Financial Accounting Solved Question Paper 2024
[Dibrugarh University BCOM 2nd SEM NEP Syllabus]
2 SEM FYUGP COM (FIN/BNI/ HRM/MKT)
COMMERCE (Core)
Paper: COMFINC2/COMBNIC2/ COMHRMC2/COMMKTC2
Full Marks: 80
Time: 2 hours
The figures in the
margin indicate full marks for the questions.
1. (a) State whether
the following statements are True or False: 1x4=4
(i) Arrears of fixed cumulative dividend is a contingent
liability.
Ans: True
(ii) Memorandum revaluation is a Real Account.
Ans: False, nominal account
(iii) Depreciation is a non-cash expense.
Ans: True
(iv) There is no difference between installment purchase and
credit sale.
Ans: False
(b) Fill in the
blanks with appropriate word(s): 1x4=4
(i) _______ is the difference between assets and outside
liabilities.
Ans: Capital
(ii) On _______ of the firm, the books of account will have
to be closed.
Ans: Dissolution
(iii) Donation received for a specific purpose is a _______
receipt.
Ans: Capital
(iv) Profit and Loss Account is also known as _______
statement.
Ans: Income
2. Write short notes on (any four): 4x4=16
(a) Grouping and marshalling of assets and liabilities.
Ans: Grouping means presenting
similar items together as one figure i.e. by combining them at one place and
presenting as a single item on the face of financial statement.
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.
(b) International Financial Reporting Standards (IFRS).
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).
The goal of IFRS is to provide a
global framework for how public companies prepare and disclose their financial
statements. IFRS provides general guidance for the preparation of financial
statements, rather than setting rules for industry-specific reporting. Having
an international standard is especially important for large companies that have
subsidiaries in different countries. Adopting a single set of world-wide
standards will simplify accounting procedures by allowing a company to use one
reporting language throughout. A single standard will also provide investors
and auditors with a comprehensive view of finances.
(c) Liability of a retiring partner.
Ans: Liability of a retiring partner:
a) A
retiring partner remains liable for all the acts of the firm upto the date of
his retirement. But if there is an agreement between the continuing partner and
third party, the retiring partner may be discharged from his liability.
b) If a
public notice is not given by the retiring partner, then he will remain liable
for all the acts of the firm after the retirement.
Adjustments
required in case of admission, retirement and death of a partner:
a) Determination of new profit-sharing
ratio and sacrifice/gaining ratio.
b) Accounting treatment of goodwill.
c) Revaluation of assets and
liabilities.
d) Distribution of past reserves and
accumulated profits or losses.
e) Calculation of interest and profits
upto the date of his retirement or death.
f) Adjustment of capital of partners.
(d) IFRS-9 Financial Instruments.
(e) Fund-based accounting.
Ans: Fund
Based Accounting: In fund based accounting separate funds are maintained for
specific activities of the organisation such as sports fund, prize fund,
building fund, etc. All items related the specific funds are recorded fund wise
and consolidation of these statements or accounts are presented in the
financial results. In order to retain the fund for specific use, such fund is
invested into separate account known as sinking fund investment account.
Principles
of Fund Based Accounting:
a) In
order to keep a record for the funds received or raised for a particular
period, a separate fund account is opened which is shown on liability side of
the balance.
b)
Investment of specific funds is shown as an asset in balance sheet.
c) Incomes
of specific funds’ investments are added and expenses from the funds are
deducted with respective funds.
3. (a) From the following Trial Balance of
Siraj and additional information, prepare Trading and Profit & Loss A/c for
the year ended 31st March, 2023 and Balance Sheet as on that date: 4+5+5=14
Trial Balance as on 31st March,
2023
|
Particulars |
Amount (Rs.) |
Particulars |
Amount (Rs.) |
|
Opening Stock Furniture Purchases Salaries Debtors Wages Rent Sales Return Bad debts
written-off Drawings Printing and
Stationery Insurance Other expenses |
50,000 20,000 1,50,000 30,000 2,00,000 20,000 15,000 10,000 7,000 24,000 8,000 12,000 12,000 |
Capital Interest earned
Sales Purchase return
Creditors Provision for
bad debts Provision for
depreciation |
1,00,000 4,000 3,21,000 5,000 1,20,000 6,000 2,000 |
|
|
5,58,000 |
|
5,58,000 |
Additional Information:
(i) Depreciate furniture by 10% on original cost.
(ii) A provision for doubtful debts is to be created to the
extent of 5% on sundry debtors.
(iii) Salaries for the month of March 2023 amounting to Rs.
3,000 were unpaid which must be provided for. However, salaries, included Rs.
2,000 paid in advance.
(iv) Insurance amounting to Rs. 2,000 is prepaid.
(v) Outstanding office expenses Rs. 8,000.
(vi) Stock used for private purposes Rs. 6,000.
Or
(b) What are adjusting entries? Why are
these necessary for preparing Final Account? Explain with examples. 4+10=14
Accounting adjustment are those
transactions of a company’s business that are recorded at the end of the
accounting period. The journal entries for such transactions are passed at the
end of the accounting period and are called as adjustment entries. These
entries are based on the Accrual Concept and the Matching Principle. Since many
transactions (like insurance or salaries) often overlap accounting years,
adjustments ensure that the financial statements are not misleading.
Need for Adjusting entries while
preparing final accounts:
1. To Ascertain True Profit or
Loss: By matching the expenses of a particular period against the revenues of
the same period, the Profit & Loss Account shows the actual performance.
2. To Show True Financial
Position: Adjustments entries ensure that assets like Closing Stock or Prepaid
Expenses or accrued income and liabilities like Outstanding Salaries are
accurately recorded in the Balance Sheet.
3. To Follow the Accrual Basis:
It ensures that income is recorded when earned and expenses are recorded when
incurred.
4. To Account for Non-Cash Items:
Items like Depreciation or Provisions for Doubtful Debts do not involve cash
movement but significantly affect profit. Adjustment entries helps in recording
such transactions.
Examples of Adjustment entries
a)
Adjustment of closing stock:
Closing
Stock A/c Dr.
To Trading A/c
b) Adjustment of prepaid expenses:
Prepaid Expenses A/c Dr.
To Respective Expenses Account
c) Adjustment of outstanding expenses:
Respective Expenses A/c Dr.
To Outstanding Expenses A/c
d) Adjustment of Accrued Income:
Accrued income A/c Dr
To Respective Income A/c
e) Provision for Depreciation:
Depreciation A/c Dr.
To Fixed Assets A/c
f) Interest on Capital Provided
for the year:
Interest on Capital A/c Dr
To Capital A/c
4. (a) The Balance Sheet of P, Q and R as
at 31st March, 2023, the date of P’s retirement, was as follows:
|
Liabilities |
Amount (Rs.) |
Assets |
Amount (Rs.) |
|
Creditors Capital A/c: P Q R |
50,000 40,000 40,000 30,000 |
Goodwill Land &
Building Plant &
Machinery Furniture Debtors Cash at bank |
15,000 40,000 28,000 27,000 24,000 26,000 |
|
|
1,60,000 |
|
1,60,000 |
The following terms have been agreed upon:
(i) The value of Land and Building should be appreciated by
Rs. 10,000.
(ii) Plant and Machinery should be reduced to Rs. 23,000.
(iii) Create provision at 5% on debtors for bad and doubtful
debts.
(iv) Create provision of Rs. 700 on creditors.
(v) The entire sum payable to P is to be bought by Q and R
in such a manner that their Capital Accounts are in the proportion to their
profit-sharing ratio which is to be equal.
(vi) The remaining partners decided not to show goodwill as
an asset.
Prepare Revaluation A/c, Capital Accounts, Bank A/c and
Balance Sheet. 4+3+3+4=14
Or
(b) What is conversion method under
single-entry system? Discuss how you would convert a set of books, which you
had been kept on the single-entry system into double-entry with perspective and
retrospective effect. 4+10=14
Ans: Conversion method: The Conversion
Method is a systematic process of transforming incomplete accounting records into
a complete set of accounts based on the principles of Double-Entry. Unlike the
"Statement of Affairs" method, which only estimates profit by
comparing capital, the conversion method reconstructs the entire ledger to
prepare a formal Trading and Profit & Loss Account and a Balance Sheet. For
this purpose, several ledgers are prepared such as Total debtors ledger, Total
Creditors ledger, bills payable and bills receivable ledger etc.
Conversion from Single Entry
System to Double Entry System:
The following Steps should be
followed if it is desired to change the system of accounting from Single entry
to double entry:
1. A statement of affairs should
be prepared at the beginning of the accounting period to determine the opening
capital of the business.
2. The Cash Book should be gone
through and entries relating to impersonal accounts should be posted to their
respective accounts as impersonal accounts are not maintained under single
entry system. This would complete the double entry of the cash book. If no cash
account is maintained, pass book should be carefully examined and all cash
transactions relating to business to be identified and with the help of it cash
book should be prepared.
3. If a Petty cash book is
maintained, the monthly analysis should be posted to the debit of the various
accounts for expenses and the total credited to Petty cash account.
4. Prepare Total Debtors account,
Total Creditors account, Bills receivable and Bills payable account, Total
Sales and Total Purchases account. This helps in finding out different missing
figure relating to these accounts.
5. Now, the personal accounts and
Cash book, which have already been kept under single entry system, should be
scrutinized in order to find out the nominal items. Such items should be posted
to their respective impersonal accounts so that the two-fold effect of such
transactions should be completed.
6. After completing the double
entry of all the transactions, a Trial balance should be prepared to test the
arithmetical accuracy of the books.
7. From the Trial balance,
Trading and Profit and Loss account and Balance sheet can be prepared after
taking into consideration the necessary adjustments like outstanding expenses
and incomes, depreciation, provision for bad debts and discounts etc.
5. (a) (i) Explain the main features of Receipts and Payments Account. 6
Ans:
Following are the main features of Receipts and Payments Account:
a)
It starts with the opening balance of cash or
bank and ends with the closing balance of cash or bank or both.
b)
It is a real account in nature.
c)
It is similar to cash book.
d)
It records only cash transactions and all
non-cash transactions are ignored.
e)
It is the summary of all cash transactions of
a particular year put under various heads.
f)
It records all cash receipts and payments of
current year irrespective of the period they relate to i.e.
previous/current/next year.
g)
It is prepared on cash basis of accounting.
h)
It records cash transactions of both revenue and
capital nature.
(ii) From the following Receipts and Payments Account for the year
ended 31st December, 2023 and other details of Dibru Club, prepare
an Income and Expenditure Account for the year ended on 31st
December, 2023: 8
|
Receipts |
Amount (Rs.) |
Payments |
Amount (Rs.) |
|
To Balance at
bank on 1-1-2023 To Fees for
2022 To Fees for
2023 To Fees for
2024 To Sale of old
furniture To Legacies To Donation To Donation for
prize fund To Maintenance
grant To Capital
grant |
10,000 900 19,000 1,500 600 11,000 2,000 5,000 6,000 9,300 |
By Salaries Rs.
2,000 for last year By Honorarium By Meeting
expenses By Travelling
expenses By Postage
expenses By Stationery By Advance By Bank charge By Building
construction By Rent, rates
and taxes By Closing
Balance at bank |
12,000 2,000 3,500 2,000 1,000 1,900 1,300 150 19,000 3,000 19,450 |
|
|
65,300 |
|
65,300 |
Other details:
(1) Salary outstanding Rs. 1,500.
(2) Rent outstanding Rs. 200.
(3) Provide depreciation on
furniture Rs. 200 and building Rs. 500
Or
(b) What is depreciation? Why is depreciation important? Mention the
features of Accounting Standard (AS)10 related to depreciation.
Ans: Depreciation: The word depreciation is derived from a Latin word
“Depretium” where “De” means decline and “pretium” means price. Thus, the word
“Depretium” stands for decline in the value of assets. It stands for gradual
and continuous decline. In simple words, Depreciation may be defined as
permanent decrease in the value of assets due to Use and /or the lapse of the
time.
According to Carter,
“Depreciation may be defined as the permanent and gradual decrease in the Value
of assets from any cause.’’
Objectives or Importance for providing depreciation
a)
To find out
correct cost of goods manufactured.
b)
To find out
correct profit for the year.
c)
To provide for
replacement of assets.
d)
To find out
correct financial position.
e)
To reduce tax
burden.
6. (a) A company purchased a machinery on hire-purchase system for Rs.
56,000, Rs. 15,000 paid down and three installments of Rs. 15,000 each at the
end of the year. Rate of interest is charged at 5% per annum. Buyer is
depreciating the machine at 10% p.a. on written-down value method.
Because of financial difficulties, company after having paid down
payment and first installment at the end of first year could not pay the second
installment and the seller took possession of the machine. Seller after paying
Rs. 500 on repairs of the machine sold it away for Rs. 30,200. Show the Ledger
Accounts in the books of both the parties. 14
Ans:
Or
(b) Explain the following:
(i) Book building process.
Ans: Book building is a process
of fixing price for an issue of securities on a feedback from potential
investors based upon their perception about a company. It involves selling an
issue step-wise to investors at an acceptable price with the help of a few
intermediaries’/merchant bankers who are called book-runners. Under book-building
process, the issue price is not determined in advance, it is determined by the
offer of potential investors. The book runner maintains a record of various
offers and the price at which the institutional buyers, mutual funds,
underwriters etc. are willing to subscribe to securities. On receipt of the
information, the book runner and the issuer company determine the price at
which the issue will be made. Thus, book-building helps in determining the
price of an issue on more realistic way based on the intrinsic worth of the
security. The main objective of book building is to arrive at fair pricing of
the issue which is supposed to emerge out of offers given by various large
investors like mutual funds and institutional investors.
As per SEBI guidelines, in an
issue of securities through a prospectus option of 100% Book Building is also
available to an issuer company if Issue of capital is Rs.25 crores and above.
In India, there are two options for book building process. One, 25% of the
issue has to be sold at fixed price and 75% is through book building. The other
option is to split 25% of offer to the public (small investors) into a fixed
price portion of 10% and a reservation in the book built amounting to 15% of
the issue size. The rest of the book-built portion is open to any investor.
(ii) Statutory Audit under the Companies Act, 2013.
Ans:
(iii) Books of Accounts under Section 128 of the Companies Act, 2013. 14
Ans: Section
128 of the Companies Act, 2013 requires that every company shall prepare and
keep at its registered office books of accounts and other relevant books and
papers and financial statements for every financial year which give a true and
fair view of the state of affairs of the company, including that of its branch
office or offices, if any, and explain the transactions effected both at the
registered office and its branches and such book will be kept on accrual basis
and according to the double entry system of accounting. All or any of the books
of account aforesaid and other relevant papers may be kept at such other place
in India as the Board of Directors may decide and where such a decision is
taken, the company shall, within seven days thereof, file with the Registrar a
notice in writing giving full address of that other place.
The
company may keep such books of account or other relevant papers in electronic
mode in such manner as may be prescribed. The books of account and other books
and papers maintained by the company within India shall be open for inspection
at the registered office of the company. The books of account of every company
relating to a period of not less than eight financial years immediately
preceding a financial year, or where the company had been in existence for a
period less than eight years, in respect of all the preceding years together
with the vouchers relevant to any entry in such books of account shall be kept
in good order.
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