Mock Test: Principles and Practice of Accounting(Paper-1) Answers - May 2023 | Mock Tests & Past Year Papers for CA Foundation PDF Download

 Page 1


 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING  
SUGGESTED ANSWERS/HINTS 
1. (a) (i) True: Conservatism states that the accountant / entity should not anticipate any future 
income. However, they should provide for all possible / probable losses. Imprudent use of 
concept of conservatism may lead to understatement of Income and Assets. 
(ii) True: Since the temporary huts were necessary for the construction, their cost should be 
added to the cost of the cinema hall and thus capitalised. 
(iii)  False: Account current statement is running transaction between two parties to ascertain the 
amount payable along with interest. A Current Account is an account type to be maintained 
with the bank. In both the cases interest is calculated, with the help of different methods. 
(iv) True: In case the due date of a bill falls after the date of closing the account, then no interest 
is allowed for that. However, interest from the date of closing to such due date is written in 
“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red -Ink 
interest. 
(v) False: On the death of a partner, the firm receives full value of the sum assured of the joint 
life policy. 
(vi) False: Even if the company incurs losses, it has to pay interest on debentures. Debentures 
being debts on the company & debenture holders are not concerned with the profit or loss of 
the company, the interest is to be paid at the rate fixed on it at the time of issue of debenture. 
(b) Accounting Standards are selected set of accounting policies or broad guidelines regarding the 
principles and methods to be chosen out of several alternatives. The Accounting Standards Board 
of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards to be 
established by the Council of the ICAI.  The main objective of Accounting Standards is to establish 
standards which have to be complied with, to ensure that financial statements are prepared in 
accordance with generally accepted accounting principles. Accounting Standards seek to suggest 
rules and criteria of accounting measurements. These standards harmonize the diverse accounting 
policies and practices at present in use in India. 
(c)    Purchase Returns Book 
Date Debit Note 
No. 
Name of supplier L.F. Amount 
(`) 
2023     
Jan. 4 501 Duggal Furniture’s, Jaipur  25,000 
Jan. 16 502 Khanna Furniture’s, Bangalore  22,500 
Jan. 31  Purchases Returns Account (Cr.)  47,500 
2. (a) (a)  Fair Value : ` 1,05,00,000/- 
 Since this is an upward revaluation and group had a balance in revaluation surplus (i.e. there 
was an upward movement earlier), hence this will result in additional credit of ` 5,00,000/- to 
Revaluation Surplus and hence total Revaluation Surplus Balance (part of other 
comprehensive income in Equity) shall increase to ` 15,00,000/- 
© The Institute of Chartered Accountants of India
Page 2


 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING  
SUGGESTED ANSWERS/HINTS 
1. (a) (i) True: Conservatism states that the accountant / entity should not anticipate any future 
income. However, they should provide for all possible / probable losses. Imprudent use of 
concept of conservatism may lead to understatement of Income and Assets. 
(ii) True: Since the temporary huts were necessary for the construction, their cost should be 
added to the cost of the cinema hall and thus capitalised. 
(iii)  False: Account current statement is running transaction between two parties to ascertain the 
amount payable along with interest. A Current Account is an account type to be maintained 
with the bank. In both the cases interest is calculated, with the help of different methods. 
(iv) True: In case the due date of a bill falls after the date of closing the account, then no interest 
is allowed for that. However, interest from the date of closing to such due date is written in 
“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red -Ink 
interest. 
(v) False: On the death of a partner, the firm receives full value of the sum assured of the joint 
life policy. 
(vi) False: Even if the company incurs losses, it has to pay interest on debentures. Debentures 
being debts on the company & debenture holders are not concerned with the profit or loss of 
the company, the interest is to be paid at the rate fixed on it at the time of issue of debenture. 
(b) Accounting Standards are selected set of accounting policies or broad guidelines regarding the 
principles and methods to be chosen out of several alternatives. The Accounting Standards Board 
of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards to be 
established by the Council of the ICAI.  The main objective of Accounting Standards is to establish 
standards which have to be complied with, to ensure that financial statements are prepared in 
accordance with generally accepted accounting principles. Accounting Standards seek to suggest 
rules and criteria of accounting measurements. These standards harmonize the diverse accounting 
policies and practices at present in use in India. 
(c)    Purchase Returns Book 
Date Debit Note 
No. 
Name of supplier L.F. Amount 
(`) 
2023     
Jan. 4 501 Duggal Furniture’s, Jaipur  25,000 
Jan. 16 502 Khanna Furniture’s, Bangalore  22,500 
Jan. 31  Purchases Returns Account (Cr.)  47,500 
2. (a) (a)  Fair Value : ` 1,05,00,000/- 
 Since this is an upward revaluation and group had a balance in revaluation surplus (i.e. there 
was an upward movement earlier), hence this will result in additional credit of ` 5,00,000/- to 
Revaluation Surplus and hence total Revaluation Surplus Balance (part of other 
comprehensive income in Equity) shall increase to ` 15,00,000/- 
© The Institute of Chartered Accountants of India
2 
 The journal entry shall be: 
Property, Plant and Machinery A/c                           Dr. 5,00,000  
              To Revaluation Surplus A/c   5,00,000 
(b)  Fair Value : ` 85,00,000/- 
 Since this is a downward revaluation and group had a balance in revaluation surplus (i.e, 
there was an upward movement earlier), hence this will result in a reduction or a debt to 
Revaluation Surplus to the extent of balance therein and any excess shall be debited to Profit 
& Loss A/c. In this case, there is a reduction in fair value of ` 15,00,000 (` 1,00,00,000 – ` 
85.00.000). Hence, the Revaluation Surplus A/c shall be debited by ` 10,00,000 and the 
balance `5,00,000 shall be debited to Profit & Loss A/c. Hence total Revaluation surplus 
balance (part of other comprehensive income in Equity) shall become NIL.  
 The journal entry shall be : 
Revaluation Surplus A/c                               Dr. 10,00,000  
Profit & Loss A/c                                           Dr.    5,00,000  
        To Property, Plant and Machinery A/c   15,00,000 
(b)     
Bank Reconciliation Statement of Krishna Traders as on 31
st
 March, 2023 
Particulars Amount (`) Amount 
(`) 
Balance as per Cash Book  8,24,400 
Add:   
Mistake in bringing forward `37,000/- debit balance as credit 
balance on 22nd March 
74,000  
Cheques issued but not presented  
Issued = `84,000 less cashed ` 57,000 = `27,000/- 
 
27,000 
 
Dividend directly collected but not entered in cash book 70,000  
Cheques recorded twice in the cash book 2,58,000  
Wrongly credited cheque by bank 50,000  
Discount amount wrongly entered in bank column  1,000  
TOTAL  4,80,000 
Less:   
Wrong casting in cash book on12th March, 2023 24,000  
Cheque issued and not entered in the Bank Column 1,70,000  
Fire Insurance premium paid directly by bank 40,000  
Cheque dishonored not recorded in books 10,000  
Credit card payment not recorded in cash book  5,000  
Cheque wrongly deposited by bank in savings account 4,000  
Bank charges debited not recorded in cash book 400  
TOTAL  2,53,400 
Balance as per the Passbook  10,51,000 
© The Institute of Chartered Accountants of India
Page 3


 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING  
SUGGESTED ANSWERS/HINTS 
1. (a) (i) True: Conservatism states that the accountant / entity should not anticipate any future 
income. However, they should provide for all possible / probable losses. Imprudent use of 
concept of conservatism may lead to understatement of Income and Assets. 
(ii) True: Since the temporary huts were necessary for the construction, their cost should be 
added to the cost of the cinema hall and thus capitalised. 
(iii)  False: Account current statement is running transaction between two parties to ascertain the 
amount payable along with interest. A Current Account is an account type to be maintained 
with the bank. In both the cases interest is calculated, with the help of different methods. 
(iv) True: In case the due date of a bill falls after the date of closing the account, then no interest 
is allowed for that. However, interest from the date of closing to such due date is written in 
“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red -Ink 
interest. 
(v) False: On the death of a partner, the firm receives full value of the sum assured of the joint 
life policy. 
(vi) False: Even if the company incurs losses, it has to pay interest on debentures. Debentures 
being debts on the company & debenture holders are not concerned with the profit or loss of 
the company, the interest is to be paid at the rate fixed on it at the time of issue of debenture. 
(b) Accounting Standards are selected set of accounting policies or broad guidelines regarding the 
principles and methods to be chosen out of several alternatives. The Accounting Standards Board 
of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards to be 
established by the Council of the ICAI.  The main objective of Accounting Standards is to establish 
standards which have to be complied with, to ensure that financial statements are prepared in 
accordance with generally accepted accounting principles. Accounting Standards seek to suggest 
rules and criteria of accounting measurements. These standards harmonize the diverse accounting 
policies and practices at present in use in India. 
(c)    Purchase Returns Book 
Date Debit Note 
No. 
Name of supplier L.F. Amount 
(`) 
2023     
Jan. 4 501 Duggal Furniture’s, Jaipur  25,000 
Jan. 16 502 Khanna Furniture’s, Bangalore  22,500 
Jan. 31  Purchases Returns Account (Cr.)  47,500 
2. (a) (a)  Fair Value : ` 1,05,00,000/- 
 Since this is an upward revaluation and group had a balance in revaluation surplus (i.e. there 
was an upward movement earlier), hence this will result in additional credit of ` 5,00,000/- to 
Revaluation Surplus and hence total Revaluation Surplus Balance (part of other 
comprehensive income in Equity) shall increase to ` 15,00,000/- 
© The Institute of Chartered Accountants of India
2 
 The journal entry shall be: 
Property, Plant and Machinery A/c                           Dr. 5,00,000  
              To Revaluation Surplus A/c   5,00,000 
(b)  Fair Value : ` 85,00,000/- 
 Since this is a downward revaluation and group had a balance in revaluation surplus (i.e, 
there was an upward movement earlier), hence this will result in a reduction or a debt to 
Revaluation Surplus to the extent of balance therein and any excess shall be debited to Profit 
& Loss A/c. In this case, there is a reduction in fair value of ` 15,00,000 (` 1,00,00,000 – ` 
85.00.000). Hence, the Revaluation Surplus A/c shall be debited by ` 10,00,000 and the 
balance `5,00,000 shall be debited to Profit & Loss A/c. Hence total Revaluation surplus 
balance (part of other comprehensive income in Equity) shall become NIL.  
 The journal entry shall be : 
Revaluation Surplus A/c                               Dr. 10,00,000  
Profit & Loss A/c                                           Dr.    5,00,000  
        To Property, Plant and Machinery A/c   15,00,000 
(b)     
Bank Reconciliation Statement of Krishna Traders as on 31
st
 March, 2023 
Particulars Amount (`) Amount 
(`) 
Balance as per Cash Book  8,24,400 
Add:   
Mistake in bringing forward `37,000/- debit balance as credit 
balance on 22nd March 
74,000  
Cheques issued but not presented  
Issued = `84,000 less cashed ` 57,000 = `27,000/- 
 
27,000 
 
Dividend directly collected but not entered in cash book 70,000  
Cheques recorded twice in the cash book 2,58,000  
Wrongly credited cheque by bank 50,000  
Discount amount wrongly entered in bank column  1,000  
TOTAL  4,80,000 
Less:   
Wrong casting in cash book on12th March, 2023 24,000  
Cheque issued and not entered in the Bank Column 1,70,000  
Fire Insurance premium paid directly by bank 40,000  
Cheque dishonored not recorded in books 10,000  
Credit card payment not recorded in cash book  5,000  
Cheque wrongly deposited by bank in savings account 4,000  
Bank charges debited not recorded in cash book 400  
TOTAL  2,53,400 
Balance as per the Passbook  10,51,000 
© The Institute of Chartered Accountants of India
3 
Note : No effects of cheque deposit directly and dishonored in the same Month. Alternatively 
amount of ` 64,000/- can be added as well as deducted from balance as per cash book. 
3. (a)       Consignment Account 
 `    `  
To Goods sent on consignment A/c 
        (15,000 kg x ` 30) 
4,50,000 By Consignee’s A/c-Sales 
(7,500 kg x ` 60) 
 4,50,000 
To Cash A/c 
     (Expenses 15,000 kg x ` 5) 
75,000 By Abnormal Loss A/c  
(Insurance claim – WN-1)  
 
9,000 
 
To Consignee’s A/c: 
     Advertisement & Recurring 
expenses  
 
33,000 
Add: Abnormal Loss (WN-1) 
(Profit and Loss Account) 
5,000 14,000 
     Commission @ 5% on `4,50,000 22,500 By Consignment Stock A/c  2,46,690 
To Profit and loss A/c 1,30,190                              (WN-2)   
    (Profit on Consignment) _______   _______ 
 7,10,690   7,10,690 
Working Notes: 
1. Abnormal Loss: 
 Cost of goods lost: 400 kg  
 Total cost (400 x ` 30)    12,000 
 Add: expenses incurred by the consignor @ `5 per kg     2,000 
 Gross Amount of abnormal loss    14,000 
 Less: Insurance claim    (9,000) 
 Net abnormal loss      5,000 
2.   Valuation of Inventories 
 Quantity (Kgs) Amount (`) 
Total Cost (15,000 kg x `30) 15,000 4,50,000 
Add: Expenses incurred by the consignor  75,000 
Less: Value of Abnormal Loss – 400 kgs (WN 1) (400) (14,000) 
 14,600 5,11,000 
Less: Normal Loss (100)  
 14,500 5,11,000 
Less: Quantity of Sugar sold (7,500)  
Quantity of Closing Stock 7,000   
Value of 7,000 kgs – (5,11,000/14,500) x 7,000  2,46,690 
(b)     Mr. Aryan in Account Current with Mr. Abram 
(Interest upto 15
th
 March, 2023 @ 10% p.a.) 
Dr.           Cr. 
Date  Particulars Amount Days Product Date  Particulars Amount Days Product 
2023      2023      
Jan. 01 To Balance b/d 4,000 74 2,96,000 Jan. 29 By Purchase A/c 1,200 45 54,000 
Jan. 15 To Sales A/c 2,230 59 1,31,570 Feb. 10 By Cash A/c 1,000 33 33,000 
© The Institute of Chartered Accountants of India
Page 4


 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING  
SUGGESTED ANSWERS/HINTS 
1. (a) (i) True: Conservatism states that the accountant / entity should not anticipate any future 
income. However, they should provide for all possible / probable losses. Imprudent use of 
concept of conservatism may lead to understatement of Income and Assets. 
(ii) True: Since the temporary huts were necessary for the construction, their cost should be 
added to the cost of the cinema hall and thus capitalised. 
(iii)  False: Account current statement is running transaction between two parties to ascertain the 
amount payable along with interest. A Current Account is an account type to be maintained 
with the bank. In both the cases interest is calculated, with the help of different methods. 
(iv) True: In case the due date of a bill falls after the date of closing the account, then no interest 
is allowed for that. However, interest from the date of closing to such due date is written in 
“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red -Ink 
interest. 
(v) False: On the death of a partner, the firm receives full value of the sum assured of the joint 
life policy. 
(vi) False: Even if the company incurs losses, it has to pay interest on debentures. Debentures 
being debts on the company & debenture holders are not concerned with the profit or loss of 
the company, the interest is to be paid at the rate fixed on it at the time of issue of debenture. 
(b) Accounting Standards are selected set of accounting policies or broad guidelines regarding the 
principles and methods to be chosen out of several alternatives. The Accounting Standards Board 
of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards to be 
established by the Council of the ICAI.  The main objective of Accounting Standards is to establish 
standards which have to be complied with, to ensure that financial statements are prepared in 
accordance with generally accepted accounting principles. Accounting Standards seek to suggest 
rules and criteria of accounting measurements. These standards harmonize the diverse accounting 
policies and practices at present in use in India. 
(c)    Purchase Returns Book 
Date Debit Note 
No. 
Name of supplier L.F. Amount 
(`) 
2023     
Jan. 4 501 Duggal Furniture’s, Jaipur  25,000 
Jan. 16 502 Khanna Furniture’s, Bangalore  22,500 
Jan. 31  Purchases Returns Account (Cr.)  47,500 
2. (a) (a)  Fair Value : ` 1,05,00,000/- 
 Since this is an upward revaluation and group had a balance in revaluation surplus (i.e. there 
was an upward movement earlier), hence this will result in additional credit of ` 5,00,000/- to 
Revaluation Surplus and hence total Revaluation Surplus Balance (part of other 
comprehensive income in Equity) shall increase to ` 15,00,000/- 
© The Institute of Chartered Accountants of India
2 
 The journal entry shall be: 
Property, Plant and Machinery A/c                           Dr. 5,00,000  
              To Revaluation Surplus A/c   5,00,000 
(b)  Fair Value : ` 85,00,000/- 
 Since this is a downward revaluation and group had a balance in revaluation surplus (i.e, 
there was an upward movement earlier), hence this will result in a reduction or a debt to 
Revaluation Surplus to the extent of balance therein and any excess shall be debited to Profit 
& Loss A/c. In this case, there is a reduction in fair value of ` 15,00,000 (` 1,00,00,000 – ` 
85.00.000). Hence, the Revaluation Surplus A/c shall be debited by ` 10,00,000 and the 
balance `5,00,000 shall be debited to Profit & Loss A/c. Hence total Revaluation surplus 
balance (part of other comprehensive income in Equity) shall become NIL.  
 The journal entry shall be : 
Revaluation Surplus A/c                               Dr. 10,00,000  
Profit & Loss A/c                                           Dr.    5,00,000  
        To Property, Plant and Machinery A/c   15,00,000 
(b)     
Bank Reconciliation Statement of Krishna Traders as on 31
st
 March, 2023 
Particulars Amount (`) Amount 
(`) 
Balance as per Cash Book  8,24,400 
Add:   
Mistake in bringing forward `37,000/- debit balance as credit 
balance on 22nd March 
74,000  
Cheques issued but not presented  
Issued = `84,000 less cashed ` 57,000 = `27,000/- 
 
27,000 
 
Dividend directly collected but not entered in cash book 70,000  
Cheques recorded twice in the cash book 2,58,000  
Wrongly credited cheque by bank 50,000  
Discount amount wrongly entered in bank column  1,000  
TOTAL  4,80,000 
Less:   
Wrong casting in cash book on12th March, 2023 24,000  
Cheque issued and not entered in the Bank Column 1,70,000  
Fire Insurance premium paid directly by bank 40,000  
Cheque dishonored not recorded in books 10,000  
Credit card payment not recorded in cash book  5,000  
Cheque wrongly deposited by bank in savings account 4,000  
Bank charges debited not recorded in cash book 400  
TOTAL  2,53,400 
Balance as per the Passbook  10,51,000 
© The Institute of Chartered Accountants of India
3 
Note : No effects of cheque deposit directly and dishonored in the same Month. Alternatively 
amount of ` 64,000/- can be added as well as deducted from balance as per cash book. 
3. (a)       Consignment Account 
 `    `  
To Goods sent on consignment A/c 
        (15,000 kg x ` 30) 
4,50,000 By Consignee’s A/c-Sales 
(7,500 kg x ` 60) 
 4,50,000 
To Cash A/c 
     (Expenses 15,000 kg x ` 5) 
75,000 By Abnormal Loss A/c  
(Insurance claim – WN-1)  
 
9,000 
 
To Consignee’s A/c: 
     Advertisement & Recurring 
expenses  
 
33,000 
Add: Abnormal Loss (WN-1) 
(Profit and Loss Account) 
5,000 14,000 
     Commission @ 5% on `4,50,000 22,500 By Consignment Stock A/c  2,46,690 
To Profit and loss A/c 1,30,190                              (WN-2)   
    (Profit on Consignment) _______   _______ 
 7,10,690   7,10,690 
Working Notes: 
1. Abnormal Loss: 
 Cost of goods lost: 400 kg  
 Total cost (400 x ` 30)    12,000 
 Add: expenses incurred by the consignor @ `5 per kg     2,000 
 Gross Amount of abnormal loss    14,000 
 Less: Insurance claim    (9,000) 
 Net abnormal loss      5,000 
2.   Valuation of Inventories 
 Quantity (Kgs) Amount (`) 
Total Cost (15,000 kg x `30) 15,000 4,50,000 
Add: Expenses incurred by the consignor  75,000 
Less: Value of Abnormal Loss – 400 kgs (WN 1) (400) (14,000) 
 14,600 5,11,000 
Less: Normal Loss (100)  
 14,500 5,11,000 
Less: Quantity of Sugar sold (7,500)  
Quantity of Closing Stock 7,000   
Value of 7,000 kgs – (5,11,000/14,500) x 7,000  2,46,690 
(b)     Mr. Aryan in Account Current with Mr. Abram 
(Interest upto 15
th
 March, 2023 @ 10% p.a.) 
Dr.           Cr. 
Date  Particulars Amount Days Product Date  Particulars Amount Days Product 
2023      2023      
Jan. 01 To Balance b/d 4,000 74 2,96,000 Jan. 29 By Purchase A/c 1,200 45 54,000 
Jan. 15 To Sales A/c 2,230 59 1,31,570 Feb. 10 By Cash A/c 1,000 33 33,000 
© The Institute of Chartered Accountants of India
4 
Mar. 13 To Red Ink product 
(` 2,000 ? 29) 
   
58,000 
Mar. 13 By Bills Receivable 
A/c 
2,000 
 
 
  
Mar. 15 To Interest A/c 
(
` 3,98,570 × 10 × 1
100 × 365
 ) 
 
109.20 
 
 
  
  
 
 
 
  
Mar. 15 By 
 
By 
Balance of 
product 
Balance c/d  
(amount to be 
paid) 
 
 
 
 
2,139.20 
 
 
 
 
 
3,98,570 
 
 
  
   6,339.20  4,85,570    6,339.20  4,85,570 
(c)          In the books of Mr. Gupta 
 Journal Entries 
Date Particulars  L.F. Dr.  
(in `) 
Cr.  
(in `) 
2022 
     
Dec. 2 
Trade receivables A/c Dr.  2,40,000  
  To Sales A/c 
   2,40,000 
 
(Being the goods sent to customers on sale or 
return basis) 
    
Dec. 10 
Return Inward A/c  Dr.  1,05,000  
  To Trade receivables A/c 
   1,05,000 
 
(Being the goods returned by customers to 
whom goods were sent on sale or return 
basis) 
    
Dec. 23 
Sales A/c Dr.  45,000  
  To Trade receivables A/c  
   45,000 
 
(Being the cancellation of original entry of sale 
in respect of goods on sale or return basis) 
    
Dec. 31 
Inventories with customers on Sale or Return 
A/c 
Dr.  36,000  
  To Trading A/c (Note 2)  
   36,000 
 
(Being the adjustment for cost of goods lying 
with customers awaiting approval) 
    
Working Note: 
(1) No entry is required for receiving letter of approval from customer. 
(2) Cost of goods with customers = ` 45,000 x 100/125 = ` 36,000 
4 (a)      Revaluation Account 
 `  ` 
To Buildings A/c  30,000 By Investments A/c 9,000 
To Machinery A/c  78,000 By Loss to Partners:  
To Provision for Doubtful Debts A/c  83,400  Seed  91,200  
   Plant 54,720  
   Flower 36,480 1,82,400 
 1,91,400  1,91,400 
 
 
© The Institute of Chartered Accountants of India
Page 5


 
MOCK TEST PAPER 1 
FOUNDATION COURSE 
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING  
SUGGESTED ANSWERS/HINTS 
1. (a) (i) True: Conservatism states that the accountant / entity should not anticipate any future 
income. However, they should provide for all possible / probable losses. Imprudent use of 
concept of conservatism may lead to understatement of Income and Assets. 
(ii) True: Since the temporary huts were necessary for the construction, their cost should be 
added to the cost of the cinema hall and thus capitalised. 
(iii)  False: Account current statement is running transaction between two parties to ascertain the 
amount payable along with interest. A Current Account is an account type to be maintained 
with the bank. In both the cases interest is calculated, with the help of different methods. 
(iv) True: In case the due date of a bill falls after the date of closing the account, then no interest 
is allowed for that. However, interest from the date of closing to such due date is written in 
“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red -Ink 
interest. 
(v) False: On the death of a partner, the firm receives full value of the sum assured of the joint 
life policy. 
(vi) False: Even if the company incurs losses, it has to pay interest on debentures. Debentures 
being debts on the company & debenture holders are not concerned with the profit or loss of 
the company, the interest is to be paid at the rate fixed on it at the time of issue of debenture. 
(b) Accounting Standards are selected set of accounting policies or broad guidelines regarding the 
principles and methods to be chosen out of several alternatives. The Accounting Standards Board 
of the Institute of Chartered Accountants of India (ICAI) formulates Accounting Standards to be 
established by the Council of the ICAI.  The main objective of Accounting Standards is to establish 
standards which have to be complied with, to ensure that financial statements are prepared in 
accordance with generally accepted accounting principles. Accounting Standards seek to suggest 
rules and criteria of accounting measurements. These standards harmonize the diverse accounting 
policies and practices at present in use in India. 
(c)    Purchase Returns Book 
Date Debit Note 
No. 
Name of supplier L.F. Amount 
(`) 
2023     
Jan. 4 501 Duggal Furniture’s, Jaipur  25,000 
Jan. 16 502 Khanna Furniture’s, Bangalore  22,500 
Jan. 31  Purchases Returns Account (Cr.)  47,500 
2. (a) (a)  Fair Value : ` 1,05,00,000/- 
 Since this is an upward revaluation and group had a balance in revaluation surplus (i.e. there 
was an upward movement earlier), hence this will result in additional credit of ` 5,00,000/- to 
Revaluation Surplus and hence total Revaluation Surplus Balance (part of other 
comprehensive income in Equity) shall increase to ` 15,00,000/- 
© The Institute of Chartered Accountants of India
2 
 The journal entry shall be: 
Property, Plant and Machinery A/c                           Dr. 5,00,000  
              To Revaluation Surplus A/c   5,00,000 
(b)  Fair Value : ` 85,00,000/- 
 Since this is a downward revaluation and group had a balance in revaluation surplus (i.e, 
there was an upward movement earlier), hence this will result in a reduction or a debt to 
Revaluation Surplus to the extent of balance therein and any excess shall be debited to Profit 
& Loss A/c. In this case, there is a reduction in fair value of ` 15,00,000 (` 1,00,00,000 – ` 
85.00.000). Hence, the Revaluation Surplus A/c shall be debited by ` 10,00,000 and the 
balance `5,00,000 shall be debited to Profit & Loss A/c. Hence total Revaluation surplus 
balance (part of other comprehensive income in Equity) shall become NIL.  
 The journal entry shall be : 
Revaluation Surplus A/c                               Dr. 10,00,000  
Profit & Loss A/c                                           Dr.    5,00,000  
        To Property, Plant and Machinery A/c   15,00,000 
(b)     
Bank Reconciliation Statement of Krishna Traders as on 31
st
 March, 2023 
Particulars Amount (`) Amount 
(`) 
Balance as per Cash Book  8,24,400 
Add:   
Mistake in bringing forward `37,000/- debit balance as credit 
balance on 22nd March 
74,000  
Cheques issued but not presented  
Issued = `84,000 less cashed ` 57,000 = `27,000/- 
 
27,000 
 
Dividend directly collected but not entered in cash book 70,000  
Cheques recorded twice in the cash book 2,58,000  
Wrongly credited cheque by bank 50,000  
Discount amount wrongly entered in bank column  1,000  
TOTAL  4,80,000 
Less:   
Wrong casting in cash book on12th March, 2023 24,000  
Cheque issued and not entered in the Bank Column 1,70,000  
Fire Insurance premium paid directly by bank 40,000  
Cheque dishonored not recorded in books 10,000  
Credit card payment not recorded in cash book  5,000  
Cheque wrongly deposited by bank in savings account 4,000  
Bank charges debited not recorded in cash book 400  
TOTAL  2,53,400 
Balance as per the Passbook  10,51,000 
© The Institute of Chartered Accountants of India
3 
Note : No effects of cheque deposit directly and dishonored in the same Month. Alternatively 
amount of ` 64,000/- can be added as well as deducted from balance as per cash book. 
3. (a)       Consignment Account 
 `    `  
To Goods sent on consignment A/c 
        (15,000 kg x ` 30) 
4,50,000 By Consignee’s A/c-Sales 
(7,500 kg x ` 60) 
 4,50,000 
To Cash A/c 
     (Expenses 15,000 kg x ` 5) 
75,000 By Abnormal Loss A/c  
(Insurance claim – WN-1)  
 
9,000 
 
To Consignee’s A/c: 
     Advertisement & Recurring 
expenses  
 
33,000 
Add: Abnormal Loss (WN-1) 
(Profit and Loss Account) 
5,000 14,000 
     Commission @ 5% on `4,50,000 22,500 By Consignment Stock A/c  2,46,690 
To Profit and loss A/c 1,30,190                              (WN-2)   
    (Profit on Consignment) _______   _______ 
 7,10,690   7,10,690 
Working Notes: 
1. Abnormal Loss: 
 Cost of goods lost: 400 kg  
 Total cost (400 x ` 30)    12,000 
 Add: expenses incurred by the consignor @ `5 per kg     2,000 
 Gross Amount of abnormal loss    14,000 
 Less: Insurance claim    (9,000) 
 Net abnormal loss      5,000 
2.   Valuation of Inventories 
 Quantity (Kgs) Amount (`) 
Total Cost (15,000 kg x `30) 15,000 4,50,000 
Add: Expenses incurred by the consignor  75,000 
Less: Value of Abnormal Loss – 400 kgs (WN 1) (400) (14,000) 
 14,600 5,11,000 
Less: Normal Loss (100)  
 14,500 5,11,000 
Less: Quantity of Sugar sold (7,500)  
Quantity of Closing Stock 7,000   
Value of 7,000 kgs – (5,11,000/14,500) x 7,000  2,46,690 
(b)     Mr. Aryan in Account Current with Mr. Abram 
(Interest upto 15
th
 March, 2023 @ 10% p.a.) 
Dr.           Cr. 
Date  Particulars Amount Days Product Date  Particulars Amount Days Product 
2023      2023      
Jan. 01 To Balance b/d 4,000 74 2,96,000 Jan. 29 By Purchase A/c 1,200 45 54,000 
Jan. 15 To Sales A/c 2,230 59 1,31,570 Feb. 10 By Cash A/c 1,000 33 33,000 
© The Institute of Chartered Accountants of India
4 
Mar. 13 To Red Ink product 
(` 2,000 ? 29) 
   
58,000 
Mar. 13 By Bills Receivable 
A/c 
2,000 
 
 
  
Mar. 15 To Interest A/c 
(
` 3,98,570 × 10 × 1
100 × 365
 ) 
 
109.20 
 
 
  
  
 
 
 
  
Mar. 15 By 
 
By 
Balance of 
product 
Balance c/d  
(amount to be 
paid) 
 
 
 
 
2,139.20 
 
 
 
 
 
3,98,570 
 
 
  
   6,339.20  4,85,570    6,339.20  4,85,570 
(c)          In the books of Mr. Gupta 
 Journal Entries 
Date Particulars  L.F. Dr.  
(in `) 
Cr.  
(in `) 
2022 
     
Dec. 2 
Trade receivables A/c Dr.  2,40,000  
  To Sales A/c 
   2,40,000 
 
(Being the goods sent to customers on sale or 
return basis) 
    
Dec. 10 
Return Inward A/c  Dr.  1,05,000  
  To Trade receivables A/c 
   1,05,000 
 
(Being the goods returned by customers to 
whom goods were sent on sale or return 
basis) 
    
Dec. 23 
Sales A/c Dr.  45,000  
  To Trade receivables A/c  
   45,000 
 
(Being the cancellation of original entry of sale 
in respect of goods on sale or return basis) 
    
Dec. 31 
Inventories with customers on Sale or Return 
A/c 
Dr.  36,000  
  To Trading A/c (Note 2)  
   36,000 
 
(Being the adjustment for cost of goods lying 
with customers awaiting approval) 
    
Working Note: 
(1) No entry is required for receiving letter of approval from customer. 
(2) Cost of goods with customers = ` 45,000 x 100/125 = ` 36,000 
4 (a)      Revaluation Account 
 `  ` 
To Buildings A/c  30,000 By Investments A/c 9,000 
To Machinery A/c  78,000 By Loss to Partners:  
To Provision for Doubtful Debts A/c  83,400  Seed  91,200  
   Plant 54,720  
   Flower 36,480 1,82,400 
 1,91,400  1,91,400 
 
 
© The Institute of Chartered Accountants of India
5 
P a r t n e r s ’ Capital Account 
 Particulars Seed Plant Flower Leaf  Particulars Seed Plant Flower Leaf 
  `  `  `  `    `  `  `  `  
To Revaluation 
A/c  
91,200 54,720 36,480 - 
By Balance b/d 
2,40,000 60,000 90,000 -  
To Investments 
A/c  
- 45,000 - - 
By Reserves A/c 
30,000 18,000 12,000 -  
To Plant Loan 
A/c  
- 68,280 - - 
By Flower and Leaf 
Capital A/c  
30,000 90,000 -  -  
To Seed and 
Plant’s 
Capital A/c 
    60,000 60,000 
By Bank A/c 
(balancing 
figure) 
31,200   2,34,480 1,80,000 
To Balance c/d 2,40,000    2,40,000 1,20,000    -   -   -   -  
  3,31,200 1,68,000 3,36,480 1,80,000   3,31,200 1,68,000 3,36,480 1,80,000 
Bank Account 
 `  ` 
To Seed’s capital A/c  31,200 By Bank Overdraft A/c  1,32,000 
To Flower’s capital A/c  2,34,480 By Balance c/d 3,13,680 
To Leaf’s capital A/c  1,80,000    
 4,45,680  4,45,680 
(b)       Rectification Entries 
 Particulars Dr.  Cr.  
  Amount Amount 
  ` ` 
(i) Returns Inward A/c                                                          Dr. 5,150  
 Sales A/c                                                                        Dr. 3,450  
  To Purchases A/c   5,150 
  To Returns Outward A/c   3,450 
 (Being sales return and purchases return wrongly included in 
purchases and sales respectively, now rectified) 
  
(ii) Drawings A/c                                                                 Dr. 7,000  
  To Purchases A/c  7,000 
 (Being goods withdrawn for own consumption included in 
purchases, now rectified) 
  
(iii) Plant and machinery A/c                                                Dr. 900  
  To Wages A/c  900 
 (Being wages paid for installation of plant and machinery wrongly 
debited to wages, now rectified) 
  
(iv) Advertisement expenses A/c                                         Dr. 1,650     
  To Purchases A/c  1,650 
 (Being free samples distributed for publicity out of purchases, 
now rectified) 
  
  
© The Institute of Chartered Accountants of India