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CMA FOUNDATION SOLVED PAPERS: FUNDAMENTALS OF ACCOUNTING (JUNE' 2018)


FOUNDATION COURSE EXAMINATION (June 2018)
Fundamentals of Accounting
Full Marks: 100
Time Allowed: 3 Hours
The figures in the margin on the right side indicate full marks.
This question paper has two parts. Both the sections are to be answered subject to instructions given against each.
SECTION A
1. (a) Choose the correct answer from the given four alternatives:          1x30=30

1)         Accounting does not record non-financial transactions because of
a)      Entity concept.
b)      Accrual concept.
c)       Cost concept.
d)      Money measurement concept.
2)         Narration is given at the end of
a)      Final accounts.
b)      Trial balance.
c)       Each ledger account.
d)      Each journal entry.
3)         Which one of the following is an example of Personal Account?
a)      Machinery.
b)      Rent.
c)       Cash.
d)      Creditor.
4)         Rs. 5,000 incurred for up gradation of computer by installation of 128 MB Ram is
a)      Revenue expenditure.
b)      Deferred revenue expenditure.
c)       Capital expenditure. (It enhances the effectiveness of computer)
d)      None of the above.
5)         Cost of goods purchased for resale is an example of
a)      Revenue expenditure.
b)      Capital expenditure.
c)       Deferred revenue expenditure.
d)      None of the above.
6)            Insurance claim received on account of machinery damaged completely by fire is
a)      Capital receipt. (Because it is non-recurring in nature)
b)      Revenue receipt.
c)       Capital expenditure.
d)      Revenue expenditure.
7)            An expenditure is capital in nature when
a)      The receiver of the amount is going to treat it for the purchase of fixed assets.
b)      It increases the quantity of fixed assets.  
c)       It is paid as interest on loans for the business.
d)      It maintains of fixed asset.
Hint: Capital expenditure are those which are incurred for procuring an asset. Like purchase of plant, building etc. The benefit of capital expenditure is intended for future period.  An expenditure is a capital in nature when it increase the quantity of fixed assets. 

8)            A withdrawal of cash from business by the proprietor should be credited to
a)      Drawing Account.
b)      Capital Account.
c)       Cash Account.
d)      Purchase Account.
9)            Which financial statement represent the accounting equation _____ Asset = Liability + owner’s equity:
a)      Income statement.
b)      Cash flow statement.
c)       Balance Sheet.
d)      None of the above.
10)         A debit note issued to a creditor for goods returned is to be recorded in the
a)      Bills receivable book.
b)      Purchase book.
c)       Purchase return book.
d)      Journal proper.
11)         Cash book is a form of
a)      Ledger.
b)      Journal.
c)       Trial Balance.
d)      All of the above.
12)         A sale of goods to Laxman for cash should be debited to
a)      Laxman A/c.
b)      Cash A/c.
c)       Sales A/c.
d)      Capital A/c.
13)         The debts written off earlier as bad, subsequently recovered are
a)      Debited to profit and loss A/c.
b)      Credited to bad debt recovery A/c.
c)       Credited to trade receivable A/c.
d)      Credited to debtors A/c.
14)         Which one of the following is an external cause for depreciation.
a)      Over use.
b)      Abnormal occurrence.
c)       Time element.
d)      Obsolescence.
15)         Original cost of a machine is Rs. 1,50,000, residual value Rs. 10,000, if depreciation is charged @ 10% per annum under WDV method then depreciation for 3rd year will be
a)      Rs. 12,240
b)      Rs. 11,340
c)       Rs. 12,150
d)      Rs. 14,000
16)         On which of the following asset, depreciation is charged on ‘Depletion method’
a)      Goodwill.
b)      Plant and Machinery.
c)       Land and Building.
d)      Wasting asset like mine and quarries.
17)         If a sum of Rs. 1,500 received from Laxman (debtor) has not be recorded in the books, the
a)      Profit would show an increase of Rs. 1,500
b)      Profit would show a decrease of Rs. 1,500
c)       Assets would show a decrease of Rs. 1,500
d)      None of the above. (Because it affects only cash and debtors , no nominal item is involved)
18)         It goods worth Rs. 1,750 returned to supplier is wrongly entered in sales returned book as Rs. 1,570 then
a)      Gross profit will decrease by Rs. 3,320
b)      Gross profit will decrease by Rs. 3,500
c)       Gross profit will increase by Rs. 3,320
d)      Net profit will decrease by Rs. 3,140
19)         Which of the following errors affects the agreement of a trial balance?
a)      Mistake in balancing an account.
b)      Omitting to record a transaction entirely in the subsidiary books.
c)       Recording of a wrong entry in the subsidiary book.
d)      Posting an entry on the correct side but in the wrong account.
20)         Which one of the following is an error of principle?
a)      Rs. 500 being purchase of raw material debited to purchase account as Rs. 50.
b)      Rs. 500 being paid for wages but debited to Stationary Account.
c)       Rs. 5,000 received from Ram but credited to Shyam.
d)      Rs. 5,000 incurred on installation of a new plant but debited to salary A/c.
21)         Difference in Bank Balance as per Pass book and Cash book may arise on account of
a)      Cheque issued but not presented.
b)      Cheque issued but dishonoured.
c)       Cheque deposited not credited by bank.
d)      All of the above.
22)         Which of these items are taken into consideration for preparation of adjusted cash book?
a)      Mistake in cash book.
b)      Mistake in pass book.
c)       Cheque issued but not presented for payment.
d)      Cheque deposited but not cleared by bank.
Hint: The items not recorded in cash book and the items which are incorrectly recorded are considered while preparing adjusted cash book.
23)         Kasi draws a bill on Shyam for Rs. 5,000 and Kasi endorsed it to Ram. Ram endorse it to Rahul. The payee of the bill will be
a)      Kasi.
b)      Ram.
c)       Shyam.
d)      Rahul.
24)         A bill drawn on 3rd July 2017 for 40 days, payment must be made on
a)      16th August, 2017
b)      15th August, 2017
c)       12th August, 2017
d)      14th August, 2017 (Since, 15th August is a public holiday)
25)         On receipt of goods from the consignor the consignee debits which of these accounts?
a)      Purchase account.
b)      Goods account.
c)       Consignor account.
d)      None of the above.  (Consignee passed entry relating to cash/cheque/BR payment and commission earned)
26)         The Consignment Accounting is made on the following basis
a)      Cash basis.
b)      Realization basis.
c)       Accrual basis.
d)      None of the above.
27)         Joint venture account is of the nature of
a)      Personal account.
b)      Nominal account.
c)       Real account.
d)      Suspense account.
28)         If unsold goods costing Rs. 20,000 is taken over by venture at Rs. 15,000, the joint venture account will be credited by
a)      Rs. 20,000
b)      Rs. 15,000
c)       Rs. 5,000
d)      NIL.
29)         Which one of the following is not a financial statement?
a)      Trial Balance.
b)      Profit and Loss A/c.
c)       Balance Sheet.
d)      Fund Flow Statement.
30)         Closing stock appearing in the trial balance is shown in
a)      Trading A/c and Balance Sheet.
b)      Profit and Loss A/c.
c)       Balance Sheet only.
d)      Trading A/c only.
(b) State whether the following statements are True or False:                              1x12=12
1)            Accounting is an art of record keeping. False
2)            Window dressing of accounts means showing more profits to attract more investment. True
3)            Cost of extension of building occupied on lease for five years is deferred revenue expenditure.
4)            Freight paid on purchase of machinery is to be treated as revenue expenditure.   False, CE
5)            It is generally assumed that the business will not liquidate in near forcible future because of business entity concept.          False, Going concern concept
6)            Gratuity and pension paid to employees after retirement is deferred revenue expenditure. False, Revenue
7)            Trade discount is allowed for prompt payment.     False
8)            The balance in the petty cash book is an asset.                       True
9)            Profit or Loss has no effect on net worth.                 False
10)         Trial Balance Document is required for bank reconciliation.               False
11)         A person by whom the bill is endorsed is called endorser.                 True
12)         Account sales is a statement furnished by consignor to consignee.               False, It is sent by consignee to the consignor
(c) Match the following:                                           1x6=6

Column A

Column B
1.
Concept relating to Profit & Loss A/c
3
Gross profit
2.
Salary outstanding
4
Total sale
3.
Sales minus cost of goods sold
6
Memorandum statement
4.
Del Credre commission
1
Matching concept
5.
Honour before due date
5
Retirement of bill
6.
Bank reconciliation statement
2
Current liabilities

Answer any four questions out of six questions:                                                              8x4=32
Trial Balance as on March 31, 2018
Sl. No.
Name of Accounts
L. F.
Dr. (Rs.)
Cr. (Rs.)
1.
Wages

1,54,000

2.
Salaries

2,52,000

3.
Rent Received


1,80,000
4.
Repairs

16,000

5.
Insurance Premium

24,000

6.
8% Investments

15,00,000

7.
Interest on Investments


90,000
Adjustments:
1)         Wages for March, 2018 is outstanding.
2)         Salaries include prepaid salaries for two months.
3)         Rent received for 18 months.
4)         Outstanding repairs Rs. 6,000.
5)         Only 2/3 of insurance premium is related to current year.
6)         Interest on investments is accrued for 3 months.
Give necessary entries for above adjustments.                                                 8
3. N. R. & Sons purchased a second hand machine on 1st April, 2015 and paid Rs. 1,40,000 for it. On its repairs and installations he spent Rs. 20,000. On 1st October, 2015 another machine costing Rs. 80,000 was purchased. On 1st October, 2017 the machine purchased on 1st April, 2015 was disposed off for Rs. 1,04,000 and a new machine costing Rs. 2,00,000 was purchased. Depreciation was provided @ 15% per annum by Straight Line Method on year ending 31st March. Prepare Machinery Account for 3 years.                                 8
4. From the following particulars of M/s AB Enterprises, Prepare Bank Reconciliation Statement as on 31st March, 2018 when there was overdraft balance of Rs. 17,600 as per Pass Book:
1)         Three cheques were issued for Rs. 5,000, Rs. 7,600 and Rs. 4,000 during March, 2018. The cheques of Rs. 11,600 are still with the supplier.
2)         Rs. 4,000 transferred from fixed deposit A/c into current A/c, appeared only in the Pass Book.
3)         Cheques deposited in bank for Rs. 11,600 but only Rs. 4,000 were cleared till 31st March, 2018.
4)         Dividend collected by bank Rs. 2,500 was wrongly entered as Rs. 5,200 in Cash Book.
5)         Interest on overdraft Rs. 1,860 was debited by bank in Pass Book and the information was received only on 4th April, 2018.
6)         Direct deposit by M/s CD Trading Rs. 800 not entered in Cash Book.
7)         Electricity bill Rs. 2,400 paid by bank as per standing instruction appear only in Pass Book.
5. Mr. X closed his books of accounts on 31st March, 2018 in spite of a difference in the trial balance. The difference was carried forward in a suspense account. The following errors were detected subsequently.
1)         The total of return in ward book for July, 2017 Rs. 1,240 was not posted in the ledger.
2)         Freight paid on a machine Rs. 5,600 was posted to the freight account as Rs. 6,500.
3)         While carrying forward the total of purchase account to the next page Rs. 65,590 was written as Rs. 56,950.
4)         A sale of machine on credit to Mrs. Sun for Rs. 9,000 at the beginning of the year was not entered in the books at all. The book value of the machine was Rs. 7,500. The firm has the practice of writing off depreciation @ 10% on the balance at the end of the year.
5)         A credit sale of Rs. 760 was wrongly posted as Rs. 670 to the customer account in the sales ledger.
6)         Closing stock was over casted by Rs. 10,000 in the schedule of inventory.
Pass rectification Journal Entries with proper Narration in the books of Mr. X.                                                 8
6. From the following particulars, prepare a Balance Sheet of XYZ Enterprise as on 31st March, 2018.
Particulars
Amount (Rs.)
Capital
2,00,000
Drawings
40,000
Cash in hand
15,000
Loan from Bank
40,000
Sundry creditors
40,000
Bills payable
20,000
Bank overdraft
20,000
Goodwill
80,000
Sundry debtors
80,000
Land & Building
50,000
Plant & Machinery
80,000
Investments
20,000
Bills receivables
10,000
Cash at Bank
25,000
The following adjustments are made at the time of preparing the Trading and Profit & Loss A/c:
a)         Outstanding Liabilities for
1)      Salaries Rs. 10,000
2)      Wages Rs. 20,000
3)      Interest on bank overdraft Rs. 3,000
4)      Interest on Bank loan Rs. 6,000
b)         Provide interest on capital @ 10% per annum.
c)          Depreciation on Plant and Machinery by 10% per annum.
d)         Bad debts amounted to Rs. 10,000 and makes a provision for bad debt @ 10% on Sundry debtors.
e)         Closing stock amounted to Rs. 1,20,000.
f)          Net profit for the year amounted to Rs. 1,16,000 after considering all the above adjustments.          8
7. For mutual accommodation of Jaggu and Makkhu, the former draws on the latter a bill on 15th June, 2017 for three months after date for Rs. 6,00,000 which Jaggu discounts on 18th June at 10% per annum and hands for half the proceeds to Makkhu. On the same day and for a similar purpose Makkhu draws on Jaggu for Rs. 9,00,000 for three months after date which discounts on 18th June at 10% per annum and hands over half the proceeds to Jaggu. On 18th September Makkhu becomes insolvent and pays a first and final dividend of 75 paise in rupee to his creditors on 15th December, 2017. Prepare Jaggu’s Account in Makkhu’s books and Makkhu’s Account in Jaggu’s books.      8
SECTION – B
8. Choose the correct answer from the given four alternatives:                                 1x12=12
1)         The works cost plus administration expenses represents
a)      Total cost.
b)      Cost of production.
c)       Cost of sales.
d)      Factory cost.
2)         Prime cost may be correctly terms as
a)      The sum of direct material and labour cost with all other cost exclude.
b)      The total of all cost items which can be directly charged to production units.
c)       The total costs incurred in producing a finished unit.
d)      The sum of the large costs there in a product cost.
3)         The main purpose of cost accounting is to
a)      Minimize cost.
b)      Help in valuation of inventory.
c)       Provide information to management for decision making.
d)      Aid in the fixation of selling price.
4)         Opportunity cost is the best example of
a)      Sunk cost.
b)      Standard cost.
c)       Relevant cost.
d)      Irrelevant cost.
5)         Which method of costing is used for determination of costs for printing industry?
a)      Process costing.
b)      Operating costing.
c)       Batch costing.
d)      Job costing.
6)         Variable costs are fixed
a)      For a period.
b)      Per unit.
c)       Depends upon the entity.
d)      For a particular process of production.
7)            Prime cost plus factory overheads is known as
a)      Marginal Costing.
b)      Conversion Cost.
c)       Commercial Cost.
d)      Factory Cost.
8)            Which one of the following items is excluded from cost accounts?
a)      Income tax.
b)      Interest on debenture.
c)       Cash discount.
d)      All of the above.
9)            Advertisement expenses are treated as
a)      Selling overhead.
b)      Distribution overhead.
c)       Cost of production.
d)      Direct expenses.
10)         Interest on own capital is
a)      Cash cost.
b)      Notional cost. (It is also known as imputed cost)
c)       Sunk cost.
d)      Part of prime cost.
11)         From the following information, find out purchases when raw material consumed is Rs. 26,500, closing stock Rs. 4,500 and opening stock Rs. 3,000;
a)      Rs. 26,500
b)      Rs. 25,000
c)       Rs. 28,000
d)      Rs. 34,000
12)         Bad debts are included as
a)      Direct expenses.
b)      Distribution overhead.
c)       Cost of production.
d)      Selling overhead.
Answer any one question out of the following two questions:               8x1=8
9. Mr. Anand, the Factory Manager of A. B. Enterprises furnishes the following data relating to the manufacture of a product during the month of December, 2017. Wherefrom you are required to prepare a cost sheet showing: 8
1)         The cost per unit.
2)         Profit per unit sold.
3)         Profit for December, 2017.                                                                                                                               
Particulars
Amount (Rs.)
Opening Stock
4,000
Raw Material Purchased
42,000
Closing Stock
1,000
Direct labour charges
26,500
Machine hours worked
900
Machine Hour Rate
15
Administrative overheads
20% on works cost
Selling overheads
0.60 per unit
Units produced
34,000
Units sold
32,000 at @ Rs. 5 per unit
Solution:-
Particular
Per unit
Amount
Opening Stock of Raw Material
Add:- Purchase of Raw Material
Less:- Closing Stock of Raw Material

4,000
42,000
1,000
Raw Material Consumed
Add:- Direct labour charges

45,000
26,500
Prime cost
Add:- factory overheads (900x15)

71,500
13,500
Work cost
Add:- Administrative overheads (85,000x20%)

85,000
17,000
Cost of production (for 34,000 units)
Less:- Closing Stock of  Finished Goods
3
3
1,02,000
6,000

Add:- Selling & Distribution overheads, (0.60x32000)
3
0.60
96,000
19,200
Total Cost
Add:- Profit
3.60
1.40
1,15,200
44,800
Sales
5
1,60,000
10. Classify the following expenses items in their respective groups, such as Production; Administrative; Selling and Distribution and costs excluded from Cost Accounts:                     8
Fuel and Power; Office Salaries; Foreman’s Wages; Drawing Office Expenses; Depreciation of Plant; Donations; Hospital and Dispensary Expenses of Workers; Bank Charges; Holiday and Leave pay of Workers; Market Research Expenses; Dividend Paid; Technical Director’s Fees; Wages of Idle Time; Cash Discount Allowed; Stores Expenses; and Carriage Outwards.
Solution:-
Production overheads
i.         Fuel and Power
ii.        Foreman’s Wage
iii.      Depreciation of Plant
iv.     Hospital and Dispensary Expenses of Workers
v.       Holiday and Leave pay of Workers
vi.     Technical Director’s Fees
vii.    Wages of Idle Time
Administrative overheads
i.         Office Salaries
ii.       Bank Charges
Selling & Distribution Overheads
i.         Market Research Expenses
ii.       Stores Expenses
iii.      Carriage Outwards
Costs excluded from costs
i.         Donations
ii.       Dividend Paid
iii.      Cash Discount Allowed
Job costing
i.         Printings
ii.        Foundry
iii.      Ship Building
iv.     Engineering
v.       Automobile Garbage
vi.     Repairs Shop
vii.    locomotives
Batch costing
i.         Toys
ii.       Medicines
iii.      Ready made
iv.     Garments
v.       Spare parts
vi.     Processed food
vii.    Bolts
viii.  Nuts
ix.     Cycle parts
Process costing
i.         Textiles
ii.       Chemicals
iii.      Paper
iv.     Sugar
v.       Oil
vi.     Cement
vii.    Mining
viii.  Brewery
ix.     Paints
Contract costing
i.         Fuel and Power
ii.       Construction
iii.      Engineering
***

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