CA Foundation November 2022 Suggested Answers Paper 1 Principles and Practice of Accounting (Old Scheme)

FOR CA FOUNDATION EXAM PREPARATION

CA Foundation 2022
Suggested Answers ·
Paper 1 Principles and
Practice of Accounting
(Old Scheme)
EXAM YEAR TYPE

CA Foundation 2022 Suggested Answers
SUBJECT DATE

Paper 1 Principles and Practice of Accounting (Old Scheme) November 2022

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING

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Question No. 1 is compulsory.

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Attempt any four questions from the remaining five questions.
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Wherever necessary, suitable assumptions should be made and disclosed by way of note
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l 1s Working Notes should form part of the answer.
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a(a) State with reasons, whether the following statements are True or False:
Question

(i) The financial statements are not prepared on the assumption that an enterprise is a
going concern and will continue its operation for the foreseeable future.
(ii) Periodic inventory system is a method of ascertaining inventory by taking an actual
physical count.
(iii) The provision for discount on creditors is often not provided in keeping with the

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principle of conservatism.

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(iv) If the errors are detected after preparing trial balance, then all the errors are rectified

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(v) Both revenue and capital naturee transactions are recorded in the Receipts and
through suspense account.

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(vi) A fixed charge generallyacovers all the assets of the company including future one.
Payments Account.

(6 x 2 = 12 Marks)
(b) Differentiate between Provisions and Contingent Liabilities. (4 Marks)
(c) A purchased a machinery for ` 1,30,000 on 1st April, 2019 and paid ` 20,000 for freight &
installation charges. On 1st October, 2021 another machine was purchased for 50,000 and
sold old machinery for ` 1,00,000. The machine purchased on 1st October, 2021 was
installed on 1st January, 2022.

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Under existing practice, the company is charging depreciation @ 20% p.a. on the original

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cost. However, from 1st April, 2021 it decided to adopt WDV method and charge

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depreciation @15% p.a. You are required to prepare Machinery Account from 1st April,

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2019 to 31 st March, 2022. (4 Marks)

las Answer
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ag (a) (i) False: The financial statements are normally prepared on the assumption that an
enterprise is a going concern and will continue in operation for the foreseeable future.
(ii) True: Under Periodic inventory system actual physical count of inventory is taken of
all the inventory on hand at a particular date.

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2 FOUNDATION EXAMINATION: NOVEMBER, 2022

(iii) True: According to the principle of conservatism provision is maintained for the losses
to be incurred in future. Discount on creditors is an income so provision in not
maintained.
(iv) False: If the errors are detected after preparing trial balance, then all the errors are
not rectified through suspense account. There may be errors of principle ,
compensating errors, errors of complete omission which can be rectified without
opening a suspense account.
(v) True: All the receipts and payments whether of revenue or capital nature are included
in Receipt and Payment account.
(vi) False: A fixed charge is a mortgage on specific assets. A floating charge generally
covers all the assets of the company including future one.
(b) The distinction between Provision and Contingent Liability is as follows:
Provision Contingent liability
(1) Provision is a present liability of A Contingent liability is a possible
uncertain amount, which can be obligation that may or may not crystallise
measured reliably by using a depending on the occurrence or non-
substantial degree of estimation. occurrence of one or more uncertain
future events.
(2) A provision meets the recognition A contingent liability fails to meet the
criteria. same.
(3) Provision is recognised when (a) an Contingent liability includes present
enterprise has a present obligation obligations that do not meet the
arising from past events; an outflow recognition criteria because either it is not
of resources embodying economic probable that settlement of those
benefits is probable, and (b) a obligations will require outflow of
reliable estimate can be made of the economic benefits, or the amount cannot
amount of the obligation. be reliably estimated.
(4) If the management estimates that it If the management estimates, that it is
is probable that the settlement of an less likely that any economic benefit will
obligation will result in outflow of outflow the firm to settle the obligation, it
economic benefits, it recognises a discloses the obligation as a contingent
provision in the balance sheet. liability.

(c) In the books of A
Machinery A/c
Date Particulars Amount (`) Date Particulars Amount(`)
01.04.2019 To Bank 1,50,000 31.03.2020 By Depreciation 30,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3

(1,30,000+20,000) 31.03.2020 By Balance c/d 1,20,000
1,50,000 1,50,000

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01.04.2020 To Balance b/d 1,20,000 31.03.2021 By Depreciation 30,000

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31.03.2021 By Balance c/d 90,000

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01.04.2021 . To Balance b/d em
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1,20,000 1,20,000

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90,000 01.10.2021 By Bank A/c 1,00,000

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01.10.2021 50,000 01.10.2021 By Depreciation 6,750

ag01.10.2021 To Profit on Sale 16,750 31.03.2022
31.03.2022
By Depreciation
By Balance c/d
1,875
48,125
1,56,750 1,56,750

Alternative: Calculation of Book Value of Machines
Machine 1 Machine 2
(in `) (in `)
Date of Purchase 01.04.2019 01.10.2021

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Original Cost 1,50,000

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Depreciation for (2019-20) (SLM) (30,000)

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WDV on 31.03.2020 1,20,000
Depreciation for (2020-21) (SLM)
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WDV on 31.03.2021
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Depreciation for (2021-22) (WDV)
90,000
(6,750)
WDV (original cost of Machine 2) on 1.10.2021 83,250 50,000
Sale Proceeds (1,00,000)
Profit on Sale 16,750
Depreciation for 2021-22 (WDV @ 15%) (3 months) - (1,875)
WDV on 31.03.2022 - 48,125

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cash book of Mr. Karan shows ` 2,60,400 as the balance of bank as on 31 .December,
Question 2

c. o (a) The empass book. On
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2021 but you find that it does not agree with the balance as per the bank
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analysis, you found the following discrepancies:

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(i) On 15 December, th2021 the payment side of the cash book was overcast by
` 10,000.
(ii) A Cheque for ` 1,18,000 issued on 6 December, 2021 was not taken in the bank
th

Column.

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4 FOUNDATION EXAMINATION: NOVEMBER, 2022

(iii) On 20 th December, 2021 the debit balance of ` 8,460 as on the previous day, was
brought forward as credit balance in the cash book.
(iv) Of the total cheques amounting to ` 12,370 drawn in the last week of December 2021,
cheques aggregating ` 9,360 were encashed in December, 2021.
(v) Dividends of ` 35,000 collected by the bank and fire insurance premium of ` 7,900
paid by the bank were not recorded in the cash book.
(vi) A Cheque issued to a creditor of ` 1,75,000 was recorded twice in the cash book.
(vii) Bill for collection amounting to ` 53,000 credited by the bank on 21st December, 2021
but no advice was received by Mr. Karan till 31st December, 2021.
(viii) A Customer, who received a cash discount of 3% on his account of ` 60,000 paid a
cheque on 10th December, 2021. The cashier erroneously entered the gross amount
in the bank column of the cash book.
You are required to prepare the bank reconciliation statement as on 31st December, 2021.
(10 Marks)
(b) Before preparation of the Trial Balance, the following errors were found in the books of
Hare Rama & Sons. Give the necessary entries to correct them.
(i) Minor Repairs made to the building amounting to ` 1,850 were debited to the Building
Account.
(ii) An amount of ` 3,000 due from Shayam Lal, which had been written off as bad debts
in the previous year, recovered in the current year, and had been posted to the
personal Account of Shayam Lal.
(iii) Furniture purchased for office use amounting to ` 20,000 has been entered in the
purchase day book.
(iv) Goods purchased from Ram Singh amounting to ` 8,000 have remained unrecorded
so far.
(v) College fees of proprietor's son, ` 15,000 debited to the Audit fees Account.
(vi) Receipt of ` 4,500 from Meet Kumar credited to the Pinki Rani.
(vii) Goods amounting to ` 6,200 had been returned by a customer and were taken into
inventory, but no entry was made in the books.
(viii) ` 1500 paid for wages to workmen for making office furniture had been charged to
wages account.
(ix) Salary paid to a clerk ` 12,000 has been debited to his personal account.
(x) A purchase of goods from Raghav amounting to ` 20,000 has been wrongly entered
through the sales book. (10 Marks)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 5

Answer
(a) Bank Reconciliation Statement of Mr. Karan as on 31 st Dec., 2021

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Particulars Details Amount

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` `

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e 15WrongDecember,2021
Balance as per the Cash Book 2,60,400

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Add: Casting in Cash book as on 10,000
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16,920
Mistake in bringing forward ` 8,460
debit balance as credit balance on
20th Dec., 2021
Cheques issued but not presented:
Issued 12,370
Encashed 9,360 3,010
Dividends directly collected by bank but

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not yet entered in the Cash Book 35,000

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. not
Cheque recorded twice in the Cash Book 1,75,000

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Bill for Collection credited in Bank 53,000 2,92,930
entered in Cash Book
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5,53,330
Less: Cheques issued but 1,18,000
Bank column
Fire Insurance Premium paid by the bank 7,900
directly not yet recorded in the Cash Book
Discount allowed wrongly entered in Cash 1,800 (1,27,700)
Book
Balance as per the Pass Book 4,25,630

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Note: The above answer has been given considering that the books are not closed on

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31st December, 2021. Alternatively, If the books are to be closed on 31 st December,

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then adjusted cash book will be prepared as given below:

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Adjusted Cash Book

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Particulars Amount Particulars Amount

a To Balance b/d
(` )
2,60,400 By cheques not entered
(` )
1,18,000
To wrong casting 10,000 By Fire Insurance Premium 7,900

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6 FOUNDATION EXAMINATION: NOVEMBER, 2022

To error for wrong posting 16,920 By discount wrongly entered 1,800
To dividends collected by bank 35,000 By balance c/d 3,69,620
To cheques recorded twice 1,75,000
4,97,320 4,97,320
Bank Reconciliation Statement
Particulars `
Balance as per the Cash Book (corrected) 3,69,620
Add: Cheques issued but not yet presented 3,010
Bill for collection credited by Bank 53,000
Balance as per the Pass Book 4,25,630
(b) In the books of Hare Rama & Sons
Journal
Particulars L.F. Dr. Cr.
` `
(i) Repairs A/c Dr. 1,850
To Building A/c 1,850
(Correction of wrong debit to building A/c for repairs
made)
(ii) Shyam Lal A/c Dr. 3,000
To Bad Debts Recovered A/c 3,000
(Correction of wrong credit to Personal A/c in respect of
recovery of previously written off bad debts)
(iii) Furniture A/c Dr. 20,000
To Purchases A/c 20,000
(Correction of wrong debit to Purchases A/c for furniture
purchased)
(iv) Purchases A/c Dr. 8,000
To Ram Singh A/c 8,000
(Purchases of goods from Ram Singh remained
unrecorded)
(v) Drawings A/c Dr. 15,000
To Audit Fees A/c 15,000
(Correction of wrong debit to Audit Fees A/c for college
fees of proprietor’s son)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 7

(vi) Pinki Rani A/c Dr. 4,500
To Meet Kumar A/c 4,500

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(Correction of wrong credit to Pinki Rani. instead of Meet

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Kumar.)

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(vii) Returns Inwards / Sales Return A/c Dr. 6,200

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To Customer/Debtors A/c 6,200

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(Entry of goods returned by customer and taken in

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inventory omitted from records)
(viii) Furniture A/c Dr. 1,500
To Wages A/c 1,500
(Wages paid to workmen for office furniture wrongly
charged to wages a/c now rectified)
(ix) Salaries A/c Dr. 12,000
To Clerk’s (Personal) A/c 12,000
(Correction of wrong debit to Clerk’s personal A/c for

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salaries paid)

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(x) Purchases A/c Dr. 20,000

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Sales A/c Dr. 20,000
To Raghav A/c

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(Correction of wrong entry in the sales Book for
purchases of goods from Raghav)
Question 3
(a) T draws on J a bill of exchange for ` 1,80,000 on 1st April, 2022 for 3 months. J accepts
the bill and sends it to T, who gets it discounted from his banker for ` 1,72,800. T
'immediately remits ` 57,600 to J. On the due date, T, being unable to remit the amount
due, accepts a bill for ` 2,52,000 for three months, which is discounted by J from his banker
for ` 2,40,660. J sends ` 40,440 to T. Before the maturity of the bill, T becomes bankrupt

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and his estate paying fifty paisa in a rupee.

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Give the journal entries in the books of T and J. (15 Marks)

(i) The following are the transactions that took place between G and s
any ONE of the following two sub-parts i.e. either (i) or (ii).
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H during the period

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from 1 October, 2021 to 31 March, 2022:
st st

ag 2021 Amount (`)
Oct. 1 Balance due to G by H 4,500
Oct. 18 Goods sold by G to H 3,750

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8 FOUNDATION EXAMINATION: NOVEMBER, 2022

Nov. 16 Goods sold by H to G (invoice dated November, 26) 6,000
Dec. 7 Goods sold by H to G (invoice dated December, 17) 5,250
2022
Jan. 3 Promissory note given by G to H; at three months 7,500
Feb. 4 Cash paid by G to H 1,500
Mar. 21 Goods sold by G to H 6,450
Mar. 28 Goods sold by H to G (invoice dated April, 8) 4,050
Draw up an account current up to March 31st, 2022 to be rendered by G to H, charging
interest at 10% per annum.
Interest is to be calculated to the nearest rupee. (5 Marks)
Or
(ii) A trader allows his customers, credit for one week only, beyond which he charges
interest @ 12% per annum. D, a customer buys goods as follows:
Date of Transaction Amount (`)
January 2, 2022 60,000
January 28, 2022 55,000
February 17, 2022 70,000
March 4, 2022 42,000
D settles his account on 31st March, 2022. Calculate the amount of interest payable
by D, using average due date method. Assume 9 th January, 2022 as the base date.
(5 Marks)
Answer
(a) In the books of T
Journal Entries
Date Particulars Debit Credit
Amount Amount
2022 ` `
1-Apr Bills receivable A/c Dr. 1,80,000
To J’s A/c 1,80,000
(Being acceptance received from J for mutual
accommodation)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 9

1-Apr Bank A/c Dr. 1,72,800
Discount A/c Dr. 7,200

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To Bills receivable A/c 1,80,000

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(Being bill discounted with bank)

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1-Apr J’s A/c Dr. 60,000

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To Bank A/c 57,600

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To Discount A/c 2,400
(Being ` 57,600 sent to J)
4-Jul J’s A/c Dr. 2,52,000
To Bills payable A/c 2,52,000
(Being Acceptance given)
4-Jul Bank A/c Dr. 40,440
Discount A/c
1,20,000+40,440
[ 2,40,660 × 11,340] Dr. 7,560

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To J’s A/c
. c 48,000

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(Being proceeds of second bill received from J)
7-Oct Bills payable A/c
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To J’s A/c
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(Being bill dishonoured due to insolvency)
2,52,000

7-Oct J’s A/c (1,20,000+48,000) Dr. 1,68,000
To Bank A/c 84,000
To Deficiency A/c * 84,000
(Being insolvent, only 50% amount paid to J)

In the books of J

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Journal Entries

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Date Particulars

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gla `
Amount

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a 1,80,000
`

ag 1-Apr T A/c
To Bills Payable A/c
Dr.
1,80,000
(Being bill of exchange accepted and send to
Mr. T)

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10 FOUNDATION EXAMINATION: NOVEMBER, 2022

1-Apr Bank A/c Dr. 57,600
Discount Charges A/c Dr. 2,400
To T A/c 60,000
(Being the amount received from T on account of the
bill receivable)
4-Jul Bills Receivable A/c Dr. 2,52,000
To T A/c 2,52,000
(Being the bills accepted by T)
4-Jul Bank A/c Dr. 2,40,660
Discount Charges A/c Dr. 11,340
To Bills Receivable A/c 2,52,000
(Being T’s acceptance discounted with bank)
4-Jul Bills Payable A/c Dr. 1,80,000
Bank A/c 1,80,000
(Being the amount met on the due date)
4-Jul T A/c Dr. 48,000
To Bank A/c 40,440
To Discount A/c 7,560
(Being the amount received and discount debited to T
account)
1,20,000+40,440
[ 2,40,660
× 11,340] = 7,560
7-Oct T A/c Dr. 2,52,000
To Bank A/c 2,52,000
(Being T’s acceptance dishonoured due to T’s
bankruptcy)
7- Bank A/c Dr. 84,000
Octl Bad Debts A/c* Dr. 84,000
1,68,000
To T A/c
(Being the amount received from T and the
balance being written off as bad debts)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 11

(b) (i) H in Account Current with G
(Interest to 31 st March,2022@10%p.a.) [Product Method]

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Date Due Particulars No. of Amt. Product Date Due Particulars No. of Amt. Product

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date days till date days till

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31.3.22 31.3.22
2021 2021

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` ` 2021 2021 ` `

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Oct 1, Oct 1, To Balance b/d 182 4,500 8,19,000 Nov 16 Nov 26 By Purchases 125 6,000 7,50,000

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Oct 18, Oct 18 To Sales 164 3,750 6,15,000 Dec 7 Dec. By Purchases 104 5,250 5,46,000
17
2022 2022 2022 2022
Jan 3 Apr 6 To Bills payable (6) 7,500 (45,000) Mar 28 Apr 8 By Purchases (8) 4,050 (32,400)
Feb 4 Feb 4 To Cash 55 1,500 82,500 Mar 31 Mar 31 By Balance of 2,72,400
product
Mar 21 Mar. To Sales 10 6,450 64,500 By Balance c/d 8,475
21
Mar 31 Mar 31 To Interest 75 -
23,775 15,36,000 23,775 15,36,000

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2,72,400 𝑋 10 𝑋 1

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(Interest for the period = 100 𝑋 365
= ` 74.63 or rounded off to ` 75)

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Alternative:
H in AccounteCurrent
(b) (i)
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Date Due Particulars No. ofa g
(Interest to 31 March,2022@10%p.a.)
st

Amt.
[Interest Method]
Interest Date Due Particulars No. of Amt. Interes
date days date days t
till till
31.3.22 31.3.22
2021 2021 ` ` 2021 2021 ` `
Oct 1, Oct 1, To Balance 182 4,500 224.38 Nov 16 Nov 26 By Purchases 125 6,000 205.48
b/d
Oct 18, Oct 18 To Sales 164 3,750 168.49 Dec 7 Dec. 17 By Purchases 104 5,250 149.59

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2022 2022 2022 2022

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Jan 3 Apr 6 To Bills (6) 7,500 (12.33) Mar 28 Apr 8 By Purchases (8) 4,050 (8.88)

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payable

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Feb 4 Feb 4 To Cash 55 1,500 22.60 Mar 31 Mar 31 By Balance of

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product

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Mar 21 Mar. 21 To Sales 10 6,450 17.67 By Balance c/d 8474.62 74.62

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Mar 31 Mar 31 To Interest 74.62 -

ag 23,774.62 420.81 23,774.62 420.81

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12 FOUNDATION EXAMINATION: NOVEMBER, 2022

OR
(ii) Assuming 9th January, 2022 to be the base date:
Date of Due date of Amount No. of days from Product
Sale payment base date
` `
2nd Jan 9th Jan 60,000 0 0
28th Jan 4th Feb 55,000 26 14,30,000
17th Feb 24th Feb 70,000 46 32,20,000
4th March 11th Mar 42,000 61 25,62,000
2,27,000 72,12,000
Total Product
Average due date = Base date +
Total Amount
= 9th January,2022 + 72,12,000/2,27,000
= 9th January,2022 + 32 days = 10 th February,2022
Thus, average due date = 10th February, 2022
No. of days from 10 th February, 2022 to 31st March, 2022 = 49 days.
Interest payable by D on ` 2,27,000 for 49 days @ 12% per annum
= 2,27,000 X12/100 X 49/365 = ` 3,656.88 or ` 3,657
Question 4
(a) X and Y are in partnership business sharing profits and losses in the ratio of 2:3.
Their Balance Sheet as at 31st March, 2022 is as follows:
Liabilities Amount (`) Assets Amount (`)
Capital Accounts: Building 60,000
X 60,000 Plant 45,000
Y 1,40,000 Furniture 23,500
General Reserve 40,000 Debtors 38,400
Creditors 42,600 Bills receivable 12,500
Bills payable 15,400 Stock 42,600
Salary payable 2,000 Bank 78,000
3,00,000 3,00,000
On 1st April, 2022 they decided to admit Z into the partnership giving him 1/5th share in
the future profits. He brings in ` 1,00,000 as his share of capital. Goodwill was valued at

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 13

` 1,20,000 at the time of admission of Z. The partners decided to revalue the assets and
liabilities as follows:

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(i) Plant ` 40,000, Stock ` 42,000, Furniture ` 20,000 and Bills Receivable ` 12,000.

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(ii) Out of total Debtors, ` 2400 is bad and 5% provision is to be provided for bad and
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doubtful debts.
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(iv)s Actual liability towards salary payable is ` 1200 only.
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(iii) Building

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lYou are required to show the following accounts in the books Of the firm:
a (1) Revaluation Account
(2) Partner's Capital Accounts
(3) Balance sheet of the Firm after Admission of Z. (10 Marks)
(b) The Income and Expenditure Account of the Young Boys Club for the rear 2022 is as
follows:

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Expenditure Amount Income Amount

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(`) (`)

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To Salaries 3,750 By Subscription 8,500
To General Expenses
l a s 1,500 By Entrance Fees 250
To Audit fee
To Secretary's Honorarium a g 250 By Contribution for
1,000 Annual Dinner 1,000
To Stationery and Printing 450 By Annual Sports
To Annual Dinner expenses 1,500 meet receipts 750
To Interest and Bank Charges 150
To Depreciation 400
To Surplus 1,500

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10,500 10,500

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This Account has been prepared after the following adjustments:

em(`)
s
Amount

s em Subscription outstanding on 31st December, 2021
l a
g 550
700

gla Subscription received in advance on 31st December, 2021
a 370
a Subscription received in advance on 31st December, 2022
Subscription outstanding on 31st December, 2022 750

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14 FOUNDATION EXAMINATION: NOVEMBER, 2022

Salaries outstanding at the beginning and at the end of 2022 were respectively ` 600 and
` 150. General Expense include insurance prepaid to the extent of ` 150. Audit fee for
2022 is still unpaid. During 2022 audit fee for 2021 was paid amounting to ` 200.
The club owned a freehold lease of ground valued at ` 20,000. The club had sports
equipment on 1 at January, 2022 valued at ` 2600. At the end of the year, after
depreciation, the balance of equipment amounted to, 3,600. In 2021, the club raised a bank
loan of ` 5,000, This was outstanding throughout 2022. On 31st December, 2022 cash in
hand amounted to ` 1600.
You are required to prepare:
(i) Receipts and Payments Account for 2022
(ii) Balance Sheet as on 31st December, 2022
(iii) Balance Sheet as on 31st December, 2021. (10 Marks)
Answer
(a) In the books of X, Y and Z
Revaluation Account
Particulars ` Particulars `
To Plant 5,000 By Building 45,000
To Bad Debts 2,400 By Salary Payable 800
To Provision for Doubtful Debts 1,800
To Stock 600
To Furniture 3,500
To Bills receivable 500
To Profit on revaluation
X 12,800
Y 19,200
45,800 45,800

Partners’ Capital A/c’s
Particulars X Y Z Particulars X Y Z
To X and Y - - 24,000 By Balance 60,000 1,40,000 -
(Goodwill b/d
adjustment)
To Balance c/d 98,400 1,97,600 76,000 By Bank - - 1,00,000
By Z 9,600 14,400 -

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 15

By General 16,000 24,000 -
Reserve

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By 12,800 19,200 -

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Revaluation

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e Balance Sheet as on 1 April, 2022 (after admission) a
98,400 1,97,600 1,00,000 98,400 1,97,600 1,00,000

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a Capital Accounts:
Liabilities ` Assets `
Building 1,05,000
X 98,400 Plant 40,000
Y 1,97,600 Furniture 20,000
Z 76,000 Debtors* 34,200
Creditors 42,600 Bills Receivable 12,000

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Bills Payable 15,400 Stock 42,000

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4,31,200 .
Salary Payable 1,200 Bank 1,78,000

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4,31,200
* Debtors: (38,400 – 2,400 – 1,800)a= ` 34,200
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(b) agThe Young Boys Club
Receipts and Payments Account for the year ended 31 st December, 2022
Receipts ` Payments `
To Balance b/d (balancing 1,580 By Salaries (WN-2) 3,900
figure)
To Subscriptions (WN-1) 8,270 By General Expenses 1500

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To Entrance Fees 250 Add: Paid for 2023 150 1,650

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To Contribution for annual 1,000 By Audit fee (2021) 200

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dinner

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To Annual sport meet receipt 750 By Secy. Honorarium 1,000

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gDinner
By Stationery & Printing 450

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By Annual 1,500

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Expenses
By Interest & Bank 150
Charges
By Sports Equipment (WN 1,400
-3)

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16 FOUNDATION EXAMINATION: NOVEMBER, 2022

By Balance c/d 1,600
11,850 11,850
To Balance b/d 1,600

Working Note 1
Subscription A/c

To Subscription O/s 2021 700 By Balance b/d (b/f) 8,270
To Subscription in Advance By Subscription O/s 2022 750
2022 370 By Subscription in Advance 2021 550
To Income & Expenditure a/c 8,500
Total 9,570 Total 9,570
Working Note 2
Salaries A/c
To Bank (b/f) 3,900 By Income & Expenditure a/c 3,750
To Salaries O/s 2022 450 By Salaries O/s 2021 600
4,350 4,350

Working Note 3
Sports Equipment A/c

To Balance b/d 2,600 By Depreciation 400
To Cash / Bank (b/f) 1,400 By Balance c/d 3,600
Total 4,000 Total 4,000

Balance Sheet of Young Boys Club as on December 31, 2022
Liabilities ` ` Assets ` `
Subscription received in 370 Freehold Ground 20,000
advance
Audit Fee Outstanding 250 Sport Equipment:
Salaries Outstanding 450 As per last Balance 2,600
Sheet
Bank Loan 5,000 Additions 1,400
Capital Fund: 4,000
Balance as per previous Less: Depreciation (400) 3,600

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 17

Balance Sheet 18,530 Subscription Outstanding 750
Add: Surplus for 2022 1,500 Insurance Prepaid 150

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20,030 Cash in hand 1,600

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26,100 26,100

. Sheet of Young Boys Club as on 31st December, 2021
mBalance s e
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l Subscriptions received in advance ag
Liabilities Assets
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` `

a Salaries outstanding
550 Freehold Ground 20,000
600 Sports Equipment 2,600
Audit fees unpaid 200 Subscriptions Outstanding 700
Bank Loan 5,000 Cash in hand 1,580
Capital Fund (balancing figure) 18,530
24,880 24,880
Question 5

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(a) Prepare a Triple Column Cash Book from the following transactions of M/s Raj Agencies

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and bring down the balance for the start of next month:

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2022 `
March 1 Cash in hand
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1 Cash at bank 1,20,000
2 Paid into bank 10,000
5 Bought furniture and issued cheque 15,000
8 Purchased goods for cash 5,000
12 Received cash from Mohan 9,800
Discount allowed to him 200
14 Cash sales 50,000
16 Paid to Lata by cheque 14,500

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Discount received 500

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19 Paid into Bank 5,000

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23 Withdrawn from Bank for Private expenses 6,000

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24 Received cheque from Gupta 14,300

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Allowed him discount
g la 200

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26 Deposited Gupta's cheque into Bank

a 28
30
Withdrew cash from Bank for Office use
Paid rent by cheque
20,000
8,000
(5 Marks)

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18 FOUNDATION EXAMINATION: NOVEMBER, 2022

(b) R and S are partners in a firm with a capital of 14,00,000 and 12,00,000 respectively.
During the year ended on 31st March, 2022 firm earned a profit of ` 6,50,000. Assuming
that the normal rate of return is 20%. Calculate the amount of Goodwill of the firm by using
(i) Capitalization method
(ii) Super Profit method, if the goodwill is valued at 6 years purchase of super profits.
(5 Marks)
(c) The balance sheet of S on 1st April, 2021 was as follows:
Particulars Amount (`) Particulars Amount (`)
Trade Payables 6,50,000 Furniture and Fixtures 6,50,000
Expenses Payable 75,000 Vehicle 2,75,000
Capital 22,00,000 Trade Receivable 11,00,000
Cash at Bank 4,75,000
Inventories 4,25,000
29,25,000 29,25,000

During 2021-22, his profit and Loss Account revealed a net profit of ` 6,70,000. This was
after allowing for the following:
(i) Commission paid to selling agent ` 65,000
(ii) Discount received from creditors ` 75,000
(iii) Purchased a vehicle of ` 50,000 on 31 st March, 2022
(iv) Depreciation on Furniture and Fixtures @ 10% and on Vehicle @ 20%
(v) A provision for doubtful debts @ 3% of the trade receivables as at 31st March, 2022
But while preparing the Profit and Loss Account he had forgotten to provide for
(1) prepaid expenses ` 15,000 and
(2) outstanding commission` 35,000.
His current assets and liabilities on 31st March, 2022 were: Inventories ` 6,50,000. Trade
Receivables 13,00,000 (before provision for doubtful debts), cash at Bank 5,50,000 and
Trade Payables ` 1,46,000.
During the year he introduced further capital of ` 3,00,000 into the business.
You are required to prepare the balance sheet as at March 31, 2022. (10 Marks)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 19

Answer
(a) M/s Raj Agencies

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Dr. Cash Book Cr.
Date
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Particulars L.F. Discount Cash Bank Date Particulars L.F. Discount Cash Bank

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` ` ` ` ` `

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2022 2022

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Mar 1 To Balance 30,000 1,20,000 Mar 2 By Bank C 10,000
b/d
Mar 2 To Cash C 10,000 Mar 5 By Furniture 15,000
Mar 12 To Mohan 200 9,800 Mar 8 By Goods / 5,000
Purchase
Mar 14 To Sales 50,000 Mar 16 By Lata 500 14,500
Mar 19 To Cash C 5,000 Mar 19 By Bank C 5,000
Mar 24 To Gupta 200 14,300 Mar 23 By Drawings 6,000
Mar 26 To Cash C 14,300 Mar 26 By Bank C 14,300
Mar 28 To Bank C 20,000 Mar 28 By Cash C 20,000

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Mar 30 By Rent 8,000

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Mar 31 By Balance c/d 89,800 85,800

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400 1,24,100 1,49,300 500 1,24,100 1,49,300

(b) (i) Capitalization Method:

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Total Capitalised Value of the firm
AverageProfit  100
= = ` 6,50,000 X 100/20 = ` 32,50,000
Normal Rate of Return
Goodwill = Total Capitalised Value of Business – Capital Employed
= ` 32,50,000 – ` 26,00,000 [i.e., ` 14,00,000 (R) + ` 12,00,000 (S)]
Goodwill = ` 6,50,000
(ii) Super Profit Method:

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Normal Profit = Capital Employed x Normal rate of return i.e. ` 26,00,000 x 20/100

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= ` 5,20,000

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Average Profit = ` 6,50,000

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Super Profit = Average profit – Normal Profit

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= ` 6,50,000 – ` 5,20,000 = ` 1,30,000
Goodwill = Super Profit x Number of years’ purchase
= ` 1,30,000 x 6 = ` 7,80,000

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20 FOUNDATION EXAMINATION: NOVEMBER, 2022

(c) Balance Sheet of S as on 31 st March, 2022
Liabilities ` Assets `
Capital 22,00,000 Cash at Bank 5,50,000
Add: Net Profit (WN.1) 6,50,000 Trade receivables 12,61,000
(WN. 2)
28,50,000 Vehicles (WN. 3) 2,70,000
Add: Introduction of capital 3,00,000 Furniture & Fixtures 5,85,000
(WN. 4)
31,50,000 Inventories 6,50,000
Outstanding commission 35,000 Prepaid expenses 15,000
Trade payables 1,46,000
33,31,000 33,31,000
Working Note 1 S

Profit and Loss Account (Revised)
Particulars ` Particulars `
To Outstanding Commission 35,000 By Balance b/d 6,70,000
To Net profit 6,50,000 By Prepaid expenses 15,000
6,85,000 6,85,000
Working Note 2
Trade Receivables
Particulars ` Particulars `
To Balance b/d 13,00,000 By Provision for Doubtful Debts 39,000
By Balance c/d (b/f) 12,61,000
13,00,000 13,00,000

Working Note 3
Vehicles A/c
Particulars ` Particulars `
To Balance b/d 2,75,000 By Depreciation 55,000
To Bank a/c 50,000 By Balance c/d (b/f) 2,70,000
3,25,000 3,25,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 21

Working Note 4
Furniture & Fixtures A/c

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Particulars ` Particulars `

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To Balance b/d 6,50,000 By Depreciation 65,000

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By Balance c/d (b/f) 5,85,000
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a(a)g PQR Limited issued 2,00,000 equity shares of, 10 each payable as ` 3 per share on
Question 6

application & ` 5 per share (including ` 2 as premium) on allotment and ` 4 per share on
call. All these shares were subscribed. Money due on all shares was fully received except
from Mr. J, holding 5,000 shares who failed to pay ·the allotment and call money and Mr.
K, holding 10,000 shares, who failed to pay the call money. All these 15,000 shares were
forfeited. Out of the forfeited shares, 10,000 shares (including whole of J's shares) were
subsequently re-issued to Mr. L as fully paid up at a discount of ` 1 per share.

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Pass necessary journal entries in the books of PQR Limited. Also prepare Balance Sheet

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(b) "The cost of Property, Plant and Equipment.comprises of any cost directly attributable to
and notes to accounts of the company. (15 Marks)

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la Give any five examples of such 'directly attributable
bring the asset to the location and condition

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a manner intended by the enterprise".
costs'.
Answer
a (5 Marks)

(a) In the books of PQR. Ltd.
Journal
Entry Particulars ` `
no.

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1 Bank A/c Dr 6,00,000

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To Equity Share Application A/c 6,00,000
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(Being application money on 2,00,000 shares @

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` 3 per share received)

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2 Equity Share Application A/c Dr
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6,00,000

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To Equity Share Capital A/c 6,00,000

a
(Being transfer of application money to Equity
Share Capital on 2,00,000 shares @ ` 3 per share
as per Director’s Resolution no… dated…)

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22 FOUNDATION EXAMINATION: NOVEMBER, 2022

3 Equity Share Allotment A/c Dr 10,00,000
To Equity Share Capital A/c 6,00,000
To Securities Premium A/c 4,00,000
(Being amount due from shareholders in respect
of allotment on 2,00,000 shares @ ` 5 per share
including premium ` 2 per share as per Director’s
Resolution no……dated……)
4 Bank A/c Dr 9,75,000
To Equity Share Allotment A/c 9,75,000
(Being amount received against allotment on
1,95,000 shares @ ` 5 per share including
premium @ ` 2 per share)
OR
Bank A/c Dr 9,75,000
Calls in Arrears A/c Dr 25,000
To Equity Share Allotment A/c 10,00,000
(Being amount received against allotment on
2,00,000 share @ ` 5 per share including
premium @ ` 2 per share, Mr. J holding 5,000
shares failed to pay allotment money)
5 Equity Share Call A/c Dr 8,00,000
To Equity Share Capital A/c 8,00,00
(Being amount due from shareholders in respect
of call on 2,00,000 shares @ ` 4 per share as per
Director’s resolution no…...dated…….)
6 Bank A/c Dr 7,40,000
To Equity Share Call A/c 7,40,000
(Being amount received against the call on
1,85,000 shares @ ` 4 per share)

OR
Bank A/c Dr 7,40,000
Calls in Arrears A/c Dr 60,000 8,00,000
To Equity Share Call A/c
(Being amount received against the call on
1,85,000 shares @ ` 4 per share, J holding 5,000
shares and K holding 10,000 shares failed to pay
call money)

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 23

7 Equity Share Capital A/c (15,000 x ` 10) Dr 1,50,000
Securities Premium A/c (5000 x ` 2) Dr 10,000

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To Equity Share Allotment A/c (5000 x ` 5) 25,000

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60,000

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To Equity Share Call A/c (15,000 x ` 4)

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To Forfeited Shares A/c 75,000

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(Being forfeiture of 15,000 equity shares for non-

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payment of allotment and call money on 5,000

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shares and for non-payment of call money on
10,000 shares as per Board’s Resolution
No…..dated ….)
OR
Equity Share Capital A/c (15,000 x ` 10) Dr 1,50,000
Securities Premium A/c (5000 x ` 2) Dr 10,000
To Calls in Arrears A/c ( ` 25,000 + ` 60,000) 85,000
To Forfeited Shares A/c 75,000
(Being forfeiture of 15,000 equity shares for non-
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payment of allotment and call money on 5,000

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shares and for non-payment of call money on

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10,000 shares as per Board’s Resolution
No…...dated…….)

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8 Bank A/c Dr 90,000
Forfeited Shares A/c 10,000
To Equity Share Capital A/c 1,00,000
(Being re-issue of 10,000 shares @ ` 9 each as
per Board’s Resolution No……dated…...)
9 Forfeited Shares A/c Dr 35,000
To Capital Reserve A/c 35,000
(Being profit on re-issue transferred to Capital

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Reserve)

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Balance Sheet of PQR as at……
Notes No. m
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Particulars
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`

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EQUITY AND LIABILITIES

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Shareholders’ funds

a Share Capital
Reserves and Surplus 2
19,80,000
4,25,000
Total 24,05,000

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24 FOUNDATION EXAMINATION: NOVEMBER, 2022

ASSETS
Current assets
Cash and Cash Equivalents 3 24,05,000
Total 24,05,000
Notes to accounts
` `
1. Share Capital
Equity share capital
Issued share capital
2,00,000 Equity shares of ` 10 each 20,00,000
Subscribed, called up and paid up share capital
1,95,000 Equity shares of ` 10 each 19,50,000
Add: Forfeited shares 30,000 19,80,000
2. Reserves and Surplus
Securities Premium 3,90,000
Capital Reserve 35,000 4,25,000
3. Cash and Cash Equivalents
Amount received on Share Application 6,00,000
Amount Received on Share Allotment 9,75,000
Amount Received on Share Call 7,40,000
Amount Received on Re-issue of Shares 90,000 24,05,000

Working Note:
(1) Calculation of Amount to be Transferred to Capital Reserve
Amount forfeited per share of J ` 3 Amount forfeited per `6
share of K
Less: Loss on re-issue per share (` 1) Less: Loss on re-issue (` 1)
per share
Surplus ` 2 Surplus `5
Transferred to Capital Reserve: J’s ` 10,000
share
(5,000 x ` 2)
K’s Share (5,000 x ` 5) ` 25,000
Total ` 35,000

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PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 25

(2) Balance of Security Premium
Total Premium amount receivable on allotment = 4,00,000

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Less: Amount reversed on forfeiture = (10,000)
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Balance remaining = 3,90,000

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(b) Cost of Property, Plant and Equipment comprise of any cost directly attributable to bring
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the asset to the location and condition necessary for it to be capable of operating in a

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manner intended by the enterprise.
of directly attributable costs are:
(a) cost of employee benefits arising directly from acquisition or construction of an item
of property, plant and equipment.
(b) cost of site preparation
(c) initial delivery and handling costs
(d) installation and assembly costs

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(e) cost of testing whether the asset is functioning properly, after deducting the net

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proceeds from selling the items produced while testing (such as samples produced
while testing)
m .for helping in installation of a machine
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(f) professional fees e.g., engineers hired

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(g) transportation cost
(h) trial run expenses
Thus, all the expenses which are necessary for asset to bring it in condition and location
for desired use will become part of cost of the asset.

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