Sample Paper Series- II | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


1 
Test Series: April, 2019 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
Question No. 1  is compulsory. 
Answer 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. 
(Time allowed: 3 Hours) (100 Marks) 
1. (a) State with reasons whether the following statements are True or False: 
(i)   Debenture interest is payable after the payment of preference dividend but before the 
payment  of equity dividend.  
(ii) Amount paid to Management company for consultancy to reduce the working expenses is 
capital expenditure if the reduced working expenses will generate long term benefits to the 
entity. 
(iii) The additional commission to the consignee who agrees to bear the loss on account of bad 
debts is called overriding commission. 
(iv) When there is no agreement among the partners, the profit or loss of the firm will be shared 
in their capital ratio. 
(v)  Goods worth Rs. 600 taken by the proprietor for personal use should be credited to Capital 
Account. 
(vi)  Quick ratio is also known as Cash Ratio.  (6 statements x 2 Marks = 12 Marks)  
(b) Explain in brief objective and advantages of setting Accounting Standards.  (4 Marks) 
(c) A trader prepared his accounts on 31st March, each year.  Due to some unavoidable reasons, no 
stock taking could be possible till 15th April, 2018 on which date the total cost of goods in his 
godown came to Rs. 50,000.  The following facts were established between 31st March and 15th 
April, 2018. 
(i) Sales Rs. 41,000 (including cash sales Rs. 10,000) 
(ii) Purchases Rs. 5,034 (including cash purchases Rs. 1,990) 
(iii) Sales Return Rs. 1,000. 
(iv) On 15th March, goods of the sale value of Rs. 10,000 were sent on sale or return basis to a 
customer, the period of approval being four weeks.  He returned 40% of the goods on 10th 
April, approving the rest; the customer was billed on 16th April. 
 Goods are sold by the trader at a profit of 20% on sales. 
 You are required to ascertain the value of Inventory as on 31st March, 2018. (4 Marks) 
 
© The Institute of Chartered Accountants of India
Page 2


1 
Test Series: April, 2019 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
Question No. 1  is compulsory. 
Answer 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. 
(Time allowed: 3 Hours) (100 Marks) 
1. (a) State with reasons whether the following statements are True or False: 
(i)   Debenture interest is payable after the payment of preference dividend but before the 
payment  of equity dividend.  
(ii) Amount paid to Management company for consultancy to reduce the working expenses is 
capital expenditure if the reduced working expenses will generate long term benefits to the 
entity. 
(iii) The additional commission to the consignee who agrees to bear the loss on account of bad 
debts is called overriding commission. 
(iv) When there is no agreement among the partners, the profit or loss of the firm will be shared 
in their capital ratio. 
(v)  Goods worth Rs. 600 taken by the proprietor for personal use should be credited to Capital 
Account. 
(vi)  Quick ratio is also known as Cash Ratio.  (6 statements x 2 Marks = 12 Marks)  
(b) Explain in brief objective and advantages of setting Accounting Standards.  (4 Marks) 
(c) A trader prepared his accounts on 31st March, each year.  Due to some unavoidable reasons, no 
stock taking could be possible till 15th April, 2018 on which date the total cost of goods in his 
godown came to Rs. 50,000.  The following facts were established between 31st March and 15th 
April, 2018. 
(i) Sales Rs. 41,000 (including cash sales Rs. 10,000) 
(ii) Purchases Rs. 5,034 (including cash purchases Rs. 1,990) 
(iii) Sales Return Rs. 1,000. 
(iv) On 15th March, goods of the sale value of Rs. 10,000 were sent on sale or return basis to a 
customer, the period of approval being four weeks.  He returned 40% of the goods on 10th 
April, approving the rest; the customer was billed on 16th April. 
 Goods are sold by the trader at a profit of 20% on sales. 
 You are required to ascertain the value of Inventory as on 31st March, 2018. (4 Marks) 
 
© The Institute of Chartered Accountants of India
2 
2. (a)  Prepare a Petty Cash Book on the Imprest System from the following: 
2017  Rs. 
April 1 Received Rs. 20,000 for petty cash  
 “ 2 Paid auto fare 500 
 “ 3 Paid cartage 2,500 
 “ 4 Paid for Postage & Telegrams 500 
 “ 5 Paid wages  600 
 “ 5 Paid for stationery 400 
 “ 6 Paid for the repairs to  machinery 1,500 
 “ 6 Bus fare 100 
 “ 7 Cartage 400 
 “ 7 Postage and Telegrams 700 
 “ 8 Cartage  3,000 
 “ 9 Stationery 2,000 
 “ 10 Sundry expenses 5,000 
(b) On 30
th
 Sept. 2018 my Cash Book (Bank Column of Account No. 1) shows a Bank Overdraft of  
Rs. 49,350. On going through the Bank Pass book for reconciling the Balance, I found the following: 
(a) Out of cheques drawn on 26
th
 Sept, those for Rs. 3,700 were cashed by the bankers on 2
nd
 
October. 
(b) A crossed cheque for Rs. 750 given to Abdul was returned by him and a bearer cheque was issued 
to him in lieu on 1
st
 Oct. 
(c) Cash and cheques amounting to Rs. 3,400 were deposited in the Bank on 29
th
 Sept., but cheques 
worth Rs. 1,300 were cleared by the Bank on 1
st
 Oct., and one cheque for Rs. 250 was returned 
by them as dishonoured on the latter date. 
(d) According to my standing instructions, the bankers have on 30
th
 Sept, paid Rs. 320 as interest to 
my creditors, paid quarterly premium on my policy amounting to Rs. 160 and have paid a second 
call of Rs. 600 on shares held by me and lodged with the bankers for safe custody. They have 
also received Rs. 150 as dividend on my shares and recovered an Insurance Claim of Rs. 800, as 
their charges and commission on the above being Rs. 15. On receipt of information of the above 
transaction, I have passed necessary entries in my Cash Book on 1
st
 Oct.  
(e) My bankers seem to have given me a wrong credit for Rs. 500 paid in by me in No. 2 account and 
wrong debit in respect of a cheque for Rs. 300 drawn against my No. 2 account. 
 Prepare a Bank Reconciliation Statement as on 30
th
 September, 2018. 
 (10 Marks + 10 Marks= 20 Marks) 
3 (a) Manoj of Noida consigned to Kiran of Jaipur, goods to be sold at invoice price which represents 
125% of cost. Kiran is entitled to a commission of 10% on sales at invoice price and 25% of any 
excess realised over invoice price. The expenses on freight and insurance incurred by Manoj were 
Rs. 15,000. The account sales received by Manoj shows that Kiran has effected sales amounting 
to Rs. 1,50,000 in respect of 75% of the consignment. His selling expenses to be reimbursed were  
Rs. 12,000. 10% of consignment goods of the value of Rs. 18,750 were destroyed in fire at the 
Jaipur godown. Kiran remitted the balance in favour of Manoj.  
© The Institute of Chartered Accountants of India
Page 3


1 
Test Series: April, 2019 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
Question No. 1  is compulsory. 
Answer 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. 
(Time allowed: 3 Hours) (100 Marks) 
1. (a) State with reasons whether the following statements are True or False: 
(i)   Debenture interest is payable after the payment of preference dividend but before the 
payment  of equity dividend.  
(ii) Amount paid to Management company for consultancy to reduce the working expenses is 
capital expenditure if the reduced working expenses will generate long term benefits to the 
entity. 
(iii) The additional commission to the consignee who agrees to bear the loss on account of bad 
debts is called overriding commission. 
(iv) When there is no agreement among the partners, the profit or loss of the firm will be shared 
in their capital ratio. 
(v)  Goods worth Rs. 600 taken by the proprietor for personal use should be credited to Capital 
Account. 
(vi)  Quick ratio is also known as Cash Ratio.  (6 statements x 2 Marks = 12 Marks)  
(b) Explain in brief objective and advantages of setting Accounting Standards.  (4 Marks) 
(c) A trader prepared his accounts on 31st March, each year.  Due to some unavoidable reasons, no 
stock taking could be possible till 15th April, 2018 on which date the total cost of goods in his 
godown came to Rs. 50,000.  The following facts were established between 31st March and 15th 
April, 2018. 
(i) Sales Rs. 41,000 (including cash sales Rs. 10,000) 
(ii) Purchases Rs. 5,034 (including cash purchases Rs. 1,990) 
(iii) Sales Return Rs. 1,000. 
(iv) On 15th March, goods of the sale value of Rs. 10,000 were sent on sale or return basis to a 
customer, the period of approval being four weeks.  He returned 40% of the goods on 10th 
April, approving the rest; the customer was billed on 16th April. 
 Goods are sold by the trader at a profit of 20% on sales. 
 You are required to ascertain the value of Inventory as on 31st March, 2018. (4 Marks) 
 
© The Institute of Chartered Accountants of India
2 
2. (a)  Prepare a Petty Cash Book on the Imprest System from the following: 
2017  Rs. 
April 1 Received Rs. 20,000 for petty cash  
 “ 2 Paid auto fare 500 
 “ 3 Paid cartage 2,500 
 “ 4 Paid for Postage & Telegrams 500 
 “ 5 Paid wages  600 
 “ 5 Paid for stationery 400 
 “ 6 Paid for the repairs to  machinery 1,500 
 “ 6 Bus fare 100 
 “ 7 Cartage 400 
 “ 7 Postage and Telegrams 700 
 “ 8 Cartage  3,000 
 “ 9 Stationery 2,000 
 “ 10 Sundry expenses 5,000 
(b) On 30
th
 Sept. 2018 my Cash Book (Bank Column of Account No. 1) shows a Bank Overdraft of  
Rs. 49,350. On going through the Bank Pass book for reconciling the Balance, I found the following: 
(a) Out of cheques drawn on 26
th
 Sept, those for Rs. 3,700 were cashed by the bankers on 2
nd
 
October. 
(b) A crossed cheque for Rs. 750 given to Abdul was returned by him and a bearer cheque was issued 
to him in lieu on 1
st
 Oct. 
(c) Cash and cheques amounting to Rs. 3,400 were deposited in the Bank on 29
th
 Sept., but cheques 
worth Rs. 1,300 were cleared by the Bank on 1
st
 Oct., and one cheque for Rs. 250 was returned 
by them as dishonoured on the latter date. 
(d) According to my standing instructions, the bankers have on 30
th
 Sept, paid Rs. 320 as interest to 
my creditors, paid quarterly premium on my policy amounting to Rs. 160 and have paid a second 
call of Rs. 600 on shares held by me and lodged with the bankers for safe custody. They have 
also received Rs. 150 as dividend on my shares and recovered an Insurance Claim of Rs. 800, as 
their charges and commission on the above being Rs. 15. On receipt of information of the above 
transaction, I have passed necessary entries in my Cash Book on 1
st
 Oct.  
(e) My bankers seem to have given me a wrong credit for Rs. 500 paid in by me in No. 2 account and 
wrong debit in respect of a cheque for Rs. 300 drawn against my No. 2 account. 
 Prepare a Bank Reconciliation Statement as on 30
th
 September, 2018. 
 (10 Marks + 10 Marks= 20 Marks) 
3 (a) Manoj of Noida consigned to Kiran of Jaipur, goods to be sold at invoice price which represents 
125% of cost. Kiran is entitled to a commission of 10% on sales at invoice price and 25% of any 
excess realised over invoice price. The expenses on freight and insurance incurred by Manoj were 
Rs. 15,000. The account sales received by Manoj shows that Kiran has effected sales amounting 
to Rs. 1,50,000 in respect of 75% of the consignment. His selling expenses to be reimbursed were  
Rs. 12,000. 10% of consignment goods of the value of Rs. 18,750 were destroyed in fire at the 
Jaipur godown. Kiran remitted the balance in favour of Manoj.  
© The Institute of Chartered Accountants of India
3 
 You are required to prepare consignment account in the books of Manoj along with the necessary 
calculations. (10 Marks) 
(b) A and B entered into a joint venture to buy and sell mobile sets, on 1st July, 2017. 
On 1.7.2017, A sent a draft for Rs. 3,75,000 in favour of B, and on 4.7.2017, the latter purchased 
200 sets each at a cost of Rs. 3,000 each. The sets were sent to A by lorry under freight “to pay” 
for Rs. 3,000 and were cleared by A on 15.7.2017. 
A effected sales in the following manner: 
Date   No. of sets  Sale price Discount on 
    per set  sale price 
16.7.2017 3 4,500 10% 
31.7.2017 80 4,200 - 
15.8.2017 80 4,050 5% 
On 25.8.2017, A settled the account by sending a draft in favour of B, profits being shared equally. 
B does not maintain any books.  
You are required to prepare in A’s books: 
(i) Joint Venture with B A/c; and 
(ii) Memorandum Joint Venture A/c. (10 Marks) 
4. Smith Library Society showed the following position on 31
st
 March, 2018: 
Balance Sheet as on 31
st
 March, 2018 
Liabilities Rs.  Assets Rs.  
Capital fund 7,93,000 Electrical fittings 1,50,000 
Expenses payable 7,000 Furniture 50,000 
  Books 4,00,000 
  Investment in securities 1,50,000 
  Cash at bank 25,000 
 ______ Cash in hand 25,000 
 8,00,000  8,00,000 
 The receipts and payment account for the year ended on 31
st
 March, 2019 is given below: 
 Rs.   Rs.  
To Balance b/d  By Electric charges 7,200 
Cash at bank      25,000  By Postage and stationary 5,000 
Cash in hand      25,000 50,000 By Telephone charges 5,000 
To Entrance fee 30,000 By Books purchased 60,000 
To Membership subscription 2,00,000 By Outstanding expenses paid 7,000 
To Sale proceeds of old papers  1,500 By Rent  88,000 
To Hire of lecture hall 20,000 By Investment in securities 40,000 
To Interest on securities. 8,000 By Salaries 66,000 
  By Balance c/d  
  Cash at bank 20,000 
 _______ Cash in hand 11,300 
 3,09,500  3,09,500 
© The Institute of Chartered Accountants of India
Page 4


1 
Test Series: April, 2019 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
Question No. 1  is compulsory. 
Answer 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. 
(Time allowed: 3 Hours) (100 Marks) 
1. (a) State with reasons whether the following statements are True or False: 
(i)   Debenture interest is payable after the payment of preference dividend but before the 
payment  of equity dividend.  
(ii) Amount paid to Management company for consultancy to reduce the working expenses is 
capital expenditure if the reduced working expenses will generate long term benefits to the 
entity. 
(iii) The additional commission to the consignee who agrees to bear the loss on account of bad 
debts is called overriding commission. 
(iv) When there is no agreement among the partners, the profit or loss of the firm will be shared 
in their capital ratio. 
(v)  Goods worth Rs. 600 taken by the proprietor for personal use should be credited to Capital 
Account. 
(vi)  Quick ratio is also known as Cash Ratio.  (6 statements x 2 Marks = 12 Marks)  
(b) Explain in brief objective and advantages of setting Accounting Standards.  (4 Marks) 
(c) A trader prepared his accounts on 31st March, each year.  Due to some unavoidable reasons, no 
stock taking could be possible till 15th April, 2018 on which date the total cost of goods in his 
godown came to Rs. 50,000.  The following facts were established between 31st March and 15th 
April, 2018. 
(i) Sales Rs. 41,000 (including cash sales Rs. 10,000) 
(ii) Purchases Rs. 5,034 (including cash purchases Rs. 1,990) 
(iii) Sales Return Rs. 1,000. 
(iv) On 15th March, goods of the sale value of Rs. 10,000 were sent on sale or return basis to a 
customer, the period of approval being four weeks.  He returned 40% of the goods on 10th 
April, approving the rest; the customer was billed on 16th April. 
 Goods are sold by the trader at a profit of 20% on sales. 
 You are required to ascertain the value of Inventory as on 31st March, 2018. (4 Marks) 
 
© The Institute of Chartered Accountants of India
2 
2. (a)  Prepare a Petty Cash Book on the Imprest System from the following: 
2017  Rs. 
April 1 Received Rs. 20,000 for petty cash  
 “ 2 Paid auto fare 500 
 “ 3 Paid cartage 2,500 
 “ 4 Paid for Postage & Telegrams 500 
 “ 5 Paid wages  600 
 “ 5 Paid for stationery 400 
 “ 6 Paid for the repairs to  machinery 1,500 
 “ 6 Bus fare 100 
 “ 7 Cartage 400 
 “ 7 Postage and Telegrams 700 
 “ 8 Cartage  3,000 
 “ 9 Stationery 2,000 
 “ 10 Sundry expenses 5,000 
(b) On 30
th
 Sept. 2018 my Cash Book (Bank Column of Account No. 1) shows a Bank Overdraft of  
Rs. 49,350. On going through the Bank Pass book for reconciling the Balance, I found the following: 
(a) Out of cheques drawn on 26
th
 Sept, those for Rs. 3,700 were cashed by the bankers on 2
nd
 
October. 
(b) A crossed cheque for Rs. 750 given to Abdul was returned by him and a bearer cheque was issued 
to him in lieu on 1
st
 Oct. 
(c) Cash and cheques amounting to Rs. 3,400 were deposited in the Bank on 29
th
 Sept., but cheques 
worth Rs. 1,300 were cleared by the Bank on 1
st
 Oct., and one cheque for Rs. 250 was returned 
by them as dishonoured on the latter date. 
(d) According to my standing instructions, the bankers have on 30
th
 Sept, paid Rs. 320 as interest to 
my creditors, paid quarterly premium on my policy amounting to Rs. 160 and have paid a second 
call of Rs. 600 on shares held by me and lodged with the bankers for safe custody. They have 
also received Rs. 150 as dividend on my shares and recovered an Insurance Claim of Rs. 800, as 
their charges and commission on the above being Rs. 15. On receipt of information of the above 
transaction, I have passed necessary entries in my Cash Book on 1
st
 Oct.  
(e) My bankers seem to have given me a wrong credit for Rs. 500 paid in by me in No. 2 account and 
wrong debit in respect of a cheque for Rs. 300 drawn against my No. 2 account. 
 Prepare a Bank Reconciliation Statement as on 30
th
 September, 2018. 
 (10 Marks + 10 Marks= 20 Marks) 
3 (a) Manoj of Noida consigned to Kiran of Jaipur, goods to be sold at invoice price which represents 
125% of cost. Kiran is entitled to a commission of 10% on sales at invoice price and 25% of any 
excess realised over invoice price. The expenses on freight and insurance incurred by Manoj were 
Rs. 15,000. The account sales received by Manoj shows that Kiran has effected sales amounting 
to Rs. 1,50,000 in respect of 75% of the consignment. His selling expenses to be reimbursed were  
Rs. 12,000. 10% of consignment goods of the value of Rs. 18,750 were destroyed in fire at the 
Jaipur godown. Kiran remitted the balance in favour of Manoj.  
© The Institute of Chartered Accountants of India
3 
 You are required to prepare consignment account in the books of Manoj along with the necessary 
calculations. (10 Marks) 
(b) A and B entered into a joint venture to buy and sell mobile sets, on 1st July, 2017. 
On 1.7.2017, A sent a draft for Rs. 3,75,000 in favour of B, and on 4.7.2017, the latter purchased 
200 sets each at a cost of Rs. 3,000 each. The sets were sent to A by lorry under freight “to pay” 
for Rs. 3,000 and were cleared by A on 15.7.2017. 
A effected sales in the following manner: 
Date   No. of sets  Sale price Discount on 
    per set  sale price 
16.7.2017 3 4,500 10% 
31.7.2017 80 4,200 - 
15.8.2017 80 4,050 5% 
On 25.8.2017, A settled the account by sending a draft in favour of B, profits being shared equally. 
B does not maintain any books.  
You are required to prepare in A’s books: 
(i) Joint Venture with B A/c; and 
(ii) Memorandum Joint Venture A/c. (10 Marks) 
4. Smith Library Society showed the following position on 31
st
 March, 2018: 
Balance Sheet as on 31
st
 March, 2018 
Liabilities Rs.  Assets Rs.  
Capital fund 7,93,000 Electrical fittings 1,50,000 
Expenses payable 7,000 Furniture 50,000 
  Books 4,00,000 
  Investment in securities 1,50,000 
  Cash at bank 25,000 
 ______ Cash in hand 25,000 
 8,00,000  8,00,000 
 The receipts and payment account for the year ended on 31
st
 March, 2019 is given below: 
 Rs.   Rs.  
To Balance b/d  By Electric charges 7,200 
Cash at bank      25,000  By Postage and stationary 5,000 
Cash in hand      25,000 50,000 By Telephone charges 5,000 
To Entrance fee 30,000 By Books purchased 60,000 
To Membership subscription 2,00,000 By Outstanding expenses paid 7,000 
To Sale proceeds of old papers  1,500 By Rent  88,000 
To Hire of lecture hall 20,000 By Investment in securities 40,000 
To Interest on securities. 8,000 By Salaries 66,000 
  By Balance c/d  
  Cash at bank 20,000 
 _______ Cash in hand 11,300 
 3,09,500  3,09,500 
© The Institute of Chartered Accountants of India
4 
 You are required to prepare income and expenditure account for the year ended 31
st
 March, 2019 and 
a balance sheet as at 31
s
, March, 2019 after making the following adjustments: 
 Membership subscription included Rs. 10,000 received in advance. 
 Provide for outstanding rent Rs. 4,000 and salaries Rs. 3,000. 
 Books to be depreciated @ 10% including additions.  Electrical fittings and furniture are also to be 
depreciated at the same rate. 
 75% of the entrance fees is to be capitalized. 
 Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10.2018 for  
Rs. 40,000.  (20 Marks) 
5 (a) Neha & Co. is a partnership firm with partners Mr. P, Mr. Q and Mr. R, sharing profits and losses 
in the ratio of 10:6:4. The balance sheet of the firm as at 31st March, 2019 is as under: 
Liabilities 
 
Rs. Assets Rs. 
Capitals: 
  
Land 10,000 
 Mr. P 80,000 
 
Buildings 2,00,000 
 Mr. Q  20,000 
 
Plant and machinery 1,30,000 
 Mr. R 30,000 1,30,000 Furniture 43,000 
Reserves  
  
Investments 12,000 
(un-appropriated profit) 
 
20,000 Inventories 1,30,000 
Long Term Debt 
 
3,00,000 Trade receivables 1,39,000  
Bank Overdraft 
 
44,000 
  
Trade payables 
 
1,70,000 
  
  
6,64,000 
 
6,64,000 
It was mutually agreed that Mr. Q will retire from partnership and in his place Mr. T will be admitted 
as a partner with effect from 1
st
 April, 2019. For this purpose, the following adjustments are to be 
made: 
(a) Goodwill is to be valued at Rs.1 lakh but the same will not appear as an asset in the books of 
the reconstituted firm. 
(b) Buildings and plant and machinery are to be depreciated by 5% and 20% respectively. 
Investments are to be taken over by the retiring partner at Rs.15,000. Provision of 20% is to 
be made on Trade receivables to cover doubtful debts. 
(c) In the reconstituted firm, the total capital will be Rs. 2 lakhs which will be contributed by Mr. 
P, Mr. R and Mr. T in their new profit sharing ratio, which is 2:2:1. 
(i) The surplus funds, if any, will be used for repaying bank overdraft. 
(ii) The amount due to retiring partner shall be transferred to his loan account.  
You are required to prepare  
(a) Revaluation account; 
(b) Partners’ capital accounts; 
(c) Bank account; and  
 
 
© The Institute of Chartered Accountants of India
Page 5


1 
Test Series: April, 2019 
FOUNDATION COURSE 
MOCK TEST PAPER 2 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
Question No. 1  is compulsory. 
Answer 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. 
(Time allowed: 3 Hours) (100 Marks) 
1. (a) State with reasons whether the following statements are True or False: 
(i)   Debenture interest is payable after the payment of preference dividend but before the 
payment  of equity dividend.  
(ii) Amount paid to Management company for consultancy to reduce the working expenses is 
capital expenditure if the reduced working expenses will generate long term benefits to the 
entity. 
(iii) The additional commission to the consignee who agrees to bear the loss on account of bad 
debts is called overriding commission. 
(iv) When there is no agreement among the partners, the profit or loss of the firm will be shared 
in their capital ratio. 
(v)  Goods worth Rs. 600 taken by the proprietor for personal use should be credited to Capital 
Account. 
(vi)  Quick ratio is also known as Cash Ratio.  (6 statements x 2 Marks = 12 Marks)  
(b) Explain in brief objective and advantages of setting Accounting Standards.  (4 Marks) 
(c) A trader prepared his accounts on 31st March, each year.  Due to some unavoidable reasons, no 
stock taking could be possible till 15th April, 2018 on which date the total cost of goods in his 
godown came to Rs. 50,000.  The following facts were established between 31st March and 15th 
April, 2018. 
(i) Sales Rs. 41,000 (including cash sales Rs. 10,000) 
(ii) Purchases Rs. 5,034 (including cash purchases Rs. 1,990) 
(iii) Sales Return Rs. 1,000. 
(iv) On 15th March, goods of the sale value of Rs. 10,000 were sent on sale or return basis to a 
customer, the period of approval being four weeks.  He returned 40% of the goods on 10th 
April, approving the rest; the customer was billed on 16th April. 
 Goods are sold by the trader at a profit of 20% on sales. 
 You are required to ascertain the value of Inventory as on 31st March, 2018. (4 Marks) 
 
© The Institute of Chartered Accountants of India
2 
2. (a)  Prepare a Petty Cash Book on the Imprest System from the following: 
2017  Rs. 
April 1 Received Rs. 20,000 for petty cash  
 “ 2 Paid auto fare 500 
 “ 3 Paid cartage 2,500 
 “ 4 Paid for Postage & Telegrams 500 
 “ 5 Paid wages  600 
 “ 5 Paid for stationery 400 
 “ 6 Paid for the repairs to  machinery 1,500 
 “ 6 Bus fare 100 
 “ 7 Cartage 400 
 “ 7 Postage and Telegrams 700 
 “ 8 Cartage  3,000 
 “ 9 Stationery 2,000 
 “ 10 Sundry expenses 5,000 
(b) On 30
th
 Sept. 2018 my Cash Book (Bank Column of Account No. 1) shows a Bank Overdraft of  
Rs. 49,350. On going through the Bank Pass book for reconciling the Balance, I found the following: 
(a) Out of cheques drawn on 26
th
 Sept, those for Rs. 3,700 were cashed by the bankers on 2
nd
 
October. 
(b) A crossed cheque for Rs. 750 given to Abdul was returned by him and a bearer cheque was issued 
to him in lieu on 1
st
 Oct. 
(c) Cash and cheques amounting to Rs. 3,400 were deposited in the Bank on 29
th
 Sept., but cheques 
worth Rs. 1,300 were cleared by the Bank on 1
st
 Oct., and one cheque for Rs. 250 was returned 
by them as dishonoured on the latter date. 
(d) According to my standing instructions, the bankers have on 30
th
 Sept, paid Rs. 320 as interest to 
my creditors, paid quarterly premium on my policy amounting to Rs. 160 and have paid a second 
call of Rs. 600 on shares held by me and lodged with the bankers for safe custody. They have 
also received Rs. 150 as dividend on my shares and recovered an Insurance Claim of Rs. 800, as 
their charges and commission on the above being Rs. 15. On receipt of information of the above 
transaction, I have passed necessary entries in my Cash Book on 1
st
 Oct.  
(e) My bankers seem to have given me a wrong credit for Rs. 500 paid in by me in No. 2 account and 
wrong debit in respect of a cheque for Rs. 300 drawn against my No. 2 account. 
 Prepare a Bank Reconciliation Statement as on 30
th
 September, 2018. 
 (10 Marks + 10 Marks= 20 Marks) 
3 (a) Manoj of Noida consigned to Kiran of Jaipur, goods to be sold at invoice price which represents 
125% of cost. Kiran is entitled to a commission of 10% on sales at invoice price and 25% of any 
excess realised over invoice price. The expenses on freight and insurance incurred by Manoj were 
Rs. 15,000. The account sales received by Manoj shows that Kiran has effected sales amounting 
to Rs. 1,50,000 in respect of 75% of the consignment. His selling expenses to be reimbursed were  
Rs. 12,000. 10% of consignment goods of the value of Rs. 18,750 were destroyed in fire at the 
Jaipur godown. Kiran remitted the balance in favour of Manoj.  
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3 
 You are required to prepare consignment account in the books of Manoj along with the necessary 
calculations. (10 Marks) 
(b) A and B entered into a joint venture to buy and sell mobile sets, on 1st July, 2017. 
On 1.7.2017, A sent a draft for Rs. 3,75,000 in favour of B, and on 4.7.2017, the latter purchased 
200 sets each at a cost of Rs. 3,000 each. The sets were sent to A by lorry under freight “to pay” 
for Rs. 3,000 and were cleared by A on 15.7.2017. 
A effected sales in the following manner: 
Date   No. of sets  Sale price Discount on 
    per set  sale price 
16.7.2017 3 4,500 10% 
31.7.2017 80 4,200 - 
15.8.2017 80 4,050 5% 
On 25.8.2017, A settled the account by sending a draft in favour of B, profits being shared equally. 
B does not maintain any books.  
You are required to prepare in A’s books: 
(i) Joint Venture with B A/c; and 
(ii) Memorandum Joint Venture A/c. (10 Marks) 
4. Smith Library Society showed the following position on 31
st
 March, 2018: 
Balance Sheet as on 31
st
 March, 2018 
Liabilities Rs.  Assets Rs.  
Capital fund 7,93,000 Electrical fittings 1,50,000 
Expenses payable 7,000 Furniture 50,000 
  Books 4,00,000 
  Investment in securities 1,50,000 
  Cash at bank 25,000 
 ______ Cash in hand 25,000 
 8,00,000  8,00,000 
 The receipts and payment account for the year ended on 31
st
 March, 2019 is given below: 
 Rs.   Rs.  
To Balance b/d  By Electric charges 7,200 
Cash at bank      25,000  By Postage and stationary 5,000 
Cash in hand      25,000 50,000 By Telephone charges 5,000 
To Entrance fee 30,000 By Books purchased 60,000 
To Membership subscription 2,00,000 By Outstanding expenses paid 7,000 
To Sale proceeds of old papers  1,500 By Rent  88,000 
To Hire of lecture hall 20,000 By Investment in securities 40,000 
To Interest on securities. 8,000 By Salaries 66,000 
  By Balance c/d  
  Cash at bank 20,000 
 _______ Cash in hand 11,300 
 3,09,500  3,09,500 
© The Institute of Chartered Accountants of India
4 
 You are required to prepare income and expenditure account for the year ended 31
st
 March, 2019 and 
a balance sheet as at 31
s
, March, 2019 after making the following adjustments: 
 Membership subscription included Rs. 10,000 received in advance. 
 Provide for outstanding rent Rs. 4,000 and salaries Rs. 3,000. 
 Books to be depreciated @ 10% including additions.  Electrical fittings and furniture are also to be 
depreciated at the same rate. 
 75% of the entrance fees is to be capitalized. 
 Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10.2018 for  
Rs. 40,000.  (20 Marks) 
5 (a) Neha & Co. is a partnership firm with partners Mr. P, Mr. Q and Mr. R, sharing profits and losses 
in the ratio of 10:6:4. The balance sheet of the firm as at 31st March, 2019 is as under: 
Liabilities 
 
Rs. Assets Rs. 
Capitals: 
  
Land 10,000 
 Mr. P 80,000 
 
Buildings 2,00,000 
 Mr. Q  20,000 
 
Plant and machinery 1,30,000 
 Mr. R 30,000 1,30,000 Furniture 43,000 
Reserves  
  
Investments 12,000 
(un-appropriated profit) 
 
20,000 Inventories 1,30,000 
Long Term Debt 
 
3,00,000 Trade receivables 1,39,000  
Bank Overdraft 
 
44,000 
  
Trade payables 
 
1,70,000 
  
  
6,64,000 
 
6,64,000 
It was mutually agreed that Mr. Q will retire from partnership and in his place Mr. T will be admitted 
as a partner with effect from 1
st
 April, 2019. For this purpose, the following adjustments are to be 
made: 
(a) Goodwill is to be valued at Rs.1 lakh but the same will not appear as an asset in the books of 
the reconstituted firm. 
(b) Buildings and plant and machinery are to be depreciated by 5% and 20% respectively. 
Investments are to be taken over by the retiring partner at Rs.15,000. Provision of 20% is to 
be made on Trade receivables to cover doubtful debts. 
(c) In the reconstituted firm, the total capital will be Rs. 2 lakhs which will be contributed by Mr. 
P, Mr. R and Mr. T in their new profit sharing ratio, which is 2:2:1. 
(i) The surplus funds, if any, will be used for repaying bank overdraft. 
(ii) The amount due to retiring partner shall be transferred to his loan account.  
You are required to prepare  
(a) Revaluation account; 
(b) Partners’ capital accounts; 
(c) Bank account; and  
 
 
© The Institute of Chartered Accountants of India
5 
(b) The following information of Hari Ltd. as on Dec 31
st
 2017 is given as below: 
Equity and Liabilities   Assets Rs. 
Shareholder’s Funds     1,12,500  Current Assets              1,50 ,000 
Current Liabilities               1,50,000  Fixed Assets 2,25,000 
Long Term Liabilities            1,12,500 2,62,500  _______ 
  3,75,000  3,75,000   
Net sales                                     5,62,500 
Interest Expense                                        6,000 
Net Profit                                                    39,375 
On Dec 31
st
 2016, Total Assets were Rs.3,00,000 and the tax rate is 40%. 
You are required to compute the following ratios of Hari Ltd. as on Dec. 31
st
 2017. 
(i) Long Term Debt to Total Assets Ratio 
(ii) Net Profit Ratio 
(iii) Return on Average Total Assets 
(iv) Return on Equity 
(v) Net Sales to Total Assets. (10 + 10 = 20 Marks) 
6. (a) Abhijeet who was the holder of 4,000 preference shares of Rs. 100 each, on which Rs. 75 per 
share has been called up could not pay his dues on Allotment and First call each at Rs. 25 per 
share. The Directors forfeited the above shares and reissued 3,000 of such shares to Mr. X at  
Rs. 65 per share paid-up as Rs.75 per share. 
 You are required to prepare journal entries to record the above forfeiture and re-issue in the books 
of the company.  (10 Marks) 
(b) Pihu Ltd. issued 300 lakh 8% debentures of Rs.100 each at a discount of 6%, redeemable at a 
premium of 5% after 3 years payable as : Rs. 50 on application and Rs. 44 on allotment.  
 You are required to prepare the necessary journal entries for issue of debentures. (5 Marks) 
(c)  Explain the differences between Money measurement concept and Matching Concept  
Or  
 Explain, in brief, the basic considerations for distinguishing between capital and revenue 
expenditures? (5 Marks) 
 
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