/c (3/8) 44,062 1,52,000 1,52,000 Partners Capital A/c X Y Z X Y Z To X’s Capital A/c - - 20,000 By Balance b/d 4,10,000 3,30,000 - To Y’s Capital A/c 12,000 By Revaluation A/c 73,438 44,062 - To Y’s Current A/c - 68,062 By Profit & Loss A/c 70,000 42,000 - To Balance c/d 6,00,000 3,60,000 2,40,000 By Bank - - 2,72,000 By Z’s Capital A/c 20,000 12,000 - By X’s Current A/c 26,562 - - 6,00,000 4,28,062 2,72,000 6,00,000 4,28,062 2,72,000 Calculation of New Profit Sharing Ratio and gaining ratio: Z’s Share of Profit = 1/5 = 2/10 Remaining Share = 1 – 1/5 = 4/5 X’s Share = 5/8 x 4/5 = 20/40 = 5/10 Ys 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 Alpha and Associates as on 31.3.2024 Liabilities ` Assets Capital Accounts: Land & Buildings 5,32,000 X 6,00,000 Plant & Machinery 1,70,000 Y 3,60,000 Less: Depreciation 25,500 1,44,500 Z 2,40,000 12,00,000 Furniture 1,09,480 Y’s Current A/c 68,062 Stock 1,45,260 Trade Creditors 54,800 Sundry Debtors 60,000 Outstanding Repairs to Building 6,000 Less: Provision 3,000 57,000 Cash at Bank 3,14,060 X’s current A/c 26,562 13,28,862 13,28,862 Working Note: Required Balance of Capital Accounts Z’s Capital after writing off Goodwill = 2,72,000 – 32,000 = 2,40,000 Z’s Share of Profit = 1/5 Thus Capital of the firm shall be = 2,40,000 x 5 = 12,00,000 X’s Capital = 12,00,000 x 5/10 = 6,00,000 and Y’s Capital = 12,00,000 x 3/10 = 3,60,000 (b) Trading A/c for the year ended 31st March, 2024 ` ` To Opening stock 2,80,000 By Sales To Purchases 7,70,000 Cash 2,40,000 To Gross Profit @ 25% 3,10,000 Credit 10,00,000 12,40,000 By Closing Stock (bal.fig.) 1,20,000 13,60,000 13,60,000 Profit and Loss Account for the year ended 31st March, 2024 ` ` To Salaries 40,000 By Gross Profit 3,10,000 To Business expenses 1,20,000 To Interest on loan (10% of 1,00,000*6/ 12) 5,000 To Net Profit 1,45,000 3,10,000 3,10,000 Balance Sheet as at 31st March, 2024 Liabilities ` ` Assets ` Ram’s capital: Cash in hand 10,000 Opening 3,00,000 Cash at Bank 80,000 Add: Net Profit 1,45,000 Sundry Debtors 3,50,000 4,45,000 Stock in trade 1,20,000 Less: Drawings (80,000) 3,65,000 Loan from Laxman (including interest due) 1,05,000 Sundry Creditors 90,000 5,60,000 5,60,000 Working Notes: 1. Sundry Debtors Account ` ` To Balance b/d 1,00,000 By Bank A/c 7,50,000 To Credit sales (Bal. fig) 10,00,000 By Balance c/d 3,50,000 11,00,000 11,00,000 2. Sundry Creditors Account ` ` To Bank A/c 7,00,000 By Balance b/d 40,000 To Cash A/c 20,000 By Purchases (Bal. fig.) 7,70,000 To Balance c/d 90,000 8,10,000 8,10,000 3. Cash and Bank Account Cash Bank Cash Bank ` ` ` ` To Balance b/d 10,000 By Balance b/d 50,000 To Sales (bal. fig) 2,40,000 By Bank A/c (C) 1,00,000 To Cash (C) 1,00,000 By Salaries 40,000 To Debtors 7,50,000 By Creditors 20,000 7,00,000 To Laxman’s loan 1,00,000 By By Drawings Business 80,000 expenses 1,20,000 By Balance c/d 10,000 80,000 2,50,000 9,50,000 2,50,000 9,50,000 4. Calculation of Ram’s Capital on 1st April, 2023 Balance Sheet as at 1st April,2023 Liabilities ` Assets ` Ram’s Capital (bal. fig) 3,00,000 Cash in hand 10,000 Bank Overdraft 50,000 Sundry Debtors 1,00,000 Sundry Creditors 40,000 Stock in trade 2,80,000 3,90,000 3,90,000 5. (a) Rectification entries in the books of M/s VB Wires Particulars L.F. Dr. ` Cr. ` 1. Profit and Loss Adjustment Account Dr. 37,500 To Building Account 37,500 (Repairs amounting ` 37,500 wrongly debited to building account, now rectified) 2. Profit and Loss Adjustment Account Dr. 4,500 To Suspense Account 4,500 (Addition of freight column in purchase journal was under casted, now rectification entry made) 3. Suspense Account Dr. 6,300 To Seven & Co. 6,300 (Goods returned by Seven & Co. had been posted wrongly to the debit of her account, now rectified) 4. Profit and Loss Adjustment Account Dr. 90,000 To Furniture account 90,000 (Being sale of furniture wrongly entered in sales book, now rectified) 5. Comfort & Co. Dr. 60,000 To Bills receivable account 60,000 (Bill receivable dishonoured debited to Bills receivable account instead of customer account, now rectified) (b) Receipts and Payments Account for the year ended 31-03-2024 Receipts ` Payments ` 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 ` (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 ` (10,000-5,000) To Sale of furniture 4,000 By Sports expenses 25,000 By Rent paid 11,000 ` (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 31-03-2024 Expenditure ` ` Income ` ` To Salaries 30,000 By Subscription 7,000 1,50,000 Add: Outstanding for 2024 9,000 By Interest on Investment 39,000 Received Less: Outstanding for 2023 (7,500) 31,500 Accrued (W.N.5) 1,750 8,750 To Sports expenses 25,000 To Rent 12,000 To Miscellaneous exp. 2,500 To Loss on sale of furniture (W.N.3) 3,000 To Depreciation (W.N.4) 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 2023-24 ` Subscription due for 2023-24 1,50,000 Add: Outstanding of 2023 70,000 Less: Outstanding of 2024 (1,00,000) Add: Subscription of 2024 received in advance 15,000 Less: Subscription of 2023 received in advance (12,500) 1,22,500 2. Calculation of Sale price and profit on sale of investment Face value of investment sold: ` 87,500 × 50% = ` 43,750 Sales price: ` 43,750 × 80% = ` 35,000 Cost price of investment sold: ` 70,000 × 50% = ` 35,000 Profit/loss on sale of investment: ` 35,000 - ` 35,000 = NIL 3. Loss on sale of furniture ` Value of furniture as on 01-04-2023 14,000 Value of furniture as on 31-03-2024 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 - `7,000 × 10% = 700 Machinery - `5,000 × 15% = 750 Sports goods - `7,500 × 15% = 1,125 5. Interest accrued on investment ` Face value of investment on 01-04-2023 87,500 Interest @ 10% 8,750 Less: Interest received during the year (7,000) Interest accrued during the year 1,750 6. (a) Note: It is assumed that the sale of investment has taken place at the end of the year. Entry No. Particulars L.F. Debit Amount (`) Credit Amount (`) Bank A/c Dr. 40,000 1 To Equity Share Application A/c 40,000 (Money received on applications for 20,000 shares @ ` 2 per share) Equity Share Application A/c Dr. 40,000 2 To Equity Share Capital A/c 40,000 (Transfer of application money on 20,000 shares to share capital) Equity Share Allotment A/c Dr. 80,000 3 To Equity Share Capital A/c To Securities Premium A/c 60,000 20,000 (Amount due on the allotment of 20,000 shares @ ` 3 per share and Securities Premium @ `1 per share) Bank A/c Dr. 80,000 4 To Equity Share Allotment A/c 80,000 (Allotment money received) Equity Share First Call A/c Dr. 40,000 5 To Equity Share Capital A/c 40,000 (Being first call made due on 20,000 shares at ` 2 per share) Bank A/c Dr. 46,000 6 To Equity Share First Call A/c 40,000 To Calls in Advance A/c 6,000 (Being first call money received along with calls in advance on 2,000 shares at ` 3 per share) Equity Share Final Call A/c Dr. 60,000 7 To Equity Share Capital A/c 60,000 (Being final call made due on 20,000 shares at ` 3 each) Bank A/c Dr. 53,100 Calls in Advance A/c Dr. 6,000 8 Calls in Arrears A/c Dr. 900 To Equity Share Final Call A/c 60,000 (Being final call received for 17,700 shares, calls in advance for 2,000 shares and calls in arrears on 300 shares adjusted) Interest on Calls in Advance A/c Dr. 240 9 To Shareholders A/c 240 (Being interest made due on calls in advance of `6,000 at the rate of 12% p.a.) Shareholders A/c Dr. 240 10 To Bank A/c 240 (Being payment of interest made to shareholder) Shareholders A/c Dr. 15 11 To Interest on Calls in Arrears A/c 15 (Being interest on calls in arrears made due at the rate of 10%) Bank A/c Dr. 615 12 To Calls in Arrears A/c 600 To Shareholders A/c 15 (Being money received from shareholder having 200 shares for calls in arrears and interest thereupon) 13 Shareholders A/c Dr. 10 To Interest on Calls in Arrears A/c 10 (Being interest on calls in arrears made due at the rate of 10%) 14 Bank A/c Dr. 310 To Calls in Arrears A/c 300 To Shareholders A/c 10 (Being money received from shareholder having 100 share for calls in arrears and interest thereupon) Calculation of Interest on Calls in Advance & Calls in Arrears: Interest on Calls in Advance = ` 6,000 x 12% x 4 / 12 = ` 240 Interest on Calls in Arrears ` 600 x 10% x 3 / 12 = ` 15 Interest on Calls in Arrears ` 300 x 10% x 4 / 12 = ` 10 Table F of The Companies Act,2013 prescribes 10% and 12% p.a. as the maximum rates respectively for calls in arrears and calls in advance. Accordingly these rates have been considered while passing the above entries, (b) (i) A bill of exchange is an instrument in writing containing an unconditional 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. (ii) 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 acceptor 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. 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.


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