Principles and practice of Accounting Mock Paper 1

(Time allowed: 3 Hours) (100 Marks)

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
1. (a) State with reasons whether the following statements are True or False:
i. Inventory Turnover Ratio indicates the firm’s ability of generating sales per rupee of
long term
investment.
ii. The Sales book is kept to record both cash and credit sales.
iii. In the calculation of average due date, only the due date of first transaction must be
taken as the base date.
iv. If a partner retires, then other partners have a gain in their profit sharing ratio.
v. When shares are forfeited, the share capital account is debited with called up capital
of shares forfeited and the share forfeiture account is credited with calls in arrear of
shares forfeited.
vi. Accrual concept implies accounting on cash basis. (6 Statements x 2 Marks = 12
Marks)
(b) Discuss the limitations which must be kept in mind while evaluating the Financial
Statements.
(4 Marks)
(c) Calculate the missing amount for the following.
Assets Liabilities Capital
(a) 30,00,000 5,00,000 ?
(b) ? 3,00,000 1,50,000
(c) 29,00,000 ? 27,50,000
(d) 1,14,00,000 (5,60,000) ? (4 Marks)
2. (a) The M/s LG Transport purchased 10 trucks at Rs. 45,00,000 each on 1st April 2014. On
October 1st, 2016, one of the trucks is involved in an accident and is completely
destroyed and Rs. 27,00,000 is received from the insurance in full settlement. On the
same date, another truck is purchased by the company for the sum of Rs. 50,00,000. The
company write off 20% on the original cost per annum. The company follows the calendar
year as its financial year. You are required to prepare the motor truck account for two
year ending 31 Dec, 2017.
(b) On 30th September, 2017, the bank account of Neel, according to the bank column of the
Cash- Book, was overdrawn to the extent of Rs. 8,124. On the same date the bank
statement showed a debit balance of Rs. 41,516 in favour of Neel. An examination of the
Cash Book and Bank.

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Principles and practice of Accounting Mock Paper 1

Statement reveals the following:

1. A cheque for Rs. 26,28,000 deposited on 29th September, 2017 was credited by the
bank only on 3rd October, 2017
2. A payment by cheque for Rs. 32,000 has been entered twice in the Cash Book.
3. On 29th September, 2017, the bank credited an amount of Rs. 2,34,800 received from
a customer of Neel, but the advice was not received by Neel until 1st October, 2017.
4. Bank charges amounting to Rs. 1,160 had not been entered in the Cash Book.
5. On 6th September, 2017, the bank credited Rs. 40,000 to Neel in error.
6. A bill of exchange for Rs. 2,80,000 was discounted by Neel with his bank. This bill
was dishonoured on 28th September, 2017 but no entry had been made in the books
of Neel.
7. Cheques issued upto 30th September, 2017 but not presented for payment upto that
date totalled Rs. 26,52,000.
You are required :
(a) to show the appropriate rectifications required in the Cash Book of Neel, to arrive at
the correct balance on 30th September, 2017 and
(b) to prepare a bank reconciliation statement as on that date.
(10 Marks +10 Marks= 20 Marks)
3. (a) Gagan of Mumbai consigns 2,000 cases of goods costing Rs. 1,000 each to Kumar of
Chennai. Gagan pays the following expenses in connection with consignment:
Rs.
Carriage 20,000
Freight 60,000
Loading charges 20,000
Kumar sells 1,400 cases at Rs. 1,400 per case and incurs the following expenses:
Clearing charges 17,000
Warehousing and storage 34,000
Packing and selling expenses 12,000
It is found that 100 cases have been lost in transit and 200 cases are still in transit.
Kumar is entitled to a commission of 10% on gross sales. You are required to prepare the
Consignment Account and Kumar’s Account in the books of Gagan.
(b) A and B entered into a joint venture agreement to share the profits and losses in the ratio
of 2:1. A supplied goods worth Rs. 60,000 to B incurring expenses amounting to Rs. 2,000
for freight and insurance. During transit goods costing Rs. 5,000 became damaged (having
no residual value) and a sum of Rs. 3,000 was recovered from the insurance company. B
reported that 90% of the remaining goods were sold at a profit of 30% of their original
cost. Towards the end of the venture, a fire occurred and as a result the balance
Inventories lying unsold with B was damaged. The goods were not insured and B agreed
to compensate A by paying in cash 80% of the aggregate of the original cost of such goods
plus proportionate expenses incurred by A. Apart from the share of profit of the joint
venture, B was also entitled under the agreement to a commission of 5% of net profits of
joint venture after charging such commission. Selling expenses incurred by B totalled

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Principles and practice of Accounting Mock Paper 1

Rs. 1,000. B had earlier remitted an advance of Rs. 10,000. B duly paid the balance due to A
by Bank Draft.
You are required to prepare the following accounts in A’s books:
(i) Joint Venture Account and
(ii) B’s Account. (10 + 10 = 20 Marks)
4. Laurel and Hardy are partners of the firm LH & Co., from 1.4.2013. Initially both of them
contributed Rs. 1,00,000 each as capital. They did not contribute any capital thereafter.
They maintain accounts of the firm on mercantile basis. They were sharing profits and losses
in the ratio of 5:4. After the accounts for the year ended 31.3.2017 were finalized, the partners
decided to share profits and losses equally with effect from 1.4.2013.
It was also discovered that in ascertaining the results in the earlier years certain adjustments,
details of which are given below, had not been noted.
2014 2015 2016 2017
Year ended 31st March
Rs. Rs. Rs. Rs.
Profit as per accounts prepared and finalized 1,40,000 2,60,000 3,20,000 3,60,000
Expenses not provided for (as at 31st March) 30,000 20,000 36,000 24,000
Incomes not taken into account (as at 31st 18,000 15,000 12,000 21,000
March)
The partners decided to admit Chaplin as a partner with effect from 1.4.2017. It was decided
that Chaplin would be allotted 20% share in the firm and he must bring 20% of the combined
capital of Laurel and Hardy.
Following is the Balance sheet of the firm as on 31.3.2017 before admission of Chaplin and
before adjustment of revised profits between Laurel and Hardy.
Balance Sheet of LH & Co. as at 31.3.2017
Liabilities Rs. Assets Rs.
Capital Accounts: Plant and machinery 60,000
Laurel 2,11,500 Cash on hand 10,000
Hardy 1,51,500 Cash at bank 5,000
Trade Payables 2,27,000 Stock in trade 3,10,000
Trade Receivables 2,05,000
5,90,000 5,90,000
You are required to prepare:
(i) Profit and Loss Adjustment account;
(ii) Capital accounts of the partners; and
(iii) Balance Sheet of the firm after the admission of Chaplin. (20 Marks)
5. (a) Smith Library Society showed the following position on 31st March, 2017:
Balance Sheet as on 31st March, 2017

Liabilities Rs. Assets Rs.

Capital fund 7,93,000 Electrical fittings 1,50,000
Expenses payable 7,000 Furniture 50,000
Books 4,00,000
Investment in securities 1,50,000

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Principles and practice of Accounting Mock Paper 1

Cash at bank 25,000

Cash in hand 25,000
8,00,00 8,00,000
0
The receipts and payment account for the year ended on 31 st March, 2018 is given below:
Rs. Rs.
To Balance b/d By Electric charges 7,200
Cash at bank 25,000 By Postage and stationary 5,000
Cash in hand 25,000 50,000 By Telephone charges 5,000
To Entrance fee 30,000 By Books purchased 60,000
To Membership subscription 2,00,000 By Outstanding expenses paid 7,000
To Sale proceeds of old papers 1,500 By Rent 88,000
To Hire of lecture hall 20,000 By Investment in securities 40,000
To Interest on securities. 8,000 By Salaries 66,000
By Balance c/d
Cash at bank 20,000
Cash in hand 11,300
3,09,500 3,09,500

You are required to prepare income and expenditure account for the year ended 31 st

March, 2018 after making the following adjustments:

Membership subscription included Rs. 10,000 received in advance.
Provide for outstanding rent Rs. 4,000 and salaries Rs. 3,000.
Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also
to be depreciated at the same rate.
75% of the entrance fees is to be capitalized.
Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10.
2017 for Rs. 40,000.
(b) (i)
Share capital 18,00,000
Preference 10,00,000
shareholders 10% 4,00,000
debentures 24,00,000
Loan from bank 8,00,000
Reserves
You are required to compute the Capital Gearing Ratio.
(ii) From the following information, calculate inventory turnover ratio:
Inventory in the beginning 108,000 Inventory at the end 1,32,000
Net purchases 2,76,000 Carriage inwards 24,000
Wages 84,000
(12 + 4+4 = 20 Marks)

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Principles and practice of Accounting Mock Paper 1
Principles and practice of Accounting Mock Paper 1

6. (a) On 1st June, 2017, Suraj Ltd. issued 86,000 shares of Rs. 100 each payable as
follows: Rs. 20 on application;
Rs. 20 on allotment;
First call of Rs. 30 on 1st Dec, 2017; and
Second and final call of Rs. 30 on 1st March, 2018.
By 20th July, 80,000 shares were applied for and all applications were accepted. Allotment
was made on 1st Aug. All sums due on allotment were received on 15th Sept; those on 1st
call were received on 20th Dec.
You are required to journalise the transactions when accounts were closed on 31 st March,
2018.
(10 Marks)
(b) Pihu Ltd. issued 50,00,000, 9% debentures of Rs. 100 each at a discount of 10%
redeemable at par at the end of 10th year. Money was payable as follows :
Rs. 40 on application
Rs. 50 on allotment
Record necessary journal entries regarding issue of debenture. (5 Marks)
(c) Explain in brief objectives of preparing Trial Balance.
Or
What are the rules of posting of journal entries into the Ledger? Explain in brief.
(5 Marks)