Financial Accounting Solved Question Papers November' 2020Dibrugarh University B.Com 1st Sem HONS CBCS Pattern
1 SEM TDC FACC (CBCS) C
101
2021 (Held in
January/February, 2022)
COMMERCE (Core)
Paper: C-101 (Financial
Accounting)
Full
Marks: 80
Pass Marks: 32
Time: 3 hours
The figures in the margin
indicate full marks for the questions
1. (a) Select the correct answer: 1x4=4
(1) Revenue is considered as
being earned when
(a)
Cash is received.
(b)
Production is done.
(c)
Sale is effective.
(2) Capital expenditure
consists of expenditure the benefit of which is not fully consumed in one
period but spread over
(a)
Next 3 years.
(b)
Next 5 years.
(c) Several years.
(3)
Cost of goods sold on hire
purchase is transferred to
(a)
Trading Account.
(b)
Profit and Loss Account.
(c)
Profit and Loss Appropriation
Account.
(4) On dissolution of a firm,
cash in hand is transferred to
(a)
Realization Account.
(b)
Partners’ Capital Accounts in
their profit-sharing ratio.
(c) Cash Account.
(b) Fill in the blanks: 1x4=4
(1)
Depreciation is provided on Fixed assets.
(2)
A financial lease is a lease
where risk and return get transferred to the Lessee.
(3)
A profit margin of 20% on sale
price is equivalent to 25%
profit on cost price.
(4)
A dependent branch is one which does not maintain its own set
of accounting books to ascertain financial results.
2.
Write short notes on (any four): 4x4=16
a) Written-down value method of depreciation.
Ans: Diminishing Balance method OR
Written down value method: Under this method a fixed rate of
depreciation is charged each year on the diminishing value of the assets till
the amount is reduced to scrap value. This method involves more calculation as
compared to SLM and value of assets cannot be reduced to zero under this
method.
Merits:
(1) The amount of depreciation decreases continuously with the
decrease in the life of assets.
(2) High amount of Depreciation is provided in earlier year thus
reducing the impact of Obsolescence
Demerits:
(1) The book value of assets can never be zero.
(2)The determination of a suitable rate of Depreciation is also
difficult.
b) Financial lease.
Ans: Financial
Lease: Financial lease
is a long-term lease usually coinciding with the economic life of the asset and
is non-cancellable. It operates as a long-term debt financing and is usually
full-payout as in contrast to operating lease, it is usually a single lease
repaying the cost of the asset. They play a major role in financing of building
of buildings and equipments to industries.
Features of
Financial lease:
a) It is a long term concept.
b) Ownership of the assets transferred to
the lessee.
c)
In financial lease, the lessee is given an option to purchase the asset.
c) 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. They can purchase goods from the market, supply
goods to the head office, pay cash expenses from the cash realised and deposit
cash in their own account.
The main features of independent branches.
a)
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.
b)
They can sell goods only for cash and
credit at any price they consider profitable.
c)
They need not remit the money received
by them from cash sales and debtors to the Head office periodically. They can
retain the funds and meet their day-to-day expenses out of those funds.
Finally, if they have surplus cash in their hands, they can remit the same to
the Head office.
d)
They keep a complete set of books for
recording their transactions. So, they can prepare their own Trial Balance,
Trading and Profit and Loss Account and Balance Sheet.
e)
However, as they are ultimately
responsible to the Head office, at the end of every financial period, they are
required to submit a copy of their Trial Balance to the Head office.
d) Garner vs. Murray rule.
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.
e) Maximum possible loss method of piecemeal
distribution.
Ans: 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.
3.
(a) Describe briefly about accounting concepts and accounting conventions of
Financial Accounting. 2+2=4
Ans: Accounting concepts:
The term ‘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: 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) Consistency
ii) Full Disclosure
iii) Conservatism or Prudence
iv) Materiality
Or
(b)
Distinguish between trade discount and cash discount (any four points). 4
Ans: Difference between Trade Discount
and Cash Discount
|
Trade
Discount |
Cash
Discount |
|
a) It
helps the retailers to make some profit. b) It
allowable at time of sale cash credit c) Only
retailers are entitled to get it. d) It is
calculated at a given rate on the published price. e) It is
not generally accounted for. |
a) It
encourages the debtors to pay within specified time b) It is
allowed only at time of cash receipt or cash payment. c) All
categories of costumers are entitled to get it. d) It
calculated at a given late on the net amount payable. e) It is
accounted. |
4. (a) Prepare a Purchase
Day Book for the month of October 2021 of M/s. Sharma & Co. 5
|
2021 October 4: |
Purchased on credit from Rajesh Bros. & Co. 10
bags of tea @ Rs. 1,000 per bag. 5 bags of coffee @ Rs. 3,000 per bag. Trade discount @ 10% |
|
October 16: |
Purchased from Durga Enterprises on credit. 20 bags
of rice @ Rs. 800 per bag. 2 bags of wheat @ Rs. 500 per bag. Trade discount @ 5%. |
|
October 20: |
Purchased furniture on credit for Rs. 4,000 from
Modern Furniture House. |
|
October 25: |
Purchased on credit from Sewak & Co. 30 tins ghee @ Rs. 600 per tin. 10 tins mustard oil @ Rs. 500 per tin. Trade discount @ 20%. |
Or
(b) Arrange the following
balances taken from the ledger of X & Co. into a Trial Balance as on 31st
March, 2021:
|
|
Rs. |
|
Rs. |
|
Cash Trade Debtors Rent Stores Salaries Payable Insurance Other Expenses Trade Creditors Cost of Goods Sold Advance from a Customer |
9,200 15,000 4,800 18,000 1,500 3,600 5,500 25,000 54,000 1,400 |
Land Depreciation Accumulated Depreciation Salaries Furniture Sales Drawings Capital |
10,000 800 2,400 20,400 4,000 90,000 2,000 27,000 |
5.
(a) What are the methods of measuring business income? Explain each of them in
brief. Also state the objectives of income measurement. 2+4+3=9
Ans: Measuring
of 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.
Methods of Measuring
Business Income
Following
are the methods of measuring business income:
a) Net worth method: As per this method, the net worth i.e.
Capital of a business enterprise at the end of the accounting period is
compared with the same at the beginning of the accounting period. If capital at
the end of the year is more than the opening capital, there is a profit for the
business enterprise or if capital in the beginning is more than the closing
capital, there will be a loss.
b) Matching Principle. Under
this method, income of a business enterprise is determined by matching revenues
and expenses pertaining to a given accounting period. This method is based on
the income statement. For matching costs with revenues, first revenues are
recognized and then costs are incurred for generating those revenues is recognized.
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.
Or
(b)
When would the following revenues generated from rendering of services to be
recognized? 1½ x 6 = 9
a) Installation fees.
b) Advertising and insurance commission.
c) Financial service commission.
d) Tuition fees.
e) Admission fees.
f) Entrance fees and membership fees.
Ans: a) Installation fees: Revenue is
recognised when Installation is completed and accepted by the client.
b) Advertising: Revenue is recognised
when the advertisement appears before the public.
Insurance Commission: Revenue is
recognised when commencement for renewal date of the policies.
c) Financial service commission: Revenue
is recognised when financial services are rendered.
d) Tuition fees: Revenue is recognised
over the period of instruction.
e) Admission fees: It is generally
capitalised.
f) Entrance fees: It is generally
capitalised.
Membership fees: It is generally
recognised as under:
a. If membership fee provides only
membership benefit- Recognised when it is received
b. If membership fee provides other
benefits along with membership benefit- Recognised in a systematic and rational
basis.
6.
(a) What is depreciation? What are the different causes of depreciation?
Distinguish between fixed-installment method and diminishing-balance method of
depreciation. 2+4+4=10
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.
According to Carter, “Depreciation may
be defined as the permanent and gradual decrease in the Value of assets from
any cause.’’
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
Difference
between fixed installment and reducing installment method are given below:
(1) The rate and amount of depreciation remains the same each year
under fixed installment method. The rate remains the same, but amount of
Depreciation reduces each year under reducing balance method.
(2) Depreciation is calculated on original cost under fixed
installment method. Depreciation is charged on the diminishing value of assets
under reducing Balance Method.
(3) The book value of assets reduces to zero under straight line
method. The book value of assets can never be zero under reducing balance
method.
Or
(b)
The following is the Trial Balance of Sri Arup Das as on 31st March,
2021. Prepare a trading and Profit & Loss A/c for the year ended 31st
March, 2021 and a Balance Sheet as on that date: 3+3+4=10
Trial Balance
As on 31st
March, 2021
|
Debit Balances
|
Amount
(Rs.) |
Credit
Balances |
Amount
(Rs.) |
|
Sundry Debtors
Drawings Cash in hand Cash at Bank Wages Purchases Opening Stock Business
Premises Bills
Receivable Office
Telephone Expenses General
Expenses Goodwill |
22,000 2,000 8,200 30,000 2,500 10,000 30,000 60,000 14,500 3,500 9,000 10,500 |
Capital Sundry
Creditors Sales |
1,20,000 22,500 59,700 |
|
|
2,02,200 |
|
2,02,200 |
Adjustments:
(1) Value of closing stock as on 31st March, 2021 was Rs.
5,000.
(2) Interest on capital to be provided @ 6% and interest on drawings @
5%.
(3) Write off bad debts Rs. 2,000 and provide for doubtful debts @ 10%
p.a. on remaining debtors.
7. (a) What is
‘hire-purchase system’? What are its features? Distinguish between
hire-purchase system and credit sale (only three points). 2+4+3=9
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.
f) The
hire purchaser has a right to terminate the agreement at any time in the
capacity of a hirer.
g) The
hire purchaser becomes the owner of the goods after the payment of all
installments as per the agreement.
h) If
there is a default in the payment of any installment, the hire vendor will take
away the goods from the possession of the purchaser without refunding him any
amount.
Difference
between Hire Purchase system and Credit 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 |
Credit
Sale |
|
Hire purchase is governed by the Hire
Purchase Act, 1972. |
A ‘Credit 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 Credit sale, the ownership of the
goods is transferred to the buyer immediately. |
|
The hire purchaser pays for the price of
goods and also some amount of interest. |
The buyer pays only for the price of goods. |
Or
(b) Ratan Stores purchased a generator from M/s. Bimal Bros. on
installment purchase system. Rs. 12,000 was payable on delivery on 1st
April, 2017 and the balance in four annual installments of Rs. 12,000 each on
31st March, every year. The vendor charges interest @ 5% per annum
on the outstanding balance. The cash price of the generator was Rs. 54,551. Depreciation @ 10%
per annum on written-down method was written off each year. From the above
particulars, prepare the following Ledger Accounts in the books of Ratan
Stores: 3+3+3=9
(1) Generator’s A/c.
(2) M/s. Bimal Bros. A/c.
(3) Interest Suspense A/c.
8.
(a) What are the main classes of Branch Accounts? Explain the method of
converting figures of Trial Balance of a foreign branch into the home currency
of Head Office. 3+6=9
Ans: Types of Branch: From the accounting point of view,
branches may be classified into
a)
Dependent Branch
b)
Independent Branch
c)
Foreign Branch
(a) Dependent Branch: The term ‘Dependent Branch’
means a branch which does not maintain its own set of books. All records have
to be maintained by the head office. When the business policies and the
administration of a branch are wholly controlled by the head office, its
accounts also are maintained by it. In such a case, Branch accounts are written
up at the head office out of reports and returns received from the branch.
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) Independent Branch
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. They can purchase goods from the market, supply
goods to the head office, pay cash expenses from the cash realised and deposit
cash in their own account.
c) Foreign Branches and Its
Incorporation in Head Office Book
When a branch is
located in a country other than domestic country it is called a foreign branch.
Such branch will keep its books of accounts in foreign currency. Foreign branch
usually maintains a complete set of books under double entry principles. So,
the accounting principles of a Foreign Branch will be the same as those
applying to an Inland Branch. Before a Trial Balance of the Foreign Branch is
incorporated in the H.O. books, it has to be converted into home currency.
Rules for
conversion of branch trial balance into the books of head office:
Following are the
main rules which should be taken into consideration while converting the
figures of foreign trial balance in the books of the head office for the
purpose of their incorporation in the books of the head office:
1) If the rate of
exchange will normally remain constant, the branch trial balance should be
converted at a fixed rate of exchange.
2) In case of
fluctuating rates of exchange, the following rules for conversion are applied:
|
Nature of Account |
Exchange Rate Applicable |
|
1. Fixed Assets 2. Fixed
Liabilities 3. Current
Assets & Liabilities 4. Remittances
sent by the branch 5. Goods
received from H.O. as well as goods returned to
H.O. 6. The Nominal
A/c’s (except next two) 7. Depreciation
on Fixed Assets 8. Opening and
Closing stocks 9. Balance in
H.O. A/c |
1. Rates ruling
at the time they were acquired. 2. Rates ruling
as on the date of the Trial Balance. 3. Rates ruling
as on the date of the Trial Balance. 4. At the
actual rates at which they were made. 5. At the rates
ruling on the date of dispatch or the date of
receipt. 6. Average rate
ruling during the accounting period. 7. Rate of
conversion applicable in case of the particular
asset concerned [as indicated in (a) above]. 8. Rates ruling
of on the opening and closing dates respectively. 9. Value at
which the Branch A/c appears in H.O. books on the date. |
Difference in Exchange: As a
result of conversion of branch trial balance in home currency, a difference in
the trial balance is will often arise. If a loss (Dr.) results, it should be
debited to Profit & Loss A/c, if a profit (Cr.) results, the prudent
course is to credit it to an exchange Reserve A/c so as to provide for future
losses on exchange.
Or
(b) X Ltd. invoices of goods to its various branches at cost and the
branches sell on credit as well as for cash. From the following details
relating to Delhi Branch, show the Branch A/c in the Head Office. Also prepare
Branch Debtors A/c as a part of working note: 7+2=9
|
|
Rs. |
|
Stock as on
01-04-2020 Stocks as on
31-03-2021 Debtors as on
01-04-2020 Goods received
from Head Office Goods-in-transit
as on 31-03-2021 Goods returned
to Head Office Credit sale Cash sale Discount
allowed to customers Goods returned
from customers Allowance to
customers Bad Debts
written-off Cash received
from customers General
charges Rent and rates
Wages and
salaries |
20,000 16,000 32,500 80,000 7,500 800 88,000 46,000 1,280 2,400 600 3,000 57,300 1,840 4,800 8,200 |
9. (a) A, B and C are in partnership sharing profits and losses in
the ratio of 3 : 2 : 1 respectively. The Balance Sheet of the firm on the date
of dissolution was as follows:
|
Liabilities |
Amount
(Rs.)
|
Assets |
Amount
(Rs.) |
|
Sundry
Creditors A’s Loan A/c A’s Capital B’s Capital |
38,500 2,750 15,200 11,200 |
Cash in hand Sundry Debtors
Stock Furniture C’s Capital
(Dr.) |
9,860 30,560 18,440 7,200 1,590 |
|
|
67,650 |
|
67,650 |
The assets realized:
(1)
Stock Rs. 13,840,
(2)
Furniture Rs. 5,150, and
(3)
Debtors Rs. 29,200.
(4)
The Creditors were paid less
discount Rs. 250.
(5)
C is insolvent and is unable to
bring in anything.
(6)
The expenses of realization
came to Rs. 520.
Show the Ledger Accounts as per Garner vs. Murray
decision. 10
Or
(b)
What do you mean by conversion of partnership into a company? What are the
objectives of such conversion? What entries are made in the books of a firm,
when a partnership business is converted into a company? 2+3+5=10
Ans: Conversion of Partnership into company or acquisition of
firm by a company
For
various reasons, an existing partnership may sell its entire business to an
existing Joint Stock Company which is called absorption of a partnership firm
by a company or for the purpose of expansion; it can also convert itself into a Joint Stock Company which
results into floatation of a new company to take over the business of the
partnership. In either of the above cases, the existing partnership firm is
dissolved and all the books of account are closed. The procedure of liquidation
of the partnership business is same as in case of dissolution of firms but the
assets of the firm are not disposed off and liabilities are not repaid instead
they are transferred to the new company for a lump sum amount which is called
purchase consideration.
Objectives/Need/Importance
of conversion of partnership into accompany
a)
Liability of the shareholders of newly converted company will become limited.
b)
The company can collect more capital for expansion of its business.
c)
The legal entity of the newly converted company will be separate from its
member which is not possible in case of a partnership firm.
d) To
tale the advantages of less rate of income tax.
e) To
enjoy the benefits of large scale production.
f) To
have continuous existence of the business unit.
For Journal Entries,
Consult your teachers.
***
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