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Date: 07-06-2020
CA Foundation
Principles and Practice of Accounting
Theoretical Framework, Accounting Process,
Bank Reconciliation Statement and Inventories
Test Paper

Time Allowed: 1½ Hour Maximum Marks: 50

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Q. Questions Marks
NO.
1. a) Distinguish between periodic inventory system and perpetual inventory system. 2½

b) Define accounting policies in brief. Identify few areas wherein different accounting 2½
policies are frequently encountered.

2. a) Pass journal entries for the following transactions in the books of Gamma Bros. 4
i) Employees had taken inventory worth ₹ 1,00,000 (Cost price ₹ 75,000) on the eve
of Deepawali and the same was deducted from their salaries in the subsequent
month.
ii) Wages paid for erection of Machinery ₹ 18,000.
iii) Income tax liability of proprietor ₹ 1,17,000 was paid out of petty cash.
iv) Purchase of goods from Praveen of the list price of ₹ 2,00,000. He allowed 10%
trade discount ₹ 5,000 cash discount was also allowed for quick payment.

b) One of your clients, Mr. Gajni has asked you to finalize his accounts for the year
ended 31st March, 2020. Till date, he himself has recorded the transactions in 6
books of accounts. As a basis for audit, Mr. Gajni furnished you with the following
statement.
Particulars Dr. Balance (₹) Cr. Balance (₹)

Gajni’s Capital 1,556

Gajni’s Drawings 564
Leasehold premises 750

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Sales 2,750
Due from customers 530
Purchases 1,259
Purchases return 264
Loan from bank 256
Trade payables 528
Trade expenses 700
Cash at bank 226
Bills payable 100
Salaries and wages 600
Inventories (1.4.2019) 264
Rent and rates 463
Sales return 98
5,454 5,454
The closing inventory on 31st March, 2020 was valued at ₹ 574. Mr. Gajni claims that
he has recorded every transaction correctly as the trial balance is tallied. Check the
accuracy of the above trial balance and prepare corrected trial balance and give
reasons for errors encountered.

3 a) Mr. Joy was unable to agree the Trial Balance last year and wrote out the difference 12
to the Profit and Loss Account of that year. Next Year, he appointed a Chartered
Accountant who examined the old books and found the following mistakes:
1) Purchase of a scooter was debited to conveyance account ₹ 3,000.
2) Purchase account was over-cast by ₹ 10,000.
3) A credit purchase of goods from Mr. P for ₹ 2,000 entered as a sale.
4) Receipt of cash from Mr. A was posted to the account of Mr. B ₹ 1,000.
5) Receipt of cash from Mr. C was posted to the debit of his account ₹ 500.

6) ₹ 500 due by Mr. Q was omitted to be taken to the trial balance.

7) Sale of goods to Mr. R for ₹ 2,000 was omitted to be recorded.

8) Amount of ₹ 2,395 of purchase was wrongly posted as ₹ 2,593.

Mr. Joy used 10% depreciation on vehicles. Suggest the necessary rectification entries.

b) Is cash book a subsidiary book or a principal book? Explain. 3

4 a) On 31st December, 2019 the bank column of A. Philip’s cash book showed a debit 5
balance of ₹ 4,610. On examination of the cash book and bank statement you find
that:
a) Cheques amounting to ₹ 6,30,000 which were issued to trade payables and
entered in the cash book before 31st December, 2019 were not presented for

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payment until that date.

b) Cheques amounting to ₹ 2,50,000 had been recorded in the cash book as
having been paid into the bank on 31st December, 2019, but were entered in
the bank statement on1st January, 2020.
c) A cheque for ₹ 73,000 had been dishonored prior to 31st December, 2019, but
no record of this fact appeared in the cash book.
d) A dividend of ₹ 3,80,000, paid direct to the bank had not been recorded in the
cash book.
e) Bank interest and charges amounting to ₹ 4,200 had been charged in the bank
statement but not entered in the cash book.
f) No entry had been made in the cash book for a trade subscription of ₹ 10,000
paid vide banker’s order in November, 2019.
g) A cheque for ₹ 27,000 drawn by B. Philip had been charged to A. Philip’s bank
account by mistake in December, 2019.
You are required:
i. to make appropriate adjustments in the cash book bringing down the correct
balance, and
ii. to prepare a statement reconciling the adjusted balance in the cash book with
the balance shown in the bank statement.
b) Sky Ltd. keeps no stock records but a physical inventory of stock is made at the end 5
of each quarter and the valuation is taken at cost. The company’s year ends on 31st
March, 2020 and their accounts have been prepared to that date. The stock
valuation taken on 31st March, 2020 was however, misleading and you have been
advised to value the closing stocks as on 31st March, 2020 with the stock figure as
on 31st December, 2019 and some other information is available to you:
i) The cost of stock on 31st December, 2019 as shown by the inventory sheet
was ₹ 80,000.
ii) On 31st 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, 2020 totalled ₹ 70,000. Out of this ₹ 3,000 related to goods
received prior to 31st December, 2019. Invoices entered in April 2020
relating to goods received in March, 2020 totalled ₹ 4,000.
iv) Sales invoiced to customers totalled ₹ 90,000 from January to March, 2020. Of
this ₹ 5,000 related to goods dispatched before 31st December, 2019. Goods
dispatched to customers before 31st March, 2020 but invoiced in April, 2020
totalled ₹ 4,000.
v) During the final quarter, credit notes invoiced at 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
31st March, 2020.

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5 a) Shri Rama maintains a Columnar Petty Cash Book on the Imprest System. The 5
imprest amount is ₹ 500. From the following information, show how his Petty Cash
Book would appear for the week ended 12th September, 2019:

Date Particulars ₹
7-9-2019 Balance in hand 134.90
Received cash reimbursement to make up the imprest 365.10
Stationery 49.80
8-9-2019 Miscellaneous Expenses 20.90
9-9-2019 Repairs 156.70
10-9-2019 Travelling 68.50
11-9-2019 Stationery 71.40
12-9-2019 Miscellaneous Expenses 6.30
Repairs 48.30

b) The following are the details of a spare part of Dhan mill: 5

Date Particulars Details
1/1/2020 Opening inventory Nil
1/1/2020 Purchases 100 units @ ₹ 30 per unit
15/1/2020 Issued for consumption 50 units
1/2/2020 Purchases 200 units @ ₹ 40 per unit
15/2/2020 Issued for consumption 100 units
20/2/2020 Issued for consumption 100 units
Find out the value of inventory as on 31-3-2020 if the company follows:
i) Last in first out basis; and
ii) Weighted average basis.

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