Mock Test Paper - Series III: June, 2024

Date of Paper: 5 th June, 2024

Time of Paper: 2 P.M. to 5 P.M.
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FOUNDATION COURSE
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PAPER – 1: ACCOUNTING
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Question No. 1 is compulsory.

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Answer any four questions from the remaining five questions.

Wherever necessary, suitable assumptions should be made and disclosed
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by way of note forming part of the answer.

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Working Notes should form part of the answer.

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(Time allowed: 3 Hours) (100 Marks)

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1. (a) State with reasons whether the following statements are True or False:
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i. Subsidy received from the government for working capital by a

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manufacturing concern is a revenue receipt.

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ii. If the effect of errors committed cancel out, the errors will be called
compensating errors and the trial balance will disagree.
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iii. The financial statements must disclose all the relevant and reliable
information in accordance with the Full Disclosure Principle.
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iv. Limited Liability Partnership (LLP) is governed by Indian

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Partnership Act, 1932.

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v. Nominal Accounts are kept under Single Entry System.

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vi. A person holding preference shares of a company cannot hold

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equity shares of the same company.

(6 Statements x 2 Marks = 12 Marks)
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(b) Differentiate between provision and contingent liability. (4 Marks)

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(c) Give journal entries to rectify the following errors located in the books of
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a trader after preparing the trial balance:

(i) An amount of ` 13,500 received on account of interest was credited
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to commission account.
(ii) A sale of ` 5,920 was posted from sales book to the debit of M/s
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Kamal traders at ` 5,290.

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(iii) ` 44,000 paid for purchase of Air conditioner for the personal use of
proprietor debited to Machinery A/c.
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(iv) Goods returned by customer for ` 20,000. The same have been
taken into stock but no entry passed in the books of accounts.
(4 Marks)
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 2. (a) A Firm purchased an old Machinery for ` 37,000 on 1st January, 2020
and spent ` 3,000 on its overhauling. On 1 st July 2021, another machine
was purchased for ` 10,000. On 1st July 2022, the machinery which was
purchased on 1st January 2020, was sold for ` 28,000 and the same day
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a new machinery costing ` 25,000 was purchased. On 1 st July, 2023, the

machine which was purchased on 1 st July, 2021 was sold for ` 2,000.
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Depreciation is charged @ 10% per annum on straight line method. The

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firm changed the method and adopted diminishing balance method with
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effect from 1st January, 2021 and the rate was increased to 15% per
annum. The books are closed on 31 st December every year.
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Prepare Machinery account for four years from 1 st January, 2020.

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(10 Marks)
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(b) Ram Setu Ltd. keeps no stock records but a physical inventory of stock
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is made at the end of each quarter and the valuation is taken at cost.
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The company’s year ends on 31 st March, 2024 and their accounts have
been prepared to that date. The stock valuation taken on 31 st March,
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2024 was however, misleading and you have been advised to value the
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closing stocks as on 31st March, 2024 with the stock figure as on 31st
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December, 2023 and some other information is available to you:

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(i) The cost of stock on 31 st December, 2023 as shown by the

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inventory sheet was ` 7,20,000.

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(ii) On 31st December, stock sheet showed the following

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discrepancies:
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(a) A page total of ` 45,000 had been carried to summary sheet

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as ` 54,000.
(b) The total of a page had been undercast by `1,800.
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(iii) Invoice of purchases entered in the Purchase Book during the

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quarter from January to March, 2024 totalled ` 6,30,000. Out of this

` 27,000 related to goods received prior to 31 st December, 2023.
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Invoices entered in April, 2024 relating to goods received in March,

2024 totalled ` 36,000.
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(iv) Sales invoiced to customers totalled ` 8,10,000 from January to

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March, 2024. Of this ` 45,000 related to goods dispatched before

31st December, 2023. Goods dispatched to customers before 31 st
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March, 2024 but invoiced in April, 2024 totalled ` 36,000.

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(v) During the final quarter, credit notes at invoiced value of ` 9,000
had been issued to customers in respect of goods returned during
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that period. The gross margin earned by the company is 25% of

cost.
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You are required to prepare a statement showing the amount of stock at

cost as on 31st March, 2024. (10 Marks)
(10 +10 = 20 Marks)
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 3. (a) Dr. Gulleria started private practice on 1st April, 2023 with ` 2,00,000 of
his own fund and ` 3,00,000 borrowed at an interest of 12 p.a. on the
security of his life policies. His accounts for the year were kept on a cash
basis and the following is his summarized cash account:
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Receipts ` Payments `
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Own Capital 2,00,000 Medicines Purchased 2,45,000

Loan 3,00,000 Surgical Equipment 2,50,000
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Prescription Fees 6,60,000 Motor Car 3,20,000

Visiting Fees 2,50,000 Motor Car Expenses 1,20,000
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Lecture Fees 24,000 Wages and Salaries 1,05,000

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Pension Received 3,00,000 Rent of Clinic 60,000

General Charges 49,000
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Household Expenses 1,80,000

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Household Furniture 25,000

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Expenses on Daughter's 2,15,000

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college admission
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Interest on Loan 36,000

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Balance at Bank 1,10,000

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Cash in Hand 19,000

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17,34,000 17,34,000
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1/3rd of the motor car expenses may be treated as applicable to the

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private use of car and ` 30,000 of salaries are in respect of domestic

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servants. The stock of medicines in hand on 31st March, 2024 was

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valued at ` 95,000.
You are required to prepare his private practice income and expenditure
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account and capital account for the year ended 31st March, 2024. Ignore
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depreciation on fixed assets. (8 Marks)

(b) P Q and R are partners sharing profits in the ratio of [Link]. Their Balance
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Sheet as at 31st March, 2024 stood as:

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Liabilities ` Assets `
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Capital Building 10,00,000

Accounts
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P 8,00,000 Furniture 2,40,000

Q 4,20,000 Office 2,80,000
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equipments
R 4,00,000 16,20,000 Stock 2,50,000
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Sundry 3,70,000 Sundry debtors 3,00,000

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Creditors
General 3,60,000 Less: Provision
Reserves for Doubtful 30,000 2,70,000
debts
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 Cash at Bank 3,10,000
23,50,000 23,50,000
Q retired on 1st April, 2024 subject to the following conditions:
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(i) Office Equipments revalued at ` 3,27,000.

(ii) Building revalued at ` 15,00,000. Furniture is written down by
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` 40,000 and Stock is reduced to Rs,2,20,000.

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(iii) Provision for doubtful debts is to be created @ 5% on debtors.

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(iv) Goodwill was to be valued at 3 years purchase of average 4 years

profit which were:
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Year `
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2020 90,000
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2021 1,40,000
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2022 1,20,000
2023 1,30,000
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(v) Amount due to Q is to be transferred to his Loan Account.

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Prepare the Revaluation Account, Partners' Capital Accounts and the

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Balance Sheet immediately after Q's retirement. (12 Marks)

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(8 + 12= 20 Marks)
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4. (a) The following is the Balance Sheet of A, B, C on 31st December, 2023

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when they decided to dissolve the partnership:

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Liabilities ` Assets `
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Creditors 3,000 Sundry Assets 72,750

A's Loan 7,500 Cash 750
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Capital Accounts:
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A 22,500
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B 27,000
C 13,500
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73,500 73,500
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The assets realized the following sums in installments:

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Inst. `
I 1,500
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II 4,500
III 5,850
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IV 9,000
V 30,150
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51,000

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 The expenses of realization were expected to be `750 but ultimately
amounted to `600 only. Show how at each stage the cash received
should be distributed between partners. They share profits in the ratio of
[Link]. (8 Marks)
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(b) The following are the balances as at 31st March, 2024 extracted from
the books of Mr. Chauhan.
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Particulars ` Particulars `
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Plant and Machinery 39,100 Bad debts recovered 900

Furniture and Fittings 20,500 Salaries 45,100
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Bank Overdraft 1,60,000 Salaries payable 4,900

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Capital Account 1,30,000 Prepaid rent 600

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Drawings 16,000 Rent 8,600

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Purchases 3,20,000 Carriage inward 2,250

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Opening Stock 64,500 Carriage outward 2,700

Wages 24,330 Sales 4,30,600
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Provision for doubtful 6,400 Advertisement 6,700

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debts Expenses
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Provision for Discount 2,750 Printing and 2,500

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on debtors Stationery
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Sundry Debtors 2,40,000 Cash in hand 2,900

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Sundry Creditors 95,000 Cash at bank 6,250

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Bad debts 2,200 Office Expenses 20,320

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Interest paid on loan 6,000

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Additional Information:
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1. Purchases include sales return of ` 5,150 and sales include

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purchases return of ` 3,450.

2. Free samples distributed for publicity costing ` 1,650.
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3. Wages paid in the month of April for installation of plant and

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machinery amounting to ` 900 were included in wages account.

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4. Create a provision for doubtful debts @ 5% and provision for

discount on debtors @ 2.5%.
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5. Depreciation is to be provided on plant and machinery @ 15% p.a.

and on furniture and fittings @ 10% p.a.
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6. Closing stock as on 31 st March, 2024 is ` 2,50,000.

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Prepare a Trading and Profit and Loss Account for the year ended
31st March, 2024, and a Balance Sheet as on that date. (12 Marks)
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(8+12= 20 Marks)

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 5. (a) Bharat owed `50,000 to Katen. On 1st October, 2023, Bharat accepted a
bill drawn by Katen for the amount at 3 months. Katen got the bill
discounted with his bank for ` 49,500 on 3rd October, 2023. Before the
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due date, Bharat approached Katen for renewal of the bill. Katen agreed
on the conditions that `25,000 be paid immediately together with interest
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on the remaining amount at 12% per annum for 3 months and for the
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balance, Bharat should accept a new bill at three months. These

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arrangements were carried out. But afterwards, Bharat became insolvent

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and 40% of the amount could be recovered from his estate.

Pass journal entries in the books of Katen. (5 Marks)
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(b) Attempt any ONE out of the two sub parts i.e. either (i) or (ii).
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(i) Ms. Manisha is engaged in business of selling magazines. Several of her

customers pay money in advance for subscribing his magazines.
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Information related to year ended 31st March, 2024 has been given
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below:
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On 1.4.2023 he had a balance of `6,00,000 advance from customers of

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which `4,50,000 is related to year 2023-24 while remaining pertains to

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year 2024-25. During the year 2023-24 she made cash sales of
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` 15,00,000. You are required to compute:

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(i) Total income for the year 2023-24.

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(ii) Total money received during the year if the closing balance in
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Advance from customers Account is ` 5,10,000. (5 Marks)

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OR
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(ii) Samuel & Co. employs a team of 9 workers who were paid ` 1,20,000
per month each in the year ending 31 st December, 2022. At the start of
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2023, the company raised salaries by 10% to ` 1,32,000 per month each.
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On 1 July, 2023 the company hired 2 trainees at salary of ` 63,000 per

month each. The work force are paid salary on the first working day of
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every month, one month in arrears, so that the employees receive their
salary for January on the first working day of February, etc.
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You are required to calculate:

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(i) Amount of salaries which would be charged to the profit and loss
account for the year ended 31 st December, 2023.
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(ii) Amount actually paid as salaries during 2023.

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(iii) Outstanding salaries as on 31 st December, 2023. (5 Marks)

(c) Following is the extract of the Balance Sheet of Puri Ltd. as at 31 st March,
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2024
Authorised capital: `

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 15,000 12% Preference shares of ` 10 each 1,50,000
1,50,000 Equity shares of ` 10 each 15,00,000
16,50,000
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Issued and Subscribed capital:

12,000 12% Preference shares of ` 10 each fully paid 1,20,000
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1,35,000 Equity shares of ` 10 each, ` 8 paid up 10,80,000

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Reserves and surplus:

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General Reserve 1,80,000

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Capital Reserve (profit realized on sale of plant) 60,000

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Securities premium 37,500

Profit and Loss Account 3,00,000
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On 1st April, 2024, the Company has made final call @ ` 2 each on
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1,35,000 equity shares. The call money was received by 20 th April, 2024.
Thereafter, the company decided to capitalize its reserves by way of
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bonus at the rate of one share for every four shares held. Company
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decides to use Capital Reserve for bonus issue as it has been realized
in cash.
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Show necessary journal entries in the books of the company and prepare
the extract of the balance sheet as on 30 th April, 2024 after bonus issue.
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(10 Marks)
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(5 +5+ 10= 20 Marks)

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6. (a) Devis Ltd. invited applications for issuing 3,00,000 equity shares of ` 20
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each.
The amounts were payable as follows:
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On application - ` 6 per share

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On allotment - ` 10 per share

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On first and final call - ` 4 per share

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Applications were received for 4,50,000 shares and pro-rata allotment

was made to all the applicants. Money overpaid on application was
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adjusted towards allotment money. X, who was allotted 9,000 shares,

failed to pay the first and final call money. His shares were forfeited. Out
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of the forfeited shares, 7,500 shares were reissued as fully paid-up

@ ` 16 per share.
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Pass necessary Journal entries to record the above transactions in the

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books of Devis Ltd. (10 Marks)

(b) On 1st April, 2023 Universe Ltd. issued 12% debentures of the face value
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of ` 40,00,000 at 10% discount. Debenture interest after deducting tax at

source @10% was payable on 30th September and 31st March every
year. All the debentures were to be redeemed after the expiry of five year
period at 5% premium.
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 Pass necessary journal entries for the financial year 2023-24.
(5 Marks)
(c) Prepare Bank Reconciliation Statement and Adjusted Cash Book from
the following particulars as on 31 st December, 2023:
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Particulars `
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Bank Balance as per Cash Book (Debit) 1,98,000

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Bank Charges debited by the bank not recorded in Cash 34,000

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Book
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Received from debtors vide RTGS on 31st December, 2023 1,00,000

not recorded in Cash Book
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Cheque issued but not presented for payment 45,000

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Cheque deposited but not cleared 25,000

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Cheque received and deposited but dishonoured. Entry for

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dishonour not made in the Cash Book 5,000

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Instruction for payment given to the bank on 31st December, 4,000

2023 but the same effected by the Bank on 01st January,
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2024
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(5 Marks)
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(10 +5+ 5= 20 Marks)

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