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

Paper: COM – HC/RC - 1026
Full Marks: 70
Time: 3 hours

The figures in the margin indicate full marks for the questions

1. (a) Select appropriate answer from the different alternatives:                                             1x5=5

1)         Normally method of valuing of asset should not be changed. This principle is known as the principle of

a)         Business entity concept.

b)         Dual concept.

c)          Full disclosure.

d)         Consistency.

2)         In case of hire purchase transactions although legally the hire purchaser does not become the owner of the asset till the payment of last installment he is allowed to record the asset at full cash price in his books of accounts even on the date of acquisition. This principle of accounting is known as:

a)         Full disclosure concept.

b)         Business entity concept.

c)          Dual concept.

d)         Substance over legal form.

3)         The total amount payable by the hire purchaser as per hire purchase agreement in order to complete the transaction is known as

a)         Hire purchase price.

b)         Face value.

c)          Cash price.

d)         Higher vendor cost.

4)         Debtor system of accounting procedure of dependent branch is also known as

a)         Stock A/c.

b)         Final System.

c)          Stock and Debtor method.

d)         Synthetic System.

5)         Purchase of Goods + Opening Stock + Direct Expenses – Closing Stock =

a)         Gross Profit.

b)         Total Indirect Expenses.

c)          Cost of Goods sold.

d)         Invoiced Price.

(b) State whether the following statements are true or false:                    1x5=5

1)         Accounting Standard AS-2 deals with disclosure of significant accounting policies followed in preparing and presenting financial statements.               False, valuation of inventories

2)         Under installment purchase system, the seller treats the transaction as a cash sale.               False, credit sale

3)         In the absence of any provision in the partnership deed, profit and loss are shared by partners equally. True

4)         For creating a company we use Alt+F2.        False, to change period of a report

5)         The valuation of inventory affects only the income statement.        False, Both income and position statement

2. Answer the following questions:                                        2x5=10

a) One of the methods of branch accounting a debtor system. Why is it so called?

Ans: In case of a dependent branch, head office prepares branch account to find the profit or loss of the branch. This account starts with opening balance of assets and debited with all the goods and cash sent to branch and credited with all the realisation from branch and ends with closing balance of assets which is similar to debtors account prepared by a seller. That’s why this method is called debtor system.

b) Mention two features of accounting principles.

Ans: Features of Accounting Principles

(i)      Man made: Accounting principles are manmade. They are not tested in a laboratory.

(ii)    Objectivity: It means accounting principles must be based on facts and free from personal bias or judgment of the individuals who prepares the statements.

c) Define International Financial Reporting Standard.

Ans: IFRS is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are generally principles-based standards and seek to avoid a rule-book mentality. Application of IFRS requires exercise of judgment by the preparer and the auditor in applying principles of accounting on the basis of the economic substance of transactions. IFRS are issued by the International Accounting Standards Board (IASB).

d) Mention two objectives of income measurement.

Ans: Objectives of Measurement of Business Income

a)      To measure of Managerial Efficiency.

b)      To measure the Creditworthiness or short term liquidity.

c)       To provide base for calculation of tax.

e) What do you mean by marshalling of Balance Sheet?

Ans: Marshalling means presenting items in a logical order i.e. assets and liabilities in the statement of financial position are listed in particular order. There are two methods of marshalling:

a) Marshalling by liquidity: According to this method the assets and liabilities are listed in descending order on the basis of liquidity i.e. the asset which is the most liquid will be listed first and the asset which is least liquid will be listed last.

b) Marshalling by permanence: This method is completely opposite to the liquidity method. According to this order of listing, assets and liabilities are listed in descending order on the basis of their permanence i.e. the asset with the longest useful life (least liquid) will be listed first and the asset with the least or shortest (most liquid) useful life will be listed last.

3. Answer the following questions:                        5x4=20

(a) Describe the functions of Accounting Standard Board.

Ans: The Institute of Chartered Accountants of India (ICAI), after recognising the need to harmonies the diverse accounting policies and practices, constituted an Accounting Standards Board (ASB) on April 21, 1977. The main function of ASB is to formulate accounting standards so that such standards may be mandated by the Council of ICAI. While formulating the standards in India, ASB will take into consideration the applicable laws, customs, usages and business environment.

Objectives and function of Accounting Standard Board:

1. Primary objectives of accounting standard board are:

a)      To suggest areas in which accounting standard is needed.

b)      To formulate accounting standards which are to be followed while preparing financial statements.

c)       To improve the reliability of financial statements.

d)      To review the existing accounting standards at regular intervals and revise the same if the current business environment so demands.

e)      To ease inter-firm and intra-firm comparison.

f)       To harmonise different accounting policies which are used in preparation of financial reports.

2. The main function of accounting standard board is to formulate accounting standards so that such standards may be mandated by the Council of ICAI. While formulating the standards in India, ASB will take into consideration the applicable laws, customs, usages and business environment.

3. Accounting standard board also gives due importance to IASs/IFRSs issued by the International accounting standard board and tries to integrate them with Indian accounting standards.

4. Another function of accounting standard board is to promote the accounting standard and induce the concerned parties to adopt them in preparation and presentation of financial statements.

5. ASB also promotes international accounting standards in the country with a view to facilitate global harmonization of accounting standards.


Give a brief account of the structure of Generally Accepted Accounting Principles.

Ans: Accounting Concepts, Accounting Conventions and Accounting assumptions these three jointly forms the structure of Generally Accepted Accounting Principles (GAAP).

The term ‘accounting concept’ is used to denote accounting postulates, i.e., basic assumptions or conditions upon which the accounting structure is based. The following are the common accounting concepts adopted by many business concerns.

i) Business Entity Concept

ii) Money Measurement Concept

iii) Going Concern Concept

iv) Dual Aspect Concept

V) Periodicity Concept

vi) Historical Cost Concept

vii) Matching Concept

viii) Realisation Concept

ix) Accrual Concept.

Accounting conventions are common practices, which are followed in recording and presenting accounting information of a business. They are followed like customs in a society. The following conventions are to be followed to have a clear and meaningful information and data in accounting:

i) Convention of Consistency

ii) Convention of Full Disclosure

iii) Convention of Conservatism or Prudence

iv) Convention of Materiality.

Fundamental accounting assumptions: AS-1 highlights three important practical rules. Certain fundamental accounting assumptions underlie the preparation and presentation of financial statements. They are usually not specifically stated because their acceptance and use are assumed. Disclosure is necessary if they are not followed. The following have been generally accepted as fundamental accounting assumptions:

i)        Going Concern Concept

ii)       Accrual Concept

iii)     Consistency Concept.

(b) State the advantages of using computers in accounting.

Ans: Advantages of Computerised Accounting System

Computerised accounting system offers various advantages over manual accounting which are stated below:

1)      Speed: The most important advantage of using the computer is the speed with which we can get the work of accounting done. Computer can process a large number of transactions in seconds.

2)      Accuracy: One can expect accurate results with valid data and instructions. Computers do not commit errors.

3)      Versatility: Computers are not only capable of handling complex arithmetical problems, but can perform number of jobs equally well. It can be used to carry out multiple jobs at a time.

4)      Storage capability: A business needs to store different types of data for future reference. A computer can store and recall any information regarding debtors, creditors, assets, liabilities, expenses, incomes, working capital etc. as and when required and can be retained as long as desired by the user.

5)      Reduction of lengthy cycle: In manual accounting system, a transaction has to pass through four stages i.e. journal, ledger, trial balance and final accounts. This process is very lengthy which consumes lot of time also. In computerized accounting system, a transaction has to be recorded once through data entry screen and the computer does the rest of the processing of the transaction automatically.


Distinguish between manual accounting and computerized accounting.

Ans: Difference between Manual Accounting System and Computerized Accounting

a)      Recording of data: The recording of financial transactions, in manual accounting system is through books of original entries while the data content of such transactions is stored in a well-designed accounting database in computerised accounting system.

b)      Classification and processing of data: In a manual accounting system, transactions recorded in the books of original entry are further classified by posting into ledger accounting. This results in transactions data duplicity. In computerized account, no such data duplication is made to cause classification of transactions.

c)       Summarizing and updating of data: The transactions are summarized to produce trial balance in manual accounting system by ascertaining the balances of various accounts. The generation of ledger accounts is not a necessary condition for producing trial balance in a computerized accounting system because it is done automatically.

d)      Adjusting entries. In a manual accounting system, entries are made to the principle of cost matching revenue. These entries are passed to match the expenses of the accounting period with the revenues generated by them. However, in computerized accounting, journal vouchers are prepared and stored to follow the principle of cost matching revenue, but there is nothing like passing adjusting entries for errors and rectification, except for rectifying an error of principle by having passed a wrong voucher.

e)      Cost of reporting: Since with a manual system, the cost of preparing reports other than the basic financial statements is high. On the other hand, the cost of preparing specialized management reports in computerized systems is usually quite law.

(c) Write a note on the accounting treatment of Interest Suspense Account in the books of the buyers.

Ans: Interest suspense method: Under this method asset is debited with cash price and difference between hire purchase price and cash price is debited to interest suspense account and corresponding credit is given to the vendor. Interest included in each installment is credited to interest suspense account by giving debit to interest account. In balance sheet, asset will be shown at cash price less depreciation charged and net balance of hire vendor is shown as liability after deducting interest suspense balance. The following journal entries will be passed in the books of both the parties under this method:




Interest suspense

At the time of asset purchased.



When the asset is purchased

Asset a/c Dr

Interest suspense a/c Dr

  To vendor a/c


When the down payment is made

Vendors a/c Dr

  To bank a/c

 At the end of every year.



When the installment interest becomes due

Interest a/c Dr

  To interest suspense a/c


When the installment is paid

Vendors a/c Dr

  To bank a/c


When the depreciation is charged

Depreciation a/c Dr

  To asset a/c


When the depreciation and interest is transferred to p/l a/c

Profit / loss a/c Dr

  To interest a/c 

  To depreciation a/c


Sl. No.


Interest suspense Method

          At the time of sale of assets.



When the asset is sold

 Purchaser a/c Dr

  To sales a/c

  To interest suspense a/c


When the down payment is received 

Bank a/c Dr

  To purchaser a/c    

          At the end of every year.



When the installment interest becomes due

interest suspense a/c Dr

  To Interest a/c


When the installment is received

 Bank a/c Dr

  To purchaser a/c 


When the interest is transferred to p/l a/c

Interest a/c  Dr

  To Profit / loss a/c   


On 1st April, 2016, Mr. A purchased a machine on hire purchase system and paid Rs. 10,000 as down payment and agrees to pay the balance in four annual installment of Rs. 14,000, Rs. 13,000, Rs. 12,000 and Rs. 11,000 payable on 31st March each year. The vendor charged interest @ 10% p.a. Mr. A provides depreciation @ 10% p.a. on reducing balance method. Ascertain the cash price of the machine.

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(d) What is Trading A/c? Write three objectives of preparing Trading A/c.

Ans: Trading account is one of the financial statements prepared by the company to show the result of buying and selling of goods and services during an accounting period. Trading account is prepared to ascertain the gross profit or gross loss.

Objectives or Need for Trading Account: The trading account may be prepared with the following objectives:

1)      To ascertain gross profit or gross loss.

2)      To know the direct expenses.

3)      To make comparison of stock.

4)      To fix up selling price of goods.

5)      To know the limit of indirect expenses.


X, Y and Z are partners sharing profits and losses in the ratio of 3: 2: 1. After preparing of the final account, it was found that interest on drawings @ 5% p.a. had not been taken into consideration. The drawings of the partners were X – Rs. 15,000; Y – Rs. 12,600 and Z – Rs. 12,000. Calculate the total interest on drawings and pass journal entry.

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4. What is meant by Differed Revenue Expenditure? Explain the basic principle that is taken into consideration in allocating expenditure as capital and revenue with examples.                                  3+7=10

Ans: Deferred Revenue Expenditure: Expenditures which are of revenue in nature and incurred during one accounting period but its benefits are expected to be derived over a number of years, such expenditures are called deferred revenue expenditure. Such expenditure is written off to income and expenditure account over the period of benefits realised from such expenditure. Deferred expenditure to the extent not written is shown as an asset in balance sheet.

Examples: Advertising suspense, Preliminary expenses, Loss on issue of debentures, Cost of issue of shares and debentures.

Basic principles taken into consideration while allocating expenditure as capital and revenue:

Capital Expenditure: The transactions of capital expenditure give benefits for more than one accounting period, such as acquisition and improvement of assets, acquisition of special rights, increasing of earning capacity, and restoration of operating efficiency. It is non-recurring in nature. Therefore, they are shown on the assets side of the Balance Sheet.

Rules for Determining Capital Expenditure

Ø  Expenditure incurred to acquire long term assets (at least more than one accounting period).

Ø  Such Long term assets must be uses in business to earn profits and not meant for resale.

Ø  Expenditure incurred to keep the assets in working condition.

Ø  Expenditure is incurred to increase earning capacity of a business.

Ø  Preliminary expenses incurred before the commencement of business is considered capital expenditure.

Some examples of capital expenditure: (i) Purchase of land, building, machinery or furniture; (ii) Cost of leasehold land and building; (iii) Cost of purchased goodwill; (iv) Preliminary expenditures; (v) Cost of additions or extensions to existing assets; (vi) Cost of overhauling second-hand machines; (vii) Expenditure on putting an asset into working condition; and (viii) Cost incurred for increasing the earning capacity of a business.

Revenue Expenditure: It is incurred for generating revenue in the current accounting period and its benefit expires with such period. It helps to maintain the normal working condition of a business. It is charged as expenses in Trading / Profit & Loss Account on debit side.

Rules for Determining Revenue Expenditure

Any expenditure which cannot be recognised as capital expenditure can be termed as revenue expenditure. Revenue expenditure temporarily influences only the profit earning capacity of the business. An expenditure is recognised as revenue when it is incurred for the following purposes:

Ø  Expenditure for day-to-day conduct of the business.

Ø  Expenditure for the benefits of less than one year.

Ø  Expenditure on consumable items, on goods and services for resale.

Ø  Expenditures incurred for maintaining fixed assets in working order. For example, repairs, renewals and depreciation.

Some examples of Revenue Expenditure: (i) Salaries and wages paid to the employees; (ii) Rent and rates for the factory or office premises; (iii) Depreciation on plant and machinery; (iv) Consumable stores; (v) Inventory of raw materials, work-in-progress and finished goods; (vi) Insurance premium; (vii) Taxes and legal expenses; and (viii) Miscellaneous expenses. The accounting treatment of capital and revenue expenditure is as under:

Ø  Revenue expenditures – Debited to Profit and Loss Account.

Ø  Capital Expenditures – Shown as assets in the Balance Sheet.


Define Accounting Standard. Explain the procedure of setting Accounting Standards in India.                   3+7=10


Accounting Standards are the policy documents or written statements issued, from time to time, by an apex expert accounting body in relation to various aspects of measurement, treatment and disclosure of accounting transactions for ensuring uniformity in accounting practices and reporting. These standards are prepared by Accounting Standard Board (ASB). Accounting Standards are formulated with a view to harmonies different accounting policies and practices in use in a country.

Procedure adopted in formulation of Accounting Standards:

The Institute of Chartered Accountants of India (ICAI), recognising the need to harmonies the diverse accounting policies and practices, constituted an Accounting Standards Board (ASB) on April 21, 1977. The main function of ASB is to formulate accounting standards so that such standards may be mandated by the Council of ICAI. While formulating the standards in India, ASB will take into consideration the applicable laws, customs, usages and business environment.

Following procedure will be adopted for formulating Accounting Standards:

a.      Identification of the broad areas by the ASB for formulating the Accounting Standards.

b.      Constitution of the study groups by the ASB for preparing the preliminary drafts of the proposed Accounting Standards.

c.       Consideration of the preliminary draft prepared by the study group by the ASB and revision, if any, of the draft on the basis of deliberations at the ASB.

d.      Circulation of the draft, so revised, among the Council members of the ICAI and 12 specified outside bodies such as Standing Conference of Public Enterprises (SCOPE), Indian Banks’ Association, Confederation of Indian Industry (CII), Securities and Exchange Board of India (SEBI), Comptroller and Auditor General of India (C& AG), and Department of Company Affairs, for comments.

e.       Meeting with the representatives of specified outside bodies to ascertain their views on the draft of the proposed Accounting Standard.

f.        Finalisation of the Exposure Draft of the proposed Accounting Standard on the basis of comments received and discussion with the representatives of specified outside bodies.

g.      Issuance of the Exposure Draft inviting public comments.

h.      Consideration of the comments received on the Exposure Draft and finalisation of the draft Accounting Standard by the ASB for submission to the Council of the ICAI for its consideration and approval for issuance.

i.         Consideration of the draft Accounting Standard by the Council of the Institute, and if found necessary, modification of the draft in consultation with the ASB.

j.        The Accounting Standard, so finalised, is issued under the authority of the Council.

5. X Co. of Delhi has a branch at Shillong. Goods are sent by the Head Office at invoice price which is at the profit of 25% on cost price. All expenses of the branch are paid by the Head Office. From the following particulars, prepare Branch A/c and Goods sent to Branch A/c in the Head Office books:                                              6+4=10



Opening Balance:

Stock at invoice price


Petty Cash

Goods sent to Branch at invoice price

Expenses made by Head Office




Remittances made to Head Office

Cash sales

Cash collected from debtors

Goods returned by branch at invoice price

Balance at the end


Petty Cash

Stock at invoice price


















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Ajoy purchased a machine on installment system from B. K. Co. on 01/01/2014. It was agreed that Rs. 15,000 was to be paid on signing the agreement and a sum of Rs. 15,000 was to be paid annually for 3 years. The cash price of the machine was Rs. 52,300 and the rate of interest was 10%, Depreciation is charged @ 20% on the straight line method. Show the Interest Suspense A/c, Interest A/c, and Ajoy A/c in the books of B. K. Co.                            3+2+5=10

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6. From the following Trial Balance of M/s Sharma Traders, prepare a Profit & Loss A/c for the year ended 31st March, 2019 and Balance Sheet as on that date.                                          3+3+4=10


Amount (Rs.)


Amount (Rs.)

Cash in Hand

Carriage Outwards

Wages and Salaries

Carriage Inward

Octroi Duty

Motor Car


Bills Receivable

Sundry Debtors

Plant & Machinery



Opening Stock

Trade Expenses


Coal and Gas


Bad Debts





















Sundry Creditors

Discount Received


Reserve for Doubtful Debts


Bills Payable


Band Overdraft


















1)      Closing Stock – Rs. 50,000.

2)      Further Bad Debts – Rs. 3,000.

3)      Depreciate Plant & Machinery and Motor Car @ 10%.

4)      Prepaid advertisement – Rs. 200

5)      Reserve for Doubtful Debts is to be maintained at 5% on Debtor.

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Rani and Jonny are partners in a firm sharing profits in the ratio 3: 2. The Trial Balance of the firm as on 31/03/2019 was as follows:


Amount (Rs.)


Amount (Rs.)





Insurance Premium on Machinery

Bad Debts

Cash in Hand


Bank Charges

Carriage Outwards

Depreciation on Furniture


















Trading A/c

Bad Debts Recovered

Sundry Receipts

Provision for Bad Debts



Rent Payable

Bills Payable

Capital A/c:


















Prepare the Profit and Loss A/c and Profit and Loss Appropriation A/c for the year ended on 31/03/2019 and a Balance Sheet as on that date after considering the following adjustments:

1)      Machinery is to be depreciated by 10%.

2)      Provision for Bad Debts is to be increased by Rs. 200.

3)      Rani was to receive salary @ Rs. 300 per month.

4)      Interest on capital is allowed @ 5% p.a.

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