November 2020 Financial Accounting B.Com NON HONS Solved Question Papers, Dibrugarh University B.Com 1st Sem NON HONS CBCS Pattern

  Financial Accounting Solved Question Papers November' 2020

Dibrugarh University B.Com 1st Sem NON HONS CBCS Pattern

1 SEM TDC FACC (CBCS) DSC CC 102

2 0 2 1 (March)

COMMERCE (Discipline Specific Course)

Paper: CC–102 (Financial Accounting)

Full Marks: 80

Pass Marks: 32

Time: 3 hours

The figures in the margin indicate full marks for the questions

1. (a) Answer in one sentence each:       1×4=4

1) What is Financial Accounting Principle?

Ans: Accounting principles may be defined as those rules of conduct or procedure which are adopted by the accountants universally while recording the accounting transaction.

2) What is meant by Errors of Commission?

Ans: These are the errors which are committed due to the wrong posting of wrong transaction, wrong totaling or balancing of the accounts, wrong casting of the subsidiary books. Such errors are called Errors of Commission.

3) What is independent branch?

Ans: Independent branches are those which act independently within the broad policies framed by the Head office in conducting their day-to-day activities. These branches keep full system of accounting.

4) What do you mean by Realization Account?

Ans: Realisation account is prepared at the time of dissolution of firm. Realisation Account is a nominal account. It is prepared to find out profit or loss on realisation of assets and payment of liabilities when a firm is dissolved. Any profit or loss on realisation is transferred to the capital accounts of all the partners in their profit sharing ratio.

(b) Select the correct alternative answer:   1×4=4

(1) On which one of the following concepts is determination of expenses for an accounting period based?

1)         Accounting period concept.

2)         Matching concept.

3)         Cost concept.

(2) _____ explains how revenue is to be determined in Profit & Loss Account of an enterprise.

1)         AS–6.

2)         AS–19.

3)         AS–9.

(3) Inventory should normally be valued

1)         at historical cost or net realisable value whichever is lower.

2)         at net realisable value.

3)         at historical cost or net realisable value whichever is higher.

(4) On the date of agreement, hire purchaser pays an amount which is called

1)         hire-purchase price.

2)         down payment.

3)         Installment.

2. Write short notes on (any four):    4×4=16

a) Bases of accounting.

Ans: BASES OF ACCOUNTING: There are three bases of accounting in common usage which are:

1. Cash basis

2. Accrual or Mercantile basis

3. Mixed or Hybrid basis.

Accounting on ‘Cash basis’: Under cash basis of accounting, entries are recorded only when cash is received or paid. No entry is passed when a payment or receipt becomes due. Government system of accounting is mostly on cash basis.

Accrual Basis of Accounting or Mercantile System: Under accrual basis of accounting, accounting entries are made on the basis of amounts having become due for payment or receipt. Incomes are credited to the period in which they are earned whether cash is received or not. Similarly, expenses and losses are detailed to the period in which, they are incurred, whether cash is paid or not. The profit or loss of any accounting period is the difference between incomes earned and expenses incurred, irrespective of cash payment or receipt.

Mixed or Hybrid Basis of Accounting: When certain items of revenue or expenditure are recorded in the books of account on cash basis and certain items on mercantile basis, the basis of accounting so employed is called ‘hybrid basis of accounting’.

b) Causes of depreciation.

Ans: Depreciation: The word depreciation is derived from a Latin word “Depretium” where “De” means decline and “pretium” means price. Thus, the word “Depretium” stands for decline in the value of assets. It stands for gradual and continuous decline. In simple words, Depreciation may be defined as permanent decrease in the value of assets due to Use and /or the lapse of the time.

Causes of Depreciation

The causes of decline on the book value of fixed assets may be divided into two categories:

1)      Physical: Physical causes may be as follows

a)      Wear and tear

b)      Destruction

2)      Functional: Functional causes may be as follows

a)      Obsolescence

b)      Inadequacy

c)       Effluxion of time

d)      Depletion

e)      Exhaustion

c) Applicability of IFRS in India.

Ans: Applicability of Ind AS – 101: First time adoption of Indian Accounting Standards:

The objective of this Indian Accounting Standard (Ind AS) is to ensure that an entity’s first Ind-AS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(a) Is transparent for users and comparable over all periods presented;

(b) Provides a suitable starting point for accounting in accordance with Ind ASs; and

(c) Can be generated at a cost that does not exceed the benefits.

An entity shall apply this Ind-AS in:

(a) Its first Ind-AS financial statements and

(b) Each interim financial report, if any that it presents in accordance with Ind AS 34 Interim Financial Reporting for part of the period covered by its first Ind-AS financial statements.

This Indian Accounting Standard does not apply to changes in accounting policies made by an entity that already applies Ind-ASs. Such changes are the subject of:

(a) Requirements on changes in accounting policies in Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors; and

(b) Specific transitional requirements in other Ind-ASs.

Mandatory Application of Ind AS:

a) Ind AS is applicable to all listed or unlisted company if its net worth is greater than or equal to Rs. 250 crore.

b) Ind AS is applicable to all Banks, NBFCs and Insurance companies is more than or equal to INR Rs. 250 crore.

If Ind AS becomes applicable to any company, then Ind AS shall automatically be made applicable to all the subsidiaries, holding companies, associated companies, and joint ventures of that company, irrespective of individual qualification of such companies.

d) Matching concept.

Ans: Matching Concept: This concept is based on the accounting period concept. The most important objective of running a business is to ascertain profit periodically. The determination of profit of a particular accounting period is essentially a process of matching the revenue recognised during the period and the costs to be allocated to the period to obtain the revenue. It is thus a problem of matching revenues and expired costs, the residual amount being the net profit or net loss for the period. The essence of the matching concept lies in the view that all costs which are associated to a particular period should be compared with the revenues associated to the same period to obtain the net income of the business.

e) Characteristics of dependent branch.

Ans: The following are the main features of dependent branches:

a.    Such branches sell only those goods which are received from the head office and are not usually allowed to make purchases in the open market except with the express permission of the head office.

b.    Goods are supplied by the head office to such branches either at cost price or at invoice price.

c.     All expenses of the branch such as rent, salary of staff, advertisement etc., are paid by the head office.

d.    Petty expenses such as cartage, entertainment, freights etc. are paid by the branch manager out of petty cash book balance. Such book is maintained at the branch either as simple petty cash book or on Imprest system.

e.    The amount received from cash sales or cash received from debtors is either remitted to the head office daily or deposited in the account of the head office in some local bank.

f.     The branch manager is normally expected to sell the goods for cash only but he may be authorized to sell goods on credit as well.

g) Joint venture and consignment.

Ans: Joint Venture: A joint venture is the combination of two or more persons into a specific single activity. It is a form of partnership which is limited to a specific venture. It is exactly the same as partnership, with the exception that it is one of a business that is to be terminated after completion of venture for which it is started. Since the business is to be terminated after completion of the venture, a firm name is not generally used. Thus the joint venture is like a temporary partnership with or without a firm name. It can also be said a particular partnership or partnership for a particular object.

Consignment: Business organisation sometimes sale their goods through agents as an alternative to selling goods themselves. Consignment is a kind of business expansion without opening a branch in a new potential market. In Consignment, a manufacturer or wholesaler dispatches goods to an agent who has a better knowledge of the local market, for the purpose of sale.

The person sending the goods is called the consignor and the agent who receives the goods is called the consignee. The Consignee markets the product and receives commission at a stipulated rate on the total sales. He is also entitled to recover such expenses which he incurs in connection with the consignment.

3. Romen and Prakash have in business together for last three years ending 31st December, 2019 at which date they agreed to dissolve. The capitals at the commencement of the business were Rs. 60,000 and Rs. 40,000. Profits and losses were shared in the ratio of 3 : 2. The results of three years before allowing 10% interest on capitals were as follows:

	Rs.
2017 (profit) 2018 (profit) 2019 (profit)	60,000 44,400 10,760

Drawings of each partner were Rs. 8,000 per year. Creditors on the date of dissolution were Rs. 32,800. The assets realised Rs. 1,50,000. Expenses of dissolution amounted to Rs. 1,100. Give the necessary accounts to close the books of the firm.                 14

Or

a)    Write the underlying principles of Garner vs. Murray decision in the dissolution of partnership. Is it applicable in India?   5+2=7

Ans: If a partner’s capital account shows a debit balance on the dissolution of the firm, he is required to bring cash in the firm to settle his account. But if such partner is unable to satisfy his debt to the firm due to his insolvency, then his deficiency is to be borne by the solvent partners in accordance with the decision in Garner vs. Murray. According to the rules of Garner vs. Murray, in the absence of any agreement to the contrary, the deficiency of the insolvent partner’s capital account must be borne by other solvent partners in proportion to their capital which stood before the dissolution of the firm. The effect of this ruling is to make a distinction between an ordinary loss caused due to business operation and loss on account of insolvency of a partner.

Some important judgments in Garner vs. Murray case by Lord Justice Joyce was stated below:

a)      Loss on realisation considered being ordinary loss and therefore to be shared by all the partners according to their profit sharing ratio.

b)      Solvent partners to bring cash equal to their share of loss on realisation

c)       Loss on account of deficiency of insolvent partner considered being capital loss; therefore   to be shared by solvent partners according to their last agreed capital.

Accounting treatment when the firm is dissolved due to insolvency of partners:

1) When there are more than two partners and one becomes insolvent, the solvent partners are liable to bear the loss of insolvent partner. The loss is borne by the solvent partners in the following partners:

a)      When Garner Versus Murray rule is not applicable, the solvent partners are supposed to bear the loss according to the profit sharing ratio.

b)      When the Garner versus Murray rule is applicable, the solvent partners are liable to bear the loss of insolvent partners according to the ratio of last agreed capital.

 

b)   Explain the various methods of piecemeal distribution of cash.         7

Ans: The following two methods are followed to determine the order of repayment of capital of the partners:

(a) Surplus Capital Method/ Proportionate Capital Method/ Highest Relative Capital Method: This method is applicable when all the partners are solvent. The following steps are to be followed to calculate the surplus capital:

1. Adjusted capital: the balance lying in the capital accounts of the partners are adjusted with the undistributed profit or loss, drawings and reserves.

2. Base capital: the adjusted capital is divided by the unit of profit share and the minimum amount is called the base capital. For example if profit sharing ratio is 5:3:2 the respective capitals will be divided by 5, 3 and 2 respectively.

3. Proportionate capital: the amount is ascertained by multiplying the base capital with unit of profit share. For example if base capital is 20,000 it is multiplied by 5,3 and 2 respectively.

4. Surplus capital: it is ascertained by the difference of adjusted capital and the proportionate capital. The process continues until we get an absolute surplus.

(b) Maximum Possible Loss Method: An alternative method of piecemeal distribution amongst partner is to calculate the maximum possible loss on every realisation after the outside liabilities and the partner’s loan has been paid. The amount available for distribution amongst partners is compared with the total amount of capital payable to the partners and the maximum loss is ascertained on the assumption that in future assets will not realize any amount. The maximum possible loss so ascertained is deducted from the capital balances of the partners in their profit and loss sharing ratio and the balance left in the capital account after deducting the maximum possible loss will be the amount payable to the partner.

If a partner’s share of maximum possible loss is more than the amount standing to the credit of his capital account, he should be treated as insolvent and his deficiency should be debited to the capital accounts of the solvent partners in the proportion of their capitals which stood on the dissolution date as stated under the Garner V/s. Murray Rule. The amount standing to the credit of the partners after debiting their share of maximum loss and their share of insolvent partners deficiency will be equal to the cash available for the distribution amongst the partners. This process of maximum possible loss is repeated on each realisation till all the assets are disposed.

4. The Bikiron Co. Ltd., Jorhat, opened a branch at Dibrugarh on 1st January, 2019. The goods were sent by Head Office to the branch at selling price being 125% of cost price. The following particulars are available in respect of the branch:

Particulars	Rs.
Goods sent to branch (at cost to Head Office) Total sales Cash sales Cash collected from debtors Returns from debtors Bad debts Branch expenses paid for cash Damaged goods written off (at invoice price) Stock on 31st December, 2019 (at invoice price)	3,25,000 4,25,000 2,50,000 1,36,000 7,000 3,800 16,000 4,000 27,000

Write up the Ledger A/c in the books of Head Office to record the above transactions under stock and debtors system. 14

Or

a)    What is branch accounting? What are its objectives?               2+5=7

Ans: Branch accounting is the process through which the accounting system of a branch is maintained. Branch accounting system is different for dependent, independent and foreign branch.

Purpose or Objectives of Branch accounting 

The main objectives and purpose of Branch accounting system are listed below:

a)    To ascertain the profit or loss of each branch separately.

b)   To ascertain financial position of each branch on a particular date.

c)    To evaluate the progress and performance of each branch.

d)   To have comparison of the results of a particular branch with previous year and also with the other branch of the same concern.

e)   To differentiate between profit making and loss making branch so that necessary steps can be taken to improve the performance of loss making branches.

f)     To help the proprietor in formulating policy to expand the business on proper lines so as to optimize the profits of the concern.

g)    To allow branch managers’ commission on the basis of the profits of their branches; and

h)   To generate information, which may be helpful for planning, control, and evolution of performance of each branch and for taking various managerial decisions?

b)   What are the main types of branches from accounting point of view? Write three points of distinction between Dependent Branch and Independent Branch.     4+3=7

Ans: Types of Branch: From the accounting point of view, branches may be classified into

a)    Dependent Branch

b)   Independent Branch

c)    Foreign Branch

Difference between Dependent and Independent Branch

Basis	Dependent Branch	Independent Branch
Goods	Such branches sell only those goods which are received from the head office and are not usually allowed to make purchases in the open market except with the express permission of the head office.	They need not depend on the Head office for their requirements of supplies of goods. They can make purchases themselves. Of course, they can also obtain supplies of goods from the head office as and when they want.
Accounting	It does not maintain complete set of accounts except some subsidiary boos.	It maintains complete set of accounts.
Remittance of cash	Every dependent branch is required to remit cash to the head office.	Independent branch does not require to remit cash to the head office daily.
Expenses	All expenses of dependent branches are paid by head office. Branches are allowed only to maintain petty cash account for day to day expenses.	All expenses of independent branch are paid by the branch itself.
Trial balance	Trial balance is not required to be prepared.	Trial balance can be prepared with the help of complete set of accounts maintained by branch.

5. Following are the balances of Mr. Ranjit as on 30th June, 2020:

Dr. Balances	Rs.	Cr. Balances	Rs.
Cash in hand Cash at Bank Patent Salaries Purchase Returns Inward Wages Fuel and Power Carriage on Sales Carriage on Purchases Stock (1st July, 2019) Buildings Freehold Land Machinery Investment Sundry Debtors General Expenses Insurance Drawings	1,080 5,260 15,000 30,000 81,350 1,360 16,960 9,460 6,400 4,080 11,520 44,000 20,000 40,000 20,000 29,000 6,000 1,200 10,490	Sales Returns Outward Capital Sundry Creditors Rent	1,97,560 1,000 1,24,000 12,600 18,000
	3,53,160		3,53,160

Taking into account the following adjustments, prepare the Trading and Profit & Loss A/c and Balance Sheet as on 30th June, 2020:         14

1)         Stock on hand on 30th June, 2020 is Rs. 13,600.

2)         Depreciate machinery by 10% and patent by 20%.

3)         Salaries for the month of June 2020 amounting to Rs. 3,000 were unpaid.

4)         Insurance includes a premium of Rs. 340 on a policy expiring on 31st December, 2020.

5)         Bad debts are Rs. 1,450.

6)         Rent received in advance—Rs. 2,000.

7)         Interest on investment of Rs. 4,000 is accrued.

Or

a) What is meant by business income? What are the main objectives of income measurement?              2+5=7

Ans: Business Income: Business is an economic activity, which is related with continuous and regular production and distribution of goods and services with a view to earn profit. In accounting, the term income refers to business income.  Business income can be defined as excess of revenue over expenses. Revenue means inflow of assets from business operations which result in an increase in the owner’s equity. The terms ‘expense’ refers to the amount incurred in the process of earning revenue. If revenue exceeds expenses, it would represent income or profit. If expenses exceed revenue, it would represent loss. Thus, Net Income (Profit/Loss) = Total Revenue-Total Expenses.

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.

d)      To help in taking investments decisions.

e)      To assist in taking dividend decision.

b) Distinguish between Capital Expenditure and Revenue Expenditure.               7

Ans: 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.

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.

The following are the points of distinction between Capital Expenditure and Revenue Expenditure:

Basis	Capital Expenditure	Revenue Expenditure
1. Benefits	Its benefit realised for more than one accounting period.	Its benefits enjoyed within a particular accounting period.
2. Nature	It is non-recurring (Irregular) in nature.	It is Recurring (Regular) in nature.
3. Conversion	All Capital Expenditures eventually become Revenue Expenditures like depreciation	Revenue Expenditures are not generally capital expenditures.
4. Matching	These are not matched with Capital Receipts.	These are matched with Revenue Receipts.
5. Shown	These are shown in balance sheet.	These items are shown in income statement.

6. On 1st November, 2019, Jili Enterprise of Nagaon consigned 250 sewing machines to Monami Enterprise of Sivasagar. The price of the machine is fixed at Rs. 1,500 each being 25% above cost. Jili Enterprise paid packing expenses Rs. 1,000, insurance Rs. 200 and carriage Rs. 2,500. On 31st December, 2019, an Account Sale was received from Monami Enterprise which showed that they had sold 225 machines for Rs. 3,40,000 and had incurred Rs. 1,200 as expenses. Their commission was 5% on sale and del credere commission was 2·5%. They sent a bank draft for Rs. 2,55,000 along with the Account Sale. Prepare the necessary Ledger Accounts in the books of Jili Enterprise. 14

Or

What do you mean by hire-purchase system? Write the features of it. Write the differences between Hire purchase and Credit sales.       2+6+6=14

Ans: Hire Purchase System defers to the system wherein, the seller of goods transfers the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in installments. If the buyer pays all the installments, the ownership of the goods will be transferred, on payment of the last installment. However, if the buyer does not pay for any installment, the goods will be repossessed by the seller and the money paid on earlier installments will be treated as hire charges for using the goods. So, under this system, the transaction may result in purchasing of goods by the buyer or in hiring the goods. Hence, the system is called Hire Purchase System.

Features and Characteristics of Hire Purchase System

The characteristics of hire-purchase system are as under

a)    Hire-purchase is a system of credit sale.

b)   The price under hire-purchase system is paid in installments.

c)    The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.

d)   Hire vendor continues to be the owner of the goods till the payment of last installment.

e)   The hire purchaser has a right to use the goods as a bailer.

Difference between Hire Purchase system and Sale

Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between Hire Purchase and Sale.

Hire Purchase	Sale
Hire purchase is governed by the Hire Purchase Act, 1972.	A ‘sale’ is governed by the sale of Goods Act, 1930.
In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments.	In case of sale, the ownership of the goods is transferred to the buyer immediately.
In case of hire purchase, the payment is made in installments.	In case of sale, the buyer makes payment in lump sum.
The hire purchaser pays for the price of goods and also some amount of interest.	The buyer pays only for the price of goods.
On non-payment of any installment, the seller can re-possess the goods.	On non-payment of the consideration the seller cannot take back the goods, but can only take legal action on buyer.
Either the buyer or the seller can terminate the contract at any point of time, until the payments of last installment.	Once a sale has taken place, neither the seller, nor the buyer can terminate the contract (unless it is for genuine reason like damage of goods etc.)

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