Financial Accounting Solved Question Papers' 2019 | Dibrugarh University Solved Question Papers | B.Com 1st Sem CBCS Pattern

2019 (December)
Paper: C – 101 (Financial Accounting)
Full Marks: 80
Pass Marks: 32
Time: 3 hours

The figures in the margin indicate full marks for the questions

1. (a) Choose the correct answer:                             1x3=3

1)         As an information system, the accounting process serves persons of

A.         Inside the organization.

B.         Outside the organization.

C.         Both inside and outside the organization.

2)         For recognition of revenue at international level, the corresponding International Accounting Standard is

A.         IAS-18.

B.         IAS-21.

C.         IAS-24.

3)         On dissolution of a firm, cash in hand is transferred to

A.         Realization A/c.

B.         Partners’ Capital A/cs in their profit-sharing ratio.

C.         Cash A/c.

(b) Fill in the blanks:                                                      1x3=3

1)         Accounting Standards may also be termed as standardised forms of Generally Accepted Accounting Principles.

2)         Accounting Principles are guidelines to establish standards for sound accounting practices.

3)         Under debtors system, Branch A/c discloses profit or loss of the branch.

(c) Write True or False:                                              1x2=2

1)         Trial Balance is not an account.         True, It is a statement

2)         The hire-purchaser may, at any time, terminate the hire-purchase agreement after giving the owner at least 21 days notice in writing.              False, 14 Days

2. Write short notes on any four of the following:                           4x4=16

A) Straight-line method of depreciation.

Ans: Straight Line method or Fixed installments method: This method of charging depreciation is each to understand and simple to calculate. Under this method depreciation is charged on original cost of the assets on uniform basis every year. The value of the assets can be reduced to ‘O’ under this method.


(1) It is simplest to understand and easy to apply.

(2)The value of the assets can be reduced to zero under this method.


(1) Under this method, same amount of Depreciation is charged from year to year, irrespective of use of the assets.

(2)With the passage of time efficiency of assets decreases but the amount of Depreciation remains the same.

B) Indian Accounting Standard (Ind-AS) 101.

Ans: Applicability of Ind AS – 101: First time adoption of Indian Accounting Standards

The objective of this Indian Accounting Standard (Ind AS) is to ensure that an entity’s first Ind-AS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(a) Is transparent for users and comparable over all periods presented;

(b) Provides a suitable starting point for accounting in accordance with Ind ASs; and

(c) Can be generated at a cost that does not exceed the benefits.

An entity shall apply this Ind-AS in:

(a) Its first Ind-AS financial statements and

(b) Each interim financial report, if any that it presents in accordance with Ind AS 34 Interim Financial Reporting for part of the period covered by its first Ind-AS financial statements.

This Indian Accounting Standard does not apply to changes in accounting policies made by an entity that already applies Ind-ASs. Such changes are the subject of:

(a) Requirements on changes in accounting policies in Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors; and

(b) Specific transitional requirements in other Ind-ASs.

Mandatory Application of Ind AS:

a) Ind AS is applicable to all listed or unlisted company if its net worth is greater than or equal to Rs. 250 crore.

b) Ind AS is applicable to all Banks, NBFCs and Insurance companies is more than or equal to INR Rs. 250 crore.

If Ind AS become applicable to any company, then Ind AS shall automatically be made applicable to all the subsidiaries, holding companies, associated companies, and joint ventures of that company, irrespective of individual qualification of such companies.

C) Financial lease.

Ans: Financial Lease: Financial lease is a long-term lease usually coinciding with the economic life of the asset and is non-cancellable. It operates as a long-term debt financing and is usually full-payout as in contrast to operating lease, it is usually a single lease repaying the cost of the asset. They play a major role in financing of building of buildings and equipments to industries. Features of Financial Lease:

1.      It is a long term concept.

2.      Ownership of the assets transferred to the lessee.

3.      In financial lease, the lessee is given an option to purchase the asset.

D) Independent branches.

Ans: Independent branches are those which act independently within the broad policies framed by the Head office in conducting their day-to-day activities.  When the branch is of large size and there are too many transactions, they prepare the accounts independently. They purchase and sell goods independently and also sell the goods which are sent by H.O. As the branches are owned by H.O., the profit or loss so made by the branch is transferred to the H.O account. These branches prepare a Trial Balance, Trading and Profit and Loss Account and a Balance Sheet at the end of the year. As such, they maintain a Head Office Account and on contrary H.O. maintain a Branch Account. All sorts of transactions, e.g., remittance of cash, transfer of goods etc. are to be passed through these accounts.

The main features of independent branches.

a.       They need not depend on the Head office for their requirements of supplies of goods. They can make purchases themselves. Of course, they can also obtain supplies of goods from the head office as and when they want.

b.      They can sell goods only for cash and credit at any price they consider profitable.

c.       They need not remit the money received by them from cash sales and debtors to the Head office periodically. They can retain the funds and meet their day-to-day expenses out of those funds. Finally, if they have surplus cash in their hands, they can remit the same to the Head office.

E) Garner vs. Murray decision.

Ans: Rules of Garner vs. Murray: If a partner’s capital account shows a debit balance on the dissolution of the firm, he is required to bring cash in the firm to settle his account. But if such partner is unable to satisfy his debt to the firm due to his insolvency, then his deficiency is to be borne by the solvent partners in accordance with the decision in Garner vs. Murray. According to the rules of Garner vs. Murray, in the absence of any agreement to the contrary, the deficiency of the insolvent partner’s capital account must be borne by other solvent partners in proportion to their capital which stood before the dissolution of the firm. The effect of this ruling is to make a distinction between an ordinary loss caused due to business operation and loss on account of insolvency of a partner.

Some important judgement in Garner vs. Murray case by Lord Justice Joyce was stated below:

a)      Loss on realisation considered being ordinary loss and therefore to be shared by all the partners according to their profit sharing ratio.

b)      Solvent partners to bring cash equal to their share of loss on realisation

c)       Loss on account of deficiency of insolvent partner considered being capital loss; therefore   to be shared by solvent partners according to their last agreed capital.

3. (a) What are Accounting Principles? Distinguish between Accounting Principles and Accounting Standards. 2+4=6

Ans: Accounting Principles: The term principle refers to fundamental belief or a general truth which one established does not change. AICPA defined the term principle as a guide of to action, a settled ground or basis of conduct or practice. Accounting principles may be defined as those rules of conduct or procedure which are adopted by the accountants universally while recording the accounting transaction. If accounting has to serve its purpose of communicating the results of a business to the outside world, it should be based on certain uniform and scientifically laid down principles which are known as accounting principles. Accounting principles can be classified into two categories: accounting concepts and accounting conventions.

Difference between Accounting Standard and Accounting Principles

Accounting Standard is the set of rules that should be applied for measurement, valuation, presentation and disclosure of a subject matter. For example, measurement of deferred tax, valuation of assets, intangibles and financial instruments etc. and presentation and disclosure of such measurements and valuations.

Accounting Principles however, are the fundamental principles providing a framework within which accounting should be done. These principles also govern the formulation of Accounting Standards. For example, Accrual accounting, Substance over legal form, Prudence etc.


Accounting Standard

Accounting Principles


Accounting standards are fixed in nature.

Accounting principles are flexible in nature.

2. Compulsory

Following of accounting standards is compulsory for every person.

Following of accounting principles is not compulsory.

3. Responsibility

Accounting standards creates more responsibility in accountant and auditors.

Accounting principles are less responsible.

4. Uniformity

Accounting standard are uniform rules.

Accounting principles are various.


(b) Arrange the following balances taken from the Ledger of Saurav Srivastav into a Trial Balance on 31st March, 2019:




Trade Debtors


Stock (01.04.2018)

Bills Payable


Trade Expenses



Accumulated Depreciation



Trade Creditors

Cost of Goods sold

Advance from a Customer






















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4. (a) What is meant by business income? What are its features? Discuss the procedure for measurement of business income.                                                               2+3+5=10

Ans: Measuring of Business Income

Business is an economic activity, which is related with continuous and regular production and distribution of goods and services with a view to earn profit. In accounting, the term income refers to business income.  Business income can be defined as excess of revenue over expenses. Revenue means inflow of assets from business operations which result in an increase in the owner’s equity. The terms ‘expense’ refers to the amount incurred in the process of earning revenue. If revenue exceeds expenses, it would represent income or profit. If expenses exceed revenue, it would represent loss. Thus, Net Income (Profit/Loss) = Total Revenue-Total Expenses.

Features of Business income

Following are the main features of business income:

a)      Business income is based on the transactions (both external and internal) actually entered into the business enterprise.

b)      Business income always pertains to a given accounting period.

c)       Business income is based on the recognition and measurement of revenues.

d)      Business income requires the measurement of all business expenses in terms of historical cost.

e)      Business income is based on the principle of matching realized revenues of the period with corresponding relevant costs.

f)       Business income is the excess of the net worth of the business enterprise at the end of accounting period.

Procedure for Measurement of Business income

a)      First of all, accounting year i.e., period of 12 months for which income is to be calculated selected.

b)      After selection of the accounting year, revenue pertaining to it is identified. Realisation concept is followed in the identification of revenue.

c)       Then, expenses incurred to earn the revenue are identified. Only expenses relating to the relevant accounting year is to be taken into consideration.

d)      Excess of revenues over expenses represents profits and excess of expenses over revenues represent loss.


(b) (1) Write the salient features of Accounting Standard (AS)-9 with respect to revenue recognition.                  4

Ans: Accounting Standard – 9: Revenue Recognition: Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends. In other words, revenue is charge made to customers/clients for goods supplied and services rendered. Accounting Standard 9 deals with the bases for recognition of revenue in the Statement of Profit and Loss of an enterprise but this standard does not deal with the following aspects of revenue recognition to which special considerations apply:

(i) Revenue arising from construction contracts;

(ii) Revenue arising from hire-purchase, lease agreements;

(iii) Revenue arising from government grants and other similar subsidies;

(iv) Revenue of insurance companies arising from insurance contracts.

Examples of items not included within the definition of “revenue” for the purpose of this Standard are:

(i) Appreciation in the value of fixed assets;

(ii) Unrealised holding gains resulting from the change in value of current assets

(iii) Realised or unrealised gains resulting from changes in foreign exchange rates.

(iv) Realised gains resulting from the discharge of an obligation at less than its carrying amount;

(v) Unrealised gains resulting from the restatement of the carrying amount of an obligation.

Timing of Revenue Recognition: Revenue from sale or rendering of services should be recognized at the time of sale or rendering of services. But in case of uncertainty of collection of the revenue, the revenue recognition is postponed and in such cases revenue should be recognized only when it becomes reasonably certain that ultimate collection will be made.

(2) X Ltd. bought machinery for Rs. 30,000 on 1st April, 2015. One more machinery was purchased on 1st October, 2015 costing Rs. 20,000. On 1st July, 2016, new machinery for Rs. 10,000 was added to the existing machinery. On 1st January, 2017, one-third of the machinery which was installed on 1st April, 2015 was sold for Rs. 3,000. The rate of depreciation was 10% p.a. on Diminishing Balance Method. Show the Machinery A/c in the books of X Ltd. The accounting period ends on 31st December each year.            6

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5. Following is the Trial Balance of a trader Mr. Prakash as on 31st March, 2019:


Dr. (Rs.)


Stock on 01.04.2018


Return Outwards


Carriage Outwards

Rent and Rates

Return Inwards




Capital A/c


Cash at Bank


Plant and Machinery


Provision for Doubtful Debts

Discount Allowed

Discount Received









































Prepare Trading and Profit & Loss A/c for the year ended 31st March, 2019 and Balance Sheet as on that date after taking into account the following adjustments:                               3+3+4=10

1)         Stock on 31st March, 2019 was valued at Rs. 34,220.

2)         Allow interest on capital @ 10% p.a.

3)         Provision for Bad Debts is to be kept at Rs. 1,000.

4)         Depreciate Plant and Machinery @ 10% p.a. and Furniture @ 5% p.a.

5)         The proprietor Mr. Prakash has taken goods worth Rs. 5,000 for personal use.

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6. (a) What is ‘hire-purchase system’? What are its features? Should depreciation be charged on fixed assets purchased on hire-purchase system?           3+5+2=10

Ans: Hire Purchase - Meaning:

A trader could sell goods either for cash or for credit. For goods sold on credit, the payments may be made by the buyer in lump sum on a future date, or in installments spread over for a specified period of time. When goods are sold on credit, for which payment is made by the buyer in installments over a period of time, it is called purchase system or installment system.

Hire Purchase System defers to the system wherein, the sellers of goods transfer the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in installments. If the buyer pays all the installments, the ownership of the goods will be transferred, on payment of the last installment. However, if the buyer does not pay for any installment, the goods will be repossessed by the seller and the money paid on earlier installments will be treated as hire charges for using the goods. So, under this system, the transaction may result in purchasing of goods by the buyer or in hiring the goods. Hence, the system is called Hire Purchase System.

Characteristics of Hire-Purchase System

The characteristics of hire-purchase system are as under

a)      Hire-purchase is a system of credit sale.

b)      The price under hire-purchase system is paid in installments.

c)       The goods are delivered in the possession of the purchaser at the time of commencement of the agreement.

d)      Hire vendor continues to be the owner of the goods till the payment of last installment.

e)      The hire-purchaser has a right to use the goods as a bailer.

f)       The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer.

g)      The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement.

h)      If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount.

Depreciation in case of hire purchase system:

There are two parties in a hire purchase agreement – one is vendor and another is vendee. Sale of goods by vendor is an operating activity but purchase of fixed assets by vendee is an investing activity. Fixed assets bought by vendee are used in the business. So, it becomes necessary to charge depreciation on fixed assets bought under hire purchase system in the books of the vendee but depreciation is charged in the books of vendor.


(b) Blue Bird Co. purchased two machines of Rs. 5,250 each from Kapili Machine Co. on 1st April, 2016 on hire-purchase system. As per agreement, payment to be made Rs. 3,000 down and the balance in three equal annual installments along with interest @ 5% p.a. Blue Bird Co. writes off depreciation @ 10% p.a. on Written-down value method.

After having paid the first instalment, the buyer could not pay the second instalment and the seller took possession of one machine adjusting the value of other against the amount due taking the machine @ 20% depreciation on Diminishing Balance Method. Seller, after spending Rs. 100 on repairs, sold it away for Rs. 4,000.

Show the Ledger A/cs in the books of both the parties. Books are closed on 31st March each year.           3+3+3+1=10

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7. (a) Arun of Mumbai has a Branch at Guwahati. Goods are invoiced to the Branch at cost plus 25%. Branch is instructed to deposit cash everyday in the Head Office Account with the bank. All expenses are paid through cheque by the Head Office except petty cash expenses which are paid by the Branch out of all cash receipts. Prepare Branch A/c in the books of Head Office taking into account the following information:                  10


On 01.04.2018 (Rs.)

On 31.03.2019 (Rs.)

Stock at Invoice Price









Transactions during the year were:

Cash sales

Credit sales

Goods invoiced to Branch

Expenses paid by Head Office

Petty expenses paid by Branch

Furniture paid by Branch, on 01.10.2018 (out of cash collection)

Depreciation is provided on the Branch furniture @ 10% p.a. on Diminishing Balance Method

Rs. 4,01,300

Rs. 3,72,100

Rs. 6,28,000

Rs. 1,32,000

Rs. 10,450

Rs. 2,500

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(b) (1) What are the objectives of keeping Branch Accounts?                     4

Ans: Objectives of Branch Accounting

The following are the main objects of maintaining branch accounts:

a.       Profit or loss of each branch can be found out

b.      They help in controlling branches

c.       Actual financial position of the business can be found out on the basis of head office and branch accounting periods.

d.      Branch requirements of goods and cash can be estimated.

e.      Suggestions for increasing the efficiency of the branch can be sent on the basis of branch accounts.

f.        They help in complying with the requirements of law because acc to companies act 2013.

(2) With respect to Branch Accounts, how will you deal with the following matters?                      2x3=6

a)         Depreciation of Branch Fixed Assets.

b)         Goods-in-Transit.

c)          Remittance-in-Transit.

Ans: Treatment of some specific item in branch accounts:

(a) Depreciation on Fixed Assets: Often, the accounts of fixed assets of a branch are maintained in the head office books.  In such a case,


Entry for depreciation in H.O. Books:

Branch A/c                             Dr                        

     To Branch Fixed Assets A/c






The branch passes the following entry in its own books for Depreciation:

Depreciation A/c                         Dr                    

     To Head Office A/c





Any purchase of fixed assets by the branch, in such a case, should be debited to head office account and credited to bank (or Supplier’s A/c) in the branch books.  Similarly, in head office books the same should be debited to branch fixed assets account and credited to Branch A/c.

 (ii) Goods in transit: When goods are dispatched by the head office to branch and the branch does not receive it even upto the end of the year, it is known as goods in transit. In the same way when goods are returned by branch to head office and the head office does not receive it upto the end of the year it is also known as goods in transit.

It is quite understandable that a difference should arise in the balances of two accounts due to these transactions. Therefore, to reconcile, the following journal entry will be passed in head office books in both the circumstances:

Goods in Transit a/c Dr.

To Branch a/c

(Goods in transit taken into books)

In the Balance Sheet of Head office both the above items will be shown as an asset.

(iii) Cash in transit: If the cash sent by branch to H.O. or the cash sent by H.O. to branch has not been received by the other party upto the end of the year, it is known as cash in transit. There is a difference in the balances of two accounts on account of this transaction also. To reconcile the two balances, the following journal entry is passed in H.O. books at the end of the year:

Cash in Transit a/c Dr.

To Branch a/c

(Cash in transit taken into books)

At the beginning of the next year, reverse entry will be passed.

8. (a) (1) What do you mean by dissolution of partnership firm? Discuss the reasons that lead to dissolution of firm. 2+4=6

Ans: Meaning of Dissolution of a firm: Dissolution of a firm means discontinuation of the firm’s business and termination of relationship between the partners. According to Sec. 39 of Indian Partnership Act 1932, “Dissolution of firm means dissolution of partnership between all the partners in the firm."

Therefore when a firm is dissolved, assets of the firm are disposed off, liabilities are paid off and the accounts of all the partners are also settled.

Modes of Dissolution of a Partnership Firm:

The dissolution of partnership between all the partners of a firm is called the "dissolution of the firm". A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. The Indian Partnership Act, 1932 provides that a partnership firm may be dissolved in any of the following modes:

(i) Dissolution by agreement: A firm may be dissolved with the consent of all the partners. A partnership is set up by an agreement; similarly, it can be dissolved by an agreement.

(ii) Dissolution by Notice of Partnership at Will: Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

(iii) Dissolution on the Happening of Certain Contingencies: Subject to contract between the partners, a firm is dissolved on the happening of certain contingencies:

a)      On expiry of the term for which the firm was constituted.

b)      If firm is constituted for a particular venture and that venture is completed.

c)       On the death of a partner; and

d)      By the adjudication of a partner as an insolvent.

(iv) Compulsory Dissolution: A firm is dissolved compulsorily:

(a) If all the partners or all the partners except one become insolvent.

(b) If the business of the firm is unlawful.

(v) Dissolution by Court: A court may order a partnership firm to be dissolved in the following cases:

a)      When a partner becomes of unsound mind.

b)      When a partner becomes permanently incapable of performing his/her duties as a partner.

c)       When partner deliberately and consistently commits breach of partnership agreement.

d)      When a partner’s conduct is likely to adversely affect the business of the firm.

e)      When a partner transfers his/her interest in the firm to a third party;

f)       When the court considers it just and equitable to dissolve the firm.

(2) Distinguish between Revaluation A/c and Realization A/c.                   4

Ans: Difference between Revaluation Account and Realisation Account:            


Revaluation Account

Realisation Account


Revaluation account is prepared in order to work out the profit or loss on revaluation of assets and liabilities.

Realisation account is prepared to work out the profit or loss on realisation of assets and payment to liabilities.


Revaluation account is prepared at the time of admission, retirement or death of a partner.

Realisation account is prepared at the time of dissolution of a partnership firm.

Closing of accounts

After preparing the revaluation account the firm’s business gets going with the same set of books.

After preparation of Realisation account, all the accounts of the firm are closed.

Remaining balance

Balance of this account is transferred to the capital account of old partners.

Balance of this account is transferred to the capital account of all partners.

Accounting entries

Entries are based on the difference between the book value and the revalued amount of assets and liabilities.

Entries are based on the book value of assets and liabilities.


(b) Ajay, Bijay and Sanjay were partners sharing profits and losses as 4: 3:3. The firm was dissolved on 31st March, 2019. The Balance Sheet of the firm on that is given here under. As the process of realization seemed dilatory, it was decided to distribute cash as and when realized and to appoint Sanjay to look after the distribution at a remuneration of 1% of the value of assets realized (other than Cash at Bank) and 10% of the amount distributed to the partners:





Capital Accounts:

Ajay                              15,000

Bijay                               7,500

Sanjay                          15,000

Sundry Creditors






Cash at Bank

Sundry Assets







The realizations were:



First Realization

Second Realization

Third Realization

Fourth Realization





Prepare a statement showing distribution of cash.                           10

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