Financial Accounting Solved Question Paper 2025 [Dibrugarh University BCOM 2nd SEM NEP syllabus]

Financial Accounting Solved Question Paper 2025
[Dibrugarh University BCOM 2nd SEM NEP syllabus]

2 SEM FYUGP COM (FIN/BNI/ HRM/MKT)

COMMERCE (Core)

Paper: COMFINC2/COMBNIC2/ COMHRMC2/COMMKTC2

Full Marks: 60 (80 for 2023 Batch)

Time: 2 hours (3 hours for 2023 Batch)

The figures in the margin indicate full marks for the questions.

1. (a) Write True or False: (1*3 = 3)

(i) IAS 31 represents disclosure and presentations of financial instruments.

Ans: False, IAS 31 deals with Interests in Joint Ventures. Disclosures and presentations of financial instruments are covered by IAS 32.

(ii) Accumulated profit is the bonafide claim of all the partners except retiring partner.

Ans: False

(iii) IFRS are based on fair value.

Ans: True

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

(i) Income tax demand under appeal is a ________.

Ans: Contingent liability

(ii) Share of goodwill brought in cash by new partner is called ________.

Ans: Premium for goodwill

(iii) The registration of a partnership firm is ________.

Ans: Optional/Voluntary

2. Answer the following questions in brief: (1*2 = 2)

(a) Mention two examples of convention of conservatism principles.

Ans: 1. Valuation of stock at cost of market price whichever is lower

2. Creation of provision for doubtful debts

(b) Mention two reasons for preparation of Memorandum Revaluation Account.

Ans: 1. To keep assets and liability values unchanged.

2. To neutralize the revaluation effect.

3. Write short notes on: (4*2 = 8)

(a) Consumable items of not-for-profit organization and its accounting treatment.

Ans: In a Not-for-Profit Organization (NPO), Consumable Items refer to goods that are used up during the regular course of operations. Examples include stationery or medicines or sports materials. Unlike fixed assets, these items are not expected to last for many years; so the only portion consumed during the year is shown in income and expenditure account and actual payment for purchase and collection from sale of such items shown in receipts and payments account.

Consumption to be debited to the Income and Expenditure Account is calculated as follows:

Opening Stock of the item

Add: Total Purchases during the year (Cash + Credit)

Less: Closing Stock of the item

= Amount Consumed (to be debited to Income & Expenditure A/c)

(b) Contents of Director's report.

Ans: Contents of Director’s report

1. Financial Summary: A table showing the company's revenue, profit before tax, and profit for the year.

2. State of Affairs: A description of the business activities and any major changes during the year.

3. Board Meetings: The number of meetings held and the attendance record of the directors.

4. Dividend & Reserves: Recommendations for dividend payments or the decision to retain profits.

5. Director’s Responsibility Statement: A formal confirmation that accounting standards were followed and records were properly maintained.

6. Statutory Audits: Comments on the Statutory Auditor's report and details about Secretarial and Cost Auditors.

7. Conservation & Foreign Exchange: Reports on energy conservation, technology absorption, and foreign exchange earnings or outgo.

8. Risk & Internal Controls: Details on the company's risk management policy and the adequacy of internal financial controls.

9. Compliance & Policies: Affirmations regarding the Prevention of Sexual Harassment (POSH) and the Vigil Mechanism (Whistle Blower Policy).

10. Corporate Social Responsibility (CSR): A brief outline of the CSR policy and the initiatives undertaken during the year.

11. Related Party Transactions: Disclosures of contracts or arrangements made with related parties.

12. Performance Evaluation: A report on the formal annual evaluation of the Board, its committees, and individual directors.

4. (a) "Transactions and events are guided by generally accepted accounting principles subject to laws of land." Explain this statement. 11

Ans: 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.

Generally Accepted Accounting Principles are the rules and concepts which have been accepted by accounting community for sound accounting practice. Their usefulness depends on ‘general acceptability’ rather than ‘individual acceptability’ of accounting concepts.  They (GAAP) have been formalised on the basis of usage, reason and experience.  

Simply, Generally Accepted Accounting Principles (GAAP) comprises a set of rules, concept and Conventions used in preparing financial accounting reports.

Essential features of Accounting Principles

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

b) 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) Usefulness/relevance: Accounting principles must be relevant and useful to the person who is using financial statements.

d) Feasibility: The accounting principles should be practicable or feasible.

e) Axiom: It denotes a statement of truth which cannot be questioned by anyone.

But all these Accounting principles are subject to the law of the land. Here law of the land means the specific statutes and regulations of the country where the business operates. In our country, this includes the Companies Act, 2013, Income Tax Act, 1961, and Banking Regulation Act. These laws often prescribe specific formats for financial statements, audit requirements, and disclosure norms that a company is legally bound to follow.

But if there is a conflict between the GAAP and the law of the land, the following points must have kept in mind:

a) Legal Supremacy: If a conflict arises between an accounting principle and a local law, the law prevails.

b) Prescribed Formats: The Companies Act prescribes specific formats for balance sheets and profit and loss accounts that companies must follow regardless of general accounting preferences.

c) Governing Acts: Specific business transactions are regulated by legal frameworks such as the Contract Act, Sale of Goods Act, and Negotiable Instruments Act, which dictate the legal validity and timing of events recorded in the books.

d) Income tax and GST Laws:  Tax authorities often have specific rules for depreciation or expense deductions that may differ from GAAP, requiring businesses to maintain records that satisfy legal tax requirements. 

OR

(b) (i) How are the Provision for Doubtful Debts Accounts prepared with the help of Journal Entry? (5)

Ans: Treatment of Bad debt and Provision for bad debts:

Bad debts: Debts which cannot be recovered or become irrecoverable are called bad debts. It is a loss for the business and debited to profit and loss account. For example, goods sold on credit worth Rs. 20000 is now irrecoverable is bad debt.

Journal entry for Bad debt

Date	Particulars	LF	Amount	Amount
	Bad debt A/c                    Dr To Sundry Debtors A/c (Being the bad debt written off)		20,0000	20,000

Provisions for doubtful debts: Sometimes, after selling goods on credit a merchant finds on the last day of the accounting year than certain debts are doubtful i.e., the amount to be received may or may not receive.

Than as per the Convention of conservatism, such doubtful amount can be shown as anticipated losses.

Generally, provision for doubtful is made on the basis of some percentage which is fixed on the basis of past experience.

Provision for Doubtful Debt A/c

(ii) The following balances are given by Mr. Shekhar as on 31st March, 2024: (6)

Particulars	Rs.	Particulars	Rs.
Capital	1,00,000	Drawings	20,000
Bad debts	1,200	Sundry debtors	20,500
Provision for doubtful debts	2,000	Salaries outstanding	1,000
Prepaid insurance	200	Interest on investment	500
Commission received in advance	400

Consider the following:

1. Further bad debts—500

2. Provision for doubtful debts @ 5% on sundry debtors

3. Interest on capital @ 10% and on drawings @ 5%

Show the treatments in the Final Accounts.

5. (a) Amal, Bimal and Chandra are partners sharing profits in the ratio of their capitals. Bimal retired from the firm at 31st March, 2024, the date on which the Balance Sheet of the firm was as follows: (11)

Balance Sheet as on 31st March, 2024

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Bills Payable	2,500	Land and Building	30,000
Sundry Creditors	7,900	Machinery	28,000
Outstanding Salary	500	Investment (M.V. 4,500)	5,000
Investment Fluctuation Reserve	1,100	Stock	10,000
Capitals:		Debtors                     6,000 Less: Provision            400	5,600
Amal	30,000	Cash	5,000
Bimal	24,000	Input CGST	200
Chandra	18,000	Input SGST	200
Total	84,000	Total	84,000

The following adjustments were made:

(i) Land and building appreciated by 20% and provision for Doubtful Debts was to be 5%. A provision for legal charges payable was to be made at 900.

(ii) Goodwill of the firm be valued at 12,000 and Bimal's share in it be adjusted into the Capital Accounts of Amal and Chandra without opening Goodwill Account.

(iii) 22,000 from Bimal's Capital Account be transferred to his Loan Account and balance be paid in cash.

(iv) New profit-sharing ratio of Amal and Chandra decided to be 3:2.

(v) Stock 5,000 was taken equally by Amal and Bimal at a value of 4,000.

(vi) Investments are brought down to their market value.

Give necessary Ledger Accounts and the Balance Sheet of the firm after Bimal's retirement. (3+4+4=11)

OR

(b) Why is Statement of Affairs important in the single-entry system? Why is it called a Statement and not a Balance Sheet? (5+6=11)

Ans: Meaning of Statement of Affairs: In case of Single Entry System, it not possible to prepare the Balance sheet of the business because real and nominal accounts are not maintained. Therefore, to judge the financial position of the business a statement showing various assets and liabilities on a particular date is prepared from such information as may be available. Such statement is known as Statement of affairs.  A statement of affairs is prepared by estimating the values of assets and liabilities (except cash and personal accounts) in the absence of real and nominal accounts in the single entry system.

Importance of Statement of Affairs:

a) Financial position: To depict the financial position of the business on a particular date showing various assets and liabilities.

b) Determination of Profit or Loss: To assist in ascertainment of trading profit or loss for a particular period.

c) It helps the proprietor understand the liquidity and solvency of the business by showing the relationship between current assets and current liabilities.

d) Basis for Future records: It acts as a starting point for converting a single-entry system into a double-entry system by providing the opening balances for various accounts.

Why it is called a statement of affairs not a balance sheet?

Although both documents list assets and liabilities, they differ significantly in their reliability and the method of preparation. It is called a Statement of Affairs for the following reasons:

Balance Sheet	Statement of affairs
It is a Statement of assets, Liabilities and Capital extracted from ledgers balances maintained under the double entry system.	It is a Statement of assets, Liabilities and Capital extracted from incomplete records.
In this system, Personal, Capital account is taken from the ledger.	In this system, Capital is the excess of assets over liabilities.
The basic purpose of Balance sheet is to show the financial position of the business on the last day of accounting period.	A statement of affairs is prepared to show the financial position as well as it helps in ascertaining trading profit or loss.
The financial position disclosed by a Balance Sheet is reliable.	The financial position as disclosed by a Statement of affairs is not as reliable as that disclosed by a Balance sheet.
Assets are recorded based on historical cost less systematic depreciation as per ledger records.	Assets like furniture or machinery are often valued based on the proprietor's memory or available vouchers.

6. (a) Write the steps of conversion of Receipts and Payments Account to Income and Expenditure Account. (11)

Ans: Steps in the Preparation of Income and Expenditure Account: Following steps may be helpful in preparing an Income and Expenditure Account from a given Receipt and Payment Account:

1. First, the opening and closing balances of cash and bank are ignored as they are not an income.

2. Second, Exclude the capital receipts and capital payments as these are to be shown in the Balance Sheet. Income and expenditure accounts include only revenue items.

3. Third, consider only the revenue receipts to be shown on the income side of Income and Expenditure Account with due adjustments of income accrued and income received in advance.

4. Fourth, Take the revenue expenses to the expenditure side of the Income and Expenditure Account with due adjustments of prepaid expenses and outstanding expenses.

5. Last, Consider the following items not appearing in the Receipt and Payment Account that need to be taken into account for determining the surplus/ deficit for the current year:

(a) Depreciation of fixed assets.

(b) Profit or loss on sale of fixed assets.

(c) Opening and Closing Stock.

OR

(b) Following balances appearing in the books of Z Ltd. as on 1st April, 2023: (6+5=11)

Machinery Account—5,00,000

Provision for depreciation—2,25,000

The machinery is depreciated @ 10% p.a. on the Fixed Instalment Method. The accounting being April to March. On 1st October, 2023, a machinery which was purchased on July 2020 for 1,00,000 was sold for 42,000 and on the same date, a new machine was purchased for 2,00,000. Prepare Machinery Account and Provision for Depreciation Account for the year ended 31st March, 2024.

7. (a) What is stock and debtor’s system in case of hire-purchase system? How are goods repossessed recorded in the books of accounts under stock and debtor’s method? Explain with accounting treatment. 8+3=11

Ans: Stock and Debtors System: This is an alternative method of calculating profit or loss of those traders who sell a number of goods of comparatively small value daily on hire purchase system. Under this system, the Hire-Vendor does not maintain a single Hire-Purchase Trading Account. Instead, the transactions are split into several ledger accounts to track the movement of goods and the status of installments. Key Accounts to be Maintained under stock and debtor’s system are:

1. H.P. Stock Account: Records the stock currently with customers at the Hire-Purchase Price.

2. H.P. Debtors Account: Records the installments that have become due but not yet paid.

3. Stock at shop Account: Records the cost of goods held in the shop/godown.

4. H.P. Adjustment Account: This is the most important account as it calculates the Gross Profit. It records the "loading" (i.e., the difference between H.P. Price and Cost Price) included in opening stock, closing stock and goods sold on HP.

5. Goods Sold on H.P. Account: Acts as a clearing account for the cost of goods sold.

Repossession of goods

When hire purchaser is not able to make the payment in time, then default is committed by him and the owner takes back the possession of goods. When the vendor takes back the possession of complete goods from the vendee in case of default in payment of installment, such process is called complete repossession of goods. In such case, the vendor closes the books of account of the hire purchaser by transferring the balance to the goods repossessed account.

Journal entries for Repossession of goods

Goods Repossessed A/c                                  Dr   (For realisable value)

HP Adjustment A/c                                           Dr    (Loss)

To Hire Purchase Debtors A/c                        (Instalment due and not received in cash)

To Hire Purchase Stock A/c                             (For instalment not yet due)

To HP Adjustment A/c                                      (Profit on repossession)

Goods Repossessed Account

OR

(b) Explain the following: (3+3+5=11)

(i) Sweat equity

Ans: As per sec. 53 of the Companies Act, 2013, issue of shares at a discount is prohibited. This prohibition applies to all companies, public or private. Any issue of share at a discount shall be void. But a company can issue sweat equity shares to its directors or employees as a reward to them for their contributions. Sweat equity shares are those which are issued by a company at a discount or for consideration other than cash.

According to Section 54 of company act 2013, a company is permitted to issue sweat equity shares provided the following conditions are satisfied:

a)    The issue of shares at a discount is authorised by a resolution passed by the company in its general meeting and sanctioned by the Central Government.

b)    The resolution must specify the maximum rate of discount at which the shares are to be issued but the rate of discount must not exceed 10 per cent of the nominal value of shares. The rate of discount can be more than 10 per cent if the Government is convinced that a higher rate is called for under special circumstances of a case.

c)    At least one year must have elapsed since the company was entitled to commence the business.

d)    The shares are of a class, which has already been issued.

e)    The shares are issued within two months from the date of sanction received from the Government.

(ii) Strategic report

Ans: A Strategic Report is a key component of a company's annual financial statements, designed to provide stakeholders with a high-level overview of the company’s strategy, business model, and performance. It serves to bridge the gap between the detailed financial information and the broader operational context.

Preparation of strategic report is not compulsory but to enhance transparency many companies prepare strategic report with other financial statements.

Contents of a Strategic Report

1. Business Model: A clear description of how the company generates value and its position within the market.

2. Strategy and Objectives: An outline of the company’s long-term goals and the specific strategic paths chosen to achieve them.

3. Principal Risks and Uncertainties: Identification of the major risks facing the business and how the management intends to mitigate them.

4. Key Performance Indicators: Both financial and non-financial measures used by management to track progress against the strategy.

(iii) Provisions of the Companies Act, 2013 regarding disqualification of an auditor

Ans: Disqualification of a Company Auditor [Sec. 141(3)]:

a) According to section 141(3) of the Companies Act, 2013, the following persons shall not be appointed as auditors of a company:

b) A body corporate: A company other than a limited liability partnership cannot audit any other company,

c) An officer or employee of the company.

d) A person who is either a partner or employee of an officer or employee of the company.

e) A person who or his relative or his partner has taken debt from the company for amount exceeding Rs. 5,00,000.

f) A person who or his relative or his partner has taken guarantee of another person who has taken a loan exceeding Rs. 1,00,000 from the company.

g) A person who is or his relative or his partner is holding any security in the company or its subsidiary company or its holding company or its associate company or a subsidiary of such holding company.

h) A person whose relative is a director or is in the employment of the company as a director or key managerial personnel.

i) A person who has been convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from the date of such conviction.

j) Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided u/s 144.

A person, who is disqualified for being appointed as auditor of a company, is automatically disqualified for being auditor of its holding company or its subsidiary company or any other subsidiary of holding company.

Additional questions, 20 marks for 2023 Batch

8. (a) (i) Write five limitations of financial statement. (5)

(ii) Explain the situation when reconstitution of firm takes place. (5)

Ans: Reconstitution of Partnership: A Partnership agreement is an agreement between two or more persons for carrying out various business activities. Reconstitution of a partnership refers to a situation when there is a change in the existing partnership agreement. In such a case, a new partnership agreement is formed to replace the old partnership agreement. It means the firm continues to exist and the only change will take place in existing partnership agreement.  Thus, reconstitution of a partnership takes place in each of the following cases:

a)       Change on profit sharing ratio

b)      Admission of a partner (Refer below for explanation)

c)       Retirement of a partner

d)      Death of a partner

e)      Insolvency of a Partner

OR

(b) (i) ‘Entity’ and ‘Continuity’ are inter-related. Comment. (5)

(ii) Why are assets and liabilities revalued at the time of retirement of a partner? (5)

Ans: The actual value of the assets and liabilities may be different from their book value as shown by the balance sheet. When a new partner is admitted, he acquires ownership rights of the assets and also becomes liable for the liabilities of the business. Therefore, the new partner should get an assurance that these values are reasonable. The new partner should not be given any benefit of appreciation in the value of assets or reduction in the value of liabilities. Likewise, he should not be burdened because of decrease in the value of assets and increase in the value of liabilities. That’s why revaluation of assets and liabilities should be made in the interest of the new partner as well as the old partners. Similarly, revaluation of assets and liabilities are made at the time or retirement or death of a partner. Again, sometimes either intentionally or by mistake, one or more assets and liabilities are not recorded in the books of accounts. But while preparing revaluation account, these assets and liabilities are to be recorded.

9. (a) (i) Why and how is Receipts and Payments Account prepared? (5)

Ans: Why receipts and payments account is prepared?

a)       The primary objective of preparing receipts and payments accounting is to show the cash position of an NPO at the end of the year.

b)      The Receipts and Payments Account serves the purpose of trial balance and becomes the basis of preparing financial statements i.e. Income and Expenditure Account and Balance sheet for the organisation.

c)       It helps in forecasting the cash requirement of the organisation in future period.

d)      The balance of cash in hand and cash at bank can be determined at the end of the accounting year.

How receipts and payments account is prepared?

This account is similar to cash book. It is debited with all receipts during the year and credited with all payments during the year. Balance if any will be cash or bank balance at the end.

(ii) Discuss the importance of Corporate Accounting. (5)

Ans: Importance of Corporate Accounting:

Accounting is an essential activity for corporate entities, as we have seen. The purpose of accounting is for companies to analyze their financial position and predict future business decisions. The activity is also important to: Corporate accounting is essential for the following reasons:

1. Compliance with numerous statutory and regulatory requirements related to accounting, tax, and financial reporting is necessary for a company. Corporate Accounting ensures that the companies comply with these requirements and provide accurate financial information to stakeholders.

2. Corporate accounting helps in the decision-making process by providing relevant financial information that helps management make informed decisions about investments, financing, pricing, and resource allocation.

3. It also helps in building investors' confidence and attracting investments through accurate and timely financial reporting.

4. Corporate accounting aids in risk management by helping companies to identify and manage financial risks, such as credit risk, market risk, and liquidity risk.

5. Corporate accounting initiates Accountability by providing a mechanism for companies to be accountable to stakeholders, such as shareholders, creditors, and regulatory bodies.

6. It provides financial data that makes performance evaluation possible for companies and makes necessary adjustments to improve efficiency and profitability.

OR

(b) Explain the following: (5*2 = 10)

(i) Cost audit

(ii) Hire purchase system vs. Credit sales

Ans: Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same. The following are the differences between Hire Purchase and Sale.

Hire Purchase	Sale
Hire purchase is governed by the Hire Purchase Act, 1972.	A ‘sale’ is governed by the sale of Goods Act, 1930.
In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments.	In case of sale, the ownership of the goods is transferred to the buyer immediately.
In case of hire purchase, the payment is made in installments.	In case of sale, the buyer makes payment in lump sum.
The hire purchaser pays for the price of goods and also some amount of interest.	The buyer pays only for the price of goods.
On non-payment of any installment, the seller can re-possess the goods.	On non-payment of the consideration the seller cannot take back the goods, but can only take legal action on buyer.
Either the buyer or the seller can terminate the contract at any point of time, until the payments of last installment.	Once a sale has taken place, neither the seller, nor the buyer can terminate the contract (unless it is for genuine reason like damage of goods etc.)
When the hire purchaser becomes insolvent, the seller can reposes the goods, and hence need not undertake the risk of loss.	When the buyer becomes insolvent, the seller has to undertake the risk of loss.
In this case, the sales tax will be leviable at the time of ownership (i.e. on payment of last installment).	A sale is subject to levy of sales tax at the time of contract of sale.

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