CA Foundation January 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

January 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

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m eSUGGESTED ANSWERS JANUARY 2026 l a
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PAPER 1: ACCOUNTING - FOUNDATION COURSE

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PAPER – 1: ACCOUNTING

Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed by way
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 Fales:
(i) Money spent to reduce working expenses is revenue expenditure.
(ii) Transactions regarding the purchase of fixed assets on credit are
recorded in the purchase book.
(iii) A present financial obligation of an uncertain amount, which can be
measured reliably by using a substantial degree of estimation, is termed
as liability.
(iv) Nominal Accounts are kept under Single Entry System.
(v) Winding up of a LLP may be initiated by Tribunal if the LLP has failed to
submit the Statements of Accounts and Solvency or the LLP Annual
Returns for more than three consecutive financial years with the
Registrar.
(vi) As per Section 52 of the Companies Act, 2013, a company may utilise
the Securities Premium Account to write off its preliminary expenses.
(6 x 2 = 12 Marks)
(b) What are Accounting Standards? Briefly explain the main advantage of
setting Accounting Standards and their limitations. (4 Marks)
(c) Mr. Vijay has entered into the following transactions during the month of
December, 2025. You are required to journalise the same in his books of account.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

(i) Purchased goods from Ramsons for ` 20,000 at a trade discount of 10%
plus CGST and SGST @ 9% each. ` 10,000 was paid immediately and the
balance is payable after 2 months.
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(ii) Goods costing ` 10,000 were withdrawn for personal use. Such goods
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were purchased by paying CGST and SGST @9% each.
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(iii) ePurchased machinery for ` 52,500 including IGST @5% by issuing a la
l a s cheque to the supplier. a g
ag (iv) Goods costing ` 3,000 (before trade discount of 10%) were returned to
Vinod. Such goods were purchased by paying CGST and SGST@9% each.
(4 Marks)
Answer
(a) (i) False: It may be reasonably presumed that money spent for reducing
revenue expenditure would have generated long-term benefits to the
entity. So, this is capital expenditure.
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(ii) False: Transactions regarding the purchase of fixed asset are not

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recorded in the purchase book, only the credit purchases of goods are

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recorded in it. Credit Purchase of fixed assets are recorded through
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Journal.
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(iii) False: A present financial obligation of an uncertain amount, which can
be measured reliably by using a substantial degree of estimation is
termed as Provision and not liability.
(iv) False: Under the single-entry system of bookkeeping, generally cash
book and personal accounts of creditors and debtors are maintained,
and no Nominal ledger account is maintained. Nominal ledger

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Accounts are maintained in Double entry system of accounting.

m (v) False: Winding up of an LLP may be initiated by Tribunal if the LLP has
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LLP annual returns for more than five consecutive financial years

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(within prescribed time) with the Registrar not three years.
a 2013 the securities
ag (vi) True: As per section 52 of the Companies Act,
premium account may be applied to write off preliminary expenses of
the company.

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SUGGESTED ANSWERS
ACCOUNTING

(b) Accounting standards are written policy documents issued by the expert
accounting body or by the government or other regulatory body covering
the aspects of recognition, measurement, presentation and disclosure of
accounting transactions and events in the financial statements.
The main advantage of setting accounting standards is that the adoption
and application of accounting standards ensure uniformity, comparability
and qualitative improvement in the preparation and presentation of
financial statements. The other advantages are:
(i) Standards reduce to a reasonable extent or eliminate altogether
confusing variations in the accounting treatments used to prepare
financial statements.
(ii) There are certain areas where important information are not statutorily
required to be disclosed. Standards may call for disclosure beyond that
required by law.
(iii) The application of accounting standards would, to a limited extent,
facilitate comparison of financial statements of companies situated in
different parts of the world and also of different companies situated in
the same country. However, it should be noted in this respect that
differences in the institutions, traditions and legal systems from one
country to another give rise to differences in accounting standards
adopted in different countries.
Following are the limitations of Accounting Standards:
(i) Difficulties in making choices between different treatments.
(ii) Accounting Standards cannot override the statute.
(c) In the Books of Mr. Vijay

Particulars LF Amount Amount
(Dr) (Cr)
(i) Purchases A/c Dr. 18,000
Input CGST A/c Dr. 1,620
Input SGST A/c Dr. 1,620
To Ramsons A/c 11,240

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

To Bank/Cash A/c 10,000
(Being goods purchased from
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Ramson’s, CGST and SGST payable
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@ 9% each)

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(ii) Drawings A/c Dr. 11,800

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To Purchase A/c 10,000
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To Input CGST A/c 900
To Input SGST A/c 900
(Being goods withdrawn for
personal use and input CGST and
input SGST debited at the time of
purchase reversed)
(iii) Machinery A/c (WN 1) Dr. 50,000

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Input IGST A/c Dr. 2,500
To Bank A/c
. c 52,500

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(Being machinery purchased
IGST paid @ 5%)
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(iv) Vinod A/c ag Dr. 3,186
To Purchase Return A/c 2,700
To Input CGST A/c 243
To Input SGST A/c 243
(Being goods returned to Vinod and
input CGST & SGST debited at the
time of purchases reversed)
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m Working Note 1:
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c. o Machinery purchased is including IGST @5%.
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So, the value of machinery excluding IGST = 52,500x 100/105 = 50,000

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IGST =50,000X5%= 2,500

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SUGGESTED ANSWERS
ACCOUNTING

Question 2
(a) Mr. A's Trial Balance as on 31st March, 2025 did not agree and he wrote off
the difference to the Profit and Loss Account for that year. Next year, he
engaged the services of an accountant. who after a close scrutiny of the books
of account for the year, observed the following errors:
(i) Goods worth ` 5,000 were dispatched to a customer before the close of
the year but no invoice was made out.
(ii) ` 3,000 due to Mr. X was omitted to be taken to the Trial Balance.
(iii) Wages of ` 5,000 paid for erection of Machinery were debited to Wages
Account.
(iv) Purchase of goods from Mr. R for ` 20,000 was omitted to be recorded.
(v) Cash Payment of `5,000 to Mr. C was posted to the credit of his account.
(vi) Purchase of `15,390 was wrongly posted as ` 15,930.
(vii) Goods worth` 16,000 were sent on sale or return basis to a customer and
entered in the Sales Book. At the close of the year, the customer still had
the option to return the goods. Gross Profit Margin was 25% on sales.
(viii)A return to a creditor, ` 550 was entered in Returns Inward Book.
However, the creditor's account was correctly posted.
Mr. A charges depreciation @ 10% on Machinery.
You are required to pass the necessary rectification entries in the books of
Mr. A. (12 Marks)
(c) Mehta and Company had the following balance appearing in its books of
account as on 1st April, 2024:

Particulars Amount (`)
Plant and Machinery A/c 1,42,50,000
Its accounts are made up to 31 March every year and depreciation is
st

charged @ 10% per annum under the Written Down Value Method.
On 1st September, 2024 a new machine was acquired at a cost of
` 21,20,000 and a sum of ` 46,900 was incurred on the same day towards
installation charges for erecting the said machine. On the same date a
machine which had cost ` 32,80,500 on 1st April, 2022 was auctioned for
` 5,62,500. Another machine which had cost ` 32,77,500 on 1st April, 2023

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

having become obsolete, was scrapped on 1stSeptember, 2024 and it realized
nothing.

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You are required to prepare the Plant and Machinery Account in the books
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of Mehta and Company for the year ended 31st March, 2025. Also show the
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working for profit loss on sale and scrapping of the machines. Round off the
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figures to the nearest multiple of a rupee. (8 Marks)
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Answer
Journal Entries in the books of Mr. A

Sr. Particulars Dr. (`) Cr. (`)
No.
(i) Customer A/c Dr. 5,000
To Profit and Loss Adjustment A/c 5,000

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(Being rectification of error arising from non-

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preparation of invoice for goods delivered)
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(ii) Suspense A/c Dr. 3,000
To Mr. X A/c
l a s 3,000

a g to Mr. X not taken into trial
(Being ` 3,000 due
balance; now rectified)
(iii) Machinery A/c Dr. 4,500
To Profit & Loss Adjustment A/c 4,500
(Being wages paid for correction of
Machinery wrongly debited to wages A/c

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now, rectified after capitalisation of ` 4,500

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i.e. 5,000 less 10% deprecation)
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c. o (iv) Profit & Loss Adjustment A/c Dr. 20,000
s
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e 20,000
s em To Mr., R’s A/c
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gla (Being purchases from R omitted to abe
a recorded, now rectified)

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SUGGESTED ANSWERS
ACCOUNTING

(v) Mr. C A/c Dr. 10,000
To Suspense A/c 10,000
(Being Cash payment to Mr C was wrongly
credited to his A/c, now rectified)
(vi) Suspense A/c Dr. 540
To Profit & Loss Adjustment A/c 540
(Being purchase of ` 15,390 was wrongly
posted as ` 15,930, now rectified)
(vii) Inventory A/c Dr. 12,000
Profit & Loss Adjustment A/c Dr. 4,000
To Customer A/c 16,000
(Being the customer A/c credited for the
goods not yet purchased by him, cost of the
goods debited to inventory and profit
debited to profit and loss adjustment A/c)
(viii) Suspense A/c Dr. 1,100
To Profit & Loss Adjustment A/c 1,100
(Being return to a creditor was wrongly
entered in return inward book now rectified)
(ix) A’s Capital Account A/c Dr. 12,860
To Profit & Loss Adjustment A/c 12,860
(Being balance of Profit & Loss Adjustment
A/c transferred to the Capital Account)
(x) Suspense A/c Dr. 5,360
To A’s Capital A/c 5,360
(Being balance of suspense A/c transferred to
the Capital A/c)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

Workings:
I. Profit and Loss Adjustment Account (Prior Period Items)
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Particulars
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Amount Particulars Amount
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eCustomer A/c
To R’s A/c 20,000 By Customer A/c 5,000
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Tos 4,000 By Machinery A/c 4,500
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ag By Suspense A/c 540
By Suspense A/c 1100
By A’s Capital A/c (bal. 12,860
fig)
24,000 24,000

II. Suspense Account

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Particulars Amount Particulars Amount

. c 1,100 By Mr. C A/c
` `

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To Profit & Loss Adjustment A/c
em 10,000

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To Mr. X 3,000
To Profit & Loss Adjustment 540
To A’s Capital A/c (bal. fig) 5,360
10,000 10,000

(b) In the books of Mehta and Company
Plant and Machinery Account
Date Particulars Amount Date Particulars Amount `

o m
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. 5,62,500
`

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01.04.24 To Balance b/d 1,42,50,000 01.09.24 By Bank (Sales)

s e 1,10,717
em (Note i) (on a sold
01.09.24 To Bank 21,66,900 01.09.24 By Depreciation

s machine) g
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(21,20,000 +

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46,900)
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a 01.09.24 By Loss on sale 19,83,988
01.09.24 By Loss on scrapping 28,26,844
the machine

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SUGGESTED ANSWERS
ACCOUNTING

01.09.24 By Depreciation (on 1,22,906
scrapped machinery)
(Note ii)
31.03.25 By Depreciation 9,90,707
(Note iii)
31.03.25 By Balance c/d 98,19,238
1,64,16,900 1,64,16,900

Working Note:

(i) Calculation of loss on sale of machine `
on 1-9-2024
Cost on 1-4-2022 32,80,500
Less: Depreciation @ 10% (3,28,050)
W.D.V. on 31-3-2023 29,52,450
Less: Depreciation @ 10% (2,95,245)
W.D.V. on 31-3-2024 26,57,205
Less: Depreciation @ 10% on ` 2,65,705 (1,10,717)
for 5 months
25,46,488
Less: Sale proceeds on 1-9-2024 (5,62,500)
Loss on sale of machine 19,83,988
(ii) Calculation of loss on scrapped `
machine on 1-9-2024
Cost on 1-4-2023 32,77,500
Less: Depreciation @ 10% on (3,27,750)
` 32,77,500
W.D.V. on 31-3-2024 29,49,750
Less: Depreciation @ 10% on (1,22,906)
` 29,49,750 for 5 months
Loss 28,26,844

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

(iii) Depreciation
Balance of machinery account on 1,42,50,000
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1-4-2024
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c. oW.D.V. of machinery scrapped m
Less: W.D.V of machinery sold 26,57,205

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e W.D.V. of other machinery on 1-4-2024 a
29,49,750 (56,06,955)

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l Depreciation @ 10% on ` 86,43,045 for a
86,43,045

ag 8,64,305
12 months
Depreciation @ 10% on ` 21,66,900 for 1,26,402
7 months
9,90,707

Question 3

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(a) The Income and Expenditure Account of Global Sports Club for the year ended
on 31st March,2025 is given as under:
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Expenditure
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e By Subscription
` Income
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`
To Upkeep of
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24,000 1,80,000

a 1,14,000 By Entrance Fees
grounds
To Salary 6,000
To Books and 12,000 By Income from
Magazines Annual Meet:
To Annual Dinner Receipts 35,450
Expenses: Less: Expenses 18,000 17,450
Expenses 36,000

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Less: Contribution 24,000 12,000 By Interest on

m c. o22,550
investment @11%.

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(Cost of Investment

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` 2,05,000 Purchases

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on 31st March, 2024)

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To Audit Fees 6,000

a To
Expenses
Electricity 10,800

To Interest & Bank 3,600
Charges

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SUGGESTED ANSWERS
ACCOUNTING

To Depreciation 7,200
on Sports
Equipment
To Surplus 36,400
2,26,000 2,26,000

This account has been prepared after the following adjustments:

31st March,2024 31st March,2025
(1) Subscription Outstanding 14,400 18,000
(2) Subscription received in 10,800 6,480
advance
(3) Outstanding Salary 9,600 10,800
(4) Prepaid Electricity Nil 1,440
Expenses

The club owned a sports ground valued at ` 2,40,000. The club had sports
equipment on 1st April, 2024 valued at ` 62,400. At the end of the year, after
depreciation, the value of this equipment amounted to ` 64,800. Audit fees
of ` 4,800 for the year 2023-24 was paid during the current year. Audit fees
for 2024-25 is as yet outstanding. During 2023-24, the club had raised a
bank loan of ` 48,000. This loan was outstanding throughout the current
year. On 1st April, 2024 cash in hand amounted to ` 33,360.
You are required to prepare:
(i) Receipts and Payments Account for the year ended on 31st March, 2025
(ii) Balance Sheet as at 31st March, 2025. (10 Marks)
(b) Ram and Shyam are partners sharing profits and losses in the ratio of 3:2.
The Balance Sheet of the firm as at 31st March, 2025 stood as under:

Liabilities Amount Assets Amount
(` ) (` )
Capital Accounts: Fixed Assets 6,00,000
Ram 2,40,000 Investments 1,00,000
Shyam 1,60,000 Inventories 3,25,000

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Long Term Loan 4,50,000 Trade Receivables 1,25,000

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Current Liabilities 5,00,000 Loans and Advances 2,00,000
Total
m 13,50,000 Total 13,50,000
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Due to financial difficulties, it was decided to admit Mohan as a Partner in

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Mohan would be paid 40% share in the profits. The new profit sharingag
the firm from 1st April 2025 on the following terms:

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ag ratio after the admission of Mohan would be 7:5:8.
(i)

(ii) Mohan will bring ` 2,00,000 towards capital in cash.
(iii) On the admission of Mohan, the goodwill of the firm will be valued at 2
years' purchase of 3 years normal average profits of the firm. Mohan will
bring his share of goodwill in cash. The partners will neither withdraw
their share of goodwill nor will the goodwill appear in the books of
account.

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The profits of the previous three years were as follows:

m . insurance claim of ` 80,000)
2022-23 ` 40,000 (Profit)
e
(includes
2023-24 `20,000 (Loss) as(includes
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ag compensation of ` 2,20,000)
Voluntary retirement

2024-25 ` 1,00,000 (Profit) (includes profit of ` 50,000 on sale of fixed
assets)

It was decided to revalue the assets on 31 March 2025 as under:
Fixed Assets ` 8,00,000
Investments ` Nil
Inventory ` 2,96,000
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c. o m
Of the Trade Receivables, `5,000 are considered as irrecoverable

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em
further 5% is to be provided for bad and doubtful debts.
You are required to prepare the Revaluation Account,laPartners' Capital
las a g the admission of
g Accounts and Balance Sheet as on 1 April 2025 after st

a Mohan. (10 Marks)

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SUGGESTED ANSWERS
ACCOUNTING

Answer
(a) Global Sports Club
Receipts and Payments Account for the year ended 31st March, 2025
Receipts Amou Amount Payments Amount Amount
nt ` ` ` `
To Balance b/d 33,360 By Upkeep of Ground 24,000
By Salaries 1,14,000
To Subscription 1,72,080 Add: outstanding 9,600
(WN 2) during 2023-24
Less: outstanding (10,800) 1,12,800
during 2024-25
To Entrance Fees 6,000 By Books and Magazines 12,000
To Contribution for 24,000 By Audit fee (2023-24) 4,800
annual dinner BY Annual meet Expenses 18,000
To Annual meet By Annual Dinner Expenses 36,000
receipts 35,450 By Electricity expenses 10,800
To Interest on 22,550 Add: Prepaid 1,440 12,240
Investment
By Interest & Bank Charges 3,600
By Sports Equipment’s
[64,800-(62,400-7,200)] 9,600
By Balance c/d 60,400
2,93,440 2,93,440
To Balance b/d 60,400

Balance Sheet of Global Sports Club as at 31st March, 2025
Liabilities Amount Amount Assets Amount Amount
` ` ` `
Subscription 6,480 Sports Ground 2,40,000
received in
advance
Audit Fee 6,000 Investments 2,05,000
Outstanding

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

Salaries 10,800 Sport Equipment: As 62,400
Outstanding per last Balance

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Sheet

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Bank Loan 48,000 Additions 9,600

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s
Capital Fund as 4,81,960 72,000

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e
per balance sheet
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s
Less: Depreciation (7,200) 64,800

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on 31st March,

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a Add: Surplus for 36,400 5,18,360 Subscription
2024 (WN 1)
18,000
2024-25 Outstanding
Prepaid Electricity 1,440
expenses
Cash in hand 60,400
5,89,640 5,89,640

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Working Note:
1.
c. o
Balance Sheet of Global Sports Club as at 31st March, 2024

Liabilities
em
s Sports Ground
` Assets
a
`
Subscriptions received
g l10,800 2,40,000
in advance a
Salaries outstanding 9,600 Sports Equipment 62,400
Audit fees Outstanding 4,800 Subscriptions Outstanding 14,400
Bank Loan 48,000 Cash in hand 33,360
Capital Fund (balancing 4,81,960 Investment 2,05,000
figure)

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5,55,160 5,55,160

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c. o m
2. Calculation of Subscription received during the year:

em
Subscription as per Income and Expenditure Account
la se 1,80,000
las Add: Outstanding on 31.03.2024
a g 14,400

ag Received in advance on 31.03.2025 6,480
2,00,880
Less: Received in advance on 31.03.2024 10,800

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SUGGESTED ANSWERS
ACCOUNTING

Outstanding on 31.03.2025 18,000
Subscription received during the year 1,72,080

(b) In the books of Ram and Shyam
Revaluation Account

Particulars ` Particulars `
To Investments A/c 1,00,000 By Fixed assets A/c 2,00,000
To Inventory A/c 29,000
To Bad Debts 5,000
To Prov for Doubtful Debts 6,000
To Partner’s capital A/c:
(Profit on revaluation)
Ram (3/5) 36,000 60,000
Shyam (2/5) 24,000
2,00,000 2,00,000

Partners’ Capital Accounts
Particulars Ram Shyam Mohan Particulars Ram Shyam Mohan
` ` ` ` ` `
To Balance 3,11,000 2,05,000 2,00,000 By Balance b/d 2,40,000 1,60,000
c/d
By Bank A/c 2,00,000
By Revaluation
A/c (Profit) 36,000 24,000
By Bank/ 35,000 21,000
Premium on
Goodwill A/c
(WN)
3,11,000 2,05,000 2,00,000 3,11,000 2,05,000 2,00,000

Balance Sheet (after admission of Mohan)
as at 1st April, 2025

Liabilities Amount ` Assets Amount `
Capital accounts: Fixed assets 8,00,000

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

Ram 3,11,000 Trade Receivable 1,14,000
Shyam 2,05,000 Loans & advances 2,00,000
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c. o
Mohan 2,00,000 7,16,000

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c
Current.liabilities
Long term loan 4,50,000 Inventories 2,96,000

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em l a
5,00,000 Bank Balance 2,56,000

a s
lWorking
16,66,000 16,66,000
ag
ag Notes:
1. Calculation of Goodwill
Calculation of Profit/ Loss for the year ended

2022-23 2023-24 2024-25
Profit/(loss) for the year 40,000 (20,000) 1,00,000
Add/(less): Abnormal items (80,000) 2,20,000 (50,000)

o m 2,00,000 50,000
c
Net Profit/(loss) (40,000)

m .
Average profit =
s e3
(40,000)+2,00,000+50,000
= ` 70,000

g a profits = ` 70,000 x 2= ` 1,40,000
laverage
a
Two years’ purchase of
Goodwill to be brought in by Mohan = ` 1,40,000 x 40%=` 56,000
2. Goodwill Sacrifice or Gain calculation:
Goodwill brought in by Mohan shared (at the profit sacrificing ratio) by:
`
Ram (` 56,000 x 5/8) 35,000

m
co
Shyam (` 56,000 x 3/8) 21,000
m .
c. o m
56,000

em Calculation of profit sacrificing ratio
la se
las a g
g
Profit sacrificed by Ram = 60%-35%=25%

a Profit sacrificed by Shyam =40%-25%=15%
Sacrificing ratio =25%: 15% or 5:3
Alternatively Gain/Sacrifice of Goodwill can be calculated as:

16

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SUGGESTED ANSWERS
ACCOUNTING

Ram Shyam Mohan
Credit in Old Ratio 84,000 56,000
Debit in New Ratio (49,000) (35,000) (56,000)
Difference (+sacrifice) (-tv 35,000 Cr. 21,000 Cr. (56,000) Dr.
Gain)

Question 4
(a) A, B and C are partners of M/s ABC LLP sharing profits and losses in the ratio
of 3: 2: 1. The Balance Sheet of the firm as at 31st March, 2025 stood as under:

Liabilities Amount Assets Amount
` `
Capital Accounts Building 3,20,000
A 4,80,000 Plant and Machinery 3,20,000
B 3,20,000 Inventories 1,60,000
C 1,60,000 9,60,000 Trade Receivables 3,20,000
Trade Payables 3,20,000 Cash at Bank 1,60,000
12,80,000 12,80,000

On 1st April, 2025, A desired to retire from the firm and the remaining
partners decided to carry on the business. It was agreed to revalue the assets
and liabilities on that date on the following basis:
(i) Goodwill of the entire firm is valued at ` 2,88,000 and A's share of the
goodwill is adjusted in the accounts of B and C who would share the
profits equally in future.
(ii) Building is to be appreciated by 30%. Plant and machinery is to be
depreciated by 20%. Inventories are to be written down to 80% of their
carrying value as on 31st March, 2025.
(iii) Trade receivables are considered good only up to 95% of the Balance
Sheet figure and the balance is to be provided for as doubtful.
(iv) Old credit balances of Trade payables ` 16,000 are to be written back.
(v) The Joint life policy of the partners is surrendered and a sum of ` 96,000
is realized therefrom.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

(vi) The total capital of the reconstituted firm shall be the same as before the
retirement of A. Individual capital of B and C shall be in their profit-

m
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sharing ratio and the same shall be brought in by them.

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(vii) 75% of the amount due to A on his retirement shall be settled in cash

m .
and the balance shall be settled after one year.
s e
You eare required to draw up the following accounts after giving effect to the l
s transactions: g a
l a a
ag (1) Revaluation Account
above

(2) Partners’ Capital Account
(3) Bank Account (10 Marks)
(b) The following is the schedule of balances as on 31st March, 2025 extracted
from the books of Mr. Radhey:

om
Particulars Dr. (`) Cr. (`)
Advertisement Expenses
. c 13,400 -
Bad Debts
s em 4,400 -
Bad Debts Recovered
g l a - 1,800
Cash at Bank a 12,500 -
Bank Overdraft - 3,20,000
Capital Account - 2,60,000
Carriage Inwards 4,500 -
Carriage Outwards 5,400 -
Cash in Hand 5,800 -

m
c. o -
Drawings 46,000 -

m
c. o em
Furniture and Fittings 41,000

em
Interest paid on loan
la s
12,000 -

las Administrative Expenses
a g
40,640 -

ag Openings Stock 1,29,000 -
Plant & Machinery 80,000 -
Prepaid Rent 1,200 -

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SUGGESTED ANSWERS
ACCOUNTING

Printing & Stationery 5,000 -
Provision for discount on Trade Receivables - 5,500
Provisions for Doubtful debts - 12,800
Purchases 6,08,800 -
Rent, Rates and Taxes 17,200 -
Salaries and Allowances 90,200 -
Salaries Payable - 9,800
Sales - 8,44,000
Trade Payables - 1,90,000
Trade Receivables 4,80,000 -
Wages and Salary 46,860 -
Total 16,43,900 16,43,900

Additional information:
(i) During the year Mr. Radhey has distributed free samples costing
` 3,300 for publicity.
(ii) A fire took place in the warehouse on 20th March, 2025 and destroyed
goods worth Rs 6,000/-, The Insurance company has admitted a claim of
` 4,500 on 31st March, 2025.
(iii) Create a provision for doubtful debts @ 5% and provision for discount
on trade receivables @ 2.5%.
(iv) Depreciation is to be provided on Plant and Machinery @15% per annum
and on Furniture and fittings @ 10% per annum.

(v) Bank overdraft is secured against hypothecation of stock. Bank overdraft
outstanding on 31.03.2025 has been considered as 80% of real value of
stock (deducting 20% as margin) and after adjusting the marginal value
80% of the same has been allowed to draw as an overdraft.
Prepare a Trading and Profit and Loss Account for the year ended
31st March, 2025 and a Balance Sheet as at that date. (10 Marks)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

Answer
(a) In the books of M/s ABC LLP
m
m
Revaluation Account
c. o
.co
Particulars Amount Particulars Amount
s em
m
e Plant l a
Tos
ag
` `

g a
l Machinery A/c & 64,000 By Buildings A/c 96,000
a
To Inventory A/c 32,000 By trade payable A/c 16,000
To Provision for Bad 16,000 By Bank A/c– Joint Life 96,000
Debts A/c policy surrendered **

To Partners’ Capital
A/cs:

m
co
A 48,000
B 32,000
m .
16,000 e96,000
C
s
la 2,08,000
a g 2,08,000

Partner’s Capital Account
A B C A B C

To A’s 48,000 96,000 By balance b/d 4,80,000 3,20,000 1,60,000
Capital A/c
To A’s 1,68,000 By Revaluation 48,000 32,000 16,000
Loan A/c A/c

m
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To bank 5,04,000 By B’s capital 48,000

m .
c. o
A/c

m
em se
To balance 4,80,000 4,80,000 By C’s capital 96,000

s la
c/d

la a g
g
By Bank A/c 1,76,000 4,00,000

a 6,72,000 5,28,000 5,76,000 6,72,000 5,28,000 5,76,000

20

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SUGGESTED ANSWERS
ACCOUNTING

Bank Account
Date Particulars Amount Date Particulars Amount
` `
1-4-2024 To Balance b/d 1,60,000 31-3-2025 By A’s capital A/c 5,04,000
31-3-2025 To Revaluation 96,000 31-3-2025 By Balance c/d 3,28,000
A/c joint life
policy
surrendered
31-3-2025 To B’s Capital 1,76,000
A/c
31-3-2025 To C’s Capital 4,00,000
A/c
8,32,000 8,32,000

Working Notes:
1. Gaining ratio of existing partners:
B 1/2-1/3 = 1/6
C 1/2-1/6 = 2/6
2. Total goodwill of firm is ` 2,88,000
A’s share (1/2 x ` 2,88,000) = ` 1,44,000

A’s share of goodwill is to be borne by B and C in their gaining ratios
i.e.
B =1/3 x ` 1,44,000 = ` 48,000

C = 2/3 x ` 1,44,000 = ` 96,000
Alternatively, surrender value of JLP can also be routed through
partners’ capital A/c by directly crediting partners share instead of
Revaluation A/c. In such case, there will be no surplus or deficit in the
Revaluation Account.

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

(b) In the books of Mr. Radhey
Dr. Trading Account for the year ended 31st March, 2025 Cr.
m
o m
Particulars Amount Particulars Amount
c. o
. c em
s
` ` ` `

m
estock
To Opening 1,29,000 By Sales 8,44,000
l a
a s
l To Purchase ag
ag 6,08,800 By Closing
(WN 3)
stock

Less: Goods (3,300) 
 ` 3, 20, 000 ×
100 100 
× 
5,00,000
80 80 
distributed 

as free
sample
Less: Goods (6,000) 5,99,500
lost by fire
To Carriage 4,500
m
inward
46,860 .
co
em
To Wages and
Salary
a s
To Gross
c/d
profit
a gl5,64,140
13,44,000 13,44,000

Dr. Profit and Loss for the year ended 31st March, 2025 Cr.
Particulars Amount Particulars Amount
` `
To Salaries & Allowances 90,200 By Gross profit 5,64,140

m
b/d

m
To Rent, Rate and Taxes 17,200 By Bad debts
c. o1,800
c. o se
m
recovered

em la
To Advertisement 13,400

las expenses
a g
ag Add: Free Sample
To Printing and
3,300 16,700
5,000
stationery
To Bad debts 4,400

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SUGGESTED ANSWERS
ACCOUNTING

To Carriage outward 5,400
To Provision for doubtful debts 11,200
(WN 1)
To Provision for discount
on trade receivables 5,900
(WN 2))
To Depreciation:
Plant and machinery 12,000
Furniture and fittings 4,100 16,100
To Administrative expenditure 40,640
To Interest on loan 12,000
To Loss by fire 1,500
To Net profit 3,39,700
(Transferred to capital
account)
5,65,940 5,65,940

Balance Sheet as at 31st March, 2025
Liabilities ` Amount Assets ` Amount
` `
Capital account 2,60,000 Plant and machinery 80,000
Add: Net profit 3,39,700 Less: Depreciation (12,000) 68,000
5,99,700 Furniture and 41,000
fittings
Less: Drawings 46,000 5,53,700 Less: Depreciation (4,100) 36,900
Bank overdraft 3,20,000 Closing stock 5,00,000
Salaries 9,800 Trade Receivables 4,80,000
Payables
Trade Payables 1,90,000 Less: Provision for (24,000)
doubtful debts
Less: Provision for
discount on trade (11,400) 4,44,600
receivables
Prepaid rent 1,200

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

Cash in hand 5,800
Insurance claim 4,500

m
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Receivable

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co m
Cash at bank 12,500

m . 10,73,500 10,73,500
s e
s e l a
a
l1. Provision for Doubtful Debts: ag
Working Notes:

ag
Trade Receivables 4,80,000
Required provision @ 5% 24,000
Existing Provision (Given) (12,800)
Increase in Provision (P & L) 24000-12800 11,200

2. Provision for Discount on Trade Receivables:

o m
c
Trade Receivables after new Provision (4,80,000-24,000) 4,56,000
Required Provision (@2.5%) .
Existing Provision (Given)se
m 11,400

la& L) 11,400-5,500
(5,500)
Increase in Provisiong(P
a 5,900

3. Calculation of Closing Stock

Bank Overdraft 3,20,000
Add: Margin 20/80 80,000
Total 4,00,000
Closing Stock 4,00,000 *100/80 5,00,000

o m
m c
c. o (a) Attempt any ONE of the two sub-parts ie either (i) OR (ii) sem.
Question 5

s em (i) On 30 November 2025, the Bank Statement of M/s
th

g l a Rama & Sons

l a a
ag
showed a Debit balance of ` 39,700 at bank. On comparing it with the
Cash Book, the following discrepancies were observed:

(1) A cheque of ` 10,000 was issued to a supplier on 25th November but
was not presented for payment till 3rd December.

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SUGGESTED ANSWERS
ACCOUNTING

(2) A cheque of ` 3,000 was received from a customer and deposited on
28th November but was credited by the bank on 2nd December.
(3) The bank had directly collected interest of ` 2,400 on behalf of the
firm, which has not yet been recorded in the cash book.
(4) Credit side of the Bank column of Cash book was overcast by ` 900.
(5) A customer had directly deposited ` 8,000 into the firm's bank
account, but no entry was made in the cash book.
(6) A cheque of ` 2,000 deposited earlier was returned dishonoured and
debited in the Bank Statement only.
(7) As per standing instructions to bank, EMI of ` 20,000 was paid by
the bank. The same was omitted to be accounted for in the cash
book.
(8) An amount of ` 5,000 was wrongly credited by bank to the firm's
account for which details are not available.
(9) The Cashier had wrongly recorded a bank payment of ` 12,500 as
` 21500 in the Cash Book.
You are required to ascertain the balance appearing in the Cash Book of
M/s Rama and Sons as on 30th November, 2025. (5 Marks)
OR
(ii) T draws on J a bill of exchange for ` 1,80,000 on 1st April, 2025 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 and his estate paying fifty paise in a rupee.

Pass the necessary journal entries in the books of T. (5 Marks)
(b) Sumitra is engaged in the business of trading in detergents. She does not
maintain proper records of her business. From the following details furnished

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

by her, you are required to compute the amount of Total Purchases and Sales
for the year ended 31st March, 2025:

m
Particulars
o m
Amount (`)
c. o
.c
Opening Balance (1st April,2024)
em
m
e Creditors l a s
s
Inventory 2,00,000

a
l Sundry Debtors a g
g
Sundry 1,23,000

a 1,50,000
Closing Balance (31st March,2025)
Inventory 1,50,000
Sundry Creditors 1,38,000
Sundry Debtors 2,56,000
Cash paid to Creditors 2,63,700

om
Cash received from Debtors 4,56,000
Cash Sales
. c 83,400
Cash Purchases
s em 30,000

l a
agthe year
Discount received during the year 11,300
Discount allowed during 18,700

(5 Marks)
(c) Ajanta Limited issued 50,000 equity shares of ` 10 each payable as ` 3 per
share on 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 X, holding 1,000 shares who failed to
pay the Allotment and Call money and Y. holding 2,000 shares, failed to pay
m
m
the Call money. All those 3,000 shares were forfeited. Out of forfeited shares,
.co
c. o 2,500 shares (including whole of X's shares) were subsequently
se
m
em la
re-issued to Z as fully paid up at a discount of ` 2 per share.

las a g
Pass the necessary journal entries in the books of Ajanta Limited to record

ag the forfeiture and re-issue of the shares. Also prepare the extracts of the
Balance Sheet and Notes to accounts of the company. (10 Marks)

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SUGGESTED ANSWERS
ACCOUNTING

Answer
(a) Bank Reconciliation Statement of
M/s Rama & Sons as on 30th November,2025
` `
Overdraft balance as per pass book 39,700
Add: Cheque issued but not presented to the bank 10,000
Bank interest not entered in cash book 2,400
Credit side of Bank column of cash book over- 900
casted
Cheque directly deposited into the bank 8,000
Amount wrongly credited by Bank 5,000
Error in entry of payment 9,000 35,300
75,000
Less: Cheque dishonoured and debited to bank 2,000
EMI paid by Bank 20,000
Customer cheque deposited but not credited 3,000 (25,000)
by bank
Overdraft balance as per cash book/ Cr 50,000

Or
In the books of T - Journal Entries

Date Particulars DR. CR.
(in `) (in `)
1/4/2025 Bills receivables A/c Dr. 1,80,000
To J A/c 1,80,000
(Being bill of exchange drawn on
Mr. J)
1/4/2025 Bank A/c Dr. 1,72,800
Discount charges A/c Dr. 7,200
To Bills receivable A/c 1,80,000
(Being the bills receivable
discounted with the bank at a
charge of ` 7,200)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

1/4/2025 J A/c Dr. 60,000
To Bank A/c 57,600
m
c. o
To Discount charges 2,400
m
co m
(Being the amount remitted to J

m . along with his share of the bank
s e
s e charges)
g l a
l a a
ag
4/7/2025 J A/c Dr. 2,52,000
To Bills payable A/c 2,52,000
(Being the bills drawn by J, due to
non-payment of earlier bill)
4/7/2025 Bank A/ c Dr. 40,440
Discount charges A/c Dr. 7,560
1,20,000 + 40, 440 
 × 11,340 
 2, 40,660 
m
c. o
To J A/c 48,000

em
(Being the amount discounted
and sent it by J to T)
l a s
7/10/2025 Bills payable A/c
To J’s A/c a g Dr. 2,52,000
25,2,000
(Being the bill due dishonoured
due to bankruptcy)
7/10/2025 J A/c Dr. 1,68,000
To Bank A/c 84,000
To Deficiency account 84,000
(Being the amount due to J
m
co
discharged by payment of 50
m .
c. o (b)
paise in a rupee)
m
em
Sundry Creditors A/c
la se
las a g
g
` `

a To Cash paid to
creditors
2,63,700 By Balance b/d 1,23,000

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SUGGESTED ANSWERS
ACCOUNTING

To Discount 11,300 By Purchases (balancing 2,90,000
(received) figure)
To Balance c/d 1,38,000
4,13,000 4,13,000

Total Purchases = Credit Purchases + Cash purchases
= ` 2,90,000 + ` 30,000 =` 3,20,000
Sundry Debtors A/c
` `
To Balance b/d 1,50,000 By Cash received 4,56,000
from debtors
To Credit sales (balancing 5,80,700 By Discount (allowed) 18,700
figure)
By Balance c/d 2,56,000
7,30,700 7,30,700

So total sales = credit sales + cash sales
= ` 5,80,700 + ` 83,400 = ` 6,64,100
(c) In the books of Ajanta Limited
Journal
S. Particulars Amount Amount
No. (Dr.) ` (Cr.) `
1. Equity Share Capital A/c Dr. 30,000
Securities Premium A/c Dr. 2,000
To Equity Share Allotment A/c 5,000
To Equity Share Call A/c 12,000
To Shares Forfeited A/c 15,000
(Being forfeiture of 3,000 equity shares for
non payment of allotment and call money
on 1,000 shares and for non-payment of
call money on 2,000 shares as per Board’s
Resolution No…..dated ….)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

2. Bank A/c Dr. 20,000
Shares Forfeited A/c Dr. 5,000
m
c. o
To Equity Share Capital A/c 25,000
m
c. o m
(Being re-issue of 2,500 shares @ ` 8 each

3. emShares Forfeited A/c
as per Board’s Resolution No……dated……)
s e
s l a
ag
Dr. 7,000

g la (BeingTo Capital Reserve A/c 7,000
a profit on re-issue transferred to
Capital Reserve)
Alternatively, Entry No. 1 can also be routed through calls in Arrear Account.
In that case, the entry shall be:
Equity Share Capital A/c Dr. 30,000
Securities Premium A/c Dr. 2,000

m
To Calls in Arrear A/c 17,000
To Shares Forfeited A/c
. co 15,000

em
(Being forfeiture of 3,000 equity shares for

a s
non-payment of allotment and call money
l
a g
on 1,000 shares and for non-payment of call
money on 2,000 shares as per Board’s
Resolution No……. dated ….)

Extract of Balance Sheet of Ajanta Limited as at……

Particulars Notes `
No.
EQUITY AND LIABILITIES
Shareholders’ funds
m
m c. o
c. o
Share capital 1 4,98,000
m
se 6,03,000
Reserves and Surplus 2 1,05,000

s em Total
g la
gla ASSETS
a
a Current assets
Cash and cash equivalents (bank)(workings) 6,03,000
Total 6,03,000

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SUGGESTED ANSWERS
ACCOUNTING

Notes to accounts
` `
1. Share Capital
Equity share capital
Issued share capital
50,000 Equity shares of ` 10 each 5,00,000
Subscribed, fully paid-up share capital
49,500 Equity shares of ` 10 each 4,95,000
Add: Forfeited shares 3,000 4,98,000
2. Reserves and Surplus
Securities Premium 98,000
Capital Reserve 7,000 1,05,000

Workings: Cash and cash equivalents
Share application (50,000x3) 1,50,000
Share allotment (49,000x 5) 2,45,000
Share call money (47,000x 4) 1,88,000
Share reissued (2,500x8) 20,000
Total 6,03,000

Working Note:
(1) Calculation of Amount to be Transferred to Capital Reserve
Forfeited No of Amount Forfeited share Amount No of Amount
share of X Shares ` of Y Shares `
Amount `3 1000 3000 Amount forfeited `6 1500 9000
forfeited per per share of Y
share of X
Less: Loss on (` 2) 1000 2000 Less: Loss on re- (` 2) 1500 3000
re-issue per issue per share
share

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

Surplus `1 1000 1000 Surplus `4 1500 6000
Transferred to 1,000 6,000

m
c. o
Capital

m
c. o
Reserve:

em
s
Total Transferred to Capital Reserve ` 7,000

s em of Securities Premium l a
ag
(2) Balance

g a Premium amount receivable on allotment = 1,00,000
lTotal
a Less: Amount reversed on forfeiture = (2,000)
Balance remaining (49,000 X ` 2) = 98,000
Question 6
(a) The Balance Sheet of Dynamic Limited as at 31st March, 2024, inter-alia,
includes the following information

m
Particulars Amount (`)

c o
. each. ` 70 paid up
10,00,000 Equity Shares of ` 10 each fully paid up 100,00,000

Capital Redemption. Reserve se
m
1,00,000 9% Preference Shares of ` 100 70,00,000

la
40,00,000

a g
Securities Premium Reserve 10,00,000
General Reserve 100,00,000
Balance with Banks 30,00,000

Under the terms of their issue, the Preference Shares are redeemable on
31st March, 2025 at a premium of 5%. Preference Shareholders having 4,000
shares fail to make the payment for the Final Call made under Section 55 of
the Companies Act, 2013. Their shares are forfeited after giving proper notices.

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In order to finance the redemption, the company makes a right issue of

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10,00,000 Equity Shares of ` 10 each at ` 11 per share. ` 2 being payable on
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application, ` 4 (including premium) on allotment and the balance on

s em 1st June, 2025. The issue was fully subscribed and allotment made on
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31st March, 2025. The money due on allotment was received on 31st March,

ag 2025. The preference shares were redeemed after fulfilling the necessary
conditions of section 55 of the Companies Act, 2013.
You are required to pass the necessary Journal Entries (with narrations) in
the books of Dynamic Limited for the above. (15 Marks)

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SUGGESTED ANSWERS
ACCOUNTING

(b) What do you mean by principal books of account? What are the rules of
posting of Journal Entries into the Ledger? (5 Marks)
Answer
(a) In the books of Dynamic Limited
Journal Entries
Particulars Amount Amount
` `
9% Preference Share Final Call A/c Dr. 30,00,000
To 9% Preference Share Capital A/c 30,00,000
(For final call made on preference shares @ ` 30
each to make them fully paid up)
Bank A/ Dr. 28,80,000
Calls in arrears A/c 1,20,000
To 9% Preference Share Final Call A/c 30,00,000
(For receipt of final call money on preference
shares)
9% Preference Share Capital A/c Dr. 4,00,000
To Calls in Arrears A/c 1,20,000
To Shares Forfeited A/c 2,80,000
(For Shares Forfeited after shareholders fail to
pay the Final Call)
Share Forfeiture A/c Dr. 2,80,000
To Capital Reserve 2,80,000
(Share forfeiture amount transferred to Capital
reserve)
Bank A/c Dr. 20,00,000
To Equity Share Application A/c 20,00,000
(For receipt of application money on 10,00,000
equity shares @ ` 2 per share)
Equity Share Application A/c Dr. 20,00,000
To Equity Share Capital A/c 20,00,000
(For capitalisation of application money
received)

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SUGGESTED ANSWERS FOUNDATION EXAMINATION: JANUARY 2026

Equity Share Allotment A/c Dr. 40,00,000
To Equity Share Capital A/c 30,00,000

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To Securities Premium A/c 10,00,000
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(For allotment money due on 10,00,000 equity

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shares @ ` 4 per share including a premium of
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` 1 per share)
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l To Equity Share Allotment A/c
Bank Dr. 40,00,000
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a 40,00,000
(For receipt of allotment money on equity shares)
General Reserve A/c (WN -1) Dr. 46,00,000
To Capital Redemption Reserve A/c 46,00,000
(For transfer of CRR the amount not covered by
the proceeds of fresh issue of equity shares i.e.,
96,00,000 - 20,00,000 - 30,00,000)

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9% Preference Share Capital A/c Dr. 96,00,000

To Preference Shareholders A/cm
.
Premium on Redemption of Preference Shares

s e 1,00,80,000

g la shareholders
(For amount payable to preference

a
on redemption at 5% premium)
Preference Shareholders A/c Dr. 1,00,80,000
To Bank A/c 1,00,80,000
(For amount paid to preference shareholders)
General Reserve A/c/ Securities Premium A/c Dr. 4,80,000
To Premium on Redemption of Pref. Shares 4,80,000
A/c

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(For writing off premium on redemption of

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preference shares)
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Working Note:
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ag Preference Shares to be redeemed (96,000x100) 96,00,000
(-) Face Value of shares issued (10,00,000x (2+3)) 50,00,000
46,00,000

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SUGGESTED ANSWERS
ACCOUNTING

Alternatively, journal entries for share forfeiture can also be passed without
using calls in arrears A/c. In that case, the 2nd and 3rd entry shall be

Bank A/c Dr. 28,80,000
To 9% Preference Share Final Call A/c 28,80,000
(For receipt of final call money on
preference shares)
9% Preference Share Capital A/c Dr. 4,00,000
To 9% Preference Share Final Call A/c 1,20,000
To Shares Forfeited A/c 2,80,000
(For Shares Forfeited after shareholders fail
to pay the Final Call)

(b) After recording the original transactions in the journal, recorded entries are
classified and grouped into by preparation of accounts. The book which
contains all set of accounts (viz. personal, real and nominal accounts), is
known as Ledger. Ledger is known as principal books of accounts since it
provides full information regarding all the transactions pertaining to any
individual account.
Rules regarding posting of Journal entries in the ledger:
a. Separate account is opened in ledger book for each account and
entries from the Journal are posted to respective accounts accordingly.
b. It is a practice to use words ‘To’ and ‘By’ while posting transactions in
the ledger. The word ‘To’ is used in the particular column with the
accounts written on the debit side while ‘By’ is used with the accounts
written in the particular column of the credit side. These ‘To’ and ‘By’
do not have any meanings but are used to the account debited and
credited.
c. The concerned account debited in the journal should also be debited
in the ledger but reference should be of the respective credit account.

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