Principles and Practice of Accounting (Paper-1) - May 2022 (Answer Key) | Accounting for CA Foundation PDF Download

 Page 1


PAPER – 1: PRINCIPLES AND PRACTICE OF 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 False: 
(i)  The financial statements are not prepared on the assumption that an enterprise is a 
going concern and will continue its operation for the foreseeable future. 
(ii)  Periodic inventory system is a method of ascertaining inventory by taking an actual 
physical count. 
(iii)  The provision for discount on creditors is often not provided in keeping with the 
principle of conservatism. 
(iv)  If the errors are detected after preparing trial balance, then all the errors are rectified 
through suspense account. 
(v)  Both revenue and capital nature transactions are recorded in the Receipts and 
Payments Account. 
(vi)  A fixed charge generally covers all the assets of the company including future one. 
(6 x 2 = 12 Marks) 
(b) Differentiate between Provisions and Contingent Liabilities.  (4 Marks) 
(c)  A purchased a machinery for ` 1,30,000 on 1
st
 April, 2019 and paid ` 20,000 for freight & 
installation charges. On 1
st
 October, 2021 another machine was purchased for 50,000 and 
sold old machinery for ` 1,00,000. The machine purchased on 1
st
 October, 2021 was 
installed on 1st January, 2022. 
 Under existing practice, the company is charging depreciation @ 20% p.a. on the original 
cost. However, from 1
st
 April, 2021 it decided to adopt WDV method and charge 
depreciation @15% p.a. You are required to prepare Machinery Account from 1
st
 April, 
2019 to 31
st
 March, 2022.  (4 Marks) 
Answer 
(a) (i) False: The financial statements are normally prepared on the assumption that an 
enterprise is a going concern and will continue in operation for the foreseeable future. 
(ii) True: Under Periodic inventory system actual physical count of inventory is taken of 
all the inventory on hand at a particular date. 
© The Institute of Chartered Accountants of India
Page 2


PAPER – 1: PRINCIPLES AND PRACTICE OF 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 False: 
(i)  The financial statements are not prepared on the assumption that an enterprise is a 
going concern and will continue its operation for the foreseeable future. 
(ii)  Periodic inventory system is a method of ascertaining inventory by taking an actual 
physical count. 
(iii)  The provision for discount on creditors is often not provided in keeping with the 
principle of conservatism. 
(iv)  If the errors are detected after preparing trial balance, then all the errors are rectified 
through suspense account. 
(v)  Both revenue and capital nature transactions are recorded in the Receipts and 
Payments Account. 
(vi)  A fixed charge generally covers all the assets of the company including future one. 
(6 x 2 = 12 Marks) 
(b) Differentiate between Provisions and Contingent Liabilities.  (4 Marks) 
(c)  A purchased a machinery for ` 1,30,000 on 1
st
 April, 2019 and paid ` 20,000 for freight & 
installation charges. On 1
st
 October, 2021 another machine was purchased for 50,000 and 
sold old machinery for ` 1,00,000. The machine purchased on 1
st
 October, 2021 was 
installed on 1st January, 2022. 
 Under existing practice, the company is charging depreciation @ 20% p.a. on the original 
cost. However, from 1
st
 April, 2021 it decided to adopt WDV method and charge 
depreciation @15% p.a. You are required to prepare Machinery Account from 1
st
 April, 
2019 to 31
st
 March, 2022.  (4 Marks) 
Answer 
(a) (i) False: The financial statements are normally prepared on the assumption that an 
enterprise is a going concern and will continue in operation for the foreseeable future. 
(ii) True: Under Periodic inventory system actual physical count of inventory is taken of 
all the inventory on hand at a particular date. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2022 
(iii) True: According to the principle of conservatism provision is maintained for the losses 
to be incurred in future. Discount on creditors is an income so provision in not 
maintained. 
(iv) False: If the errors are detected after preparing trial balance, then all the errors are 
not rectified through suspense account. There may be errors of principle, 
compensating errors, errors of complete omission which can be rectified without 
opening a suspense account.  
(v) True: All the receipts and payments whether of revenue or capital nature are included 
in Receipt and Payment account. 
(vi) False: A fixed charge is a mortgage on specific assets. A floating charge generally 
covers all the assets of the company including future one. 
(b)  The distinction between Provision and Contingent Liability is as follows: 
 Provision Contingent liability 
(1) Provision is a present liability of 
uncertain amount, which can be 
measured reliably by using a 
substantial degree of estimation. 
A Contingent liability is a possible 
obligation that may or may not crystallise 
depending on the occurrence or non-
occurrence of one or more uncertain 
future events. 
(2) A provision meets the recognition 
criteria. 
A contingent liability fails to meet the 
same. 
(3) Provision is recognised when (a) an 
enterprise has a present obligation 
arising from past events; an outflow 
of resources embodying economic 
benefits is probable, and (b) a 
reliable estimate can be made of the 
amount of the obligation. 
Contingent liability includes present 
obligations that do not meet the 
recognition criteria because either it is not 
probable that settlement of those 
obligations will require outflow of 
economic benefits, or the amount cannot 
be reliably estimated. 
(4) If the management estimates that it 
is probable that the settlement of an 
obligation will result in outflow of 
economic benefits, it recognises a 
provision in the balance sheet. 
If the management estimates, that it is 
less likely that any economic benefit will 
outflow the firm to settle the obligation, it 
discloses the obligation as a contingent 
liability. 
(c)         In the books of A 
Machinery A/c 
Date Particulars Amount (`) Date Particulars Amount(`) 
01.04.2019 To Bank 1,50,000 31.03.2020 By Depreciation 30,000 
© The Institute of Chartered Accountants of India
Page 3


PAPER – 1: PRINCIPLES AND PRACTICE OF 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 False: 
(i)  The financial statements are not prepared on the assumption that an enterprise is a 
going concern and will continue its operation for the foreseeable future. 
(ii)  Periodic inventory system is a method of ascertaining inventory by taking an actual 
physical count. 
(iii)  The provision for discount on creditors is often not provided in keeping with the 
principle of conservatism. 
(iv)  If the errors are detected after preparing trial balance, then all the errors are rectified 
through suspense account. 
(v)  Both revenue and capital nature transactions are recorded in the Receipts and 
Payments Account. 
(vi)  A fixed charge generally covers all the assets of the company including future one. 
(6 x 2 = 12 Marks) 
(b) Differentiate between Provisions and Contingent Liabilities.  (4 Marks) 
(c)  A purchased a machinery for ` 1,30,000 on 1
st
 April, 2019 and paid ` 20,000 for freight & 
installation charges. On 1
st
 October, 2021 another machine was purchased for 50,000 and 
sold old machinery for ` 1,00,000. The machine purchased on 1
st
 October, 2021 was 
installed on 1st January, 2022. 
 Under existing practice, the company is charging depreciation @ 20% p.a. on the original 
cost. However, from 1
st
 April, 2021 it decided to adopt WDV method and charge 
depreciation @15% p.a. You are required to prepare Machinery Account from 1
st
 April, 
2019 to 31
st
 March, 2022.  (4 Marks) 
Answer 
(a) (i) False: The financial statements are normally prepared on the assumption that an 
enterprise is a going concern and will continue in operation for the foreseeable future. 
(ii) True: Under Periodic inventory system actual physical count of inventory is taken of 
all the inventory on hand at a particular date. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2022 
(iii) True: According to the principle of conservatism provision is maintained for the losses 
to be incurred in future. Discount on creditors is an income so provision in not 
maintained. 
(iv) False: If the errors are detected after preparing trial balance, then all the errors are 
not rectified through suspense account. There may be errors of principle, 
compensating errors, errors of complete omission which can be rectified without 
opening a suspense account.  
(v) True: All the receipts and payments whether of revenue or capital nature are included 
in Receipt and Payment account. 
(vi) False: A fixed charge is a mortgage on specific assets. A floating charge generally 
covers all the assets of the company including future one. 
(b)  The distinction between Provision and Contingent Liability is as follows: 
 Provision Contingent liability 
(1) Provision is a present liability of 
uncertain amount, which can be 
measured reliably by using a 
substantial degree of estimation. 
A Contingent liability is a possible 
obligation that may or may not crystallise 
depending on the occurrence or non-
occurrence of one or more uncertain 
future events. 
(2) A provision meets the recognition 
criteria. 
A contingent liability fails to meet the 
same. 
(3) Provision is recognised when (a) an 
enterprise has a present obligation 
arising from past events; an outflow 
of resources embodying economic 
benefits is probable, and (b) a 
reliable estimate can be made of the 
amount of the obligation. 
Contingent liability includes present 
obligations that do not meet the 
recognition criteria because either it is not 
probable that settlement of those 
obligations will require outflow of 
economic benefits, or the amount cannot 
be reliably estimated. 
(4) If the management estimates that it 
is probable that the settlement of an 
obligation will result in outflow of 
economic benefits, it recognises a 
provision in the balance sheet. 
If the management estimates, that it is 
less likely that any economic benefit will 
outflow the firm to settle the obligation, it 
discloses the obligation as a contingent 
liability. 
(c)         In the books of A 
Machinery A/c 
Date Particulars Amount (`) Date Particulars Amount(`) 
01.04.2019 To Bank 1,50,000 31.03.2020 By Depreciation 30,000 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3 
(1,30,000+20,000)   31.03.2020 By Balance c/d 1,20,000 
  1,50,000   1,50,000 
01.04.2020 To Balance b/d 1,20,000 31.03.2021 By Depreciation 30,000 
    31.03.2021 By Balance c/d    90,000 
  1,20,000   1,20,000 
01.04.2021 To Balance b/d 90,000 01.10.2021 By Bank A/c 1,00,000 
01.10.2021 To Bank 50,000 01.10.2021 By Depreciation 6,750 
01.10.2021 To Profit on Sale   16,750 31.03.2022 By Depreciation 1,875 
   31.03.2022 By Balance c/d   48,125 
  1,56,750   1,56,750 
 Alternative: Calculation of Book Value of Machines 
 Machine 1 Machine 2 
 (in `) (in `) 
Date of Purchase 01.04.2019 01.10.2021 
Original Cost 1,50,000  
Depreciation for (2019-20) (SLM) (30,000)  
WDV on 31.03.2020 1,20,000  
Depreciation for (2020-21) (SLM) (30,000)  
WDV on 31.03.2021 90,000  
Depreciation for (2021-22) (WDV) (6,750)  
WDV (original cost of Machine 2) on 1.10.2021  83,250 50,000 
Sale Proceeds (1,00,000)  
Profit on Sale 16,750  
Depreciation for 2021-22 (WDV @ 15%) (3 months) - (1,875) 
WDV on 31.03.2022 - 48,125 
Question 2 
(a)  The cash book of Mr. Karan shows ` 2,60,400 as the balance of bank as on 31
st
 December, 
2021 but you find that it does not agree with the balance as per the bank pass book. On 
analysis, you found the following discrepancies: 
(i)  On 15
th
 December, 2021 the payment side of the cash book was overcast by  
` 10,000. 
(ii)  A Cheque for ` 1,18,000 issued on 6
th
 December, 2021 was not taken in the bank 
Column. 
© The Institute of Chartered Accountants of India
Page 4


PAPER – 1: PRINCIPLES AND PRACTICE OF 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 False: 
(i)  The financial statements are not prepared on the assumption that an enterprise is a 
going concern and will continue its operation for the foreseeable future. 
(ii)  Periodic inventory system is a method of ascertaining inventory by taking an actual 
physical count. 
(iii)  The provision for discount on creditors is often not provided in keeping with the 
principle of conservatism. 
(iv)  If the errors are detected after preparing trial balance, then all the errors are rectified 
through suspense account. 
(v)  Both revenue and capital nature transactions are recorded in the Receipts and 
Payments Account. 
(vi)  A fixed charge generally covers all the assets of the company including future one. 
(6 x 2 = 12 Marks) 
(b) Differentiate between Provisions and Contingent Liabilities.  (4 Marks) 
(c)  A purchased a machinery for ` 1,30,000 on 1
st
 April, 2019 and paid ` 20,000 for freight & 
installation charges. On 1
st
 October, 2021 another machine was purchased for 50,000 and 
sold old machinery for ` 1,00,000. The machine purchased on 1
st
 October, 2021 was 
installed on 1st January, 2022. 
 Under existing practice, the company is charging depreciation @ 20% p.a. on the original 
cost. However, from 1
st
 April, 2021 it decided to adopt WDV method and charge 
depreciation @15% p.a. You are required to prepare Machinery Account from 1
st
 April, 
2019 to 31
st
 March, 2022.  (4 Marks) 
Answer 
(a) (i) False: The financial statements are normally prepared on the assumption that an 
enterprise is a going concern and will continue in operation for the foreseeable future. 
(ii) True: Under Periodic inventory system actual physical count of inventory is taken of 
all the inventory on hand at a particular date. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2022 
(iii) True: According to the principle of conservatism provision is maintained for the losses 
to be incurred in future. Discount on creditors is an income so provision in not 
maintained. 
(iv) False: If the errors are detected after preparing trial balance, then all the errors are 
not rectified through suspense account. There may be errors of principle, 
compensating errors, errors of complete omission which can be rectified without 
opening a suspense account.  
(v) True: All the receipts and payments whether of revenue or capital nature are included 
in Receipt and Payment account. 
(vi) False: A fixed charge is a mortgage on specific assets. A floating charge generally 
covers all the assets of the company including future one. 
(b)  The distinction between Provision and Contingent Liability is as follows: 
 Provision Contingent liability 
(1) Provision is a present liability of 
uncertain amount, which can be 
measured reliably by using a 
substantial degree of estimation. 
A Contingent liability is a possible 
obligation that may or may not crystallise 
depending on the occurrence or non-
occurrence of one or more uncertain 
future events. 
(2) A provision meets the recognition 
criteria. 
A contingent liability fails to meet the 
same. 
(3) Provision is recognised when (a) an 
enterprise has a present obligation 
arising from past events; an outflow 
of resources embodying economic 
benefits is probable, and (b) a 
reliable estimate can be made of the 
amount of the obligation. 
Contingent liability includes present 
obligations that do not meet the 
recognition criteria because either it is not 
probable that settlement of those 
obligations will require outflow of 
economic benefits, or the amount cannot 
be reliably estimated. 
(4) If the management estimates that it 
is probable that the settlement of an 
obligation will result in outflow of 
economic benefits, it recognises a 
provision in the balance sheet. 
If the management estimates, that it is 
less likely that any economic benefit will 
outflow the firm to settle the obligation, it 
discloses the obligation as a contingent 
liability. 
(c)         In the books of A 
Machinery A/c 
Date Particulars Amount (`) Date Particulars Amount(`) 
01.04.2019 To Bank 1,50,000 31.03.2020 By Depreciation 30,000 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3 
(1,30,000+20,000)   31.03.2020 By Balance c/d 1,20,000 
  1,50,000   1,50,000 
01.04.2020 To Balance b/d 1,20,000 31.03.2021 By Depreciation 30,000 
    31.03.2021 By Balance c/d    90,000 
  1,20,000   1,20,000 
01.04.2021 To Balance b/d 90,000 01.10.2021 By Bank A/c 1,00,000 
01.10.2021 To Bank 50,000 01.10.2021 By Depreciation 6,750 
01.10.2021 To Profit on Sale   16,750 31.03.2022 By Depreciation 1,875 
   31.03.2022 By Balance c/d   48,125 
  1,56,750   1,56,750 
 Alternative: Calculation of Book Value of Machines 
 Machine 1 Machine 2 
 (in `) (in `) 
Date of Purchase 01.04.2019 01.10.2021 
Original Cost 1,50,000  
Depreciation for (2019-20) (SLM) (30,000)  
WDV on 31.03.2020 1,20,000  
Depreciation for (2020-21) (SLM) (30,000)  
WDV on 31.03.2021 90,000  
Depreciation for (2021-22) (WDV) (6,750)  
WDV (original cost of Machine 2) on 1.10.2021  83,250 50,000 
Sale Proceeds (1,00,000)  
Profit on Sale 16,750  
Depreciation for 2021-22 (WDV @ 15%) (3 months) - (1,875) 
WDV on 31.03.2022 - 48,125 
Question 2 
(a)  The cash book of Mr. Karan shows ` 2,60,400 as the balance of bank as on 31
st
 December, 
2021 but you find that it does not agree with the balance as per the bank pass book. On 
analysis, you found the following discrepancies: 
(i)  On 15
th
 December, 2021 the payment side of the cash book was overcast by  
` 10,000. 
(ii)  A Cheque for ` 1,18,000 issued on 6
th
 December, 2021 was not taken in the bank 
Column. 
© The Institute of Chartered Accountants of India
4 FOUNDATION EXAMINATION: NOVEMBER, 2022 
(iii)  On 20
th
 December, 2021 the debit balance of ` 8,460 as on the previous day, was 
brought forward as credit balance in the cash book. 
(iv)  Of the total cheques amounting to ` 12,370 drawn in the last week of December 2021, 
cheques aggregating ` 9,360 were encashed in December, 2021. 
(v)  Dividends of ` 35,000 collected by the bank and fire insurance premium of ` 7,900 
paid by the bank were not recorded in the cash book. 
(vi)  A Cheque issued to a creditor of ` 1,75,000 was recorded twice in the cash book.  
(vii)  Bill for collection amounting to ` 53,000 credited by the bank on 21
st
 December, 2021 
but no advice was received by Mr. Karan till 31
st
 December, 2021. 
(viii)  A Customer, who received a cash discount of 3% on his account of ` 60,000 paid a 
cheque on 10
th
 December, 2021. The cashier erroneously entered the gross amount 
in the bank column of the cash book. 
 You are required to prepare the bank reconciliation statement as on 31
st
 December, 2021.  
(10 Marks) 
(b)  Before preparation of the Trial Balance, the following errors were found in the books of 
Hare Rama & Sons. Give the necessary entries to correct them. 
(i) Minor Repairs made to the building amounting to ` 1,850 were debited to the Building 
Account. 
(ii)  An amount of ` 3,000 due from Shayam Lal, which had been written off as bad debts 
in the previous year, recovered in the current year, and had been posted to the 
personal Account of Shayam Lal. 
(iii)  Furniture purchased for office use amounting to ` 20,000 has been entered in the 
purchase day book. 
(iv)  Goods purchased from Ram Singh amounting to ` 8,000 have remained unrecorded 
so far. 
(v)  College fees of proprietor's son, ` 15,000 debited to the Audit fees Account.  
(vi)  Receipt of ` 4,500 from Meet Kumar credited to the Pinki Rani. 
(vii)  Goods amounting to ` 6,200 had been returned by a customer and were taken into 
inventory, but no entry was made in the books. 
(viii)  ` 1500 paid for wages to workmen for making office furniture had been charged to 
wages account. 
(ix)  Salary paid to a clerk ` 12,000 has been debited to his personal account. 
(x)  A purchase of goods from Raghav amounting to ` 20,000 has been wrongly entered 
through the sales book.  (10 Marks) 
 
© The Institute of Chartered Accountants of India
Page 5


PAPER – 1: PRINCIPLES AND PRACTICE OF 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 False: 
(i)  The financial statements are not prepared on the assumption that an enterprise is a 
going concern and will continue its operation for the foreseeable future. 
(ii)  Periodic inventory system is a method of ascertaining inventory by taking an actual 
physical count. 
(iii)  The provision for discount on creditors is often not provided in keeping with the 
principle of conservatism. 
(iv)  If the errors are detected after preparing trial balance, then all the errors are rectified 
through suspense account. 
(v)  Both revenue and capital nature transactions are recorded in the Receipts and 
Payments Account. 
(vi)  A fixed charge generally covers all the assets of the company including future one. 
(6 x 2 = 12 Marks) 
(b) Differentiate between Provisions and Contingent Liabilities.  (4 Marks) 
(c)  A purchased a machinery for ` 1,30,000 on 1
st
 April, 2019 and paid ` 20,000 for freight & 
installation charges. On 1
st
 October, 2021 another machine was purchased for 50,000 and 
sold old machinery for ` 1,00,000. The machine purchased on 1
st
 October, 2021 was 
installed on 1st January, 2022. 
 Under existing practice, the company is charging depreciation @ 20% p.a. on the original 
cost. However, from 1
st
 April, 2021 it decided to adopt WDV method and charge 
depreciation @15% p.a. You are required to prepare Machinery Account from 1
st
 April, 
2019 to 31
st
 March, 2022.  (4 Marks) 
Answer 
(a) (i) False: The financial statements are normally prepared on the assumption that an 
enterprise is a going concern and will continue in operation for the foreseeable future. 
(ii) True: Under Periodic inventory system actual physical count of inventory is taken of 
all the inventory on hand at a particular date. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2022 
(iii) True: According to the principle of conservatism provision is maintained for the losses 
to be incurred in future. Discount on creditors is an income so provision in not 
maintained. 
(iv) False: If the errors are detected after preparing trial balance, then all the errors are 
not rectified through suspense account. There may be errors of principle, 
compensating errors, errors of complete omission which can be rectified without 
opening a suspense account.  
(v) True: All the receipts and payments whether of revenue or capital nature are included 
in Receipt and Payment account. 
(vi) False: A fixed charge is a mortgage on specific assets. A floating charge generally 
covers all the assets of the company including future one. 
(b)  The distinction between Provision and Contingent Liability is as follows: 
 Provision Contingent liability 
(1) Provision is a present liability of 
uncertain amount, which can be 
measured reliably by using a 
substantial degree of estimation. 
A Contingent liability is a possible 
obligation that may or may not crystallise 
depending on the occurrence or non-
occurrence of one or more uncertain 
future events. 
(2) A provision meets the recognition 
criteria. 
A contingent liability fails to meet the 
same. 
(3) Provision is recognised when (a) an 
enterprise has a present obligation 
arising from past events; an outflow 
of resources embodying economic 
benefits is probable, and (b) a 
reliable estimate can be made of the 
amount of the obligation. 
Contingent liability includes present 
obligations that do not meet the 
recognition criteria because either it is not 
probable that settlement of those 
obligations will require outflow of 
economic benefits, or the amount cannot 
be reliably estimated. 
(4) If the management estimates that it 
is probable that the settlement of an 
obligation will result in outflow of 
economic benefits, it recognises a 
provision in the balance sheet. 
If the management estimates, that it is 
less likely that any economic benefit will 
outflow the firm to settle the obligation, it 
discloses the obligation as a contingent 
liability. 
(c)         In the books of A 
Machinery A/c 
Date Particulars Amount (`) Date Particulars Amount(`) 
01.04.2019 To Bank 1,50,000 31.03.2020 By Depreciation 30,000 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3 
(1,30,000+20,000)   31.03.2020 By Balance c/d 1,20,000 
  1,50,000   1,50,000 
01.04.2020 To Balance b/d 1,20,000 31.03.2021 By Depreciation 30,000 
    31.03.2021 By Balance c/d    90,000 
  1,20,000   1,20,000 
01.04.2021 To Balance b/d 90,000 01.10.2021 By Bank A/c 1,00,000 
01.10.2021 To Bank 50,000 01.10.2021 By Depreciation 6,750 
01.10.2021 To Profit on Sale   16,750 31.03.2022 By Depreciation 1,875 
   31.03.2022 By Balance c/d   48,125 
  1,56,750   1,56,750 
 Alternative: Calculation of Book Value of Machines 
 Machine 1 Machine 2 
 (in `) (in `) 
Date of Purchase 01.04.2019 01.10.2021 
Original Cost 1,50,000  
Depreciation for (2019-20) (SLM) (30,000)  
WDV on 31.03.2020 1,20,000  
Depreciation for (2020-21) (SLM) (30,000)  
WDV on 31.03.2021 90,000  
Depreciation for (2021-22) (WDV) (6,750)  
WDV (original cost of Machine 2) on 1.10.2021  83,250 50,000 
Sale Proceeds (1,00,000)  
Profit on Sale 16,750  
Depreciation for 2021-22 (WDV @ 15%) (3 months) - (1,875) 
WDV on 31.03.2022 - 48,125 
Question 2 
(a)  The cash book of Mr. Karan shows ` 2,60,400 as the balance of bank as on 31
st
 December, 
2021 but you find that it does not agree with the balance as per the bank pass book. On 
analysis, you found the following discrepancies: 
(i)  On 15
th
 December, 2021 the payment side of the cash book was overcast by  
` 10,000. 
(ii)  A Cheque for ` 1,18,000 issued on 6
th
 December, 2021 was not taken in the bank 
Column. 
© The Institute of Chartered Accountants of India
4 FOUNDATION EXAMINATION: NOVEMBER, 2022 
(iii)  On 20
th
 December, 2021 the debit balance of ` 8,460 as on the previous day, was 
brought forward as credit balance in the cash book. 
(iv)  Of the total cheques amounting to ` 12,370 drawn in the last week of December 2021, 
cheques aggregating ` 9,360 were encashed in December, 2021. 
(v)  Dividends of ` 35,000 collected by the bank and fire insurance premium of ` 7,900 
paid by the bank were not recorded in the cash book. 
(vi)  A Cheque issued to a creditor of ` 1,75,000 was recorded twice in the cash book.  
(vii)  Bill for collection amounting to ` 53,000 credited by the bank on 21
st
 December, 2021 
but no advice was received by Mr. Karan till 31
st
 December, 2021. 
(viii)  A Customer, who received a cash discount of 3% on his account of ` 60,000 paid a 
cheque on 10
th
 December, 2021. The cashier erroneously entered the gross amount 
in the bank column of the cash book. 
 You are required to prepare the bank reconciliation statement as on 31
st
 December, 2021.  
(10 Marks) 
(b)  Before preparation of the Trial Balance, the following errors were found in the books of 
Hare Rama & Sons. Give the necessary entries to correct them. 
(i) Minor Repairs made to the building amounting to ` 1,850 were debited to the Building 
Account. 
(ii)  An amount of ` 3,000 due from Shayam Lal, which had been written off as bad debts 
in the previous year, recovered in the current year, and had been posted to the 
personal Account of Shayam Lal. 
(iii)  Furniture purchased for office use amounting to ` 20,000 has been entered in the 
purchase day book. 
(iv)  Goods purchased from Ram Singh amounting to ` 8,000 have remained unrecorded 
so far. 
(v)  College fees of proprietor's son, ` 15,000 debited to the Audit fees Account.  
(vi)  Receipt of ` 4,500 from Meet Kumar credited to the Pinki Rani. 
(vii)  Goods amounting to ` 6,200 had been returned by a customer and were taken into 
inventory, but no entry was made in the books. 
(viii)  ` 1500 paid for wages to workmen for making office furniture had been charged to 
wages account. 
(ix)  Salary paid to a clerk ` 12,000 has been debited to his personal account. 
(x)  A purchase of goods from Raghav amounting to ` 20,000 has been wrongly entered 
through the sales book.  (10 Marks) 
 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 5 
Answer  
(a)    Bank Reconciliation Statement of Mr. Karan as on 31
st
 Dec., 2021 
Particulars  Details 
`  
Amount  
`  
Balance as per the Cash Book   2,60,400 
Add: Wrong Casting in Cash book as on  
 15
th
 December,2021 
 Mistake in bringing forward ` 8,460 
 debit balance as credit balance on  
 20
th
 Dec., 2021 
 10,000 
16,920 
 
 Cheques issued but not presented:    
  Issued 12,370   
  Encashed 9,360 3,010  
 Dividends directly collected by bank but 
 not yet entered in the Cash Book 
  
35,000 
 
 Cheque recorded twice in the Cash Book  1,75,000  
 Bill for Collection credited in Bank not  
 entered in Cash Book 
 53,000 2,92,930 
   5,53,330 
Less: Cheques issued but not entered in the 
 Bank column 
 1,18,000  
 Fire Insurance Premium paid by the bank  
 directly not yet recorded in the Cash Book 
 7,900  
 Discount allowed wrongly entered in Cash 
 Book 
 1,800 (1,27,700) 
 Balance as per the Pass Book   4,25,630 
 Note: The above answer has been given considering that the books are not closed on  
31
st
 December, 2021. Alternatively, If the books are to be closed on 31
st
 December, 
then adjusted cash book will be prepared as given below: 
Adjusted Cash Book 
Particulars Amount 
(`) 
Particulars Amount 
(`) 
To Balance b/d 
To wrong casting 
2,60,400 
10,000 
By cheques not entered 
By Fire Insurance Premium 
1,18,000 
7,900 
© The Institute of Chartered Accountants of India