Downloaded From www.castudynotes.

com

Test Series: March , 2021

MOCK TEST PAPER - 1
FOUNDATION COURSE
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING
ANSWERS
1. (a) 1. True - The balance represents the cash physically in existence and is therefore an asset.
2. False - Finished goods are normally valued at cost or net realizable value whichever is lower.
3. False - Current year subscription shall be shown in the credit side of the income and
expenditure account and not in the balance sheet, as it is not a capital item.
4. False - When shares are forfeited, the share capital account is debited with called up capital
of shares forfeited and the share forfeiture account is credited with amount received on shares
forfeited.
5. True - Discount at the time of retirement of a bill is a gain for the drawee and loss for the
drawer.
6. True - Yes they are types of subsidiary books which is alternate to the journals.
(b) Limitations which must be kept in mind while evaluating the Financial Statements are as follows:
• The factors which may be relevant in assessing the worth of the enterprise don’t find place in
the accounts as they cannot be measured in terms of money.
• Balance Sheet shows the position of the business on the day of its preparation and not on the
future date while the users of the accounts are interested in knowing the position of the
business in the near future and also in long run and not for the past date.
• Accounting ignores changes in some money factors like inflation etc.
• There are occasions when accounting principles conflict with each other.
• Certain accounting estimates depend on the sheer personal judgement of the accountant.
• Different accounting policies for the treatment of same item adds to the probability of
manipulations.
(c) (i) Purchase of Rs. 1,620 is wrongly recorded through sales day book as Rs. 1,260.
Correct Entry Entry Made Wrongly
Purchase A/c Dr. 1,620 Anupam & Co. Dr. 1,260
To Anupam & Co. 1,620 To Sales 1,260

Rectification Entry
Before Trial Balance After Trial Balance After Final Accounts
Sales A/c Dr. 1,260 Sales A/c Dr. 1,260 Profit & Loss Adj. A/c Dr. 2,880
Purchase A/c Dr. 1,620 Purchase A/c Dr. 1,620 To Anupam & Co. 2,880
To Anupam & Co. 2,880 To Anupam & Co. 2,880

(ii) This is one sided error. Soni & Co. account is credited instead of debit. Amount posted to the
wrong side and therefore while rectifying the account, double the amount (Rs. 3200) will be
taken.

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

Before Trial Balance After Trial Balance After Final Accounts

No Entry Soni & Co. A/c Dr. 3200 Soni & Co. A/c Dr. 3200
Debit Soni A/c with Rs. To Suspense A/c 3200 To Suspense A/c 3200
3200
2. (a) In the books of M/s. JP Wires Co.
Machinery Account
Date Particulars Amount Date Particulars Amount
Rs. Rs.
1.1.2017 To Bank A/c 3,20,000 31.12.2017 By Depreciation A/c 96,000
To Bank A/c 80,000 (Rs.80,000+ Rs. 16,000)
(Erection charges) 31.12.2017 By Balance c/d 4,64,000
1.7.2017 To Bank A/c 1,60,000 (Rs.3,20,000+
Rs.1,44,000) _______
5,60,000 5,60,000
01.01.18 To Balance b/d 4,64,000 31.12.2018 By Depreciation A/c 1,12,000
(Rs.80,000+ Rs. 32,000)
31.12.2018 By Balance c/d 3,52,000
(Rs.2,40,000+Rs.
1,12,000)
4,64,000 4,64,000
01.01.19 To Balance b/d 3,52,000 01.07.2019 By Bank A/c 1,60,000
30.9.19 To Bank A/c 60,000 By Profit and Loss A/c 40,000
(Loss on Sale – W.N. )
31.12.2019 By Depreciation A/c 75,000
(Rs. 40,000 + Rs.
32,000 + Rs. 3,000)
By Balance c/d 1,37,000
(Rs. 80,000 + Rs.
57,000)
4,12,000 4,12,000
01.01.20 To Balance b/d 1,37,000 31.12.2020 By Depreciation A/c 20,550
(Rs. 12,000 + Rs. 8,550)
By Balance c/d 1,16,450
(Rs. 68,000 + Rs.
48,450)
1,37,000 1,37,000
Working Notes:
Book Value of machines (Straight line method)
Machine I Machine II Machine III
Rs. Rs. Rs.
Cost 4,00,000 1,60,000 60,000
Depreciation for 2017 80,000 16,000

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

Written down value as on 31.12.2017 3,20,000 1,44,000

Depreciation for 2018 80,000 32,000
Written down value as on 31.12.2018 2,40,000 1,12,000
Depreciation for 2019 40,000 32,000 3,000
Written down value as on 31.12.2019 2,00,000 80,000 57,000
Sale proceeds 1,60,000
Loss on sale 40,000

(b) Valuation of Physical Stock as at March 31, 2021

Rs.
Stock at cost on 31.12.2020 2,40,000
Add: (1) Undercasting of a page total 600
(2) Goods purchased and delivered during January – March, 2021
Rs. (2,10,000 – 9,000 + 12,000) 2,13,000
(3) Cost of sales return Rs. (3,000 – 600) 2,400
2,16,000
4,56,000
Less:(1) Overcasting of a page total Rs. (18,000 – 15,000) 3,000
(2) Goods sold and dispatched during January – March, 2021
Rs. (2,70,000 – 15,000 + 12,000) 2,67,000
25
Less: Profit margin 2,67,000  53,400 2,13,600
125
(2,16,600)
Value of stock as on 31st March, 2021
2,39,400
Note: In the above solution, transfer of ownership is assumed to take place at the time of delivery
of goods. If it is assumed that transfer of ownership takes place on the date of invoice, then
Rs. 12,000 goods delivered in March 2021 for which invoice was received in April, 2021, would be
treated as purchases of the accounting year 2020-2021 and thus excluded. Similarly, goods
dispatched in March, 2021 but invoiced in April, 2021 would be excluded and treated as sale of the
year 2020-2021.
3. (a) Journal Entries in the Books of Mr. Y
Date Particulars L.F. Dr. Cr.
Amount Rs. Amount Rs.
2020
August 1 Bills Receivable A/c Dr. 50,000
To Z A/c 50,000
(Being the acceptance received from Z to settle
his account)
August 1 Bank A/c Dr. 49,000
Discount A/c Dr. 1,000
To Bills Receivable 50,000
(Being the bill discounted for Rs. 49,000 from
bank)
November 4 Z A/c Dr. 50,000

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

To Bank Account 50,000

(Being the Z’s acceptance is to be renewed)
November 4 Z A/c Dr 1,200
To Interest Account 1,200
(Being the interest due from Z for 3 months i.e.,
40,000x3/12 12%=12,000)
November 4 Cash A/c Dr. 11,200
Bills Receivable A/c Dr. 40,000
To Z A/c 51,200
(Being amount and acceptance of new bill
received from Z)
December 31 Z A/c Dr. 40,000
To Bills Receivable A/c 40,000
(Being Z became insolvent)
December 31 Cash A/c Dr. 16,000
Bad debts A/c Dr. 24,000
To Z A/c 40,000
(Being the amount received and written off on Z’s
insolvency)
(b) Journal Entries
Date Particulars Dr. Cr.
2021 Rs. Rs.
31st Sales A/c Dr. 30,000
March To Sapan A/c 30,000
(Being cancellation of entry for sale of
goods, not yet approved)
Inventories with customers A/c (Refer Dr. 19,200
W.N.)
To Trading A/c 19,200
(Being Inventories with customers
recorded at market price)
Working Note:
Calculation of cost and market price of Inventories with customer
Sale price of goods sent on approval Rs.30,000
Less: Profit (30,000 x 25/125) Rs. 6,000
Cost of goods Rs.24,000
Market price = 24,000 - (24,000 x 20%) = Rs. 19,200.
(c) Calculation of average due date (Base date: 8th September)
Due Date Amount No. of days from base date Product
Rs. Rs.
8th September 600 0 0
18th October 400 40 16,000
13th November 550 66 36,300
4

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

10th December 800 93 74,400

2,350 1,26,700
Total Product
Average due date = Base date ±
Total Amount
= 8th September + 1,26,700/2,350
= 8th September + 54 days = 1st November
4. (a) New Max Hospital
Income & Expenditure Account
for the year ended 31 December, 2020
Expenditure (Rs.) Income (Rs.)
To Salaries 12,000 By Subscriptions 12,250
To Diet expenses 7,800 By Govt. Grants (Maintenance) 10,000
To Rent & Rates 850 By Fees, Sundry Patients 2,400
To Printing & Stationery 1,200 By Donations 4,000
To Electricity & Water-charges 1,200 By Benefit shows (net collections) 3,000
To Office expenses 1,000 By Interest on Investments 400
To Excess of Income over 8,000
expenditure transferred to
Capital Fund

32,050 32,050

Balance Sheet as at 31st Dec., 2020

Liabilities Rs. Rs. Assets Rs. Rs.
Capital Fund : Building :
Opening balance 24,650 Opening balance 45,000
Excess of Income Addition 25,000 70,000
Over Expenditure 8,000 32,650 Hospital Equipment :
Building Fund : Opening balance 17,000
Opening balance 40,000 Addition 8,500 25,500
Add : Govt. Grant 40,000 80,000 Furniture 3,000
Subscriptions Investments-
received in advance 1,200 8% Govt. Securities 10,000
Subscriptions receivable 700
Accrued interest 400
Prepaid expenses (Rent) 150
Cash at Bank 3,400
Cash in hand 700
1,13,850 1,13,850

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

Working Notes:
(1) Balance sheet as at 31st Dec., 2019
Liabilities Rs. Assets Rs.
Capital Fund Building 45,000
(Balancing Figure) 24,650 Equipment 17,000
Building Fund 40,000 Subscription Receivable 3,250
Creditors for Expenses : Cash at Bank 2,600
Salaries payable 3,600 Cash in hand 400
68,250 68,250

(2) Value of Building Rs.

Balance on 31st Dec. 2020 70,000
Paid during the year (25,000)
Balance on 31st Dec. 2019 45,000
(3) Value of Equipment
Balance on 31st Dec. 2020 25,500
Paid during the year (8,500)
Balance on 31st Dec. 2019 17,000
(4) Subscription due for 2019
Receivable on 31st Dec. 2019 3,250
Received in 2020 2,550
Still Receivable for 2019 700

5. (a) Trading and Profit and Loss Account of Mr. Vijay

for the year ended 31st March, 2021
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs. Rs. Rs.
To Opening stock 64,500 By Sales 4,27,150
To Purchases 3,06,200 Less: Sales return 5,150 4,22,000
Less: Purchases return 3,450 3,02,750 By Closing stock 2,50,000

To Carriage inward 2,250

To Wages 23,430
To Gross profit c/d 2,79,070
6,72,000 6,72,000

To Salaries 45,100 By Gross profit b/d 2,79,070

To Rent 8,600 By Bad debts 900
recovered
To Advertisement expenses 8,350

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

To Printing and stationery 2,500

To Bad debts 2,200
To Carriage outward 2,700
To Provision for doubtful
debts
5% of Rs. 2,40,000 12,000
Less: Existing provision 6,400 5,600
To Provision for discount on
debtors
2.5% of Rs. 2,28,000 5,700
Less: Existing provision 2,750 2,950
To Depreciation:
Plant and machinery 6,000
Furniture and fittings 2,050 8,050
To Office expenses 20,320
To Interest on loan 6,000
To Net profit
(Transferred to capital account) _______
1,67,600
2,79,970 2,79,970
Balance Sheet of Mr. Vijay as on 31st March, 2021

Liabilities Rs. Amount Assets Rs. Amount Rs.

Rs.

Capital account 1,30,000 Plant and machinery 40,000

Add: Net profit 1,67,600 Less: Depreciation 6,000 34,000
2,97,600 Furniture and fittings 20,500
Less: Drawings 23,000 2,74,600 Less: Depreciation 2,050 18,450
Bank overdraft 1,60,000 Closing stock 2,50,000
Sundry creditors 95,000 Sundry debtors 2,40,000
Payable salaries 4,900 Less: Provision for 12,000
doubtful debts
Less: Provision for bad 5,700 2,22,300
debts
Prepaid rent 600
Cash in hand 2,900
Cash at bank 6,250
_______
5,34,500 5,34,500

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

(b) (i) Journal Entry in the books of the M/s Krishna

Dr. Cr.
Date Particulars Rs. Rs.
April, 1 Amit’s Capital A/c Dr. 3,000
2021 Lalit’s Capital A/c Dr. 3,000
To Sumit’s Capital A/c 6,000
(Being the required adjustment for goodwill
through partner’s capital accounts)
(ii) Revaluation Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Furniture A/c 3,000 By Machinery A/c 5,100
(Rs. 16,800 – 13,800) (Rs. 35,100 - 30,000)
To Inventory A/c 1,200
(Rs 5,700 – 4,500)
To Partners’ Capital A/cs 900
(Amit - Rs. 300, Lalit - Rs. 300,
Sumit - Rs. 300)
5,100 5,100
Partners’ Capital Accounts
Particulars Amit Lalit Sumit Particulars Amit Lalit Sumit
To Sumit 3,000 3,000 – By Balance b/d 24,600 24,600 27,000
(Goodwill)
To Cash A/c – – 6,000 By General Reserve 3,000 3,000 3,000
A/c
To Executors – – 30,300 By Revaluation A/c 300 300 300
A/c (Profit)
To Balance C/d 24,900 24,900 – By Amit (Goodwill) – – 3,000
By Lalit (Goodwill) – – 3,000
27,900 27,900 36,300 27,900 27,900 36,300

Working Note:
Statement showing the Required Adjustment for Goodwill
Particulars Amit Lalit Sumit
Right of goodwill before death 1/3 1/3 1/3
Right of goodwill after death 1/2 1/2 –
Gain / (Sacrifice) (+) 1/6 (+) 1/6 (-) 1/3
6. (a) Journal of Deepak Chemicals Ltd.
Dr. Cr.
2020 Rs. in lakhs Rs. in lakhs
June 1 Bank A/c Dr. 100
To Shares Application A/c 100
(Receipt of applications for 10 lakh shares along
with application money of Rs. 10 per share.)
8

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

June 1 Share Application and Allotment A/c Dr. 100

Share Allotment A/c Dr. 300
To Share Capital A/c 400
(The allotment of 10 lakh shares : payable on
application Rs. 10 share and Rs. 30 on allotment
as per Directors’ resolution no... dated...)
June 1 Bank A/c Dr. 309
To Shares Allotment A/c 300
To Calls in Advance A/c 9
[Receipt of money due on allotment @ Rs. 30, also
the two calls (Rs. 30 and Rs. 30) on 15,000
shares.]
Nov. 1 Share First Call A/c Dr. 300
To Share Capital A/c 300
(The amount due on 10 lakh shares @ Rs. 30 on
first call, as per Directors, resolution no... dated...)
Bank A/c Dr. 295.5
Calls in Advance A/c Dr. 4.5
To Share First Call A/c 300
(Receipt of the first call on 9.85 lakh shares, the
balance having been previously received
and now debited to call in advance account.)
2021
March 1 Share Final Call A/c Dr. 300
To Share Capital A/c 300
(The amount due on Final Call on 10 lakh shares
@ Rs. 30 per share, as per Directors’ resolution
no... dated...)
March1 Bank A/c Dr. 295.5
Calls in Advance A/c Dr. 4.5
To Share Final Call A/c 300
(Receipt of the moneys due on final call on 9.85
lakhs shares, the balance having been previously
received.)
March 1 Interest on calls in Advance A/c Dr. 0.63
To Shareholder A/c 0.63
(Being interest on call in advance made due)
March 1 Shareholder A/c Dr. 0.63
To Bank A/c 0.63
(Being interest paid)

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

Working Note:
The interest on calls in advance paid @ 12% on : Rs.
Rs. 4,50,000 (first call) from 1st June to 1st Nov., 2020–5 months 22,500
Rs. 4,50,000 (final call) from 1st June to 1st March., 2021–9 months 40,500
Total Interest Amount Due 63,000

(b) In the books of Tim Tim Ltd.

Journal Entries
Date Particulars Dr. Cr.
Rs. Rs.
(a) Bank A/c Dr. 4,50,000
To Debentures Application A/c 4,50,000
(Being the application money received on
5,000 debentures @ Rs. 90 each)
Debentures Application A/c Dr. 4,50,000
Discount on issue of Debentures A/c Dr. 50,000
To 8% Debentures A/c 5,00,000
(Being the issue of 5,000 8% Debentures @
90% as per Board’s Resolution
No….dated….)
(b) Fixed Assets A/c Dr. 2,00,000
To Vendor A/c 2,00,000
(Being the purchase of fixed assets from
vendor)
Vendor A/c Dr. 2,00,000
Discount on Issue of Debentures A/c Dr. 50,000
To 8% Debentures A/c 2,50,000
(Being the issue of debentures of Rs.
2,50,000 to vendor to satisfy his claim)
(c) Bank A/c Dr. 2,00,000
To Bank Loan A/c (See Note) 2,00,000
(Being a loan of Rs. 2,00,000 taken from bank
by issuing debentures of Rs.2,50,000 as
collateral security)
Note: No entry is made in the books of account of the company at the time of making issue of such
debentures. In the “Notes to Accounts” of Balance Sheet, the fact that the debentures being issued
as collateral security and outstanding are shown by a note under the liability secured.
(c) The difference between the balance shown by the passbook and the cashbook may arise on
account of the following:
(i) Cheques issued but not yet presented for payment.
(ii) Cheques deposited into the bank but not yet cleared.
(iii) Interest allowed by the bank.
(iv) Interest and expenses charged by the bank.
(v) Interest and dividends collected by the bank.

10

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com

 Downloaded From www.castudynotes.com

(vi) Direct payments by the bank.

(vii) Direct deposits into the bank by a customer.
(viii) Dishonour of a bill discounted with the bank.
(ix) Bills collected by the bank on behalf of the customer.
(x) An error committed by the bank etc.
OR
(c) Normally, the following subsidiary books are used in a business:
(i) Cash book to record receipts and payments of cash, including receipts into and payments out
of the bank.
(ii) Purchases book to record credit purchases of goods dealt in or of the materials and stores
required in the factory.
(iii) Purchase Returns Books to record the returns of goods and materials previously purchased.
(iv) Sales Book to record the sales of the goods dealt in by the firm.
(v) Sale Returns Book to record the returns made by the customers.
(vi) Bills receivable books to record the receipts of promissory notes or hundies from various
parties.
(vii) Bills Payable Book to record the issue of the promissory notes or hundies to other parties.
(viii) Journal (proper) to record the transactions which cannot be recorded in any of the seven
books mentioned above.

11

© The Institute of Chartered Accountants of India

Downloaded From www.castudynotes.com