CA Foundation May 2026 Suggested Answers Paper 1 Accounting

FOR CA FOUNDATION EXAM PREPARATION

CA Foundation 2026
Suggested Answers ·
Paper 1 Accounting
EXAM YEAR TYPE SUBJECT

CA Foundation 2026 Suggested Answers Paper 1 Accounting
DATE

May 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 1: ACCOUNTING
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o m Question No. 1 is compulsory. c. o
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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

a of note forming part of the answer.
Working Notes should form part of the answer.
Question 1
(a) State with reasons, whether the following statements are True or False:
(i) Cost of inventories should comprise all cost of purchase.
(ii) According to the decision in the case of Garner vs Murray, the loss due

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to insolvency of a partner has to be borne by the solvent partners in their
profit sharing ratio.

e man old building which was necessary for
the construction of a new s
(iii) Amount spent on demolition of

l a factory building on the same site is Revenue
Expenditure.
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(iv) As per Section 39 of the Companies Act, 2013, in case of issue of shares,
the Application money must be atleast 25% of the issue price of shares.
(v) Adjustments in the form of additional information shall be adjusted in
the final accounts of a Non-profit organization only in one place.
(vi) Cash book is a subsidiary book as well as a principal book.
(6 x 2 = 12 Marks)
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(b) Define Accounting Policies in brief. Name the major characteristics which

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should be considered for the purpose of selection and application of

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accounting policies. Also state the conditions in which a change in
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las accounting policies should be made.
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(4 Marks)
a Stores during the
ag (c) The following are some of the transactions of M/s Modern
month of March, 2026 as per their Waste Book. You are required to make out
their Returns Outward Book.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

SI. Date Particulars
No.
1 8 March, 2026 Returned items to Manoj Stationery Mart
12 Dozen Pencils @ ` 50 per Dozen
12 Dozen Pens @` 150 per Dozen
Less: Trade Discount @ 4%
2 15 March,2026 Returned items, which were bought on cash, to
Raj Stationery:
8 Dozen Erasers @ ` 6 per Dozen
3 18 March,2026 Returned Computer to Vidhi Computers,
which was purchased for ` 28,000 for office use
on credit.
4 21 March,2026 Returned items to Rajat Copiers
8 Packets A 4 Paper @ ` 100 per Packet
6 Packets A 3 Paper @`125 per Packet
Less: Trade Discount @ 6%

(4 Marks)
Answer
(a) (i) False: Cost of inventories should comprise all cost of purchase, costs of
conversion and other costs incurred in bringing the inventories to their
present location and condition.
(ii) False: According to the decision in case of Garner vs Murray, the loss
due to insolvency of a partner has to be borne by the solvent partners
in the capital ratio and not profit sharing ratio.
(iii) False: The amount spent on demolition of an old building which is
necessary for the construction of a new factory building on the same
site is a capital expenditure.
(iv) False: As per Section 39 of the Companies Act, 2013, application
money must be at least 5% of the nominal value of shares and not 25%
of issue price of shares.
(v) False: Additional information means that information which has been
identified just before the preparation of the final accounts. As NPO

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SUGGESTED ANSWERS ACCOUNTING

follows the double entry system of book keeping, there shall be two
effects for each of the additional information.

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(vi) True: Cash Transactions are Straightway recorded in the cash book and

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on the basis of such records, ledgers are prepared. Therefore, cash

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book is a subsidiary book. Since in cash book balances are directly
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taken from the Trial balance, it is also treated as principal book. Hence,
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a(b)g applying
Accounting Policies refer to specific accounting principles and methods of
these principles adopted by the enterprise in the preparation and
presentation of financial statements. Policies are based on various
accounting concepts, principles and conventions.
The major characteristics that should be considered while selecting and
applying accounting policies are (i) Prudence (ii) Substance over form and
(iii), Materiality, There is no single list of accounting policies, which are
applicable to all enterprises in all circumstances. Enterprises operate in
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diverse and complex environmental situations and so they have to adopt

em should be made in the following
various policies.

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A change in accounting policies

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conditions:
a statute or for compliance with an Accounting
(a) It is required by some
Standard
(b) Change would result in more appropriate presentation of financial
statement
(c) In the books of M/s Modern Stores
Return Outward Book

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Date Particulars Details Amount
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2026

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March, 8 Manoj Stationary Mart

las 12 doz pencils @ ` 50 per doz
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ag 12 doz Pens @ ` 150 per doz. 1,800
2,400
Less: 4% trade discount (96) 2,304

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

March, 21 Rajat Copies
8 Packets A4 paper @ ` 100 per Packet 800
6 Packets A3 paper @ ` 125 per Packet 750
1,550
Less: 6% trade discount (93) 1,457
Total 3,761

Note: Returns of cash purchases and returns of computer are not recorded
in the Return Outward Book.
Question 2
(a) On 1st April, 2023 Suman Limited purchased certain machinery for
` 60,00,000. On 1st October, 2025, a part of the said machinery purchased on
1st April, 2023 for ` 4,00,000 having become obsolete was auctioned for
` 2,25,000. On the same day a fresh machinery was acquired at a cost of
` 7,50,000 and installation charges of ` 40,000 were incurred in erecting it
on the same date.
The company has adopted the method of providing depreciation @10% per
annum on the Written Down Value of the machinery.
You are required to prepare (i) Machinery Account, (ii) Provision for
Depreciation Account and (iii) Machinery Disposal Account in the books of
Suman Limited for the period 1st April, 2023 to 31st March, 2026 calculating
depreciation to the nearest multiple of a rupee. (10 Marks)
(b) The accountant of Angad Traders was unable to agree the Trial Balance as
on 31st March, 2026 and transferred the difference to Suspense Account. On
examination of the books of account, you observe that the accountant had
committed the following errors:
(i) Goods of the value of ` 15,000 returned by Mr. Arora were entered in the
Sales Day Book and posted therefrom to the credit of his account.
(ii) An amount of ` 3,000 entered in the Sales Return Book has been posted
to the debit of Mr. Radhey, who returned the goods.
(iii) Wages of ` 4,600 paid to workmen for making furniture on 31st March,
2026 had been charged to Wages Account.

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SUGGESTED ANSWERS ACCOUNTING

(iv) A cheque of ` 12,000 received from Janak Enterprises has been
dishonored and was passed to the debit of Allowances Account.

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(v) Goods amounting to ` 1,600 had been returned by a customer,
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J V Corporation and were taken into inventory, but no entry in respect
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thereof was made into the books.
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(vi) eA second-hand motor car purchased for ` 30,000 on 1 October, 2025 la
a s was debited to Car Maintenance Account. Angad Traders chargesag
st

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ag depreciation @ 15% p.a. on Written Down Value of vehicles.
(vii) On 31st March, 2026, old furniture sold for ` 16,000 has been entered in
the Sales book, the total of which had been posted to Sales account.
(viii)An amount of ` 8,880 due from Hemal, which had been written off as a
Bad Debt in a previous year, was unexpectedly recovered, and had been
posted to the personal account of Hetal.

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(ix) The total of "Discount Allowed" column in the cash book for the month

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.Mediclaim Insurance of the proprietor
of March, 2026 amounting to 2,500 was not posted.

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e Benefits Expenses Account.
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(x) A sum of ` 3,500 paid towards

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had been charged off to Employees
You are required to passag the necessary accounting entries in the books of
Angad Traders to rectify the aforesaid errors. (10 Marks)
Answer
(a) In the books of Suman Limited
Dr. Machinery A/c (at original cost) Cr.

Date Particulars ` Date Particulars `

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01.04.2023 To Bank A/c 60,00,000 31.03.2024 By Balance c/d 60,00,000
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e 60,00,000
60,00,000

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01.04.2024 To Balance 60,00,000 31.03.2025 By Balance
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c/d

gla b/d
a
a 60,00,000 60,00,000
01.04.2025 To Balance 60,00,000 01.10.2025 By Machinery 4,00,000
b/d Disposal A/c

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

01.10.2025 To Bank A/c 7,90,000 31.03.2026 By Balance c/d 63,90,000
(7,50,000 + 67,90,000 67,90,000
40,000)

Provision for Depreciation A/c

Date Particulars ` Date Particulars `

31.03.2024 To Balance c/d 6,00,000 31.03.2024 By Depreciation 6,00,000
A/c
6,00,000 6,00,000
31.03.2025 To Balance c/d 11,40,000 1.04.2024 By Balance b/d 6,00,000
31.03.2025 By Depreciation 5,40,000
A/c
11,40,000 11,40,000
01.10.2025 To Machinery 92,200 01.04.2025 By Balance b/d 11,40,000
Disposal A/c
31.03.2026 To Balance c/d 15,57,100 01.10.2025 By Depreciation 16,200
A/c
31.03.2026 By Depreciation 4,93,100
A/c (WN 2)
16,49,300 16,49,300

Machinery Disposal A/c

Date Particulars Amount Date Particulars Amount `
`
01.10.2025 To Machinery 4,00,000 01.10.2025 By Provision for 92,200
A/c Depreciation A/c
01.10.2025 By Bank A/c 2,25,000
01.10.2025 By Profit and Loss 82,800
A/c (Loss on sale of
Machinery) (WN1)
4,00,000 4,00,000

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Working Notes:
(1) Calculation of Profit/Loss on Sale of Machinery
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Particulars `
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c. Original em
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A. 4,00,000

e mB. Less: Depreciation @ 10% on WDV ` 4,00,000 40,000 l a
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Depreciation @10% p.a on WDV ` 3,60,000 36,000
Depreciation @10% p.a on WDV `.3,24,000 16,200 (92,200)
for 6 months

C. Book Value as on date of Sale (A – B) 3,07,800
D. Less: Sale proceeds (2,25,000)
E. Loss on Sale (C – D) 82,800

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(2) Calculation of Depreciation for Current Year on Machines (other
than sold)
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Particulars `

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A. On Old Machines of ` 45,36,000 (Note1) for 1 year (10% 4,53,600
WDV)
B. On New Machine of ` 7,90,000 for ½ year 39,500
4,93,100

Note 1: Calculation of Book Value of Remaining Machinery (Other
than sold)

Particulars
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`

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Book Value as on 1st April,2023 (60,00,000-4,00,000)
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56,00,000

c. o Less: Depreciation (2023-24)
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Book Value as on 1st April,2024 50,40,000

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Less: Depreciation (2024-25) (5,04,000)
Book Value as on 1st April,2025 45,36,000

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

(b) In the Books of Angad Traders
Journal Entries
Particulars L.F. Dr. Cr.
` `
(i) Sales Return/Return Inward A/c Dr. 15,000
Sales A/c Dr. 15,000
To Suspense A/c 30,000
(Being sales return wrongly posted to sales
a/c now rectified)
(ii) Suspense A/c Dr. 6,000
To Mr. Radhey 6,000
(Being sales return to Mr. Radhey wrongly
posted to the debit of Mr. Radhey now
rectified)
(iii) Furniture A/c Dr. 4,600
To Wages A/c 4,600
(Being the wages paid to workmen for
making furniture wrongly charged to
Wages Account now rectified)
(iv) Janak Enterprises A/c Dr. 12,000
To Allowances A/c 12,000
(Being the cheque of Janak Enterprises
dishonoured, previously debited to
Allowances Account now rectified)
(v) Returns Inward /Sales Return A/c Dr. 1,600
To J V Corporation A/c / Customers A/c 1,600
(Being goods return of goods by customers
omitted to be recorded now rectified)

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(vi) (a) Motor Car A/c Dr. 30,000
To car maintenance A/c 30,000
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(Being purchase of car wrongly debited to

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maintenance account now rectified)

m(b). Depreciation A/c
e To Motor Car A/c
Dr. 2,250
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l (Being depreciation on Car recorded for the
2,250
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ag half year)
(vii) Sales A/c Dr. 16,000
To Furniture A/c 16,000
(Being sale of furniture recorded as sales of
goods now rectified)
(viii) Hetal’s A/c Dr. 8,880

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To Bad Debts Recovered A/c 8,800

m . off bad
(Being recovery of previously written

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debts wrongly credited to Personal A/c now

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rectified)
(ix) Discount Allowed a A/c Dr. 2,500
To Suspense A/c 2,500
(Being Discount allowed total not posted
from the Cash Book, now rectified)
(x) Drawings A/c Dr. 3,500
To employee benefit expenses A/c 3,500

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(Being Mediclaim of the proprietors wrongly

m charged to employee benefit expenses A/c
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c. o now rectified)
se
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gla (a) X and Y are partners in a LLP namely Alpha LLP sharing a profits and losses in
a the ratio of 2:1. The Balance Sheet of the LLP firm as at 31 March, 2026 was
as follows:
st

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

Liabilities Amount Assets Amount
(` ) (` )
Capital Accounts: Land and Building 1,40,000
-X 1,00,000 Plant and Machinery 60,000
-Y 80,000 Inventories 28,000
Profit and Loss Account 24,000 Trade Receivables 44,000
Bank Overdraft 60,000 Cash at Bank 18,000
Trade Payables 24,200
Outstanding Liability 1,800
Total 2,90,000 Total 2,90,000

Additional Information:
(i) On 1st April, 2026, they agreed to admit Z as a partner for 1/5th share
in future profits and losses. Z would introduce ` 60,000 as his capital and
would also bring in his share of goodwill of ` 18,000 in cash. It was
agreed that the Goodwill Account would not appear in the books of the
firm.
(ii) The New profit-sharing ratio among the partners X, Y and Z would be
8: 4:3.
(iii) It was decided to revalue the assets and liabilities as under:
- Land and Building ` 1,75,000
Plant and Machinery ` 50,000
- Inventories ` 25,000
(iv) Trade payables amounting to ` 1,200 were considered as no longer
payable.
(v) Provision for doubtful debts is to be created @ 5% on Trade Receivables.
(vi) Y had settled the Outstanding Liability in full by paying ` 1,500 from his
own bank account. The necessary entry for the same was not made in
the books.
(vii) The Capital accounts of the partners would be re-adjusted on the basis
of the new profit-sharing arrangement and any excess or deficiency
would be transferred to their Current accounts.

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You are required to prepare:
(1) Revaluation Account;
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(2) Partners' Capital Accounts;

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(3) Balance sheet of the firm after admission of Z. (10 Marks)
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(b) Kanchan runs a business of hosiery goods. She does not maintain proper

lisaable to provide you with the following data of her assets and liabilities: a
books
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a Particulars As at 31 March, As at 31 March,
st st

2025 (` ) 2026 (` )
Furniture and Fittings 58,000 47,500
Trade Debtors 34,850 ?
Trade Creditors 36,500 34,775
Inventories 58,000 68,000
m 28,850
Bank Account
c. o 1,43,200 ?

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Kanchan's Capital Account ?

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Details of her bank transactions during the year ended 31st March, 2026 were
as under:
a
SI. Particulars Amount
No. (₹)
1 Collection from Trade Debtors 4,34,500
2 One Life Insurance policy of Kanchan had matured 15,000
during the year and the amount was retained in the
business

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3 Sale of Furniture and Fittings (Book value ` 20,000) 16,000
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c. o 4 Paid to Trade Creditors for purchases
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se 69,250
3,70,000

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5 Expenses paid

las 6 Purchase of new Furniture and Fittings
a g 18,000

ag 7 Kanchan's personal drawings per month 2,000

Additional Information:
(i) No cash transactions took place during the year.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

(ii) Goods are sold at 20% profit on sales. Cost of goods sold was ` 3,60,000.
(iii) Expenses paid include annual fire insurance premium (for business
stocks) of ` 7,500 which was paid on 1st January, 2026. The insurance
policy is effective from the date of payment.
(iv) Discount allowed to Trade Debtors and Discount received from Trade
Creditors amounted to ` 2,350 and ` 1,725 respectively for the year
ended 31st March, 2026.
You are required to prepare:
(1) Trading and Profit and Loss Account of Kanchan for the year ended on
31st March, 2026;
(2) Balance Sheet as at 31st March, 2026. (10 Marks)
Answer
(a) In the books of Alpha LLP
Revaluation A/c

Liabilities ` Assets `
To Provision for Doubtful 2,200 By Land and Building 35,000
Debts
To Plant & Machinery 10,000 By Trade payables 1,200
To Inventories 3,000 By Outstanding 300
Liability
To Profit on revaluation
X 14,200
Y 7,100 21,300
36,500 36,500

Partners’ Capital A/c
Particulars X Y Z Particulars X Y Z
To X 12,000 By balance b/d 1,00,000 80,000
Capital A/c
To Y’s 6,000 By Bank-Capital 60,000
Capital A/c By Bank –
Goodwill 18,000

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By Profit and 16,000 8,000
Loss A/c

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To Y’s 22,600 By Outstanding 1,500
Current A/c
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liabilities
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To Balance 1,60,000 80,000 60,000 By Z’s Capital 12,000 6,000

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c/d (WN 1) A/c

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By Revaluation 14,200 7,100

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A/c
By X’s Current 17,800
A/c
1,60,000 1,02,600 78,000 1,60,000 1,02,600 78,000

Balance Sheet of Alpha LLP as at 1st April, 2026 (after admission)

Liabilities ` Assets `
Capital Accounts: Land & Building 1,75,000
X 1,60,000
m
Plant & Machinery 50,000
Y 80,000 c. o
Inventories 25,000

e m Receivables
22,600as
Z 60,000 3,00,000 Trade 44,000
Y’s Current A/c
g l Less:Doubtful
Provision for
a Debts 2,200 41,800
Bank Overdraft 60,000 Bank (18,000+ 60,000+18,000) 96,000
Trade Payables 23,000 X’s Current A/c 17,800
4,05,600 4,05,600

Working Notes:
1. Calculation of total Capital:

o m
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Z’s contribution of ` 60,000 consists of 1/5th of capital.
m Therefore, total capital of firm should be ` 60,000 x 5 = `. 3,00,000
c. o s em
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which is divided among partners in the ratio of 8:4:3

las X's share = 3,00,000 X (8/15) = ` 1,60,000
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ag Y's share = 3,00,000 X (4/15) = ` 80,000
Z's share = 3,00,000 X (3/15) = ` 60,000

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

2. Calculation of sacrificing ratio

Partner New Share Old Share Difference
X 8/15 – 2/3 = - 2/15
Y 4/15 – 1/3 = - 1/15
Z – 3/15 (gain) = 3/15 (gain)

(b) In the books of Ms. Kanchan
Trading and Profit and Loss Account for the year ended
31st March, 2026

Amount Amount
` `
To Opening stock 58,000 By Sales (` 3,60,000 × 4,50,000
100/80) (WN 4)
To Purchases 3,70,000 By Closing stock 68,000

To Gross profit c/d
(WN 4) 90,000
5,18,000 5,18,000
To Loss on sale of 4,000 By Gross profit b/d 90,000
furniture
To Discount allowed 2,350 By Discount received 1,725
to Debtors from Creditors
To Expenses (WN 5) 61,750
To Insurance Premium 1,875
for the year (WN 6)
To Depreciation on
furniture & fittings 8,500
(W.N.2)
To Net profit 13,250 ______
91,725 91,725

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Balance Sheet as on 31st March, 2026

Liabilities Amount Assets Amount
m
m c. o
` `
Capital
c o
Add: . Additional 15,000
1,43,200 Furniture & Fittings 47,500
em
em(LIC matured)
Debtors (W.N. 3) 48,000
l a s
s
la Net profit 13,250
Cap
ag
ag 1,71,450
Inventories
Bank balance (WN 1)
68,000
13,100
Less: Drawings (24,000) 1,47,450 Prepaid Expenses 5,625
Creditors 34,775 _______
1,82,225 1,82,225

Working Notes:
1. Bank A/c
` m Particulars
Particulars
. c oBy Creditors `

em By Expenses
To Balance b/d 28,850 3,70,000
s4,34,500
gla 15,000 By Drawings
To Debtors 69,250

a
To Capital Introduced 24,000
(LIC Matured)
To Sale of furniture 16,000 By Furniture 18,000
By Balance c/d
(Balancing Figure) 13,100
4,94,350 4,94,350

2. Furniture & Fittings A/c

Particulars Particulars
om
c. 16,000
` `

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c. o em 4,000
To Balance b/d 58,000 By Bank

em
To Bank 18,000 By Loss on sale of Furniture
la s
las By Depreciation
ag
(balancing 8,500

ag By
figure)
Balance c/d 47,500
76,000 76,000

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

3. Debtors A/c

Particulars ` Particulars `
To Balance b/d 34,850 By Bank 4,34,500
By Discount allowed 2,350
To Sales 4,50,000 By Balance c/d 48,000
 100  (balancing figure)
 ` 3,60,000× 
 80 

4,84,850 4,84,850

4 Calculation of Sales and Gross Profit :
Cost of Sales (given) 3,60,000
Gross margin 20 % on sales - (given)
∴ Sales = 3,60,000 x (100 / 80) 4,50,000
∴ Gross Profit= 4,50,000 x (20 / 100) 90,000
5 Calculation of Expenses:
Expenses paid 69,250
Less: Fire Insurance Premium (7,500)
Expenses 61,750
6 Calculation of Insurance Premium:
Fire Insurance Premium paid 7,500
Less: Prepaid for 9-months = 7,500 x (9/12) 5,625
Insurance for the period - 01-01-26 to 31-03-26 1,875

Question 4
(a) Donna, Jenny and Tony are partners of DJT Corporation sharing profit and
losses in the ratio of 3:2:1. On 31st March, 2025, their Balance Sheet was as
under:

Liabilities Amount Assets Amount
(` ) (`)
Capital Accounts: Land and building 2,60,000
Donna 1,60,000 Plant and Machinery 1,15,000
Jenny 1,88,000 Furniture and Fixture 80,000

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Tony 1,20,000 Joint Life Policy 60,000
General Reserve 1,44,000 Inventory 35,000
m
c. o
Trade Payables 38,000 Trade Receivables 48,000
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.co m
Less: Provision for

m s e
a
Doubtful Debts ( 4,500) 43,500

s e l
a
l Total ag
Cash at Bank 56,500

g
a Tony died on 31 May,6,50,000 Total 6,50,000

2025.
st

As per Partnership Deed the following arrangements were to be put into
effect:
(i) The remaining partners share profits and losses in the ratio of 3: 2.
(ii) The partners are allowed interest @ 10% p.a. on their capitals, but no

m
interest be charged on drawings.

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(iii) Upon the death of a partner, the Goodwill of the firm be valued at three

s em
years' purchase of the average net profits (after charging interest on

l a
capital) for the 4 years to 31st March preceding the death of a partner.
g to deceased partner's capital account with her
a
(iv) Goodwill to be credited
share of goodwill, without using a goodwill account.
(v) Profits till the date of death to be ascertained on the basis of average
profit of previous four years.
Additional Information:
(1) The profits/(loss) of the firm before charging interest on capital were as

m
follows:

m Year Amount (`)
.co
c. o 2021-22 Profit 1,46,600
se
m
s em 2022-23 Profit 1,88,000
g la
gla 2023-24 Loss 69,200
a
a 2024-25 Profit 1,52,200
(2) Average capital during the preceding 4 years to 31st March preceding the
death of the partner may be assumed at 3,50,000.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

(3) Upon the death of Tony, her capital account is to be credited with her
share of profits, interest on capital etc. calculated till the date of death.
(4) After the death of Tony, ` 2,00,000 was received from insurance
company against Joint Life Policy.
(5) The Firm's assets were revalued as under-
- Land and Building valued at ` 3,00,000;
- Plant and Machinery to be depreciated by 15% and Furniture &
Fixtures to be depreciated by 10%;
- Inventory was valued at ` 45,000;
- Trade receivables are all considered good and no provision is
required.
(6) Amount payable to executor of Tony was paid immediately.
You are required to prepare:
(i) Revaluation Account;
(ii) Partners' Capital Accounts after giving effect to the above
transactions. (10 Marks)
(b) The following is the Trial Balance as on 31st March, 2026 of Mr. Suresh, a
retail trader of books.

Particulars ` Particulars `
Carriage Inward 18,000 Interest received 9,000
Stock on 1.4.2025 1,25,000 Sales 13,50,000
Carriage Outward 22,000 Returns Outward 48,000
Returns Inwards 55,000 Discount received 30,000
Purchases 8,60,000 Capital account as 6,29,000
on 01.04.2025
Salaries 1,00,000 Term Loan from Bank 6,00,000
Rent 30,000 Sundry Creditors 1,80,000
Interest on Term Loan 51,000
Printing and stationery 10,000
Sales Promotion 12,000

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General Expenses 20,000
Discount allowed 22,000
m
c. o
Audit fees (upto 30.9.2025) 15,000

o m m
c
Delivery. Van
Electricity charges 14,000

s e
em & Fixtures l a
4,50,000
s
laComputers
Furniture 1,50,000
ag
g
a Cash at bank 1,20,000
1,40,000
Cash in hand 65,000
Drawings 1,20,000
Insurance Premium 7,000
Sundry Debtors 3,50,000

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Investments 90,000

.
28,46,000
co 28,46,000

s em
a
Additional information:

g l
a
(i) Value of Stock in trade at the close of the year was ` 1,55,000.
(ii) A provision for doubtful debts is to be maintained @ 2.5% of Sundry
Debtors.
(iii) Depreciation to be provided on Furniture & Fixtures and Delivery Van
@ 15% and Computers @ 40%.
(iv) Audit fees for the half year ended 31st March, 2026 amounting to
` 15,000 is outstanding.

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(v) Term Loan from Bank was obtained on 1st May, 2025. Interest on the

m same is payable @ 10% per annum.

c. o worth ` 40,000. The Insurance company has admitted a s
em stock
(vi) A fire took place in the godown on 27 March, 2026 and destroyed
th

s em g l a claim of 50% for

la a
the said loss on 31 March, 2026.
st

ag You are required to prepare the Trading and Profit and Loss Account of
Mr. Suresh for the year ended 31st March, 2026 and Balance Sheet as at that
date. (10 Marks)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

Answer
(a) Revaluation A/c

Particulars ` Particulars `
To Plant and Machinery 17,250 By Land & Building 40,000
To Furniture & Fixtures 8,000 By Inventory 10,000
To Profit on Revaluation By Provision for 4,500
Doubtful Debts
Donna `14,625
Jenny ` 9,750
Tony ` 4,875 29,250
54,500 54,500

Partners Capital A/c

Particulars Donna Jenny Tony Particulars Donna Jenny Tony
` ` ` ` ` `
By Bal. b/d 1,60,000 1,88,000 1,20,000

By Gen Reserve 72,000 48,000 24,000
By Interest on - - 2,000
capital

By Revaluation 14,625 9,750 4,875
Profit
By Joint Life 70,000 46,667 23,333
Policy

To Tony’s 20,820 13,880 - By Donna & - - 34,700
capital A/c Jenny Capital
(Goodwill) a/c (WN 2)
(WN. 2)

To Bank 2,10,508 By P&L Susp - - 1,600
A/c (WN 3)

To Bal c/d 2,95,805 2,78,537

3,16,625 2,92,417 2,10,508 3,16,625 2,92,417 2,10,508

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Working Notes:
1. Goodwill valuation
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2021-22 1,46,600

o m m
.c
2022-23 1,88,000
s e
m a
se2024-25 l
2023-24 (69,200)

g la Total 1,52,200
ag
a 4,17,600
Average = 4,17,600/4 = 1,04,400
Less: Interest on Capital 3,50,000 x 10% (35,000)
Adjusted Average Profit 69,400
Goodwill (3 year’s purchase) = 2,08,200
Tony’s share (1/6) = 34,700

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2. Journal entry for adjustment of goodwill
.
em
Particulars
s
` `
Donna’s Capital A/c
Jenny’s Capital A/c g l a Dr. 20,820

a
To Tony’s Capital A/c
Dr. 13,880
34,700
(Share of goodwill adjusted)

3. Tony’s share of profit till the date of death
Average profit for full year before interest on capital = ` 1,04,400
2 month’s profit = ` 17,400
Less: interest on capital 4,68,000 X 10% X 2/12
o m
= ` (7,800)

m c
=` .9,600
c. o m
Adjusted profit till the date of death

em
Tony’s share 1/6th
la se= ` 1,600
las 4. The Joint life policy amount shown in the balance sheet shall be
a g
ag deducted from the JLP proceeds received from insurance co, on the
death of a partner.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

` 2,00,000- 60,000 (Balance Sheet value) = ` 1,40,000 (divided in profit
sharing ratio between the partners.)
Calculation of Gaining ratio

Partners New share Old Share Gain/ (Sacrifice)
Donna 3/5 3/6 3/30 (gain)
Jenny 2/5 2/6 2/30 (gain)
Tony 0 1/6 -1/6(sacrifice)

Alternatively, the amount received from Joint Life policy can also be
routed through the Revaluation Account instead of directly crediting
partner’s share in respective Partner’s capital Accounts. In that case the
solution shall be:
Revaluation A/c

Particulars ` Particulars `
To Plant and 17,250 By Land & Building 40,000
Machinery
To Furniture & 8,000 By Inventory 10,000
Fixtures
To Profit on By Provision for 4,500
Revaluation Doubtful Debts
Donna ` 84,625 By Joint Life Policy 1,40,000
Jenny ` 56,417
Tony ` 28,208 1,69,250
1,94,500 1,94,500

Partners Capital A/c
Particulars Donna ` Jenny` Tony ` Particulars Donna ` Jenny ` Tony `
By Bal. b/d 1,60,000 1,88,000 1,20,000
By Gen 72,000 48,000 24,000
Reserve
By Interest on - - 2,000
capital

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By Revaluation 84,625 56,417 28,208
profit

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To Tony’s 20,820 13,880 - By Donna & - - 34,700

m c. o
capital A/c Jenny Capital

co m
(Goodwill) a/c (WN 2)
(WN. 2)

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To Bank 2,10,508 By P&L Susp - - 1,600

l a A/c (WN 3)

ag
To Bal. c/d 2,95,805 2,78,537
Total 3,16,625 2,92,417 2,10,508 Total 3,16,625 2,92,417 2,10,508

Working Notes:
1. Goodwill valuation
2021-22 `1,46,600
2022-23 `1,88,000

m
c. o
2023-24 ` (69,200)

em`4,17,600
2024-25 `1,52,200
Total
l a s
Average
a g = 4,17,600/4 = 1,04,400
Less: Interest on Capital 3,50,000 X 10% = 35,000
Adjusted Average Profit 69,400
Goodwill (3 year’s purchase) = 2,08,200
Tony’s share (1/6) = `34,700
2. Journal entry for adjustment of goodwill

o m`
c
Particulars
m 20,820 .
`

c. o Donna’’s Capital A/c Dr.
s em
s em Jenny’’s Capital A/c Dr.
la
13,880

gla To Tony’’s Capital A/c ag 34,700
a (Share of goodwill adjusted)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

3. Tony’s share of profit till the date of death
Average profit for full year before interest on capital = `1,04,400
2 month’s profit = `17,400
Less: interest on capital 4,68,000 X 10% x 2/12 = ` (7,800)
Adjusted profit till the date of death = `9,600
Tony’s share 1/6th = `1,600
4. The Joint life policy amount shown in the balance sheet shall be
deducted from the JLP proceeds received from insurance co, on the
death of a partner.
` 2,00,000- `60,000 (Balance Sheet value) = ` 1,40,000 (divided in profit
sharing ratio between the partners.)
Calculation of Gaining ratio

Partners New share Old Share Gain/ (Sacrifice)
Donna 3/5 3/6 3/30 (gain)
Jenny 2/5 2/6 2/30 (gain)
Tony 0 1/6 -1/6(sacrifice)

(b) In the books of Suresh
Trading and Profit & Loss Account for the year ended
31st March,2026
` ` ` `
To Opening stock 1,25,000 By Sales 13,50,000
To Purchases 8,60,000 Less: Returns (55,000) 12,95,000
Inwards
Less: Return (48,000) By Closing 1,55,000
Outward A/c stock
Less: Loss by fire (40,000) 7,72,000
To Carriage inwards 18,000
To Gross profit c/d 5,35,000
14,50,000 14,50,000

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To Carriage Outward 22,000 By Gross profit 5,35,000
Salaries b/d

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To Salaries 1,00,000 By Interest 9,000

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Received

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s
To Sales Promotion/ 12,000 By Discount 30,000

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Advertisement received
l a
a s
l To Rent
expenses
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a To Printing &
30,000
10,000
stationery
To General expenses 20,000
To Discount allowed 22,000
To Electricity charges 14,000
To insurance premium 7,000
To Interest on Loan 51,000
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Add: Outstanding 4,000 55,000
(W.N. 2)
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To Provision for
s e8,750
doubtful debts
l a
g 1,38,000
To
(W.N.1)
Depreciation
a
To Loss by fire 20,000
To Audit fees 15,000
Add: Outstanding 15,000 30,000
To Capital A/c (Net 85,250
profit transferred)
5,74,000 5,74,000

o m
m
Balance Sheet as at 31st March,2026
c
. `
c. o Liabilities ` Assets
s em
em
` `

s
Capital account:
a
Less: Depreciation gl(22,500) 1,27,500
Furniture & Fixtures 1,50,000

la a
Balance on 6,29,000

ag 1st April, 2025
Add: Net profit 85,250
7,14,250 Delivery Van 4,50,000
Less: Drawings (1,20,000) 5,94,250 (-) Depreciation (67,500) 3,82,500

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

Term Loan 6,00,000 Computer 1,20,000
Add: Outstanding 4,000 6,04,000 (-) Depreciation (48,000) 72,000
Audit fees 15,000 Investment 90,000
outstanding
Stock in trade 1,55,000
Sundry creditors 1,80,000 Sundry debtors 3,50,000
Less: Provision (8,750) 3,41,250
Cash at Bank 1,40,000
Insurance Claim
Receivable 20,000
Cash in hand 65,000
13,93,250 13,93,250

Working Notes:
(1) Depreciation
Furniture & Fixture @ 15% on 1,50,000 22,500
Delivery Van @ 15% on 4,50,000 67,500
Computer @ 40% on 1,20,000 48,000
Total 1,38,000
(2) Interest on Loan
Interest on Loan (6,00,000 x 10% x 11/12) 55,000
Less: Interest as per Trial Balance (51,000)
Profit &Loss account (Outstanding) 4,000
Question 5
(a) Attempt any ONE of the two parts i.e. either (i) or (ii)
(i) The Profit and Loss Account of Prabhat showed a net profit of
` 15,00,000, after considering the closing inventory of ` 9,37,500 on
31st March, 2026. On scrutiny of the books it was observed as under:
(1) Purchases for the year included ` 37,500 paid for new electrical
fittings for the godown.
(2) Goods valued at ` 1,00,000 were given away as free samples for
which no entry had been passed in the books of account.

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(3) Invoices for goods amounting to ` 6,25,000 had been entered on
27th March, 2026, but the goods were not included in stock

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(4) In March, 2026 goods of ` 5,00,000 sold and delivered, were taken

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in the sales for April, 2026

. em
em
(5) Goods costing ` 1,87,500 were sent on sale or return basis in

l a s
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March, 2026 at a margin of profit of 33.33% on cost. Though

l a a
ag You are required to ascertain the value of Inventory on 31 March, 2026
approval was given in April, 2026, these were recorded in the sales
for March, 2026.
st

and the adjusted net profit for the year ended on that date. (5 Marks)
OR
(ii) On 31st March, 2026, the bank account of Sagar, according to the bank
column of the Cash Book revealed a debit balance of ` 37,25,000. On
examination of the cash book and bank statement you find that:

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(1) Cheques amounting to ` 3,00,000 which were issued to trade
.
em
payables and entered in the cash book before 31st March, 2026 were

s
not presented for payment until that date.

g l a
(2) Cheques amounting to ` 12,20,000 had been recorded in the cash
a
book as having been paid into the bank on 31 March, 2026 out of
which cheques amounting to ` 9,75,000 had only collected by the
bank upto 31st March, 2026.
(3) A Term Deposit matured on 13th March, 2026 and proceeds
amounting to ` 2,82,500 were credited to bank and entered in the
Bank Statement but no recorded in the cash book.
(4) Inspection fee of ` 15,000 debited by the bank had not been

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accounted for in the books of account.

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(5) A payment of ` 33,000 made to a creditor had been wrongly entered

em se
as ` 30,000 in the cash book.

s g la
la
(6) Trade Association subscription amounting to ` 5,000 was paid

g a
directly from the bank as per mandate is yet to be accounted for by
a Sagar.
(7) A Bill payable of ` 2,50,000 had been paid by the bank but was not
entered in the cash book. A Bill of Exchange for ` 1,40,000 had been

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

discounted with the bank at a cost of ` 2,000 but no entry had been
made in the books of Sagar.
You are required:
(A) to make appropriate adjustments in the cash book to arrive at the
correct balance on 31st March, 2026, and
(B) to prepare a statement reconciling the adjusted balance in the cash
book with the balance shown in the bank statement. (5 Marks)
(b) Summary of Receipts and Payments of Urban Health Care Society for the
year ended 31st March, 2026 is as follows:
Receipts: Opening Cash at Bank ` 24,000, Subscription ` 1,50,000,
Donation ` 45,000 (raised for meeting revenue expenditure), Interest on
Investments @ 9% p.a. ` 27,000/-, Health check up Camp collections
` 37,500.
Payments: Payment for Medicine Supply ` 90,000, Honorarium to
Doctors ` 30,000, Salaries ` 84,000, Miscellaneous Expenses ` 3,000,
Equipment Purchased ` 45,000, Health check-up Camp Expenses ` 4,500.
Additional Information:

1st April, 2025 31st March, 2026
(` ) (` )
Subscription due 4,500 6,600
Subscription received in 3,600 2,100
advance
Stock of medicines 30,000 45,000
Amount due for medicine 27,000 39,000
supply
Value of Equipment 63,000 90,000
Value of Building 1,50,000 1,44,000

You are required to prepare the Income and Expenditure Account for the
year ended 31st March, 2026. All workings should form part of the
answer.

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(c) The Balance Sheet of Star Limited (unlisted company other than AIFI, Banking
company, NBFC and HFC) as at 31st March, 2026 is as under:

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Particulars Note
m
`

co m
No.

m . s e
a
I. Equity and liabilities

s e l
a ag
(1) Shareholder’s Funds
l
ag
(a) Share Capital 1 3,00,000
(b) Reserves and Surplus 2 1,00,000
(2) Non-current liabilities
(a) Long term borrowings 3 70,000
(3) Current Liabilities
(a) Trade payables 50,000
Total 5,20,000
II. Assets
m
c. o
(1) Non-Current assets

em DRR Investment
(a) Property, Plant and Equipment 4 2,50,000

(2) Current assets la
s
(b) Non-current Investment:

ag
10,500

(a) Inventories 5 1,50,000
(b) Trade receivables 75,000
(c) Cash and cash equivalents 34,500
Total 5,20,000

Notes to Accounts
m
` `

m
1 Share Capital
c. o
c. o Authorized share capital
m
se 6,00,000
s em 60,000 Equity shares of ` 10 each fully paid
g la
gla Issued and subscribed share capital
a
a 30,000 Equity shares of ` 10 each fully paid 3,00,000

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

2 Reserve and Surplus
Statement of Profit & Loss 93,000
Debenture Redemption Reserve 7,000 1,00,000
3 Long term borrowings
10% Debentures 70,000
4 Property, Plant and Equipment
Freehold property 2,50,000
5 Cash and cash equivalents
Cash at bank 24,000
Cash in hand 10,500 34,500

At the Annual General Meeting on 1st April, 2026, it was resolved:
1. To give existing shareholders the option to purchase two ` 10 shares
@ ` 15 per share for every five shares (held prior to the bonus
distribution). This option was exercised by all the shareholders.
2. To issue one bonus share for every six shares held.
3. To repay the debentures at a premium of 10%. The DRR Investments
realized at par as per existing book value.
Give the necessary journal entries to record the above transactions in the
books of Star Limited. (10 Marks)
Answer
(a) (i) Profit and Loss Adjustment Account

Particulars ` Particulars `
To Advertisement 1,00,000 By Net profit 15,00,000
(samples)
To Sales (goods 2,50,000 By Electric fittings 37,500
approved in April to be
taken as April sales:
(1,87,500 + 62,500)
To Adjusted net profit 26,00,000 By Samples 1,00,000

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By Stock 6,25,000
(purchases of

m
c. o
March not

m included in stock)

.co By Sales (goods 5,00,000
s em
e m l a
s
sold in March

l a ag
wrongly taken as

ag
April sales)
By Stock (goods 1,87,500
sent on approval
basis not included
in stock)
29,50,000 29,50,000

Calculation of value of inventory on 31st March, 2026

o m
Stock on 31 March, 2026 (given) . c
`

m included in the stock
enot
9,37,500
st

s
la on approval basis
Add: Purchases of March, 2026 6,25,000

a g
Goods lying with customers 1,87,500
17,50,000

Or
(ii) (A) In the books of Sagar
Dr. Adjusted Cash Book (Bank column) Cr.
Date Particulars Amount Date Particulars Amount

o m`
m Balance 37,25,000 31 Mar. By Inspection fees .c 15,000
`

c. o m
31 Mar. To

s e
em
2026 b/d 2026 A/c

s l a
la ag
To term 2,82,500 By Creditors A/c 3,000

g
deposit (33,000-30,000)

a received A/c
To Bills 1,38,000 By Subscription fees 5,000
receivable A/c A/c

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

By Bills Payable A/c 2,50,000
Dec. 31 By Balance c/d 38,72,500
41,45,500 41,45,500

(B) Bank Reconciliation Statement as at 31st March,2026

Particulars Amount
`
Balance per cash book 38,72,500
Add: Cheques Issued but not presented for payment till 3,00,000
31st March, 2026
41,72,500
Less: Cheque paid upto bank but not collected till (2,45,000)
31st March, 2026
39,27,500

Alternatively, Bank Reconciliation statement can also prepared using
plus & minus presentation format.
(b) Income and Expenditure Account
for the year ended 31st March, 2026
Expenditure ` Income `
To Medicine consumed 87,000 By Subscription 1,53,600
(WN. 3) (WN 1)
To Honorarium to 30,000 By Donation 45,000
doctors By Interest on
To Salaries 84,000 investments 27,000
To Miscellaneous 3,000 By Profit on Health
expenses Checkup Camp:
To Depreciation on Camp collections 37,500
Equipment (WN 4) 18,000 Less: Camp (4,500) 33,000
Building 6,000 24,000 expenses
To Surplus-excess of
income over 30,600
expenditure
2,58,600 2,58,600

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Working Notes:

m
`

1.
m
Subscription for the year ended 31st March,
o c. o
.c
2026:
em
e m
Subscription received during the year 1,50,000
l a s
l as Less: Subscription due on 1.4.2025 4,500
a g
ag Less: 31.3.2026
Subscription received in advance on 2,100 (6,600)

1,43,400
Add: Subscription due on 31.3.2026 6,600
Add: Subscription received in advance on 3,600 10,200
1.4.2025

om
1,53,600

. c
em
2. Purchase of medicine:

s
la medicine supply on
Payment for medicine supply 90,000
Less: Amounts duegfor
1.4.2025 a (27,000)

63,000
Add: Amounts due for medicine supply on 39,000
31.3.2026
1,02,000

om
3. Medicine consumed:

m c. 30,000
c. o
Stock of medicine on 1.4.2025
m
em
Add: Purchase of medicine during the year

la se 1,02,000
las (WN 2)
a g
ag Less: Stock of medicine on 31.3.2026
1,32,000
(45,000)
87,000

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

4. Depreciation on equipment:
Value of equipment on 1.4.2025 63,000
Add: Purchase of equipment during the year 45,000
1,08,000
Less: Value of equipment on 31.3.2026 (90,000)
Depreciation on equipment for the year 18,000

(c) In the Books of Star Ltd.
Journal Entries

Particulars Dr. Cr.
` `
Bank A/c Dr. 1,80,000
To Equity Shareholders A/c / Share Application A/c 1,80,000
(Being application money received on 12,000 shares @
` 15 per share to be issued as rights shares in the ratio
of 2:5) (WN 1)
Equity Shareholders A/c / Share Application A/c Dr. 1,80,000
To Equity Share Capital A/c 1,20,000
To Securities Premium A/c 60,000
(Being share application money on 12,000 shares @
` 10 per share transferred to Share Capital Account, and
` 5 per share to Securities Premium Account vide
Board’s Resolution dated….)
Securities Premium A/c # Dr. 60,000
Statement of Profit & Loss A/c Dr. 10,000
To Bonus to Shareholders A/c 70,000
(Being amount transferred for issue of bonus shares to
existing shareholders in the ratio of 1:6 i.e. 7,000 shares
vide Board’s Resolution dated…. (WN 2))

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Bonus to Shareholders A/c Dr. 70,000
To Equity Share Capital A/c 70,000
m
m c. o
(Being issue of bonus shares in the ratio of 1 for 6 vide

c o
Board’s Resolution dated….)
. em
m
e on Redemption of debentures A/c
10% Debentures A/c Dr. 70,000
l a s
a s
l To Debenture holders A/c
Premium Dr. 7,000
ag
g
a (Being amount payable to debentures holders) 77,000

Statement of Profit and loss A/c Dr. 7,000
To Premium on Redemption of Debentures A/c 7,000
(Being Premium on redemption of debentures charged
to Profit & Loss A/c)

m
Debenture Redemption Reserve A/c Dr. 7,000
To General Reserve
. c o 7,000

e m
(Being DRR transferred to general reserve)

a s
To Debenture RedemptionlReserve Investment A/c
Bank A/c Dr. 10,500

a g
(Being DRR Investment realised)
10,500

Debenture holders A/c Dr. 77,000
To Bank A/c 77,000
(Being amount paid to debenture holders on
redemption)

Working Note:

m
co
1. Calculation of number of shares in Right Issue = 30,000 x 2/5 = 12,000
m .
c. o m
Shares

em
2. Calculation of number of shares in Bonus Issue
la se
las Total number of equity shares issued = 30,000+12,000= 42,000 shares
a g
ag Bonus shares issued = 42,000 x 1/6 = 7,000 shares.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

Question 6
(a) Orange Limited issued a prospectus inviting applications for 2,50,000 equity
shares of ` 10 each at a premium of ` 2 per share payable as under:
On application ` 2 per share
On allotment ` 4 per share (including premium of 2)
On first and final call ` 6 per share
(i) Applications were received for 7,00,000 equity shares.
(ii) Letters of regret were issued to the applicants for 30,000 equity shares
and shares were allotted to the remaining applicants as under:

Category of Applicants No of shares applied No of shares
allotted
A 70,000 70,000
B 2,00,000 1,00,000
C 4,00,000 80,000

(iii) Excess money received with applications was adjusted towards sum due
on allotment and the balance amount returned to the applicants.
(iv) The First and Final call was made. The amount was duly received except
from Mr. Mohan (belonging to Category-C) who had applied for 5,000
equity shares. His shares were forfeited.
(v) The forfeited shares were re-issued at a discount of ` 1 per share as fully
paid up.
You are required to -
(i) Pass necessary journal entries (with narration) for the above transactions
(including bank transactions) in the books of Orange Limited.
(ii) Show detailed working of amount received on application, amount adjusted
allocated to share allotment and amount refunded. (15 Marks)
(b) What is the Trial Balance? Even if the trial balance agrees, some errors may
remain. Do you agree? Explain. (5 Marks)

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Answer
(a) Journal Entries in the books of Orange Limited
m
m
Dr. Cr.
c. o
.co
Particulars
s em
m
` `

s e A/c (Note 1 – Column 3) l a
ag
Bank Dr. 14,00,000
la To Equity Share Application A/c
ag
14,00,000
(Being application money received on
7,00,000 shares @ ` 2 per share)
Equity Share Application A/c Dr. 14,00,000
To Equity Share Capital A/c 5,00,000
To Equity Share Allotment A/c

m
(Note 1 - Column 5) 5,20,000
To Bank A/c (Note 1–Column 6)c. o 3,80,000

e m2,50,000
(Being application money on
s
la adjusted
g
shares transferred to Equity Share Capital

a
Account; on 2,60,000 shares
allotment and on 1,90,000 shares
with

refunded as per Board’s Resolution
No…..dated…)
Equity Share Allotment A/c Dr. 10,00,000
To Equity Share Capital A/c 5,00,000
To Securities Premium a/c 5,00,000
m
m
(Being allotment money due on 2,50,000
.co
c. o shares @ ` 4 each including premium at
se
m
em la
`2 each as per Board’s Resolution

las No….dated….)
g
Dr. a
ag Bank A/c (Note 1 – Column 8) 4,80,000
To Equity Share Allotment A/c 4,80,000
(Being balance allotment money received)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

Equity Share First and Final Call A/c Dr. 15,00,000
To Equity Share Capital A/c 15,00,000
(Being final call money due on 2,50,000
shares @` 6 per share as per Board’s
Resolution No…..dated….)

Bank Account A/c Dr. 14,94,000
Calls in arrear A/c (WN 2) Dr. 6,000
To Equity Share First & Final Call 15,00,000
A/c
(Being amounts due on first call received
except on 1000 shares)
Equity share capital A/c 10,000
To Share forfeiture A/c 4,000
To Calls in arrear A/c 6,000
(Being 1,000 shares forfeited for non
payment of final call) (WN 2)

Bank Account A/c (1,000 x ` 9) Dr. 9,000
Share forfeiture A/c (1,000 x ` 1) 1,000
To Equity Share Capital A/c 10,000
(1,000 x ` 10)
(Being forfeited shares reissued at ` 1
discount)
Share forfeiture A/c 3,000
To Capital reserve A/c 3,000
(Being share forfeiture transferred to
capital reserve*) (WN 3)

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Note:
1. Calculation for Adjustment and Refund
m
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Category No. of No. of Amount Amount Amount Refund Amount Amount

co m
Shares Shares Received Required adjusted [3 – (4 + due on received

. s e
Applied Allotted on on on 5)] Allotment on

e m a
for Application Allotment

l
Application Allotment

l a s (1) (2) (3) (4) (5) (6) (7) (8)

ag
ag
30,000 Nil 60,000 Nil Nil 60,000 Nil Nil
(i) 70,000 70,000 1,40,000 1,40,000 Nil Nil 2,80,000 2,80,000
(ii) 2,00,000 1,00,000 4,00,000 2,00,000 2,00,000 Nil 4,00,000 2,00,000
(iii) 4,00,000 80,000 8,00,000 1,60,000 3,20,000 3,20,000 3,20,000 Nil
TOTAL 7,00,000 2,50,000 14,00,000 5,00,000 5,20,000 3,80,000 10,00,000 4,80,000

Also,
(i) Amount Received on Application (3) = No. of shares applied for (1)
X`2
m
c. o
(ii) Amount Required on Application (4) = No. of shares allotted (2) X

em from Mr. Mohan:
`2

s
laC applied for 5,000 shares
2. Number of shares to be forfeited

a g
Applicant from category-
In category- C against 4,00,000 shares applied – 80,000 shares allotted.
Therefore, No. of shares allotted to applicant who applied for 5,000
shares
= 5,000 x (80,000 / 4,00,000) = 1,000 shares allotted.
So, number of shares to be forfeited from Mr. Mohan = 1,000 shares

m
3. Calculation of Profit/Loss on re-issue of shares
o9,000
`

m .c
c. o
Amount received on re-issue (1,000 x 9)
Add: Amount already received before forfeiture (1,000 exm
em s 4) 4,000

la Total 13,000
las Less: Nominal value of such shares @ ` 10 pera
g
ag share
Profit on Re-issue transferred to capital Reserve
10,000
3,000

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: MAY 2026

(b) Preparation of trial balance is the third phase in the accounting process.
After posting the accounts in the ledger, a statement is prepared to show
separately the debit and credit balances. Such a statement is known as the
trial balance.
Trial balance contains various ledger balances on a particular date. It forms
the basis for preparing the financial statements i.e. profit and loss account
and balance sheet. If it tallies, it means that the accounts are arithmetically
accurate but certain errors may still remain undetected. Therefore, it is very
important to carefully journalise and post the entries, following are rules of
accounting.
In spite of the agreement of the trial balance some errors may remain.
These may be of the following types:
(i) Transaction has not been entered at all in the journal.
(ii) A wrong amount has been written in both columns of the journal.
(iii) A wrong account has been mentioned in the journal.
(iv) An entry has not at all been posted in the ledger.
(v) Entry is posted twice in the ledger.
(vi) Error of Principle i.e. treating revenue expenditure as capital
expenditure or vice versa
(vii) Compensating Error i.e. one error neutralises the effect of other error.

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