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Issue No­04

Special Revision Kit

September 2021

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LKAS 37
G.C.E A/L Examination
33 - ACCOUNTING
New Syllabus

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G.C.E A/L Examination
33 - Accounting
New Syllabus PREFACE
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 Provisions, Contingent Liabilities and
Contingent Assets –LKAS 37
The objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are
applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed
in the notes to enable users to understand their nature, timing and amount

The following terms are used in this Standard with the below meanings. It is required to have good
understanding about the below terms.

Terms Definition
Provision A provision is a liability of uncertain timing or amount
Contingent liability (a) a possible obligation that arises from past events and whose
existence will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not
wholly within the control of the entity;
or
(b) a present obligation that arises from past events but is not
recognized because:
(i) It is not probable that an outflow of resources
embodying economic benefits will be required to settle
the obligation; or
(ii) The amount of the obligation cannot be measured with
sufficient reliability.
Contingent asset A contingent asset is a possible asset that arises from past events
and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly
within the control of the entity.
Legal obligation A legal obligation is an obligation that derives from:
a) a contract (through its explicit or implicit terms);
b) legislation; or
c) other operation of law.
Constructive obligation A constructive obligation is an obligation that derives from an
entity’s actions where:
a) by an established pattern of past practice, published policies
or a sufficiently specific current statement, the entity has
indicated to other parties that it will accept certain
responsibilities; and

b) as a result, the entity has created a valid expectation on the

part of those other parties that it will discharge those
responsibilities.

Provision

A provision is a liability of uncertain timing or amount.

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to
result in an outflow from the entity of resources embodying economic benefits.
Provisions can be distinguished from other liabilities such as trade payables and accruals because there is
uncertainty about the timing or amount of the future expenditure required in settlement. By contrast:

(a) trade payables are liabilities to pay for goods or services that have been received or supplied and have
been invoiced or formally agreed with the supplier; and

(b) accruals are liabilities to pay for goods or services that have been received or supplied but have not
been paid, invoiced or formally agreed with the supplier, including amounts due to employees (for
example, amounts relating to accrued vacation pay). Although it is sometimes necessary to estimate
the amount or timing of accruals, the uncertainty is generally much less than for provisions.

Provisions - Recognition
LKAS 37, a provision shall be recognised in the finalcial statements when:

a) an entity has a present obligation (legal or constructive) as a result of a past event;

b) it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation; and
c) A reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision shall be recognized.

Decide the value of the provision (Measurement)

The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present
obligation at the end of the reporting period.

Example 01

QuestionBank.lk sells goods with a warranty certificate. As per the warranty QuestionBank.lk bear the cost of
repairs for product defects identified within the first 6 months of the purchase. If there are only minor defects
in the goods sold, the repair cost will be Rs. 1 million. In case of major defects in the goods sold, the repair
cost will be Rs. 4 million. Upon the past experience the company identify probability of defects goods as
percentage of goods sold.

Defects Probability of defects (As a

percentage of goods sold)
No defects 75%
Minor Defects 20%
Major defects 5%

Required ;

Calculate the provision for warranties required to be record in financial statements

Solution

Base on the probability of the defects company shall be provided for the warranty. So the expected value of
the cost of repairs should be:

Expected Cost (Value of the Provision) = (75% × Rs. Nil ) + (20% × Rs.1 Million) + (5% × Rs. 4 Million)
= Rs. 400,000.
So QuestionBank.lk shall include Rs. 400,000 as provision for warranties in their financial statements.

Example 02

ABC Pvt. Ltd. manufactures washing machines. The company provide three year warranty for washing
machines. A new washing machine will be provided for any product defects during the warranty period.

For the year ending 31st March 2020, Rs. 150,000 has been provided for the warranties. In the year 2020/21
company has borne Rs. 75,000 to replace new washing machines for defects washing machines. In the year
ending 31st March 2021 the company has estimated that Rs. 135,000 is required as a provision for warranty.

Required;

1. Double entries to record the above transactions

2. Notes to the financial statements related to the provision

Solution

1.

Dr Provision for Warranty Rs. 75,000

Cr Bank/ Cash Rs. 75,000
(Record of the payment of new washing machine replaced for defects )

Dr Warranty Expenses Rs. 60,000

Cr Provision for warranty රු. 60,000
( Record of warranty expesnes for the year 2021/21 )

2. Note to the financial statments

Provision for
Warranty
(රු 000)
2020/01/01 B/F 150
Warranty Expenses for the year 60
Provision utilized (75)
2021/03/31 C/F 135

Above infomation has been included in this T account

Provision for Warranty A/C
(රු. 000) (රු. 000)
Utilized provision 75 2020/01/01 B/F 150
2021/03/31 C/F 135 Warranty Expenses 60
210 210

Contingent Liability
Contingent liability and asset should not be recognized in financial statements. However, quantitative
contingent liabilities and assets should be disclosed as a note in financial statements.
Accordingly, the required disclosures are,
 a) brief description of the nature of the contingent liability
b) an estimate of its financial effect,
c) an indication of the uncertainties relating to the amount or timing of any outflow; and
d) the possibility of any reimbursement

Contingent assets
Contingent assets are not recognized in financial statements since this may result in the recognition of income
that may never be realized.
Where an inflow of economic benefits is probable, an entity shall disclose a brief description of the nature of
the contingent assets at the end of the reporting period, and, where practicable, an estimate of their financial
effect.

Special Note
Provision for doubtful debtors, depreciation for property, plant and equipment are not the provision and they
are considered as change in accounting estimate as per LKAS 08

Mind Map
Summery of the standard is as follows,.

Start

Present obligation
Possible
as the result of an
obligation?
obligating event? No No

Yes
Yes

No
Probable Remote?
outflow?
Yes

Yes

No
No (rare)
Reliable
estimate?

Yes

Disclose contingent
Provide Do nothing
liability
 WWW.QUESTIONBANK.LK
General Certificate of Education (Adv. Level) Examination - 2021

Accounting Two Hours

01. Which is the correct statement/ (s) given below in relation to the general-purpose financial statements?
www.questionbank.lk
A. It provides relevant information to external parties for decision making.
B. Prepares to plan and control the organized operating activities of the entity.
C. It is prepared only for the decision-making purposes of internal managers of the entity.

1) A only 2) B only 3) A and B only

4) B and C only 5) A,C and D only

02. State the correct statement/ (s) out of the below mentioned statements.

A. Liquidity Assets consist of cash and current assets which can be converted into cash quickly.
B. Revenue expenditure is expenses that have a long life period that reflect on several accounting periods.
C. If two errors occur which have same value in both transactions, they are taken as compensation errors
and it can be disclosed by trial balance.
D. Non-operational income are income earned from main activites of the business.

1) A and D only 2) A only 3) B and D only

4) A and C only 5) B, C and D only

03. Given below are the values as per the financial position statement as at 01.01.2021 of Ruvini’s business.
www.questionbank.lk
Non-current + Current = Non-current + Current + Equity
assets assets liabilities liabilities
600 + 200 = 200 + 100 + 500
These transactions occurred on 02nd January 2021.
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 Paid bank loan installment Rs. 52,000. The interest amount included was Rs. 2,000.
 Rs. 20, 000 worth of stationary stock were used.
 Rs. 18,000 received from a debtor and the discount allowed was 10%.

What is the correct accounting equation after the above transactions?

Non-current + Current = Non-current + Current + Equity
assets assets liabilities liabilities
1) 600 + 146 = 148 + 100 + 500
2) 600 + 146 = 150 + 100 + 496
3) 600 + 126 = 148 + 100 + 478
4) 600 + 126.2 = 150 + 100 + 476.2
5) 600 + 126 = 150 + 100 + 476

04. Special provision was made for doubtful debts of Rs. 190,000 from the books of Dayarathana’s business
for the year 2019/2020 for a debtor balance and the debtor settled that amount to him in the year 2020/2021.
Which element would be subjected to a change in the accounting equation due to the above transaction of
receipt of bad debts written off?

1) Assets and Liability 2) Assets and Equity 3) Assets only

4) Expenses and Assets 5) Equity only

05. Chathura purchased an amount of items for Rs. 2,500 each from a business. He received 20% of trade
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discount and when settling the amount he received a cash discount of 10%. He paid Rs. 72,000 in order to
settle the amount. Calculate the cash discount and the trade discount received by Chathura.
Cash discount Trade discount
1) 7,200 8,000
2) 7,200 16,000
3) 8,000 20,000
4) 8,000 18,000
5) 8,000 14,400

06. Indika is an owner of a shoe business. Due to a fire occurred in the business on 13 th July 2021, all other
stocks of the business were destroyed except a stock which had a cost of Rs. 19,000.

Following details are provided.

Stock as at 01 April 2021 Rs. 21,000
Purcahses from 01 April 2021 to 13 July 2021 Rs. 450,000
Sales from 01 April 2021 to 13 July 2021 Rs. 490,000

Additional information:

A. When the business was destroyed by the fire, a stock worth of Rs. 20,000 out of the purchases above
were in transit.
B. During the month of April 2021, sales were carried out for a week with new year discount. During this
period the sales were taken place for a price of 10% reduction in the normal selling price. The total
sales during the week was Rs. 90,000.
C. Huge amount of shoes were stolen by thieves entered to the business on 10 July 2021.Selling price of
those shoes were Rs. 25,000.
D. An invoice relating to purchases of shoes on 15 May 2021 with a value Rs. 20,000 has not been
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recorded in the books of accounts.
E. Selling price of the business is calculated by adding 25% on the cost.
 What is the value of the stock destroyed by the fire in this business on 13 July 2021?
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1) Rs. 31,500 2) Rs. 30,500 3) Rs. 32,000
4) Rs. 65,500 5) Rs. 53,000

07. What is considered as the most important reason to implement a debtor and creditor control accounting
system?

1) Maintain good control from the segregation of duties

2) Specify the responsibilities to employees
3) Easniess of preparing final accounts
4) For the reason that the accounting standards has recommended
5) To carry out good internal controls and maintain accounting activities correctly

08. If single entry ledger system in subsidiary ledger is practiced in a business, what are the incorrect
statements out of the below statements?
A. Control accounts are included in the general ledger while double entry is recorded in general leder.
B. Control accounts of debtors and creditors can be seen in subsidiary ledger.
C. Errors of general ledger and as well as errors of subsidiary ledger, are corrected using doble entry.
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D. A list of balances can be extracted from debtors ledger and creditors ledger.
E. Personal accounts of debtors and creditors cannot be seen in general ledger.

1) A, D, E 2) A, B, C 3) A, C, D
4) B, C 5) A, B

09. Bank balance as per the bank statement of AD business as at 31.01.2021 was Rs. 15,000 debit balance.
This balance was different from the balance as per the bank account of the business and the reasons for
the difference are given below.
. Rs
Unrealized deposits as at 31 January 50,000
Unpresented cheques as at 31 January 70,000
Direct remmitances from debtors which was not recorded in the cash book 30,000
Bank charges of Rs.1,000 was not in the bank account.
Insuarance charges paid and reduced by the bank of Rs. 4,000 was not in the bank account.

The balance of the bank account before receiving the bank statement and the bank balance to be shown
in the financial position statement,

Bank balance before the Bank balance to be

bank statement was received shown in balance sheet
(Rs.) (Rs.)

1)
2)
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35,000
10,000
(60,000)
40,000
3) 30,000 5,000
4) (60,000) (35,000)
5) 60,000 35,000

10. Due to the production activities of Kalana PLC, their work place has been dirty. Environmental
Conservation Authority ordered to clean the workplace and for the year ended 31.03.2021.They planned
to provide Rs. 200,000 as a provision. Out of the below accounting concepts given, which of them would
affect the above scenario?
 A – Accounting Entity B – Accrual C - Prudence D - Matching

1) A, B and C 2) A, C and D 3) B, C and D

4) C only 5) All A, B, C and D

11. Balance of a debtors control account of a business is Rs.70,000. But the total balances of debtors ledger
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were different and reasons for that are given below.

A. Sum of the sales journal has been reduced by Rs. 1,000.

B. Rs. 20,000 of credit sales has been recorded in the sales journal as Rs. 2,000.
C. Credit sales of Rs. 3,500 has been recorded as Rs. 8,500 in the relevant debtor's account.
D. Rs. 2,500 of Value Added Tax (VAT) has not been recorded in the relevant debtors account.

What is the amount to be shown in the financial position statement and the existing balance of the debtor’s
ledger in the business?
Debtor balance to be shown Existing balance of the
in the balance sheet Debtors ledger
1) 84,000 66,500
2) 86,500 81,500
3) 91,500 73,500
4) 89,000 85,500
5) 89,000 73,500

12. According to the standard LKAS 37, what is considered as a provision from the below transactions?

A. Provide Rs. 20,000 from the year end debtors balance as doubtful debts.
B. Depreciation of PPE Rs. 230,000.
C. Provide an amount of Rs. 23,000 for warranty certificates.
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1) A and C 2) A and B 3) B and C
4) C only 5) All A, B and C

Use the following information to answer questions No.13 and 14

Anil, Ranil and Sunil carried out a partnership business sharing profits/losses for a ratio of 2:2:1. Sunil retired
from the business on 01.04.2020. All adjustments relating to the goodwill are done through capital accounts
of the partners and no other adjustments are made for capital accounts. Anil and Ranil planned to share profits
equally in future and Ranil is entitled for an annual salary of Rs. 240,000. Ranil has taken Rs. 200,000 from
cash as salary during the year. Capital account balances and the current account balances of the partners are
given below.
As at 31.03.2021 (Rs.) As at 31.03.2020 (Rs)
Capital balances Current balances Capital balances Current balances
Anil 420,000 260,000 500,000 100,000
Ranil 420,000 300,000 500,000 100,000
Sunil - - 300,000 100,000

13. Goodwill share of Sunil as at 01.04.2021 and total equity of the business as at 31.03.2021,
Sunil’s goodwill share as at Total Equity as at
01.04.2021 (Rs.) 31.03.2021 (Rs.)

1) 160,000 1,600,000
2) 160,000 820,000
3) 80,000 820,000
4) www.questionbank.lk
160,000 1,400,000
 5) 80,000 1,400,000

14. What is the net profit to be apportioned for the year ended 31.03.2021?
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(1) Rs. 320,000 (2) Rs. 560,000 (3) Rs. 360,000
(4) Rs. 520,000 (5) Rs. 240,000

15. According to the standard of LKAS 08, Accounting policies, Changes in the accounting estimations and
Errors, what is correct in relation to changes in accounting policies?

A. A change is permitted when it is needed by Sri Lanka Accounting Standards/ Sri Lanka Financial
Reporting Standards.
B. When the company uses an accounting policy for a new type of transaction which had never
occurred, it is considered as a policy change.
C. A change is permitted when it is for a more appropriate presentation.
D. A change to an accounting policy should be adjusted prospectively.

1) A and B 2) A and C 3) B and C

4) C and D 5) All A, B, C and D

16. What is not a method of profit apportionment?

1) Proposed dividends 2) Interim dividends 3) Transfers to the general reserve

4) Dividends for ordinary shareholders 5) Bonus share issue

17. Following details are related to a motor vehicle purchased under a finance lease from QB business.


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Lease period is 5 years.
 A lease installment of Rs. 86,000 should be paid at the end of first and second year each.
 A lease installment of Rs. 96,000 should be paid at the end of third and fourth year each.
 At the end of the fifth year Rs. 104,000 should be paid as lease installment.
 Down payment of the asset is 1/5 of its fair value.
 Cash purchase value of the motor vehicle is Rs. 400,000.

What is the lease interest or the finance charge of the above lease agreement?

1) Rs. 68,000 2) Rs. 168,000 3) Rs. 80,000

4) Rs. 148,000 5) Rs. 48,000

18. AB PLC had 500,000 ordinary shares issued and the balance of the stated ordinary share capital account
was Rs. 10,000,000 as at 01.04.2020. On 01.07.2020 the company made a share issue at the rate of 1 share
per every 5 shares held on this date at a consideration of Rs. 20 by capitalizing its retained profit. And also
on 01.01. 2021, made a right issue of shares at the rate of 1 share per every 6 shares held on this date at a
consideration of Rs. 15 per share. All rights have been subscribed by the existing shareholders. What is
the increase or decrease in equity balance of the company due to the above transaction as at 31.03.2021?

1) Decrease by Rs. 2,000,000 2) Decrease by Rs. 500,000 3) Increase by Rs. 1,500,000

4) Increase by Rs. 2,000,000 5) Increase by Rs. 3,500,000

19. According to the LKAS 37, provisions, contingent liabilities and contingent assets, which things should
be disclosed for a contingent liability,

A. A brief description on its nature

B. An estimation of its financial impact
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 C. A note on the uncertainty of the time of outflow of resources or in the value of it
D. Additional provision made during the period
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1) A, B and C 2) A, C and D 3) B, C and D
4) A, B and D 5) All A, B, C and D

20. A debtor balance of Rs. 64,000 was there in Panidu PLC as at 31.03.2021 prior to the following
adjustments.
 Bad debt written-off Rs. 4,000.
 Reciept of bad debt written-off Rs. 10,000 relevant for the last year.
 A 10% provision should be made for the doubtful debts from the debtor balance.

A stock worth of Rs. 100,000 (cost) have been sent for Jadhu PLC on the basis of sale or return by adding
a 10% profit margin on the cost. 3/4 out of those stocks were sold on credit basis and the remaining stock
is still with them.

What is the net debtors balance to be shown in the financial position statement as at 31.03.2021?

1) 72,685 2) 125,100 3) 69,084

4) 128,250 5) None of the above

21. In a business the remaining stock worth of Rs. 1,000,000 as at 31.03.2021, were destroyed totally due to
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a fire occurred by the carelessness of the store keeper on 02.04.2021. The impact of this is,

1) Decrease in the closing stock as at. 31.03.2021, the gross profit and the net profit for the year
2020/2021.
2) Decrease in gross profit and net profit for the year 2020/2021.
3) Decrease in the closing stock as at. 31.03.2021.
4) Net profit of 2022 is not changed.
5) Decrease in the net profit for the year 2021/2022.

22. Financial statements of Araliya PLC for the year ended 31.03.2021 have been accepted by the directors
on 15.06.2021. Following transactions occurred between the 31.03.2021 and 30.06.2021.

A. A stock which had a cost of Rs. 850,000 as at 31.03.2021 were sold on 14.05.2021 for Rs. 800,000.
B. Declaration of a final dividend of Rs. 100,000 for ordinary shareholders on 10.06.2021.
C. On 16.06.2021 a court decision was made confirming for a liability of Rs. 50,000 as at 31.03.2021.
D. A debtor who owed Rs. 50,000 as at 31.03.2021 was declared bankrupt on 04.05.2021.

which of the above events should be adjusted in the financial statements of the company as per LKAS 10
(Events after reporting period)?

1) A and B only 2) A,C and D only 3) A and D only

4) A,B and C only 5) B and D only

23. A customer of a company has filled a case against the company in relation to a failed product. It is not
clear that as at 31.03.2021 the company will have to pay losses to the customer.
In relation to the above situation what is the correct statement as at 31.03.2021?

1) The company has a contingent liability about time and value

2) The company has a current responsibility to pay for any damages and losses made from sale of goods
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3)
4)
The company has a contingent liability to be disclosed
Due to the uncertainty whether the company will have to pay for the loss or not, they don’t have to
disclose any information
5) The company has a contingent asset to be disclosed
24. Following information are relevant for a company.

 Price earning ratio is 15 times

 Market value of a share (end of the year) Rs.45
 Ordinary shares issued (Rs. 10 per share) 25,000
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The profit owned by the ordinary shareholders of the company in this year is,

1) Rs. 1,125,000 2) Rs. 75,000 3) Rs. 8,333

4) Rs. 375,000 5) Rs. 175,000

25. Details of a raw material “F” used to production during the year by a manufacturing company is given
below.
Minimum Maximum

Consumption (units) 3,000 7,000

Lead time (months) 3 7
Stock level (units) ? 54,000

Re-order level and the Economic order quantity of the above raw material,
Re-order level EOQ

1) 49,000 5,000
2) 49,000 10,000
3) 9,000 14,000
4) 49,000 Cannot be calculated
5) 49,000 14,000

26. Department A produces product “A” and department B produces product “B”.
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Overhead costs Department A
Budgted
80,000
Actual
88,000
Department B 60,000 52,000
Prime cost Department A 120,000 122,000
Department B 60,000 62,000
Labour hours Department A 10,000 8,000
Department B 5,000 5,200

Both departments absorb overheads based on the labor hours. The number of units produced by
Department A and B are 1,000 and 2,000 respectively.
What is the amount of overheads absorbed by the two departments?
Department A Department B
Rs. Rs.
1) 62,400 64,000
2) 64,000 62,400
3) 88,000 52,000
4) 70,400 72,080
5) 72,080 70,400

27. The ratio used to measure the ability to pay dividends,

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1) Earnings per share ratio 2) Dividend Coverage ratio 3) Return on earnings ratio
4) Return on total asset ratio 5) Price earning ratio
28. What is the incorrect statement from the below statements?
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1)Under the marginal costing, the production cost is calculated by using variable costs only.
2) Under the absorption costing, fixed production overheads is also considered as a production cost.
3) Under the marginal costing, finished goods and work-in-progress goods are valued at variable costs.
4) The profit calculated finally from both marginal and absorption costing methods is equal.
5) Under the absorption costing method, cost of sales is deducted from sales and therefore the contribution
cannot be calculated.

29. Fixed cost of a manufacturing company is Rs. 100,000. Variable cost and the selling price of a product is
Rs. 750 and Rs. 1,450 respectively. What is the amount of units to be produced to earn a profit of Rs.
250,000 by this company?

1) 150 units 2) 500 units 3) 250 units

4) 100 units 5) 300 units

30. Calculate the profit/(loss) of the company when the production level is 40 units using the following
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information.
Production level Profit / (loss)
(units) (Rs. "000)
0 (30)
15 0

1) Rs. 50,000 2) Rs. (12,000) 3) Rs. 25,000

4) Rs. 80,000 5) Rs. 40,000

31. The stock calculated as at 31.03.2021 in a company has been over-estimated. State the impact on the
following elements Decrease, Increase or Not change.

A. Gross profit for the year 2020/2021 .................................................................

B. Net profit for the year 2021/2022 .................................................................
C. Equity as at 31.03.2021 .................................................................
D. Equity as at 31.03.2022 .................................................................

32. Mention two transactions of a company which give rise to a liability and same time a liability will get
decrease.
1. ....................................................................................................................................
2. ....................................................................................................................................

33. The trail balance of a company is not balanced and the difference is transferred to a suspense account.
Later the following errors were identified. Calculate the opening balance of the suspense account.

 Elctricity charges of Rs. 3,000 have been credited to the trial balance as Rs. 300.
 A sale of Rs. 8,000 has been debited to the creditors account and credited to the sales account.
 A discount allowed of Rs. 2,000 has been credited to the discount received account.
 A stock which had a cost of Rs. 2,000 and a net realizable value of Rs. 3,000 has been ommitted in
calculating the closing stock.
 The total of the discount allowed column has been over-estimated by Rs. 800 and that value is recorded


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in the discount allowed account.
An insuarance received of Rs. 30,000 as a compensation for a damage stock has been credited to the
cash account.

Opening balance of the suspense account is, ..................................................................

34. Given below are the details of BTS Company. Debtors control account balance is compared with the
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debtors ledger balance.(All these errors have been occurred in the control account.)

Debtors control account balance 150,000

Add: over-estimation of bad debts 10,000
Less: over-estimated sales (40,000)
Debtors ledger balance 120,000

The draft financial statements are prepared without considering information given in the above
reconciliation. Profit for the year and current assets as at 31.03.2021 is Rs. 500,000 and Rs. 800,000
respectively. Calculate the below using the details from above reconciliation.

A. Profit for the year:…………………………………………………………………………..

B. Current assets as at 31.03.2021:…………………………………………………………….

35. According to LKAS 37, what are the conditions to be fulfilled to recognize a provision as a liability in
the financial statements?

1. ……………………………………………………………………………….
2. ……………………………………………………………………………….
3. ……………………………………………………………………………….

36. Net assets and profit for the year of Mahaweli business as at 31.03.2021 is Rs. 84,000 and Rs. 21,000
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respectively. Cash drawings by the owner is Rs. 12,000 and goods drawings which cost of Rs. 1,000 have
not been accounted. What is the net assets of the business as at 01.04.2020?

Rs........................................................................................

37. A stock purchased for Rs. 80,000 have been deteriorated while in the stores. It was estimated that the
stock can be re-worked spending a cost of Rs. 10,000 and spend another Rs. 5,000 additionally as sales
expenses and finally can be sold for Rs. 60,000. What is the value of this stock to be included in the closing
stock?
Rs.......................................................................................

38. Following details are related to Sumedha PLC for the year ended 31.03.2021. Net cash flow from
operating activities is Rs. 120,000.

 Increase in stocks Rs. 8,000

 Decrease in debtors Rs.12,000
 Bad debt expenses Rs. 5,000
 Profit from building sales Rs. 50,000
 Tax paid for the year Rs. 20,000

According to the above information, what is the profit before tax of the company for the year ended
31.03.2021?

...............................................................................

39. State three similarities between bad debts and doubtful debts.
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1. ...........................................................................................................
2. ...........................................................................................................
3. ............................................................................................................
40. Thilak and Nilantha carried out a partnership business. Gross profit for the year 2021 is Rs. 450,000.
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Additional information are given below.
 Operating expenses Rs. 210,000
 Building rent payable to Thilak Rs. 40,000
 Salary Thilak- Rs. 15,000
Nilantha- Rs. 25,000
 Capital Interest Thilak- Rs. 24,000
Nilantha- Rs. 18,000
 Loan Interest Nilantha- Rs. 20,000

What is the profit of the partnership to be apportioned? ..........................................................

41. State two instances where historical cost concept is not matched with prudence concept .

1. .......................................................................................................
2. .......................................................................................................

42. Monthly loan installment of sunimal’s business is Rs. 10,000. The monthly loan installment have to be
paid in 18 months starting from 01.01.2020. 1/4 of an installment payable for the year ended 31.12.2020
is not paid. What is the amount of current liabilities as at 01.01.2021? (Ignore interest).

.............................................................................................................................................................

43. A company issued 32,000 ordinary shares to gain a prestige of Rs. 800,000. At the due date, applications
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received for 40,000 shares. The applications were proportionately split and the money received for
additional applications were paid back and capitalized the balance shares. Record the above information
in the Ordinary share issue account.
Debit Ordinary share issue account Credit

44. Identify the 5 steps of recognizing revenue according to the standard SLFRS 15.

1. .........................................................................................................
2. ..........................................................................................................
3. ..........................................................................................................
4. ..........................................................................................................
5. ..........................................................................................................

45. Piyal started Naotunna PLC by capitalizing ordinary shares of Rs. 20,000,000 on 01.04.2019. Given below
are details for the years 2019/2020 and 2020/2021. (Rs. Mn)

2019/2020 2020/2021
(Rs.) (Rs.)
Total assets as at 31.03 280 500
Total income 600 880
Total expenses (excluding income tax) 640 700
Income tax 36
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Dividends paid 20
 Calculate the following,
I. Total liabilities as at 31.03.2020................................................
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II. Stated Capital as at 31.03.2021...........................................................

46. Following details are related to employee salary expenses for January, February and March 2021 of a
company. (Salary paid to employees)

January (Rs.) February (Rs.) March (Rs.)

138,000 128,000 147,200

The employee and employer contributions to EPF are 8% and 12% respectively. EPF is calculated based
on the gross salary of the employees. Salary is paid to the employees after deducting EPF expenses.
What is the EPF liability amount to be shown under the current liabilities of the business as at 31 march
in the financial position statement? (EPF relevant for a particular month is remitted to the Central Bank
on the following month)
.................................................................................................................................................................

47. Following information are relevant for two companies.

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Leverage ratio
Sasindu Company
2:1
Kavindu Company
1:2
Inventory turnover ratio 6 times 10 times
Interest Coverage ratio 5 times 10 times
Return on total asset ratio 35% 10%
Quick ratio 1:1 0.5:1

Company
(A) Most better company according to the liquidity ................................................................
(B) The company which uses assets more efficiently ................................................................
(C) The company which is more safe for long term ................................................................
creditors
(D) The company which has low leverage ................................................................

48. Balance of the lifetime membership fee account of Dimuthu sports club as at 31.03.2020 is Rs. 300,000.
10% out of that is added to the membership income account annually. Annual membership fee of the club
is Rs. 2,000 and the total members of the club as at 31.03.2021 is 200 (excluding the lifetime members).
As at 31.03.2020, 25 members have not paid the membership fee and 30 members have paid the
membership fee for the next year too. As at 31.03.2021, 20 members have not paid the fee and 15 members
paid membership fee for the next year.

1. Membership fee to be included in the income statement for the year ended 31.03.2021.

…………………………………………………………………………………….
2. Membership fee received in cash for the year ended 31.03.2021.

………………………………………………………………..

49. Following information is related to a product manufactured by a company.

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Prime cost Rs. 900,000
Budgeted overhead costs
Assembly department Rs. 300,000
Finishing department Rs. 500,000
Stores Rs. 100,000
Budgeted machine hours 50,000
 Budgeted labour hours 50,000
Budgeted production units 30,000
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Stores supply services equally for the production departments. To produce one unit, 2 machine hours and
4 labour hours is used. Assembly and Finishing departments absorb overheads based on the machine
hours and labour hours respectively.

Calculate the production cost of a product. ……………………………………………….

50. Following information is related to a manufacturing company.

Total cost when selling 50 units Rs. 65,000

Total cost when selling 75 units Rs. 90,000
Contribution sales ratio 50%

Calculate the no. of units to be sold in order to gain a profit of Rs. 250,000...........................................

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 WWW.QUESTIONBANK.LK
General Certificate of Education (Adv. Level) Examination - 2021

Accounting Three Hours

01. Trial Balance of ABC PLC as at 31st March 2021 is given below.
www.questionbank.lk Trial balance
(Rs.000) (Rs.000)
Ordinary share capital (110,000) 4,500
Opening stock – 01.04.2020 230
Purchases and Sales 14,200 20,300
10% Investment on Debentures in Dhanu Plc 400
Salaries 2,200
EPF expenses 150
ETF expenses 30
Debtors and creditors 5,200 3,400
Administration expenses 760
Distribution expenses 800
Bad and doubtful debts 120
01.04.2020 provision for bad and doubtful debts 780
20% Fixed deposits 4,000
FD interest income 500
Paid dividends- Ordinary shares 220
Property Plant and Equipment (Carrying value) 3,300
Income Tax - 2019/20 180
- 2020/21 160
Provision for income tax - 2019/2020 520
Retained profits 4,120
Profit from assets disposal 850
Temporary asset account 300
Bank and cash 2,720
34,970 34,970
 Additional Information.
I. On 31.03.2021 a stock with a particular value have been stollen and it was disclosed on 01.04.2021
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morning. The cost of the closing stock as at that date was Rs. 430,000 including the above stollen stock.
The management said that the net proft of the company would reduce by Rs. 44,500 due to the theft of
stocks.
II. The company policy of provision for doubtful debts is based on the debtor’s collection period. If the
debtor’s collection period is below 60 days, 10.5% from the gross amount of debtors and if debtor’s
collection period is more than 60 days, 18.5% from the gross debtors amount are the provision rates.
Credit sales during the year is Rs. 15,600,000. ( Assume 360 days per year.)

III. The company paid employees Rs. 1,200,000 amount as new year advances on 01.12.2020 and it would
be deducted within 3 months from the salaries of employees starting from 01.01.2021. The above
amount was correctly deducted from their relevant accounts. But the EPF/ETF expenses were calculated
and paid based on the gross salary after deducting the above advance payments. The employee and
employer contributions to EPF are 10% and 15% respectively based on the gross salary. Further, the
employer’s contribution to ETF is 3%.

IV. A motor vehicle which had carrying value of Rs. 700,000 was sold for Rs 850,000 on 30.09.2020. This
vehicle was purchased three years ago and has no residual value. The vehicle was depreciated at a rate
of 10% under the straight line method. The cash received from the sale was recorded as an profit from
asset disposal and no other transactions were recorded in relation to the above sale.

V. PPE of the company as at 01.04.2020.

Carriyng
Item Cost Dep. Rate
value
Land 1,000,000 1,000,000 -
Building 800,000 400,000 10%
Motor vehicle 1,700,000 1,200,000 10%
Furniture 900,000 700,000 15%

All the assets are depreciated under straight line method.

Due to the environmental pollution prevention program of the company, on 30.09.2020 the company
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removed all the asbestos roofing sheets and replaced with tile roofs by spending an amount of Rs.
300,000. Due to the failure of the Accountant in the company to come to a final decision regarding this
expenditure, He has debited the amount to a temporary asset account. Removed asbestos roofing sheets
were destroyed.

VI. The main income of this company is primarily from two aspects, these are normal sales income and
interest income. The company do not spend any cost to earn interest income and it is shown under other
income. But the government has introduced seperate income tax rates for these income sourcers.
Normal sales income- 20% (on profit)
Interest income- 30%
VII. In order to increase the efficiency of employees in the company, a foreign trainer was brought in and a
training program was conducted which cost Rs. 300,000. This increased the efficiency as well as the
productivity of the employees. The amount paid is included in the administrative expenses.
VIII. The company started to allocate provisions for warranty certificates at a rate of 1.9% based on the sales
of the year 2020/21.
IX. The company made a right issue at the rate of 1 share per every 10 shares held at a consideration of Rs.
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10 per share in order to find financial resources required for a new project. All the transactions related to
this have been correctly recorded.
X. The below decisions were taken by the Board of Directors.
 To pay a final dividend of Rs.10 for each share to ordinary shareholders.
• Transfer Rs. 100,000 to general reserve.
Required:-
Financial statements of ABC PLC according to the standard LKAS 01 (including notes).
1. Statement of Profit or Loss and other comprehensive income for the year ended 31.03.2021
2. Statement of Changes in Equity for the year ended 31.03.2021
3. Statement of Financial Position as at 31.03.2021

02. A). Leather design PLC manufactures and sells bags. They have two production departments as Assembly
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and Finishing and a Stores department. Given below are details related to producing 1,000 items for the
month of 30.04.2021 in this company.
Stock related information are as follows,
Price per product
Date Description Quantity (units)
(Rs.)
01/04 Balance 1,000 100
08/04 Purchases 2,000 120
15/04 Issues 1,500 -
17/04 Purchases 2,000 140
20/04 Return outwards 500 (Purchased on 08/04)
20/04 Issues 1,500

FIFO method is used to calculate the stock issues. All the issued raw materials have been consumed.
Given below are details related to salary of employees.
EPF Deduction
Basic EPF ETF
OT employee of wellfare
salary employer employer
contribution installments
Production employee 50,000 10,000 5,000 500 7,500 1,500
Production supervisor 50,000 10,000 3,000 500 7,500 1,500
Production management 40,000 5,800 4,000 500 6,000 1,200
employee

Given below are the details of overhead expenses.

 Indirect wages are apportioned equally between the Assembly and Finishing departments.
 Overheads are absorped for the assembly and finishing departments on the basis of machine hours
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and labour hours respectively.
 In order to produce a bag it needs, 5 machine hours and 8 labour hours.

Item Total Assembly Finishing Stores

Indirect materials 32,500 7,300 25,200
Electricity 90,000
Rent 100,000
 Employee insuarance 18,000
Floor area 10,000 5,000 3,000 2,000
No. of employees 1 1 1
Stores requsition 40 70
sheets
Machine hours 1,000
Direct labour Hours 1,772

Required,
1. Cost of the direct materials consumed during the month
2. Closing stock as at 30.04.2021
3. Direct labor cost
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4, Overhead apportionment sheets
5. Overhead absorption rates of Assembly and Finishing departments
6. Production cost of a unit
7. Total production cost

B). Karunasena is engaged in a wholesale business trading electronic items. He does not prepare complete
records of accounts. Following details are given.
Balances as at 01 April 2020 (Rs. 000)
Motor vehicle - Cost 38,400
Accumulated depreciation – Motor vehicle 12,600
Equipment 41,940
Accumulated depreciation – Equipment 22,680
Trade receivables 56,610
Trade payables 19,920
Stocks 33,500
Pre-paid rent 3,750
Accrued general expenses 410
Cash 360

Bank reconciliation statement for the year ended 31.03.2021 is as below.

Bank statement (Rs. 000)
Description Debit Credit Balance
Balance 01.04.2020 4,110
Receipt from trade receivables 200,270 204,380
Drawings 22,185 182,195
Payments – trade payables 134,750 47,445
Cash sales 9,675 57,120
Rent Payment 20,625 36,495
General expenses 6,650 29,845
Motor vehicle 10,100 19,745
Salaries and wages 26,150 (6,405)
Motor vehicle maintenance 4,890 (11,295)

Additional information is given below.

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I. Cash sales during the year was Rs. 15,180,000 and before depositing it in the bank, owner has taken Rs.
400,000 each month as drawings. At the end of the year the cash on hand balance was Rs. 460,000.
 II. Credit sales for the year ended 31.03.2021 was Rs. 184,820,000. Trade payables for the year ended
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31.03.2021 is Rs. 21,590,000. The company keeps a 30% of gross profit on the sales. Discount allowed
during the year was Rs. 920,000.
III. Motor vehicle is depreciated at a rate of 25% per year under the reducing balance method. The policy of
the company is to charge depreciation fully for the purchase year and not to depreciate the vehicle in the
year of disposal.
IV. A motor vehicle purchased on 01.10.2018 for Rs. 16,000,000 has been exchanged to another motor
vehicle. Agreed exchange value for the old motor vehicle was Rs. 8,200,000. The remaining amount of
the purchase price of new vehicle was paid through a cheque.
V. Equipment is depreciated at a rate of 10% annualy under the reducuing balance method. During the year
no new purchases or disposals were taken place.
VI. At the end of the year no any accrued general expenses and the pre-paid rent was Rs. 1,875,000.

Required,

1. Profit or loss statement for the year ended 31.03.2021

2. Statement of Financial position as at 31.03.2021

03. A). On 01.01.2021, Kumuduni started a business of office stationary and communication service. Initially
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she invested an amount of Rs. 200,000 and brought her computer worth of Rs. 120,000 for the business.
The other transactions occurred in the month of January is given below. Useful lifetime of the computer
is 10 years.

 02/01 Cash and credit purchases of stationary is Rs. 40,000 and Rs. 50,000 respectively.
 06/01 Sold office stationary which had a cost Rs. 30,000 for Rs. 50,000 on cash.
 08/01 Return inwards of stationary Rs. 10,000, due to the requested brand was not delivered. Profit
on this stock was Rs. 4,000.
 12/01 Salary for employees and Office repair expenses was Rs. 5,000 and Rs. 3,000 respectively.
It was paid in cash.
 14/01 Credit purchases of telephone cards.

Company Mobitel Hutch Etisalat Dialog Airtel

Type of
cards
Unit price 50 50 50 50 50
Normal Quantity 1,000 200 20 100 20
cards Unit price 100 100 100 100 100
Quantity 20 10 20 50 20
Data cards Unit price 100 100 100 100 100
Quantity 100 50 20 10 30
Value Rs. 62,000 16,000 5,000 11,000 6,000

 15/01 Cash purchases of office equipment for Rs. 120,000. Office equipment is depreciated at a
rate of 20% annually under the straight line method. The policy of the company is not to charge
depreciation in the purchase year.
 16/01 All the cards were sold and received cash Rs. 100,000.
 20/01 Telephone card amount was paid to communication companies by charging a 10%
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commission.
 25/01 Kumudini took Rs. 5,000 worth of stationary for her personal use.
 28/01 Credit sales of stationary for Rs. 30,000 which had a cost of Rs. 20,000.
 30/01 Cash received from customers Rs. 27,000 after deducting a 10% discount.
  31/01 Electricity bill and the telephone bill received for the month of January were Rs. 8,000 and
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Rs. 14,000 respectively.

Required,

1. Record all the above transactions in the following accounting equation.

Property Telephone Retained

Trade Trade
Date plant and Stationary card Cash = Capital earnings
receivables payables
equipment stocks

2. Income statement for the month ended 31.01.2021.

B). Following information are given related to the Sigiri company for the month of March 2021.

 Information related to debtors. (Rs.' 000)

Return
Balance as at Discount
Debtor Credit sales Cash receipt inwards
01.03.2021 allowed
Amal 82 360 295 15 5
Kmal 90 450 320 10 8

 Information related to creditors. (Rs.' 000)

Return
Balance as at Credit Cash Discount
Creditor outwards
01.03.2021 purchases payments received
Ranil 45 120 95 5 12
Nimal 62 145 110 - 10

 Cash balance as at 01.03. 2021 is Rs. 690,000. The summary of the cash transactions happened during
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the month is as follows,
Received income 75,000
Paid expenses 52,000
Cash sales 160,000
Cash purchases 100,000

 It was revealed later that the following errors have been occurred during the month of March.

I. Discount allowed for debtors was not recorded in the control account.
II. Payments for creditors have been recorded in the control account as Rs. 250,000.
III. Sales for Amal have been recorded in his personal account as Rs. 630,000.
IV. Sum of the debit side of the debtors control account have been over-estimated by Rs. 50,000.

 Details of the bank statement as at 31.03.2021 (Rs.’000).

Bank charges 50
Unrealized cheques 800
Direct remmitances 160
Unpresented cheques 37
Required,

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For the month ended 31.03.2021,

1. Cash payments and cash receipt journal

2. Balance of the debtor control account before adjusting the errors
3. Journal entries for errors corrections
4. Statement for reconciling the balances of debtors control account and debtors sub ledger balance.
5. Adjusted cash account
6. Bank reconciliation statement

04. A). Following information are given related to the ABC partnership business for the year ended
31.03.2021.

I.
Stock As at 31.03.2020 As at 31.03.2021
Raw material (units) 10,000 15,000
WIP (Rupees) 52,596 89,900
Finished goods (Rupees) 30,000 25,000

 Unit cost of the raw materials as at 01.04.2020 is Rs. 10. From 01.01.2021 onwards the unit price
of the raw material increased by 50%.
 The unit cost of WIP is equall to the unit prime cost (befor adjusting for WIP). Therefore WIP
adjustments are made to the prime cost.
 Raw materials purchased during the period were 250,000 units. Out of that stock 150,000 units
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were purchased before 01.01.2021.
 10 units of raw materials is needed to produce one finished good.
 Stocks are issued according to FIFO method.
II. Direct labour charges to produce one good is Rs. 5 and Rs. 2 is paid for royalty charges per unit.
III. Overhead expenses relevant for the period is Rs. 360,000. 33.3% out of this is non-production
overheads expenses.
IV. During the period 25,000 units were sold for Rs. 200 each.
V. Other expenses relevant for the period is Rs. 100,000.
VI. Current account balances as at 01.04.2020

A- 300,000 (Debit)
B- 800,000 (Credit)
C- 750,000 (Credit)
 During the period B and C has taken Rs. 5,000 per month as drawings.
 B has provided a loan of Rs. 360,000 to the business for an annual interest rate of 10%. The loan
interest related to B has not yet paid to him and therefore no any records have been kept regarding
it in the books of accounts.
 A and B should be paid a monthly salary amount of Rs. 2,000 for 10 months. Capital interest is not
given for any partners.
 Profit sharing ratio between A, B and C are 2:2:1.

Required,

1. Total production cost statement of ABC partnership for the year ended 31.03.2021.
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 2. Income statement of ABC partnership for the year ended 31.03.2021 (including profit apportionment).
3. Current accounts of the partners.

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B).Summary of cash receipts and cash payments of Ajantha PLC company for the year ended 31.03.2021 is
given below.

Cash receipts Rs. 000

Receipt from debtors 21,400
Issue of debentures 600
Cash from Disposal of old machines 250
Investment sales 160
Ordinary share issue 500
22,910

Cash payments
Operating expenses 3,780
Payment to creditors 12,760
Purchases of furniture and equipments 900
Payment of bank loan 460
Paid income taxes 850
Paid dividends 300
19,050
Additional information,

I. The interest charges inculded in the bank loan payments was Rs. 160,000.
II. Carrying value of the sold machine was Rs. 200,000.
III. PPE depreciation during the year was Rs. 300,000.
IV. Carrying value of the investments at the selling date was Rs. 140,000.
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V. Current assets and current liabilities as t 31.03.2021 is as follows.

2020/2021 2019/2020
(,000) (,000)
Stock 570 520
Debtors 1,175 925
Creditors 820 730
Accrued expenses 80 160
Payable income taxes 250 180
Accrued loan interest 120 150
Cash and bank balances 4,860 1,000

Required,

1. Cash flow statement of Ajantha Plc by using the indirect method to calculated the cash flow from
operational activities.

05. A). Mahagedara (Pvt) LTD is a company engaged in rubber manufacturing. The following information
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were extracted from its books of accounts and from other financial sources relevant for the year ended
31.03.2021.
(Rs. 000)
Profit for the period (Rs.) - (after interest) 160
Cost of sales (Rs.) 600,000
Net profit ratio 10%
 Return on assets 1.5
Interest expenses (Rs.) 40,000
Share capital (Rs.) 640,000

 This company operate as a tax free company.

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Required:
Calculated following using the above information.
1. Sales amount relevant for the year
2. Gross profit ratio
3. Total asset of the company
4. Interest coverage ratio
5. Return on equity ratio %

B) The following details are given related to the “Negenatharu” sports club.

Rs. 000 Rs. 000

Non-cuurent assets
Staduim 500
Execise equipments 800 1,300

Current assets
Receivable membership fees 50
Cash 165 215

Non-current liabilities
Life membership fees 500
Exercise equipment funds 300 800

Current liabilities
Membership fees received in 125
advance
Advances received 40 165

Following are the details relevant for the year ended 31.03.2021.

I.
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All receipts and payments are done in cash.
II. There are 100 members in the club and the annual membership fee is Rs. 5,000. There are 50 lifetime
members who have paid Rs. 10,000 each. The policy of the club is to recognize Rs. 100,000 annually
from the life membership fees as annuall membership income.
III. The membership fee received during the year was Rs. 425,000. That includes the membership arrears
in the previous year and membership paid in advance for next year by 20 members. At the end of the
year 20 members did not pay the membership fees.
IV. External people also can use the gym facilities by paying Rs. 200 daily. 50 people have used the gym
facility within 52 days and the amount received was Rs. 550,000. The additional amount is considered
as advances received for next year.
V. The person incharge for looking after the exercise equipment is paid a mothly salary of Rs. 10,000.
VI. During the year advertisisng expenses Rs. 80,000 and other expenses Rs. 250,000 have been paid.
VII. Staduim and the exercise equipment should be depreciated at a rate of 5% and 20% respectively under
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the straight line method.
VIII. Part of the biulding where the stadium is located, was rented to an external person on 01.04.2020 for

IX.
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Rs. 10,000 mothly to carry on table tennis game. He paid rent for 18 months.
During the year they have spend Rs. 75,000 to maintain the equipments.

Required,
1. Accumulated fund as at 01.04.2020.
2. Income and expense statement for the year ended 31.03.2021.
3. Financial position statement as at 31.03.2021.

06. A). Lahiru company has considered on two investments as below. Useful life of both the machines is 4
years. Only one machine can be selected from below options.

Machine A Machine B
1 year profit 85,000 50,000
2 year profit 50,000 65,000
3 year profit 75,000 45,000
4 year profit or (loss) (95,000) 60,000
Residual value at the end of 4 years 50,000 50,000
Initial investment 1,150,000 1,250,000
Rate of return expected by the company is 15%.

Discount factors
Period/ Years 1 2 3 4
Discount factor 0.87 0.87 0.76 0.66 0.57

Required,
1. Accounting return rate
2. Payback period
3. Net Present Value
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4. Seperately mention the investment options and explain the reasons for selecting them as best option
according to the answers given above (1), (2), (3).

B).The senior students had organized a trip to climb Hanthana Mountain for the new students of North Western
University for the academic year 2020/2021. The following information is estimated for that.
 Travelling fees per student is Rs. 2,500.
 Food expenses per student is Rs. 200.
 Safety jacket per student is Rs. 150.
 Rs. 50 per water bottle.
 Rs.450 per T-shirt.
 Books and other things needed to note down information per student is Rs.150.
 4 buses are expected to be hired. Rs. 25,000 have to be paid per bus.
 A cost of Rs. 50,000 will be spend for a musical band for entertainment of students and buy
additional things required to them.
 The administration informed that the musical band need Rs. 20,000 for their accomodation per
day, and QB.LK company agreed to provide this cost as sponser.
 200 freshers are expected to join the trip.

Required,
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Calculate the following.
1. Contibution per participant
2. Break even no.of students and the value
3. Margin of safety (Equilibrium students)
4. Profit for the organizing committee if all the expected 200 students participate to the event.
5. Draw the sketch of break even graph and show the above calculations.
6. Due to the reason that the students are still new to the university, some students are unlikely to join the
trip. Therefore if 80 students participated, what is the impact on the profit calculated in the above 4.
 Suggested Answers - I Paper
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(1) 1 (11) 5 (21) 5
(2) 2 (12) 4 (22) 3
(3) 5 (13) 4 (23) 3
(4) 2 (14) 2 (24) 2
(5) 3 (15) 2 (25) 5
(6) 3 (16) 3 (26) 2
(7) 5 (17) 4 (27) 2
(8) 4 (18) 3 (28) 4
(9) 4 (19) 1 (29) 2
(10) 3 (20) 4 (30) 1

(31) A. Increase (41)  Stock should be valued at lower of

B. Decrease cost or net realizable value.
 Showing the revalued amount of
C. Increase assets in the books.
D. Decrease (42) Rs. 90,000
(32)  Settling creditors by issuing (43) Cash A/c Dr 1,000,000
cheques, when there is an OD. Ordinary share issue A/c Cr 1,000,000
 Settling accrued expenses by
Ordinary share issue A/c Dr 800,000
cheques when there is an OD.
Stated capital A/c Cr 800,000
 Dishonoured a payable exchange
bill.
Ordinary share issue A/c Dr 200,000
(33) Rs. 66,500
Cas A/c Cr 200,000
(34) (A) රු. 470,000 (B) රු. 770,000
(35)  a present obligation as a result of (44) 1. Identify the contract with the
past event (legal or constructive) customer.
 It is probable that an outflow of 2. Identify the performance obligations
resources embodying economics in the contract.
benefits will be required to settle 3. Determine the transaction price.
the liabilities 4. Allocate the transaction price to the
 A reliable estimate can be made of performance obligations.
the amount of the obligation 5. Recognized revenue when the entity
(36) Rs. 75,000 satisfies a performance obligation.
(37) Rs. 45,000 (45) |. 120 Mn
(38) Rs. 186,000
॥. 284 Mn
(39)  Same incident, two transactions
(46) Rs. 32,000
related to non receipt of debtor
balances. A. Sasindu Com: B. Sasindu Com:
(47)
 Two transactions that is recorded in C. Kavidnu Com: D. Kavindu Com:
the same account, in the
comprehensive income statement. (48) 1. 430,000 2. 380,000
 Two transactions made in relation
to one asset, which is debtors. (49) Rs.88,000
(40) 180,000 (50) Units 265
 Suggested Answers – II Paper
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01. Profit and loss and other comprehensive statement
Of the ABC Plc
For the year ended 31.03.2021(Rs.000)

Sales 20,300
Cost of sales (14,000)
Gross profit 6,300

Other income 990

Administration (3,961)
Distribution Expenses (1,611)
Finance expenses -
Other expenses (44.5)

Profit before tax 1,673.5

Income tax (74.7)
Profit for the year 1,598.8
Other comprehensive income

Total comprehensive income 1,598.8

Statement of changes in equity

Of ABC PLC
For the year ended 31.03.2021 (Rs.000)

Ordinary Revaluation General Retined

shares reserve reserve earnings
B/F 4,400 4,120
Right issue 100
Profit for the year 1,598.8
General reserve 100 (100)
Dividends- Ordinary shares (220)

4,500 100 5,398.8

Note 01 Note 02
Opening Stock Last year over
230 (340,000)
provision
Purchases Income tax for the (873,500 *
14,200 year 414,700 20%)+(800,000*30%)

Closing Stocks (430) 74,700

14,000
 Statement of financial position
of ABC Plc
As at 31.02.2021 (Rs.000)
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Non-current assets
Property plant and equipment 2,295
20% Fixed deposits 4,000
Investments in Dhanu company 400
6,695

Current assets
Closing stock 385.5
Debtors 4,235
Receivable investment income 40
Receivable FD interest 300
Bank and cash 2,720
7,680.5
14,375.5

Equity and liabilities

Ordinary shares 4,500
General reserve 100
Retained earnings 5,398.8 9,998.8

Non-current liabilities

Current liabilities
Payable EPF 300
Payable ETF 36
Creditors 3,400
Payable tax 254.7
Warranty certificates 386 4,376.7
14,375.5

Note 03 Note 04
Profit from asset disposal 150,000
Interest income 40,000 Land Buildings Motor vehicle Furniture
FD interest 800,000 B/F 1,000 800 1,700 900
Disposals (1,000)

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B/F
1,000 800
400
700
500
900
200
Disposals (300)
Annual dep 80 120 105
480 320 305
Net value 1,000 320 380 595
02. (A)

1. Direct material consumption cost = 350,000

2. Closing stock (cost) = 210,000
3. Direct labour cost= 69,000
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4.

Cost Apportionment basis Total cost Assembly Finishing Stores

Production salaries Provided 69,000 34,500 34,500
Management salaries Provided 53,000 26,500 26,500
Indirect material Provided 32,500 7,300 25,200
Electricity Floor area 90,000 45,000 27,000 18,000
Rent Floor area 100,000 50,000 30,000 20,000
Employee insurance No.of employees 18,000 6,000 6,000 6,000
16,000 28,000 (44,000)
362,500 185,300 177,200

5. Absorption ratios
Finishing dep 177,200 Assembly dep 185,300
1,772 1,000
100 185.3

6.
Unit prime cost 419
Assembly dep 926.5 (185.3 x 5)
Finishing dep 800 (100*8)
Unit production cost 2,145.50

7.
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Total cost 2,145.5 x 1,000
2,145,500

(B). 1.

Income statement (,000)

Sales 200,000
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Opening stock 33,500
Purchases 136,420
Closing stock (29,920) (140,000)
Gross profit 60,000

Expenses
Discount allowed 920
New MV dep 4,575
Equipment dep 1,926
Old MV dep 4,200
Rent expenses 22,500
 General expenses 6,240
Loss from MV dispose 800
Salaries and wages 26,150
MV maintenance expenses 4,890 (72,201)
Profit/ (loss) (12,201)

2.

Balance sheet (,000)

Capital 118,950 Non-current assets
(-) Drawings (4,800) Motor vehicle 13,725
(22,185)
Net profit (12,201) (39,186) Old Motor vehicle 12,600
Non-current liabilities Equipment 17,334

Current liabilities Current assets

Creditors 21,590 Closing stock 29,920
Bank OD 13,750 Pre-paid rent 1,875
Cash in hand 460
Debtors 39,190

03. (A) 115,104 115,104

Telephone Retained
Date PPE Stationary TR Cash TP Capital
cards earnings
1-Jan 120 200 320
2-Jan 90 (40) 50
6-Jan (30) 50 20
8-Jan 6 (10) (4)
12-Jan (8) (8)
14-Jan 100 100
15-Jan
16-Jan
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120
(100)
(120)
100
20-Jan (90) (100) 10
25-Jan (5) (5)
28-Jan (20) 30 10
30-Jan (30) 27 (3)
31-Jan 22 (22)
240 41 - - 109 72 315 3

Income statement
Sales 180,000
Return inwards (10,000)
Opening stock 170,000
Purchases 180,000
Drawings (5,000)
Closing stock (41,000) (134,000)
Gross profit 36,000
Employee salaries 8,000
Discount allowed 3,000
Electricty and 22,000 (33,000)
Telephone

Net profit 3,000

(B) 1. Receipt journal Payment journal

Date Description Discount Amount Date Description Discount Amount

Amal 15,000 295,000 Ranil 5,000 95,000
Kamal 10,000 320,000
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Received 75,000
Nimal
Paid expenses
10,000 110,000
160,000
income Cash purchases 100,000
Cash sales 160,000 5,000 465,000
25,000 850,000

2. Debtors balance before adjustments = Rs.404,000

3.
Suspense A/C Dr 25,000
Debtors control A/C Cr 25,000

Suspense A/C Dr 45,000

Creditors control A/C Cr 45,000

Amal’s personal A/C Cr 270,000

(single entry)

Suspense A/C Dr 50,000

Debtors control A/C Cr 50,000

4. Reconciliation of control A/C and sub ledger balances.

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Balance as per debtor control A/C 329,000
(+) Amal’s sales 270,000 270,000

(-)
Balance as per debtors list 599,000

5. Adjusted Cash Account

B/F 1,075,000 Bank 50,000
charges
Direct 160,000
remmitances
1,185,000
1,235,000 1,235,000

6. Bank reconciliation statement

Balance as per adjusted cash book 1.185,000
(+) Unpresented cheques 37,000

(-) Unrealized cheques (800,000)

Balance as per bank statement 422,000
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04. (A)
1.
Production cost statement
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Opening stock 100,000
RM purchases 3,000,000
Closing RM (225,000)
2,875,000

Direct wages 122,500

Direct other (Royalties) 49,000

Change in WIP (37,304)

Prime cost 3,009,196
Production overhead
expenses
Production overhead 240,000 240,000
expenses
Total production cost 3,249,196

2. Income statement and Profit apportionment

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Sales 5,000,000
Opening stock 30,000
Production cost 3,249,196
Closing stock (25,000) (3,254,196)
Gross profit 1,745,804

Other income 100,000

Loan interest (27,000)

Overhead expenses (120,000)
Net profit 1,698,804
Profit apportionment
Wages - A 20,000
B 20,000 40,000

Profit shares - A 663,522

B 663,522
C 331,761 1,658,804
-

3. Current accounts
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A B C A B C
B/F 300,000 B/F 800,000 750,000
Drawings 60,000 60,000 Wages 20,000 20,000
Profit shares 663,521 663,521
C/D 383,521 383,521 383,521
683,521 1,483,521 1,081,760 683,521 1,483,521 1,081,760
(B). Cash flow statement
For the year ended 31.03.2021 (Rs.000)
Profit before tax 4,790

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Adjustments
 Depreciation 300
 Loan interest 130
 Profit from machines disposal (50)
 Profit from investments (20) 360
5,150
Working capital changes
Stock (50)
Increase in debtors (250)
Increase in creditors 90
Decrease in Accrued expenses (80) (290)
4,860
Cash flow from operating activities
Paid interest (160)
Paid tax (850) (1,010)
Net cash flow from operating activities 3,850

Investment activities
Purchase of furniture equipment (900)
Investments 160
Purchase of machine 250
Cash flow from investment activities (490)

Financing activities
Share issue 500
Debenture issue 600
Paid dividends (300)
Bank loan (300)
Cash flow from financing activities 500

Change in cash and cash equivalents 3,860

Opening cash balance 1,000

Closing cash balance 4,860

Workings
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Income statement (Rs.000)

Sales 21,650
Cost of sales
Stock 520
Purchases 12,850
13,370
Stocks (570) (12,800)
Gross profit 8,850
Other income
Machine sale profits 50
Profit from investments 20 8,920
 Other expenses
Depreciation 300
Expenses 3,700
Loan interests 130 (4,130)
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Net profit 4,790

05. (A)

1. 1,600,000

2. (1,000 / 1,600) × 100

62.5%

3. 1,600,000 / 1.5 = 1,066,666.67

4. 200 / 40
Terms = 5

5. (160 / 640) × 100

25%

(B)
1. Rs. 550,000
Financial position statement as at 01.04.2020

Accumulated Fund 550 Non-current assets

Statdium 500
Lifetime membership Excercise Equipments
500 800 1,300
income
Exercise equipment fund 300 800 Current Asset
Current liabilities Receiveble
50
membership fee
Received in advance Mem Cash
125 165
fee
Advances 40 165 215
1,515 1,515
2.
Statement of income and expenses (Rs.000)
Income
Membership fee 500
Lifetime membership fee 100
Gym facilities 520
Rent income 120 1,240

Expenses
Salaries 120
Advertising 80
 Other 250
Stadium dep: 25
Exercise equipment dep: 160
Maintenance 75 (710)
Surplus 530
3.
Statement of financial position as at 31.03.2021 (Rs.000)
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Non-current assets
Staduim 475
Exercise equipments 640
Current assets
Receivable membership fees 100
Cash 795 2,010

Accumulated Funds 550

(+) Surplus 530 1,080

Lifetime membership fees 400

Exercise equipment funds 300 700

Current liabilities
Membership fee paid in advance 100
Advances(Gym) 30
Staduim rent advances 60
Advances received 40 230
2,010

06.(A).
1. www.questionbank.lk
Machine A
Accounting return ratio = Average profit x 100
Initial investment

= 28,750 x 100
1,150,000
2.50%
Machine B
Accounting return ratio = Average profit x 100
Initial investment

= 55,000 x 100
1,250,000
4.40%
2.
Machine A - 03 years and 06 months
Machine B – 03 years and 05 months
3.
Machine A
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Description 0 1 2 3 4
Initial investment (1,150.00)
Inflows 360.00 325.00 350.00 180.00
Residual value 50.00
(1,150.00) 360.00 325.00 350.00 230.00
1 0.87 0.76 0.66 0.57
(1,150.00) 313.20 247.00 231.00 131.10
NPV (227.70)

Machine B
Description 0 1 2 3 4
Initial investment (1,250.00)
Inflows 350.00 365.00 345.00 360.00
Residual value 50.00
(1,250.00) 350.00 365.00 345.00 410.00
1 0.87 0.76 0.66 0.57
(1,250.00) 304.50 277.40 227.70 233.70
NPV (206.70)

4.
1.Since the ARR value of machine B is higher it is more suitable.
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2. Since the payback period of machine B is less it is more suitable.
3. NPV value of both the machines are negative and therefore it is not suitable to invest on them.

(B).

1. Contribution of participants Rs. 1,500

Selling price 2,500

Variable cost
Food 200
Jacket 150
Water bottle 50
T-shirt 450
Books 150 (1,000)
1,500

2. Break even (units) = (100,000 + 50,000)/1,500 =100

Break even (Rs.) = 100 x 2,500 =250,000

3. Margin of safety (units) = 200-100=100

4. Profit of organizing committee= 1,500 x 200 – (150,000) = 150,000
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5.

Value

Profit

250

150

Units
100 200
Margin of safety

6. The profit is reduced by Rs. 288,000.

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