GAUHATI UNIVERSITY SOLVED QUESTION PAPERS
FINANCIAL ACCOUNTING’ 2019
(Honours/Regular)
Paper: COM – HC/RC - 1026
Full Marks: 70
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. (a) Select
appropriate answer from the different alternatives: 1x5=5
1)
Normally method of valuing of asset should not
be changed. This principle is known as the principle of
a)
Business entity concept.
b)
Dual concept.
c)
Full disclosure.
d)
Consistency.
2)
In case of hire purchase transactions although
legally the hire purchaser does not become the owner of the asset till the
payment of last installment he is allowed to record the asset at full cash
price in his books of accounts even on the date of acquisition. This principle
of accounting is known as:
a)
Full disclosure concept.
b)
Business entity concept.
c)
Dual concept.
d)
Substance over legal form.
3)
The total amount payable by the hire purchaser
as per hire purchase agreement in order to complete the transaction is known as
a)
Hire purchase price.
b)
Face value.
c)
Cash price.
d)
Higher vendor cost.
4)
Debtor system of accounting procedure of
dependent branch is also known as
a)
Stock A/c.
b)
Final System.
c)
Stock and Debtor method.
d)
Synthetic System.
5)
Purchase of Goods + Opening Stock + Direct
Expenses – Closing Stock =
a)
Gross Profit.
b)
Total Indirect Expenses.
c)
Cost of Goods sold.
d)
Invoiced Price.
(b) State whether the following statements are true or false:
1x5=5
1)
Accounting Standard AS-2 deals with disclosure
of significant accounting policies followed in preparing and presenting
financial statements. False, valuation of inventories
2)
Under installment purchase system, the seller
treats the transaction as a cash sale. False, credit sale
3)
In the absence of any provision in the
partnership deed, profit and loss are shared by partners equally. True
4)
For creating a company we use Alt+F2. False, to change
period of a report
5)
The valuation of inventory affects only the
income statement. False, Both income and position statement
2. Answer the following
questions: 2x5=10
a)
One of the methods of branch accounting a debtor system. Why is it so called?
Ans: In case of a dependent branch, head office prepares branch
account to find the profit or loss of the branch. This account starts with
opening balance of assets and debited with all the goods and cash sent to
branch and credited with all the realisation from branch and ends with closing
balance of assets which is similar to debtors account prepared by a seller.
That’s why this method is called debtor system.
b)
Mention two features of accounting principles.
Ans: Features of Accounting Principles
(i) Man made:
Accounting principles are manmade. They are not tested in a laboratory.
(ii) Objectivity:
It means accounting principles must be based on facts and free from personal
bias or judgment of the individuals who prepares the statements.
c)
Define International Financial Reporting Standard.
Ans: IFRS is a set of international accounting standards stating
how particular types of transactions and other events should be reported in
financial statements. IFRS are generally principles-based standards and seek to
avoid a rule-book mentality. Application of IFRS requires exercise of judgment
by the preparer and the auditor in applying principles of accounting on the
basis of the economic substance of transactions. IFRS are issued by the
International Accounting Standards Board (IASB).
d)
Mention two objectives of income measurement.
Ans: Objectives of Measurement of
Business Income
a)
To measure of Managerial Efficiency.
b)
To measure the Creditworthiness or short term
liquidity.
c)
To provide base for calculation of tax.
e)
What do you mean by marshalling of Balance Sheet?
Ans: Marshalling means presenting
items in a logical order i.e. assets and liabilities in the statement of
financial position are listed in particular order. There are two methods of
marshalling:
a) Marshalling
by liquidity: According to this method the assets and liabilities are
listed in descending order on the basis of liquidity i.e. the asset which is
the most liquid will be listed first and the asset which is least liquid will
be listed last.
b) Marshalling
by permanence: This method is completely opposite to the liquidity
method. According to this order of listing, assets and liabilities are listed
in descending order on the basis of their permanence i.e. the asset with the
longest useful life (least liquid) will be listed first and the asset with the
least or shortest (most liquid) useful life will be listed last.
3. Answer the following questions: 5x4=20
(a) Describe the functions of
Accounting Standard Board.
Ans: The Institute of Chartered Accountants of India (ICAI), after
recognising the need to harmonies the diverse accounting policies and
practices, constituted an Accounting Standards Board (ASB) on April 21, 1977.
The main function of ASB is to formulate accounting standards so that such standards
may be mandated by the Council of ICAI. While formulating the standards in
India, ASB will take into consideration the applicable laws, customs, usages
and business environment.
Objectives and function of Accounting Standard
Board:
1. Primary objectives of accounting standard
board are:
a) To suggest areas in which accounting standard is needed.
b) To formulate accounting standards which are to be followed while preparing financial statements.
c) To improve the reliability of financial statements.
d) To review the existing accounting standards at regular intervals and revise the same if the current business environment so demands.
e) To ease inter-firm and intra-firm comparison.
f) To harmonise different accounting policies which are used in preparation of financial reports.
2. The main function of accounting standard
board is to formulate
accounting standards so that such standards may be mandated by the Council of
ICAI. While formulating the standards in India, ASB will take into
consideration the applicable laws, customs, usages and business environment.
3. Accounting standard board also gives due importance to IASs/IFRSs issued by the International accounting standard board and tries to integrate them with Indian accounting standards.
4. Another function of accounting standard board is to promote the accounting standard and induce the concerned parties to adopt them in preparation and presentation of financial statements.
5. ASB also promotes international accounting standards in the country with a view to facilitate global harmonization of accounting standards.
Or
Give a brief account of the structure of Generally
Accepted Accounting Principles.
Ans: Accounting Concepts, Accounting Conventions and Accounting
assumptions these three jointly forms the structure of Generally Accepted
Accounting Principles (GAAP).
The term ‘accounting concept’ is used to
denote accounting postulates, i.e., basic assumptions or conditions upon which
the accounting structure is based. The following are the common accounting
concepts adopted by many business concerns.
i) Business Entity Concept
ii) Money Measurement Concept
iii) Going Concern Concept
iv) Dual Aspect Concept
V) Periodicity Concept
vi) Historical Cost Concept
vii) Matching Concept
viii) Realisation Concept
ix) Accrual Concept.
Accounting
conventions are common practices, which are followed in recording and
presenting accounting information of a business. They are followed like customs
in a society. The following conventions are to be followed to have a clear and
meaningful information and data in accounting:
i) Convention of Consistency
ii) Convention of Full Disclosure
iii) Convention of Conservatism or Prudence
iv) Convention of Materiality.
Fundamental accounting assumptions: AS-1
highlights three important practical rules. Certain fundamental accounting
assumptions underlie the preparation and presentation of financial statements.
They are usually not specifically stated because their acceptance and use are
assumed. Disclosure is necessary if they are not followed. The following have
been generally accepted as fundamental accounting assumptions:
i)
Going Concern Concept
ii)
Accrual Concept
iii)
Consistency Concept.
(b) State the advantages of using
computers in accounting.
Ans:
Advantages of Computerised Accounting System
Computerised
accounting system offers various advantages over manual accounting which are
stated below:
1)
Speed: The most
important advantage of using the computer is the speed with which we can get
the work of accounting done. Computer can process a large number of
transactions in seconds.
2)
Accuracy: One can
expect accurate results with valid data and instructions. Computers do not
commit errors.
3)
Versatility:
Computers
are not only capable of handling complex arithmetical problems, but can perform
number of jobs equally well. It can be used to carry out multiple jobs at a
time.
4)
Storage
capability: A business needs to store different types of data for future
reference. A computer can store and recall any information regarding debtors,
creditors, assets, liabilities, expenses, incomes, working capital etc. as and
when required and can be retained as long as desired by the user.
5)
Reduction
of lengthy cycle: In manual accounting system, a transaction has
to pass through four stages i.e. journal, ledger, trial balance and final
accounts. This process is very lengthy which consumes lot of time also. In
computerized accounting system, a transaction has to be recorded once through
data entry screen and the computer does the rest of the processing of the transaction
automatically.
Or
Distinguish between manual accounting and computerized
accounting.
Ans: Difference between Manual
Accounting System and Computerized Accounting
a)
Recording
of data: The recording of financial transactions, in manual accounting
system is through books of original entries while the data content of such
transactions is stored in a well-designed accounting database in computerised
accounting system.
b)
Classification
and processing of data: In a manual accounting system, transactions
recorded in the books of original entry are further classified by posting into
ledger accounting. This results in transactions data duplicity. In computerized
account, no such data duplication is made to cause classification of
transactions.
c)
Summarizing
and updating of data: The transactions are summarized to produce
trial balance in manual accounting system by ascertaining the balances of
various accounts. The generation of ledger accounts is not a necessary
condition for producing trial balance in a computerized accounting system
because it is done automatically.
d)
Adjusting
entries. In a manual accounting system, entries are made to the principle
of cost matching revenue. These entries are passed to match the expenses of the
accounting period with the revenues generated by them. However, in computerized
accounting, journal vouchers are prepared and stored to follow the principle of
cost matching revenue, but there is nothing like passing adjusting entries for
errors and rectification, except for rectifying an error of principle by having
passed a wrong voucher.
e)
Cost of
reporting: Since with a manual system, the cost of preparing reports other
than the basic financial statements is high. On the other hand, the cost of
preparing specialized management reports in computerized systems is usually
quite law.
(c) Write a note on the accounting
treatment of Interest Suspense Account in the books of the buyers.
Ans: Interest
suspense method: Under this method asset is debited with cash price and
difference between hire purchase price and cash price is debited to interest
suspense account and corresponding credit is given to the vendor. Interest
included in each installment is credited to interest suspense account by giving
debit to interest account. In balance sheet, asset will be shown at cash price
less depreciation charged and net balance of hire vendor is shown as liability
after deducting interest suspense balance. The following journal entries will
be passed in the books of both the parties under this method:
JOURNAL
ENTRIES IN THE BOOKS OF HIRE PURCHASER
|
Sl.No. |
Circumstances |
Interest
suspense |
|
At the time of asset purchased. |
|
|
|
01 |
When the asset is purchased |
Asset a/c Dr Interest suspense a/c Dr To vendor a/c |
|
02 |
When the down payment is made |
Vendors a/c Dr To bank a/c |
|
At the end of every year. |
|
|
|
03 |
When the installment interest becomes due |
Interest a/c Dr To interest suspense a/c |
|
04 |
When the installment is paid |
Vendors a/c Dr To bank a/c |
|
05 |
When the depreciation is charged |
Depreciation a/c Dr To asset a/c |
|
06 |
When the depreciation and interest is
transferred to p/l a/c |
Profit / loss a/c Dr To interest a/c To depreciation a/c |
JOURNAL
ENTRIES IN THE BOOKS OF HIRE VENDOR
|
Sl. No. |
Circumstances |
Interest suspense Method |
|
At
the time of sale of assets. |
|
|
|
01 |
When the asset is sold |
Purchaser a/c Dr To sales a/c To interest suspense a/c |
|
02 |
When the down payment is received |
Bank a/c Dr To purchaser
a/c |
|
At
the end of every year. |
|
|
|
03 |
When the installment interest becomes due |
interest suspense a/c Dr To Interest a/c |
|
04 |
When the installment is received |
Bank a/c Dr To purchaser a/c |
|
05 |
When the interest is transferred to p/l a/c |
Interest a/c Dr To Profit / loss
a/c |
Or
On 1st April, 2016, Mr. A purchased a machine on hire
purchase system and paid Rs. 10,000 as down payment and agrees to pay the
balance in four annual installment of Rs. 14,000, Rs. 13,000, Rs. 12,000 and
Rs. 11,000 payable on 31st March each year. The vendor charged
interest @ 10% p.a. Mr. A provides depreciation @ 10% p.a. on reducing balance
method. Ascertain the cash price of the machine.
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(d) What is Trading A/c? Write three
objectives of preparing Trading A/c.
Ans: Trading account is one of
the financial statements prepared by the company to show the result of buying
and selling of goods and services during an accounting period. Trading account
is prepared to ascertain the gross profit or gross loss.
Objectives
or Need for Trading Account: The trading account may be prepared with the
following objectives:
1) To
ascertain gross profit or gross loss.
2) To know
the direct expenses.
3) To make
comparison of stock.
4) To fix up
selling price of goods.
5) To know
the limit of indirect expenses.
Or
X, Y and Z are partners sharing profits and losses in the ratio of
3: 2: 1. After preparing of the final account, it was found that interest on
drawings @ 5% p.a. had not been taken into consideration. The drawings of the
partners were X – Rs. 15,000; Y – Rs. 12,600 and Z – Rs. 12,000. Calculate the
total interest on drawings and pass journal entry.
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4. What is meant by Differed Revenue Expenditure? Explain
the basic principle that is taken into consideration in allocating expenditure
as capital and revenue with examples. 3+7=10
Ans: Deferred Revenue Expenditure: Expenditures which are of revenue in nature and incurred during one
accounting period but its benefits are expected to be derived over a number of
years, such expenditures are called deferred revenue expenditure. Such expenditure is written off to income and
expenditure account over the period of benefits realised from such expenditure.
Deferred expenditure to the extent not written is shown as an asset in balance
sheet.
Examples: Advertising suspense, Preliminary expenses, Loss on issue of
debentures,
Cost of issue of shares and debentures.
Basic principles taken into consideration while
allocating expenditure as capital and revenue:
Capital
Expenditure: The transactions of capital expenditure give benefits for more
than one accounting period, such as acquisition and improvement of assets, acquisition
of special rights, increasing of earning capacity, and restoration of operating
efficiency. It is non-recurring in nature. Therefore, they are shown on the
assets side of the Balance Sheet.
Rules for
Determining Capital Expenditure
Ø Expenditure
incurred to acquire long term assets (at least more than one accounting
period).
Ø Such Long
term assets must be uses in business to earn profits and not meant for resale.
Ø Expenditure
incurred to keep the assets in working condition.
Ø Expenditure
is incurred to increase earning capacity of a business.
Ø Preliminary
expenses incurred before the commencement of business is considered capital
expenditure.
Some examples of capital expenditure: (i)
Purchase of land, building, machinery or furniture; (ii) Cost of leasehold land
and building; (iii) Cost of purchased goodwill; (iv) Preliminary expenditures;
(v) Cost of additions or extensions to existing assets; (vi) Cost of
overhauling second-hand machines; (vii) Expenditure on putting an asset into
working condition; and (viii) Cost incurred for increasing the earning capacity
of a business.
Revenue
Expenditure: It is incurred for generating revenue in the current accounting
period and its benefit expires with such period. It helps to maintain the
normal working condition of a business. It is charged as expenses in Trading /
Profit & Loss Account on debit side.
Rules for
Determining Revenue Expenditure
Any expenditure which cannot be recognised as
capital expenditure can be termed as revenue expenditure. Revenue expenditure
temporarily influences only the profit earning capacity of the business. An
expenditure is recognised as revenue when it is incurred for the following
purposes:
Ø Expenditure
for day-to-day conduct of the business.
Ø Expenditure
for the benefits of less than one year.
Ø Expenditure
on consumable items, on goods and services for resale.
Ø Expenditures
incurred for maintaining fixed assets in working order. For example, repairs,
renewals and depreciation.
Some examples of Revenue Expenditure: (i)
Salaries and wages paid to the employees; (ii) Rent and rates for the factory
or office premises; (iii) Depreciation on plant and machinery; (iv) Consumable
stores; (v) Inventory of raw materials, work-in-progress and finished goods;
(vi) Insurance premium; (vii) Taxes and legal expenses; and (viii)
Miscellaneous expenses. The accounting treatment of capital and revenue expenditure is as
under:
Ø Revenue expenditures
– Debited to Profit and Loss Account.
Ø Capital
Expenditures – Shown as assets in the Balance Sheet.
Or
Define Accounting Standard. Explain the procedure of
setting Accounting Standards in India. 3+7=10
Ans: ACCOUNTING STANDARDS
Accounting Standards are the policy documents
or written statements issued, from time to time, by an apex expert accounting
body in relation to various aspects of measurement, treatment and disclosure of
accounting transactions for ensuring uniformity in accounting practices and
reporting. These standards are prepared by Accounting Standard Board (ASB).
Accounting Standards are formulated with a view to harmonies different
accounting policies and practices in use in a country.
Procedure adopted in formulation of
Accounting Standards:
The Institute of Chartered Accountants of
India (ICAI), recognising the need to harmonies the diverse accounting policies
and practices, constituted an Accounting Standards Board (ASB) on April 21,
1977. The main function of ASB is to formulate accounting standards so that
such standards may be mandated by the Council of ICAI. While formulating the
standards in India, ASB will take into consideration the applicable laws,
customs, usages and business environment.
Following
procedure will be adopted for formulating Accounting Standards:
a.
Identification of the broad areas by the ASB
for formulating the Accounting Standards.
b.
Constitution of the study groups by the ASB
for preparing the preliminary drafts of the proposed Accounting Standards.
c.
Consideration of the preliminary draft
prepared by the study group by the ASB and revision, if any, of the draft on
the basis of deliberations at the ASB.
d.
Circulation of the draft, so revised, among
the Council members of the ICAI and 12 specified outside bodies such as
Standing Conference of Public Enterprises (SCOPE), Indian Banks’ Association,
Confederation of Indian Industry (CII), Securities and Exchange Board of India
(SEBI), Comptroller and Auditor General of India (C& AG), and Department of
Company Affairs, for comments.
e.
Meeting with the representatives of specified
outside bodies to ascertain their views on the draft of the proposed Accounting
Standard.
f.
Finalisation of the Exposure Draft of the
proposed Accounting Standard on the basis of comments received and discussion
with the representatives of specified outside bodies.
g.
Issuance of the Exposure Draft inviting public
comments.
h.
Consideration of the comments received on the
Exposure Draft and finalisation of the draft Accounting Standard by the ASB for
submission to the Council of the ICAI for its consideration and approval for
issuance.
i.
Consideration of the draft Accounting Standard
by the Council of the Institute, and if found necessary, modification of the
draft in consultation with the ASB.
j.
The Accounting Standard, so finalised, is
issued under the authority of the Council.
5. X Co. of Delhi has a branch at
Shillong. Goods are sent by the Head Office at invoice price which is at the
profit of 25% on cost price. All expenses of the branch are paid by the Head
Office. From the following particulars, prepare Branch A/c and Goods sent to
Branch A/c in the Head Office books: 6+4=10
|
Particulars |
(Rs.) |
|
Opening Balance: Stock
at invoice price Debtors
Petty
Cash Goods sent to Branch at invoice price Expenses made by Head Office Rent
Wages
Salary
Remittances made to Head Office Cash
sales Cash
collected from debtors Goods
returned by branch at invoice price Balance at the end Debtors
Petty
Cash Stock
at invoice price |
11,000 1,700 100 20,000 600 200 900 2,650 21,000 400 2,000 25 13,000 |
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Or
Ajoy purchased a machine on installment system from B. K. Co. on
01/01/2014. It was agreed that Rs. 15,000 was to be paid on signing the
agreement and a sum of Rs. 15,000 was to be paid annually for 3 years. The cash
price of the machine was Rs. 52,300 and the rate of interest was 10%,
Depreciation is charged @ 20% on the straight line method. Show the Interest
Suspense A/c, Interest A/c, and Ajoy A/c in the books of B. K. Co. 3+2+5=10
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6. From the following Trial Balance of M/s Sharma Traders, prepare
a Profit & Loss A/c for the year ended 31st March, 2019 and
Balance Sheet as on that date. 3+3+4=10
|
Debit |
Amount (Rs.) |
Credit |
Amount (Rs.) |
|
Cash in Hand Carriage Outwards Wages and Salaries Carriage Inward Octroi Duty Motor Car Investment Bills Receivable Sundry Debtors Plant & Machinery Furniture Purchases Opening Stock Trade Expenses Advertisement Coal and Gas Insurance Bad Debts |
13,000 2,400 22,100 1,800 1,200 1,77,000 20,000 23,000 1,00,000 90,000 20,000 1,20,000 50,000 1,000 2,700 1,500 1,500 2,000 |
Loan Royalty Sundry Creditors Discount Received Reserve Reserve for Doubtful Debts Commission Bills Payable Capital Band Overdraft Sales |
2,400 1,200 42,500 2,200 40,000 10,200 1,100 18,000 1,00,000 20,000 3,64,000 |
|
|
6,49,200 |
|
6,49,200 |
Adjustments:
1) Closing
Stock – Rs. 50,000.
2) Further
Bad Debts – Rs. 3,000.
3) Depreciate
Plant & Machinery and Motor Car @ 10%.
4) Prepaid
advertisement – Rs. 200
5) Reserve
for Doubtful Debts is to be maintained at 5% on Debtor.
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Or
Rani and Jonny are partners in a firm sharing profits in the ratio
3: 2. The Trial Balance of the firm as on 31/03/2019 was as follows:
|
Debit |
Amount (Rs.) |
Credit |
Amount (Rs.) |
|
Debtors Furniture Machinery Salaries Insurance Premium on Machinery Bad Debts Cash in Hand Rent Bank Charges Carriage Outwards Depreciation on Furniture Drawings: Rani Johnny
|
10,000 10,000 31,000 13,200 1,200 200 10,400 6,000 420 1,450 1,000 4,000 2,500 |
Trading A/c Bad Debts Recovered Sundry Receipts Provision for Bad Debts Commission Creditors Rent Payable Bills Payable Capital A/c: Rani
Johnny
|
41,120 600 1,000 800 250 10,000 200 2,400 20,000 15,000 |
|
|
91,370 |
|
91,370 |
Prepare the Profit and Loss A/c and Profit and
Loss Appropriation A/c for the year ended on 31/03/2019 and a Balance Sheet as
on that date after considering the following adjustments:
1) Machinery
is to be depreciated by 10%.
2) Provision
for Bad Debts is to be increased by Rs. 200.
3) Rani was
to receive salary @ Rs. 300 per month.
4) Interest
on capital is allowed @ 5% p.a.
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