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 Page 1


PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
QUESTIONS  
True and false 
1.  State with reasons, whether the following statements are true or false: 
(i) Net income in case of persons practicing vocation is determined by preparing profit 
and loss account. 
(ii) The problem of red-ink interest arises when the due date of a transaction falls after 
the closing date of account current. 
(iii) Consignment account is of the nature of real account. 
(iv) The balance in petty cash book represents an asset. 
(v) Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet. 
(vi) In case a Sports Fund is kept, expenses on account of sports events should be 
charged to Sports Fund. 
 (vii) “Salary paid in advance” is not an expense because it neither reduces assets nor 
increases liabilities. 
(viii) Laboratory & library Deposits taken from the students in case of an Educational 
Institution are shown on the liabilities side of the Balance Sheet. 
Theoretical Framework 
2. (a) State the advantages of setting Accounting Standards. 
 (b) Explain Cash and Mercantile system of accounting. 
Journal Entries 
3. (a) Pass a journal entry in each of the following cases. 
(i) A running business was purchased by Mohan with following assets and 
liabilities:  
Cash ` 2,000, Land ` 4,000, Furniture ` 1,000, Stock ` 2,000, Creditors  
` 1,000, Bank Overdraft ` 2,000. 
(ii) Goods distributed by way of free samples, ` 1,000. 
(iii) Rahim became an insolvent and could pay only 50 paise in a rupee. Amount 
due from him ` 600. 
Capital or revenue expenditure 
(b) Classify each of the following transactions into capital or revenue transactions: 
--  Complete repaint of existing building. 
© The Institute of Chartered Accountants of India
Page 2


PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
QUESTIONS  
True and false 
1.  State with reasons, whether the following statements are true or false: 
(i) Net income in case of persons practicing vocation is determined by preparing profit 
and loss account. 
(ii) The problem of red-ink interest arises when the due date of a transaction falls after 
the closing date of account current. 
(iii) Consignment account is of the nature of real account. 
(iv) The balance in petty cash book represents an asset. 
(v) Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet. 
(vi) In case a Sports Fund is kept, expenses on account of sports events should be 
charged to Sports Fund. 
 (vii) “Salary paid in advance” is not an expense because it neither reduces assets nor 
increases liabilities. 
(viii) Laboratory & library Deposits taken from the students in case of an Educational 
Institution are shown on the liabilities side of the Balance Sheet. 
Theoretical Framework 
2. (a) State the advantages of setting Accounting Standards. 
 (b) Explain Cash and Mercantile system of accounting. 
Journal Entries 
3. (a) Pass a journal entry in each of the following cases. 
(i) A running business was purchased by Mohan with following assets and 
liabilities:  
Cash ` 2,000, Land ` 4,000, Furniture ` 1,000, Stock ` 2,000, Creditors  
` 1,000, Bank Overdraft ` 2,000. 
(ii) Goods distributed by way of free samples, ` 1,000. 
(iii) Rahim became an insolvent and could pay only 50 paise in a rupee. Amount 
due from him ` 600. 
Capital or revenue expenditure 
(b) Classify each of the following transactions into capital or revenue transactions: 
--  Complete repaint of existing building. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2018 
--  Installation of a new central heating system. 
--  Repainting of a delivery van. 
--  Providing drainage for a new piece of water-extraction equipment. 
--  Legal fees on the acquisition of land. 
--  Carriage costs on a replacement part for a piece of machinery. 
Cash book 
4. (a) Prepare a Triple Column Cash Book  for the month of April 2018 from the following 
transactions and bring down the balance for the start of next month: 
Date  ` 
1 Cash in hand 4,500 
1 Cash at bank 18,000 
2 Paid into bank 1,500 
5 Bought furniture and issued cheque 2,250 
8 Purchased goods for cash 750 
12 Received cash from Mr. K  1,470 
 Discount allowed to him 30 
14 Cash sales 7,500 
16 Paid to Mr. P by cheque 2,175 
 Discount received  75 
19 Paid into Bank 750 
23 Withdrawn from Bank for Private expenses 900 
24 Received cheque from Mr. B 2,145 
 Allowed him discount  30 
26 Deposited Mr. B’s cheque into Bank  
28 Withdrew cash from Bank for Office use 3,000 
30 Paid rent by cheque 1,200 
Classification of errors 
(b) Classify the following errors under the three categories – Errors of Omission, Errors 
of Commission and Errors of Principle. 
(i) Sale of furniture credited to Sales Account. 
(ii) Purchase worth ` 4,500 from M not recored in subsidiary books. 
(iii) Credit sale wrongly passed through the Purchase Book. 
© The Institute of Chartered Accountants of India
Page 3


PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
QUESTIONS  
True and false 
1.  State with reasons, whether the following statements are true or false: 
(i) Net income in case of persons practicing vocation is determined by preparing profit 
and loss account. 
(ii) The problem of red-ink interest arises when the due date of a transaction falls after 
the closing date of account current. 
(iii) Consignment account is of the nature of real account. 
(iv) The balance in petty cash book represents an asset. 
(v) Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet. 
(vi) In case a Sports Fund is kept, expenses on account of sports events should be 
charged to Sports Fund. 
 (vii) “Salary paid in advance” is not an expense because it neither reduces assets nor 
increases liabilities. 
(viii) Laboratory & library Deposits taken from the students in case of an Educational 
Institution are shown on the liabilities side of the Balance Sheet. 
Theoretical Framework 
2. (a) State the advantages of setting Accounting Standards. 
 (b) Explain Cash and Mercantile system of accounting. 
Journal Entries 
3. (a) Pass a journal entry in each of the following cases. 
(i) A running business was purchased by Mohan with following assets and 
liabilities:  
Cash ` 2,000, Land ` 4,000, Furniture ` 1,000, Stock ` 2,000, Creditors  
` 1,000, Bank Overdraft ` 2,000. 
(ii) Goods distributed by way of free samples, ` 1,000. 
(iii) Rahim became an insolvent and could pay only 50 paise in a rupee. Amount 
due from him ` 600. 
Capital or revenue expenditure 
(b) Classify each of the following transactions into capital or revenue transactions: 
--  Complete repaint of existing building. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2018 
--  Installation of a new central heating system. 
--  Repainting of a delivery van. 
--  Providing drainage for a new piece of water-extraction equipment. 
--  Legal fees on the acquisition of land. 
--  Carriage costs on a replacement part for a piece of machinery. 
Cash book 
4. (a) Prepare a Triple Column Cash Book  for the month of April 2018 from the following 
transactions and bring down the balance for the start of next month: 
Date  ` 
1 Cash in hand 4,500 
1 Cash at bank 18,000 
2 Paid into bank 1,500 
5 Bought furniture and issued cheque 2,250 
8 Purchased goods for cash 750 
12 Received cash from Mr. K  1,470 
 Discount allowed to him 30 
14 Cash sales 7,500 
16 Paid to Mr. P by cheque 2,175 
 Discount received  75 
19 Paid into Bank 750 
23 Withdrawn from Bank for Private expenses 900 
24 Received cheque from Mr. B 2,145 
 Allowed him discount  30 
26 Deposited Mr. B’s cheque into Bank  
28 Withdrew cash from Bank for Office use 3,000 
30 Paid rent by cheque 1,200 
Classification of errors 
(b) Classify the following errors under the three categories – Errors of Omission, Errors 
of Commission and Errors of Principle. 
(i) Sale of furniture credited to Sales Account. 
(ii) Purchase worth ` 4,500 from M not recored in subsidiary books. 
(iii) Credit sale wrongly passed through the Purchase Book. 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3 
(iv) Machinery sold on credit to Mohan recorded in Journal Proper but omitted to 
be posted. 
(v) Goods worth ` 5,000 purchased on credit from Ram recorded in the Purchase 
Book as ` 500. 
Bank Reconciliation Statement 
5. Prepare a Bank Reconciliation Statement of Shri Hari as on 31st March, 2018: 
(i) Balance as per Pass Book is ` 10,000. 
(ii) Bank collected a cheque of ` 500 on behalf of Shri Hari but wrongly credited it to 
Shri Hari’s Account (another customer of bank). 
(iii) Bank recorded a cash deposit of ` 1,589 as ` 1,598.  
(iv) Withdrawal column of the Pass Book undercast by ` 100. 
(v) The credit balance of ` 1,500 on page 5 was recorded on page 6 as debit balance. 
(vi) The payment of a cheque of ` 350 was recorded twice in the Pass Book. 
(vii) The Pass Book showed a credit for a cheque of ` 1,000 deposited by Shri Hari 
(another customer of the bank). 
Inventories 
6. Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end of 
each quarter and the valuation is taken at cost. The company’s year ends on 31
st
 March, 
2018 and their accounts have been prepared to that date. The stock valuation taken on 
31
st
 March, 2018 was however, misleading and you have been advised to value the 
closing stocks as on 31st March, 2018 with the stock figure as on 31st December, 2017 
and some other information is available to you: 
(i) The cost of stock on 31
st
 December, 2017 as shown by the inventory sheet was  
` 80,000. 
(ii) On 31
st
 December, stock sheet showed the following discrepancies: 
 (a) A page total of ` 5,000 had been carried to summary sheet as ` 6,000. 
 (b) The total of a page had been undercast by ` 200. 
(iii) Invoice of purchases entered in the Purchase Book during the quarter from January 
to March, 2018 totalled ` 70,000.  Out of  this ` 3,000 related to goods received 
prior to 31
st
 December, 2017.  Invoices entered in April 2018 relating to goods 
received in March, 2018 totalled ` 4,000. 
(iv) Sales invoiced to customers totalled ` 90,000 from January to March, 2018.  Of this 
` 5,000 related to goods dispatched before 31
st
 December, 2017.  Goods 
dispatched to customers before 31
st
 March, 2018 but invoiced in April, 2018 totalled 
` 4,000. 
© The Institute of Chartered Accountants of India
Page 4


PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
QUESTIONS  
True and false 
1.  State with reasons, whether the following statements are true or false: 
(i) Net income in case of persons practicing vocation is determined by preparing profit 
and loss account. 
(ii) The problem of red-ink interest arises when the due date of a transaction falls after 
the closing date of account current. 
(iii) Consignment account is of the nature of real account. 
(iv) The balance in petty cash book represents an asset. 
(v) Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet. 
(vi) In case a Sports Fund is kept, expenses on account of sports events should be 
charged to Sports Fund. 
 (vii) “Salary paid in advance” is not an expense because it neither reduces assets nor 
increases liabilities. 
(viii) Laboratory & library Deposits taken from the students in case of an Educational 
Institution are shown on the liabilities side of the Balance Sheet. 
Theoretical Framework 
2. (a) State the advantages of setting Accounting Standards. 
 (b) Explain Cash and Mercantile system of accounting. 
Journal Entries 
3. (a) Pass a journal entry in each of the following cases. 
(i) A running business was purchased by Mohan with following assets and 
liabilities:  
Cash ` 2,000, Land ` 4,000, Furniture ` 1,000, Stock ` 2,000, Creditors  
` 1,000, Bank Overdraft ` 2,000. 
(ii) Goods distributed by way of free samples, ` 1,000. 
(iii) Rahim became an insolvent and could pay only 50 paise in a rupee. Amount 
due from him ` 600. 
Capital or revenue expenditure 
(b) Classify each of the following transactions into capital or revenue transactions: 
--  Complete repaint of existing building. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2018 
--  Installation of a new central heating system. 
--  Repainting of a delivery van. 
--  Providing drainage for a new piece of water-extraction equipment. 
--  Legal fees on the acquisition of land. 
--  Carriage costs on a replacement part for a piece of machinery. 
Cash book 
4. (a) Prepare a Triple Column Cash Book  for the month of April 2018 from the following 
transactions and bring down the balance for the start of next month: 
Date  ` 
1 Cash in hand 4,500 
1 Cash at bank 18,000 
2 Paid into bank 1,500 
5 Bought furniture and issued cheque 2,250 
8 Purchased goods for cash 750 
12 Received cash from Mr. K  1,470 
 Discount allowed to him 30 
14 Cash sales 7,500 
16 Paid to Mr. P by cheque 2,175 
 Discount received  75 
19 Paid into Bank 750 
23 Withdrawn from Bank for Private expenses 900 
24 Received cheque from Mr. B 2,145 
 Allowed him discount  30 
26 Deposited Mr. B’s cheque into Bank  
28 Withdrew cash from Bank for Office use 3,000 
30 Paid rent by cheque 1,200 
Classification of errors 
(b) Classify the following errors under the three categories – Errors of Omission, Errors 
of Commission and Errors of Principle. 
(i) Sale of furniture credited to Sales Account. 
(ii) Purchase worth ` 4,500 from M not recored in subsidiary books. 
(iii) Credit sale wrongly passed through the Purchase Book. 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3 
(iv) Machinery sold on credit to Mohan recorded in Journal Proper but omitted to 
be posted. 
(v) Goods worth ` 5,000 purchased on credit from Ram recorded in the Purchase 
Book as ` 500. 
Bank Reconciliation Statement 
5. Prepare a Bank Reconciliation Statement of Shri Hari as on 31st March, 2018: 
(i) Balance as per Pass Book is ` 10,000. 
(ii) Bank collected a cheque of ` 500 on behalf of Shri Hari but wrongly credited it to 
Shri Hari’s Account (another customer of bank). 
(iii) Bank recorded a cash deposit of ` 1,589 as ` 1,598.  
(iv) Withdrawal column of the Pass Book undercast by ` 100. 
(v) The credit balance of ` 1,500 on page 5 was recorded on page 6 as debit balance. 
(vi) The payment of a cheque of ` 350 was recorded twice in the Pass Book. 
(vii) The Pass Book showed a credit for a cheque of ` 1,000 deposited by Shri Hari 
(another customer of the bank). 
Inventories 
6. Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end of 
each quarter and the valuation is taken at cost. The company’s year ends on 31
st
 March, 
2018 and their accounts have been prepared to that date. The stock valuation taken on 
31
st
 March, 2018 was however, misleading and you have been advised to value the 
closing stocks as on 31st March, 2018 with the stock figure as on 31st December, 2017 
and some other information is available to you: 
(i) The cost of stock on 31
st
 December, 2017 as shown by the inventory sheet was  
` 80,000. 
(ii) On 31
st
 December, stock sheet showed the following discrepancies: 
 (a) A page total of ` 5,000 had been carried to summary sheet as ` 6,000. 
 (b) The total of a page had been undercast by ` 200. 
(iii) Invoice of purchases entered in the Purchase Book during the quarter from January 
to March, 2018 totalled ` 70,000.  Out of  this ` 3,000 related to goods received 
prior to 31
st
 December, 2017.  Invoices entered in April 2018 relating to goods 
received in March, 2018 totalled ` 4,000. 
(iv) Sales invoiced to customers totalled ` 90,000 from January to March, 2018.  Of this 
` 5,000 related to goods dispatched before 31
st
 December, 2017.  Goods 
dispatched to customers before 31
st
 March, 2018 but invoiced in April, 2018 totalled 
` 4,000. 
© The Institute of Chartered Accountants of India
4 FOUNDATION EXAMINATION: NOVEMBER, 2018 
(v) During the final quarter, credit notes at invoiced value of ` 1,000 had been issued to 
customers in respect of goods returned during that period.  The gross margin 
earned by the company is 25% of cost. 
You are required to prepare a statement showing the amount of stock at cost as on  
31
st
 March, 2018. 
Concept and accounting of Depreciation 
7. M/s. Green Channel purchased a second-hand machine on 1st January, 2015 for  
` 1,60,000.  Overhauling and erection charges amounted to ` 40,000. 
Another machine was purchased for ` 80,000 on 1
st
 July, 2015. 
 On 1st July, 2017, the machine installed on 1st January, 2015 was sold for ` 1,00,000.  
Another machine amounted to ` 30,000 was purchased and was installed on  
30
th
 September, 2017. 
 Under the existing practice the company provides depreciation @ 10% p.a. on original cost.  
However, from the year 2018 it decided to adopt WDV method and to charge depreciation 
@ 15% p.a.  You are required to prepare Machinery account for the years 2015 to 2018. 
Bill of exchange 
8. Prepare Journal entries for the following transactions in K. Katrak’s books. 
(i) Katrak’s acceptance to Basu for ` 2,500 discharged by a cash payment of ` 1,000 
and a new bill for the balance plus ` 50 for interest. 
(ii) G. Gupta’s acceptance for ` 4,000 which was endorsed by Katrak to M. Mehta was 
dishonoured. Mehta paid ` 20 noting charges. Bill withdrawn against cheque. 
(iii) D. Dalal retires a bill for ` 2,000 drawn on him by Katrak for ` 10 discount. 
(iv) Katrak’s acceptance to Patel for ` 5,000 discharged by Patel Mody’s acceptance to 
Katrak for a similar amount. 
Consignment 
9. (a) On 1.1.2018, Mr. Jill of Mumbai consigned to Mr. Jack of Chennai goods for sale at 
invoice price.  Mr. Jack is entitled to a commission of 5% on sales at invoice price 
and 20% of any surplus price realized over and above the invoice price.  Goods 
costing ` 1,00,000 were consigned to Chennai at the invoice price of ` 1,50,000. 
The direct expenses of the consignor amounted to ` 10,000.  On 31.3.2018, an 
account sales was received by Mr. Jill from Mr. Jack showing that he had effected 
sales of ` 1,20,000 in respect of 4/5th of the quantity of goods consigned to him.  
His actual expenses were ` 3,000.  Mr. Jack accepted a bill drawn by Mr. Jill for  
` 1,00,000 and remitted the balance due in cash. 
You are required to prepare the consignment account and the account of Mr. Jack 
in the books of Mr. Jill. 
© The Institute of Chartered Accountants of India
Page 5


PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING 
QUESTIONS  
True and false 
1.  State with reasons, whether the following statements are true or false: 
(i) Net income in case of persons practicing vocation is determined by preparing profit 
and loss account. 
(ii) The problem of red-ink interest arises when the due date of a transaction falls after 
the closing date of account current. 
(iii) Consignment account is of the nature of real account. 
(iv) The balance in petty cash book represents an asset. 
(v) Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet. 
(vi) In case a Sports Fund is kept, expenses on account of sports events should be 
charged to Sports Fund. 
 (vii) “Salary paid in advance” is not an expense because it neither reduces assets nor 
increases liabilities. 
(viii) Laboratory & library Deposits taken from the students in case of an Educational 
Institution are shown on the liabilities side of the Balance Sheet. 
Theoretical Framework 
2. (a) State the advantages of setting Accounting Standards. 
 (b) Explain Cash and Mercantile system of accounting. 
Journal Entries 
3. (a) Pass a journal entry in each of the following cases. 
(i) A running business was purchased by Mohan with following assets and 
liabilities:  
Cash ` 2,000, Land ` 4,000, Furniture ` 1,000, Stock ` 2,000, Creditors  
` 1,000, Bank Overdraft ` 2,000. 
(ii) Goods distributed by way of free samples, ` 1,000. 
(iii) Rahim became an insolvent and could pay only 50 paise in a rupee. Amount 
due from him ` 600. 
Capital or revenue expenditure 
(b) Classify each of the following transactions into capital or revenue transactions: 
--  Complete repaint of existing building. 
© The Institute of Chartered Accountants of India
2 FOUNDATION EXAMINATION: NOVEMBER, 2018 
--  Installation of a new central heating system. 
--  Repainting of a delivery van. 
--  Providing drainage for a new piece of water-extraction equipment. 
--  Legal fees on the acquisition of land. 
--  Carriage costs on a replacement part for a piece of machinery. 
Cash book 
4. (a) Prepare a Triple Column Cash Book  for the month of April 2018 from the following 
transactions and bring down the balance for the start of next month: 
Date  ` 
1 Cash in hand 4,500 
1 Cash at bank 18,000 
2 Paid into bank 1,500 
5 Bought furniture and issued cheque 2,250 
8 Purchased goods for cash 750 
12 Received cash from Mr. K  1,470 
 Discount allowed to him 30 
14 Cash sales 7,500 
16 Paid to Mr. P by cheque 2,175 
 Discount received  75 
19 Paid into Bank 750 
23 Withdrawn from Bank for Private expenses 900 
24 Received cheque from Mr. B 2,145 
 Allowed him discount  30 
26 Deposited Mr. B’s cheque into Bank  
28 Withdrew cash from Bank for Office use 3,000 
30 Paid rent by cheque 1,200 
Classification of errors 
(b) Classify the following errors under the three categories – Errors of Omission, Errors 
of Commission and Errors of Principle. 
(i) Sale of furniture credited to Sales Account. 
(ii) Purchase worth ` 4,500 from M not recored in subsidiary books. 
(iii) Credit sale wrongly passed through the Purchase Book. 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3 
(iv) Machinery sold on credit to Mohan recorded in Journal Proper but omitted to 
be posted. 
(v) Goods worth ` 5,000 purchased on credit from Ram recorded in the Purchase 
Book as ` 500. 
Bank Reconciliation Statement 
5. Prepare a Bank Reconciliation Statement of Shri Hari as on 31st March, 2018: 
(i) Balance as per Pass Book is ` 10,000. 
(ii) Bank collected a cheque of ` 500 on behalf of Shri Hari but wrongly credited it to 
Shri Hari’s Account (another customer of bank). 
(iii) Bank recorded a cash deposit of ` 1,589 as ` 1,598.  
(iv) Withdrawal column of the Pass Book undercast by ` 100. 
(v) The credit balance of ` 1,500 on page 5 was recorded on page 6 as debit balance. 
(vi) The payment of a cheque of ` 350 was recorded twice in the Pass Book. 
(vii) The Pass Book showed a credit for a cheque of ` 1,000 deposited by Shri Hari 
(another customer of the bank). 
Inventories 
6. Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end of 
each quarter and the valuation is taken at cost. The company’s year ends on 31
st
 March, 
2018 and their accounts have been prepared to that date. The stock valuation taken on 
31
st
 March, 2018 was however, misleading and you have been advised to value the 
closing stocks as on 31st March, 2018 with the stock figure as on 31st December, 2017 
and some other information is available to you: 
(i) The cost of stock on 31
st
 December, 2017 as shown by the inventory sheet was  
` 80,000. 
(ii) On 31
st
 December, stock sheet showed the following discrepancies: 
 (a) A page total of ` 5,000 had been carried to summary sheet as ` 6,000. 
 (b) The total of a page had been undercast by ` 200. 
(iii) Invoice of purchases entered in the Purchase Book during the quarter from January 
to March, 2018 totalled ` 70,000.  Out of  this ` 3,000 related to goods received 
prior to 31
st
 December, 2017.  Invoices entered in April 2018 relating to goods 
received in March, 2018 totalled ` 4,000. 
(iv) Sales invoiced to customers totalled ` 90,000 from January to March, 2018.  Of this 
` 5,000 related to goods dispatched before 31
st
 December, 2017.  Goods 
dispatched to customers before 31
st
 March, 2018 but invoiced in April, 2018 totalled 
` 4,000. 
© The Institute of Chartered Accountants of India
4 FOUNDATION EXAMINATION: NOVEMBER, 2018 
(v) During the final quarter, credit notes at invoiced value of ` 1,000 had been issued to 
customers in respect of goods returned during that period.  The gross margin 
earned by the company is 25% of cost. 
You are required to prepare a statement showing the amount of stock at cost as on  
31
st
 March, 2018. 
Concept and accounting of Depreciation 
7. M/s. Green Channel purchased a second-hand machine on 1st January, 2015 for  
` 1,60,000.  Overhauling and erection charges amounted to ` 40,000. 
Another machine was purchased for ` 80,000 on 1
st
 July, 2015. 
 On 1st July, 2017, the machine installed on 1st January, 2015 was sold for ` 1,00,000.  
Another machine amounted to ` 30,000 was purchased and was installed on  
30
th
 September, 2017. 
 Under the existing practice the company provides depreciation @ 10% p.a. on original cost.  
However, from the year 2018 it decided to adopt WDV method and to charge depreciation 
@ 15% p.a.  You are required to prepare Machinery account for the years 2015 to 2018. 
Bill of exchange 
8. Prepare Journal entries for the following transactions in K. Katrak’s books. 
(i) Katrak’s acceptance to Basu for ` 2,500 discharged by a cash payment of ` 1,000 
and a new bill for the balance plus ` 50 for interest. 
(ii) G. Gupta’s acceptance for ` 4,000 which was endorsed by Katrak to M. Mehta was 
dishonoured. Mehta paid ` 20 noting charges. Bill withdrawn against cheque. 
(iii) D. Dalal retires a bill for ` 2,000 drawn on him by Katrak for ` 10 discount. 
(iv) Katrak’s acceptance to Patel for ` 5,000 discharged by Patel Mody’s acceptance to 
Katrak for a similar amount. 
Consignment 
9. (a) On 1.1.2018, Mr. Jill of Mumbai consigned to Mr. Jack of Chennai goods for sale at 
invoice price.  Mr. Jack is entitled to a commission of 5% on sales at invoice price 
and 20% of any surplus price realized over and above the invoice price.  Goods 
costing ` 1,00,000 were consigned to Chennai at the invoice price of ` 1,50,000. 
The direct expenses of the consignor amounted to ` 10,000.  On 31.3.2018, an 
account sales was received by Mr. Jill from Mr. Jack showing that he had effected 
sales of ` 1,20,000 in respect of 4/5th of the quantity of goods consigned to him.  
His actual expenses were ` 3,000.  Mr. Jack accepted a bill drawn by Mr. Jill for  
` 1,00,000 and remitted the balance due in cash. 
You are required to prepare the consignment account and the account of Mr. Jack 
in the books of Mr. Jill. 
© The Institute of Chartered Accountants of India
 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 5 
Joint venture 
10. (a) A and B, who are sharebrokers are to enter into Joint Venture to underwrite 
5,00,000 equity shares of ` 10 each of X Ltd. who agrees to allot as fully paid 4,000 
shares in the company in consideration of the underwriting arrangement.  In 
connection with the venture, the following expenses are incurred by: 
 A : Printing and Stationery (` 5,000); Postage (` 1,000); Advertisement (` 3,000) 
 B : Postage (` 750); Solicitor’s (` 3,500); Entertainment expenses (` 4,000) 
 The public subscription was for ` 4,80,000 shares only and the underwriters had to 
take up the balance shares.  Therefore, they approached the Bank, which on the 
security of the shares, advanced the required sum on 1st July, @ 15% simple 
interest p.a.   The underwriters paid for the shares on the same day and were also 
allotted the 4,000 shares by X Ltd.  The underwriters through the Bank sold their 
total holding in the market in two equal lots and realized 90% of the face value of 
the first lot on 30th September and 85% for the second lot on 31st October.  The 
sale proceeds were used first to discharge the principal value.  However, interest 
was paid at the time of final settlement.  Shares transfer fees of ` 1,000 was met 
from the Joint Venture Bank Account. 
You are required to prepare a Memorandum Joint Venture Account, the account of 
A as appearing in B’s Books and the account of B as appearing in A’s Books and 
also the settlement of account between the parties. 
Royalty 
(b) Kumar grants a mine on lease to Hello on 31.3.14 a royalty of ` 2 per tonne of the 
coal produced. The following is the quantum of output for each year : 
 For the year ended 31
st 
March, 2015     7,500 tonnes 
        2016      8,000 tonnes 
        2017      10,000 tonnes 
        2018      12,500 tonnes 
 The minimum rent is fixed at ` 17,500 and short-workings recoupment is allowable 
throughout the period of lease. You are required to calculate the amount of royalty 
payable for the years ended 31
st
March, 2015, 2016, 2017 and 2018. 
Average Due Date 
11. (a) Mehnaaz accepted the following bills drawn by Shehnaaz. 
On 8th March, 2018 ` 4,000 for 4 months. 
On 16th March, 2018 ` 5,000 for 3 months. 
On 7th April, 2018 ` 6,000 for 5 months. 
© The Institute of Chartered Accountants of India
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