Certificate in Accounting and Finance Stage Examination

The Institute of 21 September 2020

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Introduction to Accounting
Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.

Section A

Q.1 Following table depicts the effects of certain transactions of Zaviya Traders in accounting
equation form:
All amounts in Rupees
Assets Owner’s
= Liabilities +
Cash Debtors Inventory Equipment equity
(i) −55,000 +115,000 +60,000
(ii) +24,000 −25,000 −1,000
(iii) +15,000 −43,000 −28,000
(iv) −25,000 −25,000
(v) +150,000 −120,000 +30,000
(vi) −13,000
+13,000
(vii) −12,000 −18,000 −30,000

Required:
Give brief narration/description of each of the above transactions. (07)

Q.2 Shahabnama Store (SS) is engaged in selling medical supplies. SS usually sells at cost plus
40% and uses perpetual inventory method. Accountant of SS is confused in dealing with the
following matters related to January 2020:

(i) On 2 January 2020, a supplier voluntarily recalled one of its products due to quality
issues. SS refunded Rs. 630,000 and issued credit notes of Rs. 280,000 for products
returned by customers during the month. SS returned all the recalled products to the
supplier on 30 January 2020 for cash.

(ii) On 7 January 2020, SS signed an agreement with Town Hospital (TH) for supply of its
products against TH’s requisitions. It was agreed that SS will give 15% discount to TH.
The bill will be raised on monthly basis and will be paid by TH within 10 days. Bill
raised on 31 January 2020 amounted to Rs. 5.95 million.
(iii) As a result of month-end stock count, it was noted that products costing:

Rs. 380,000 were damaged during handling and needs to be scrapped at nil value.

Rs. 730,000 has been expired and will be replaced by suppliers with identical
unexpired products.

Required:
Prepare journal entries in the books of SS to record the above transactions for January 2020.
(Narrations are not required) (08)
 Introduction to Accounting Page 2 of 5

Q.3 Hairat Kadah Enterprises (HKE) acquired a showroom on 1 November 2017 at an annual
rent of Rs. 2.4 million. The rent is payable quarterly in advance. Under the agreement, the
rent increases by 10% each year.

HKE paid the rent on due date with the exception of the following instances:

6 months’ rent was paid on 1 May 2019 on the request of the owner of the showroom.

Rent due from 1 February 2020 till year-end was not paid due to financial difficulties.

HKE’s financial year ends on 30 June each year.

Required:
Prepare rent expense account for the years ended 30 June 2018, 2019 and 2020. (06)

Q.4 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions.

(i) Which of the following statements is correct regarding trial balance?

(a) Every credit balance represents income
(b) Return inward has debit balance
(c) Opening stock as well as closing stock appear in a trial balance
(d) Trial balance is a book of prime entry (01)

(ii) Which of the following statements is correct?

(a) Directors of a company are personally liable for any losses of the company
(b) A sole trader business is owned by shareholders and operated by the proprietor
(c) Partners are liable for losses in a partnership equally regardless of their
profit-sharing ratio
(d) A company is run by directors on behalf of shareholders (01)

(iii) Interest charged on drawings of partners:

(a) increases the profit available for appropriation to partners
(b) decreases the profit available for appropriation to partners
(c) increases expenses of the partnership business
(d) decreases expenses of partnership business (01)

(iv) A motor vehicle was purchased for Rs. 1,395,000 on 1 July 2018. It has an estimated
useful life of 5 years and a residual value of Rs. 255,000. If the sum of the digits
method of depreciation is used, what will be the carrying amount of motor vehicle as
at 30 June 2020?
(a) Rs. 711,000 (b) Rs. 558,000
(c) Rs. 456,000 (d) Rs. 303,000 (02)

(v) During the year 2019, an entity purchased a machine for Rs. 20 million to be used for
6 years. Which of the following would represent residual value of this machine in
2019?
(a) Rs. 15 million can be currently obtained from disposal of the machine in present
condition
(b) Rs. 4 million can be currently obtained from disposal of a 6 year old similar
machine
(c) Rs. 18 million can be obtained in 2025 from disposal of the machine in present
condition
(d) Rs. 7 million can be obtained in 2025 from disposal of a 6 year old similar
machine (01)
 Introduction to Accounting Page 3 of 5

(vi) A, B and C are partners in a firm sharing profit or loss in the ratio of 3:3:4. B is
entitled to an annual commission of 5% on sales. The sales and net profit earned by
the firm during the year are Rs. 12 million and Rs. 3 million respectively. What is C’s
share of profit?
(a) Rs. 720,000 (b) Rs. 1,140,000
(c) Rs. 1,560,000 (d) Rs. 960,000 (02)

(vii) An entity received electricity bill for the month of June 2020. The bill will be paid on
10 July 2020. The entity’s financial year ends on 30 June. How would the payment be
recorded?
(a) Debit electricity expense and credit utilities payable
(b) Debit utilities payable and credit electricity expense
(c) Debit utilities payable and credit cash
(d) Debit electricity expense and credit cash (01)

Section B

Q.5 On 30 June 2020, cash book of Raja Gidh Enterprises (RGE) reflected a credit balance of
Rs. 2,493,030 and bank statement showed an overdraft of Rs. 2,415,000. The trial balance
for the year ended 30 June 2020 included a debit balance of Rs. 329,730 in the suspense
account. Control accounts are not maintained for debtors and creditors. On scrutinizing the
records, following issues were discovered:

(i) Outstanding cheques amounted to Rs. 356,300. This amount does not include:

two cheques of Rs. 100,000 each issued to a supplier. Second cheque was issued
in replacement of first cheque due to incorrect payee name. However, the first
cheque was not reversed from cash book.

a cheque dated 20 April 2020 for Rs. 44,630 issued for repair of a car. The cheque
was misplaced by receiver and no recording was made for misplacement of the
cheque. The repair charges were paid in cash in June 2020 and debited to
suspense account.

(ii) A cheque issued to a supplier amounting to Rs. 405,000 was entered in the books of
RGE as Rs. 450,000. However, the bank erroneously recorded the amount as
Rs. 504,000.
(iii) On 30 June 2020, RGE made an e-payment of Rs. 72,000 to a supplier to avail
10% discount. As payment was made after office hours, it was not reflected in bank
statement as well as in cash book.
(iv) Un-cleared cheques amounted to Rs. 460,000 which included a customer’s cheque of
Rs. 36,000 returned by the bank due to signature difference. The cheque was sent to
the customer for replacement and received back in July 2020.
(v) Financial charges on bank overdraft amounting to Rs. 7,500 were recorded in the bank
statement. However, RGE’s accountant identified an error in the calculation of the
financial charges and therefore credited the correct amount of Rs. 5,100 in the cash
book and the remaining in the suspense account. The error was corrected by the bank
in July 2020.
(vi) Annual rent upto 31 March 2021 was paid by the bank on RGE’s standing instruction
amounting to Rs. 120,000. The amount paid has been debited to suspense account.
(vii) A cheque of Rs. 10,000 received from a customer has not been posted to customer’s
ledger account.
(viii) Total of return inward journal of Rs. 92,000 was posted to the credit of return outward
account.
(ix) The credit side of the bank column of cash book was under casted by Rs. 6,500.
 Introduction to Accounting Page 4 of 5

Required:
(a) Compute the corrected cash book balance as on 30 June 2020. (06)
(b) Prepare bank reconciliation statement as on 30 June 2020. (06)
(c) Prepare suspense account. (06)

Q.6 Uljhay Suljhay Brothers (USB) is engaged in trading of Air Compressors. As at 1 July 2020,
USB’s three column cash book showed cash and bank balances of Rs. 180,000 and
Rs. 400,000 respectively. Following transactions pertain to the month of July 2020:
01-July Sold goods on cash to Earth Traders for Rs. 600,000.
02-July Purchased goods on credit in bulk from Sun & Co. and Moon & Co. for
Rs. 285,000 and Rs. 266,000 (net of 5% trade discount) respectively.
05-July Sold goods on credit for Rs. 248,000 and Rs. 198,000 to Mars Super Store and
Jupiter Centre respectively.
06-July Sold office equipment having book value of Rs. 50,000 for Rs. 80,000 on cash.
The cost of the equipment was Rs. 250,000.
10-July Returned goods costing Rs. 87,000 to Sun & Co.
11-July Purchased office furniture for Rs. 190,000 from Galaxy Enterprises. Rs. 45,000
was paid in cash and the balance would be paid in August 2020.
12-July Earth Traders returned goods for cash amounting to Rs.100,000.
14-July Purchased goods on credit amounting to Rs. 150,000 and Rs. 120,000 from
Venus Enterprises (VE) and Saturn Traders respectively. VE offered 3% discount
on payment within 15 days.
16-July Received cheques amounting to Rs. 142,500 and Rs. 114,000 (both net of 5%
discount) from Mars Super Store and Pluto & Co. respectively.
20-July Purchased goods for cash from Neptune & Co. for Rs. 190,000 (net of 5%
discount).
23-July Returned goods costing Rs. 20,000 to VE and settled the remaining balance
through cheque.
25-July Paid loan instalment of Rs. 250,000 including interest of Rs. 55,000 through
cheque.
27-July Deposited cash into bank Rs. 100,000.
30-July Paid entertainment expenses amounting to Rs. 50,000 through cheque. This
included a bill of Rs. 5,000 pertained to the owner’s personal expenses.
Required:
Record the above transactions in the books of prime entry in a proper format. (Narrations are
not required) (16)

Q.7 Following information pertain to vehicles of Aab-e-Hayat Merchant (AHM):

Vehicles – Cost
Date Description Rs. in '000 Date Description Rs. in '000
1-Jan-19 Balance 11,400 30-Apr-19 Disposal 1,500
1-Jul-19 Addition 2,000 30-Sep-19 Disposal 1,800
31-Dec-19 Balance 10,100
13,400 13,400
AHM purchased 5 vehicles on 1 July 2016 at a cost of Rs. 1,500,000 each. One of these
vehicles was disposed off on 31 December 2017. Further, 3 vehicles were purchased on
1 January 2018 at a cost of Rs. 1,800,000 each.
Residual value of each vehicle is estimated at 30% of its cost.
Required:
Prepare accumulated depreciation account of vehicles for the year ended 31 December 2019
under each of the following situations:
(a) AHM depreciates vehicles at 20% per annum using the straight line method. (08)
(b) AHM depreciates vehicles at 25% per annum using the reducing balance method. (08)
 Introduction to Accounting Page 5 of 5

Q.8 Following is the summarized trial balance of Bajang Aamad Limited (BAL) for the year
ended 30 June 2020:

Debit Credit
------- Rs. in '000 -------
Head office building 15,000 1,900
Delivery vehicles 9,350 4,500
Opening stock 5,500
Trade receivables 5,255
Provision for doubtful trade receivables 400
Advance 2,160
Cash and bank balances 1,255
Share capital (Rs. 10 each) 8,000
Share premium 2,800
Retained earnings 6,660
Long-term loans 3,000
Trade payables 2,900
Short-term loan 1,500
Sales revenue 39,770
Purchases 26,200
Operating expenses (excluding depreciation) 3,510
Sales supplies 840
Sales offices rent 1,800
Finance charges 560
71,430 71,430

Additional information:
(i) Cost of closing stock was Rs. 7,400,000, of which goods costing Rs. 500,000 were
slightly damaged and can be sold for Rs. 600,000 after incurring repacking cost of
Rs. 160,000.
(ii) 60% of the sales offices rent represents payment of annual rent upto
30 September 2020.
(iii) Advance from a customer amounting to Rs. 475,000 (net of 5% discount) has been
included in sales. Goods will be delivered to the customer after year-end.
(iv) Advance represents 60% payment made on 1 February 2020 for the purchase of a
delivery vehicle. Remaining balance would be paid in September 2020. No entry was
made when the vehicle was delivered on 1 April 2020.
(v) Delivery vehicles’ cost includes an amount of Rs. 150,000 paid in June 2020 for
repainting of an old delivery vehicle. However, due to heavy workload, vehicle was
not painted till year-end.
(vi) BAL depreciates building at 4% using straight line method while delivery vehicles are
depreciated at 15% using reducing balance method. 30% of cost of the building
represents land.
(vii) A specific provision at 75% is to be made against Asad Baker’s balance of Rs. 380,000.
A general provision for doubtful receivables is maintained at 4% of the remaining
trade receivables.
(viii) Unused sales supplies at year-end amounted to Rs. 320,000.
(ix) The amount of operating expenses (excluding depreciation) is to be allocated into
selling and administration expenses in the ratio of 60:40 respectively.

Required:
(a) Prepare statement of profit or loss for the year ended 30 June 2020. (12)
(b) Prepare statement of financial position as at 30 June 2020. (08)

(THE END)
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2020

A.1 (i) Equipment was purchased for Rs. 115,000 against payment of Rs. 55,000 from business
cash and the remaining from owner’s personal cash.
(ii) Customer paid Rs. 24,000 in settlement of Rs. 25,000.
(iii) Goods for Rs. 43,000 were returned, the supplier paid Rs. 15,000 in cash and the
remaining was adjusted with outstanding balance.
(iv) Equipment having book value of Rs. 25,000 was destroyed/lost/withdrawn by
owner/depreciated.
(v) Goods costing Rs. 120,000 were sold for Rs. 150,000 on credit.
(vi) Owner paid business expenses of Rs. 13,000 from his personal cash.
(vii) Owner withdrew cash Rs 12,000 and goods costing Rs. 18,000 for personal use.

A.2 General Journal

Debit Credit
Date Description
-------- Rupees --------
30-01-2020 Sales return/Return inward 910,000
(i) Cash 630,000
Trade receivable 280,000

Inventory 910,000/1.4 650,000

Cost of sales 650,000

Cash 650,000
Inventory 650,000

31-01-2020 Trade receivable TH 5,950,000

(ii) Sales 5,950,000

Cost of sales 5,950,000/(1.4×85%) 5,000,000

Inventory 5,000,000

31-01-2020 Cost of sales 380,000

(iii) Inventory 380,000

No entry for goods to be replaced

A.3 Hairat Kadah Enterprise

Rent expense – 2018 Rs. in '000
Date Description Amount Date Description Amount
1-Nov-17 Payment 2,400×3/12 600 30-Jun-18 Rent expense (P&L) 1,600
1-Feb-18 Payment 600
1-May-18 Payment 600 30-Jun-18 Prepaid c/d 600×1/3 200
1,800 1,800

Rent expense – 2019

Date Description Amount Date Description Amount
1-Jul-18 Prepaid b/d 200 30-Jun-19 Rent expense (P&L) 2,560
1-Aug-18 Payment 600
1-Nov-18 Payment 600×1.1 660
1-Feb-19 Payment 660
1-May-19 Payment 660×2 1,320 30-Jun-19 Prepaid c/d 1,320×4/6 880
3,440 3,440

Page 1 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2020

Rent expense – 2020

Date Description Amount Date Description Amount

1-Jul-19 Prepaid b/d 880 30-Jun-20 Rent expense (P&L) 2,816
1-Nov-19 Payment 660×1.1 726
30-Jun-
20 Accrued c/d 726×5/3 1,210
2,816 2,816

A.4 (i) (b) Return inward has debit balance

(ii) (d) A company is run by directors on behalf of shareholders
(iii) (a) increases the profit available for appropriation to partners
(iv) (a) Rs. 711,000
(v) (b) Rs. 4 million can be currently obtained from disposal of 6 year old similar
machine
(vi) (d) Rs. 960,000
(vii) (c) Debit utilities payable and credit cash

A.5 (a) Cash Book

Description Rupees Description Rupees
(i) Trade payable 100,000 Balance b/d 2,493,030
(i) Suspense 44,630 (iii) Trade payable 72,000
(ii) Trade payable 450– 405 45,000 (iv) Trade receivable 36,000
Balance c/d 2,417,900 (ix) Suspense 6,500
2,607,530 2,607,530

(b) Bank reconciliation statement

Rupees
Balance as per bank statement (2,415,000)
(i) Outstanding cheques 356,300+100,000 (456,300)
(ii) Error in recording by bank 504,000–405,000 99,000
(iii) E-payment to supplier (72,000)
(iv) Uncleared cheques 460,000–36,000 424,000
(v) Financial charges overbooked/rectified 7,500–5,100 2,400
Balance as per cash book (2,417,900)

(c) Suspense Account

Description Rupees Description Rupees
Balance b/d 329,730 (i) Bank 44,630
(v) Finance cost 2,400 (vi) Rent expense 30,000
(vii) Trade receivable 10,000 (vi) Prepaid rent 90,000
(ix) Bank 6,500 (viii) Return Inward 92,000
(viii) Return Outward 92,000
348,630 348,630

Page 2 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2020

A.6 Uljhay Suljhay Brothers

Sales day book
Date Customer Rupees
05-July Mars super store 248,000
05-July Jupiter centre 198,000
446,000

Purchases day book

Date Supplier Rupees
02-July Sun & Co. 285,000
02-July Moon & Co. 266,000
14-July Venus Enterprises (VE) 150,000
14-July Saturn Traders 120,000
821,000

Purchases returns day book

Date Supplier Rupees
10-July Sun & Co. 87,000
23-July Venus Enterprises (VE) 20,000
107,000

General Journal
Debit Credit
Date Description
------ Rupees ------
06-July Disposal 50,000
Accumulated depreciation - Office equipment 250,000–50,000 200,000
Office equipment 250,000

11-July Office furniture 190,000–45,000 145,000

Other payable– Galaxy Enterprises 145,000

Cash book
Receipts Payments
Discount Discount
Cash Bank Cash Bank
Date Description allowed Date Description received
--------- Rupees --------- --------- Rupees ---------
01-July Opening balance - 180,000 400,000 11-July Office furniture - 45,000 -
01-July Sales - 600,000 - 12-July Return inward - 100,000 -
06-July Disposal - 80,000 - 20-July Purchases - 190,000 -
16-July Mars super store Venus Enterprise
(142,500÷0.95×0.05) 7,500 - 142,500 23-July (150,000-20,000)×0.97 3,900 - 126,100
Pluto & Co. 25-July Loan - - 195,000
16-July
(114,000÷0.95×0.05) 6,000 - 114,000 25-July Interest expense - - 55,000
27-July Cash - - 100,000 27-July Bank 100,000 -
30-July Entertainment exp. - 45,000
30-July Drawings - 5,000
31-July Closing balance 425,000 330,400
13,500 860,000 756,500 3,900 860,000 756,500

Page 3 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2020

A.7 Aabe Hayat Merchant

(a) Straight line method Rs. in '000

Accumulated depreciation – Vehicle
30-Apr-19 Disposal (W-2) 595 1-Jan-19 Opening balance (W-1) 2,856
30-Sep-19 Disposal (W-3) 441 Depreciation (W-4) 1,533
31-Dec-19 Closing balance 3,353
4,389 4,389

W-1: Opening balance

4 vehicle of 1 July 2016 (1,500–450)×20%×2.5×4 2,100
3 vehicle of 1 Jan 2018 (1,800–540)×20%×3 756
2,856

W-2: Accumulated depreciation of disposal 30 April

(1,500–450)×20%×2.5 525
(1,500–450)×20%×4/12 70
595

W-3: Accumulated depreciation of disposal 30 September

(1,800–540)×20% 252
(1,800–540)×20%×9/12 189
441

W-4: Depreciation for the year

On opening balance:
Disposal 1: (1,500–450)×20%×4/12 (W-2) 70
Disposal 2: (1,800–540)×20%×9/12 (W-3) 189
Remaining: [8,100(11,400-1,500-1,800)– 2,430]×20% 1,134
On addition:
(2,000–600)×20%×6/12 140
1,533

(b) Reducing balance method Rs. in '000

Accumulated depreciation - Vehicle
30-Apr-19 Disposal (W-2) 824 1-Jan-19 Opening balance (W-1) 4,397
30-Sep-19 Disposal (W-3) 703 Depreciation (W-4) 1,794
31-Dec-19 Closing balance 4,664
6,191 6,191

W-1: Opening balance

4 vehicles of 1 July 2016
2016: 6,000(1,500×4) × 25%×6/12 750
2017: (6,000–750)×25% 1,313
2018: (6,000–2,063)×25% 984
3,047
3 vehicles of 1 Jan 2018: 1,800×25%×3 1,350
4,397

W-2: Accumulated depreciation of disposal 30 April

Till 2018: 3,047(W-1)÷4 762
2019: (1,500–762)×25%×4/12 62
824

Page 4 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2020

W-3: Accumulated depreciation of disposal 30 September

2018: 1,800×25% 450
2019: (1,800–450)×25%×9/12 253
703

W-4: Depreciation for the year

On opening balance:
Disposal 1: (1,500–762)×25%×4/12 (W-2) 62
Disposal 2: (1,800–450)×25%×9/12 (W-3) 253
Remaining: (8,100– 3,185)×25% 1,229
On addition: 2,000×25%×6/12 250
1,794

A.8 (a) Bajang Aamad Limited

Statement of profit or loss for the year ended 30 June 2020
Rs. in '000
Revenues 39,770–475 39,295
Cost of sales (W-1) (24,360)
Gross profit 14,935
Selling expense (W-2) (4,996)
Administration expense (W-2) (1,904)
Operating profit 8,035
Finance cost (560)
Net profit 7,475

W-1: Cost of sales Rs. in '000

Opening stock 5,500
Purchases 26,200
Closing inventory 7,400–60[500–(600–160)] (7,340)
24,360

W-2: Selling & administrative expense Selling Administrative

-------- Rs. in '000 --------
Operating expenses 3,510 in 60:40 2,106 1,404
Sales office rent 1,800–270(1,800×0.6×3÷12) 1,530
Depreciation (W-3) 840 420
Bad debt (480(W-5)–400) 80
Sales supplies 840-320 520
4,996 1,904

W-3: Depreciation expense Rs. in '000

Vehicle:
On opening balance (9,350–150–4,500)×15% 705
On addition 3,600×15%×3/12 135
840
Building 15,000×0.7×4% 420
1,260

Page 5 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2020

(b) Statement of financial position as at 30 June 2020

Rs. in '000
Assets
Non-current assets
Property, plant and equipment (W-4) 20,140

Current assets
Stock in trade (W-1) 7,340
Sales supplies 320
Trade receivables – net (W-5) 4,775
Prepayment 270 PL +150 PL 420
Cash and bank balances 1,255
14,110
34,250
Equity and liabilities
Equity
Share capital (Rs. 10 each) 8,000
Share premium 2,800
Retained earnings 6,660+7,475 14,135
24,935
Non-current liabilities
Long-term loan 3,000

Current liabilities
Trade and other payables 2,900+1,440(3,600 –2,160) 4,340
Advance from customer 475
Short term loan 1,500
6,315
34,250

W-4: Property, plant & equipment Rs. in '000

Head office building 15,000
Accumulated depreciation 1,900+420(W-3) (2,320)
12,680
Delivery vehicles 9,350+3,600(2160÷0.6)–150 12,800
Accumulated depreciation 4,500+840(W-3) (5,340)
7,460
20,140

W-5: Trade receivables – net Rs. in '000

Trade receivables 5,255
Provision for doubtful receivables 380×75%+( 5,255–380)×4% (480)
4,775

(The End)

Page 6 of 6
 Certificate in Accounting and Finance Stage Examination

The Institute of 2 March 2020

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Introduction to Accounting
Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.

Section A

Q.1 Shangrila Enterprises (SE) expanded its production facility by installing a plant in 2019.
Following information pertains to the plant:

(i) Two vendors A and B submitted their bid prices of Rs. 750 million and Rs. 800 million
respectively. Due to better quality, vendor B was selected and after negotiations, price
of the plant was finalized at Rs. 780 million.
(ii) The acquisition of the new plant was financed by selling an old plant having book
value of Rs. 170 million for Rs. 140 million and remaining amount was arranged by
selling investments held by SE.
(iii) Arrival of the plant was originally scheduled on 31 March 2019 at a freight of
Rs. 3.5 million. However, the arrival date was rescheduled to 31 January 2019 by
paying additional freight of Rs. 1.5 million. While transporting, the plant was slightly
damaged and repaired at a cost of Rs. 2 million.
(iv) Site preparation work was completed at a cost of Rs. 5.8 million. This cost includes
Rs. 1.2 million for demolition and reconstruction of the existing building structure.
(v) Installation work was carried out during the month of February 2019 at a cost of
Rs. 5 million. In addition, overheads of Rs. 1.5 million were allocated for using factory
resources during installation.
(vi) The plant was customised by altering some parts at a cost of Rs. 12 million. The
alteration slows down the production process but is necessary to align the plant with
existing production process.
(vii) On 1 March 2019, safety equipment for the use of staff operating the plant were
purchased at a cost of Rs. 10 million. Expected useful life of the safety equipment is
5 years.
(viii) The plant was available for use on 1 May 2019 but due to unavailability of the
required raw material, commercial production was delayed till 1 June 2019.
(ix) Residual values of the plant at the end of its useful life and economic life of 20 years
and 25 years are estimated at Rs. 100 million and Rs. 40 million respectively.

Required:
Compute book value of the plant as at 31 December 2019. (08)
(Items ignored while computing cost of the plant should be mentioned as zero)

Q.2 IAS 1 'Presentation of Financial Statements' requires an entity to present an analysis of

expenses recognised in profit or loss using a classification based on either their nature or
their function within the entity, whichever provides information that is reliable and more
relevant.

Required:
Prepare formats of statement of profit or loss giving analysis of expenses by their:
(a) nature (03)
(b) function (03)
 Introduction to Accounting Page 2 of 6

Q.3 Following information pertains to Paristan Brothers for the month of January 2020:
(i) Business travel expenses amounted to Rs. 85,000 were paid by the owner from his
personal bank account.
(ii) A payment of Rs. 45,000 was made for repair of owner's personal vehicle.
(iii) A laptop costing Rs. 250,000 and having book value of Rs. 60,000 was sold for
Rs. 100,000 on cash.
(iv) Tasnim, a creditor having balance of Rs. 1,500,000 has been admitted to the
partnership. The balance payable is to be treated as his capital.
(v) Goods costing Rs. 180,000 were sold to the owner of the office building against office
rent of Rs. 210,000 for the month of January 2020.
(vi) A debtor who was declared bankrupt, has paid Rs. 400,000 (i.e. 50% of the balance
due) in full and final settlement. A specific provision at 60% of the balance due had
already been made.

Required:
Show the effects, if any, of each of the above information in the form of accounting
equation. (08)

Q.4 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions (MCQs).

(i) ‘Allowance for doubtful debts’ account is:

(a) liability account (b) asset account
(c) contra asset account (d) expense account (01)

(ii) Which of the following does not require journal entry in periodic inventory method?

(a) Abnormal loss (b) Goods returned by a supplier

(c) Closing inventory (d) Normal loss (01)

(iii) For reconciling bank balances, unpresented cheques should be:

(a) added to balance of bank statement and deducted from balance of cash book
(b) deducted from balance of bank statement or added to balance of cash book
(c) deducted from balance of bank statement and added to balance of cash book
(d) added to balance of bank statement or deducted from balance of cash book (01)

(iv) Which of the following statement(s) is/are correct?

(I) Higher closing prepaid balance than previous year means that payment for the
year exceeds the expense for the year.
(II) Higher closing accrued income balance than previous year means that receipt for
the year exceeds the income for the year.
(a) Only (I) is correct (b) Only (II) is correct
(c) Both are correct (d) None is correct (01)

(v) Rent amounts totaling Rs. 150,000 were received during the year ended
31 December 2019. In this respect, opening and closing balances are as under:

31 Dec 2019 31 Dec 2018

----------- Rupees -----------
Unearned rent 16,000 10,000
Rent receivable 13,000 17,000

What should be the rent income for the year ended 31 December 2019?
(a) Rs. 144,000 (b) Rs. 152,000 (c) Rs. 148,000 (d) Rs. 140,000 (02)
 Introduction to Accounting Page 3 of 6

(vi) Office supplies purchased were mistakenly debited to Purchases account. This type of
error is called:
(a) error of omission (b) compensating error
(c) error of principle (d) error of transposition (01)
(vii) A transaction not recorded in any other books of original entry is recorded in:
(a) Sales day book (b) Purchases day book
(c) General journal (d) Cash book (01)
(viii) On 1 February 2019, a loan of Rs. 6,000,000 was taken from a bank for acquisition of
an office building. A portion of the building was rented out on 1 August 2019 at a
monthly rent of Rs. 45,000. Interest is payable at 15% per annum on 31 January each
year and rent is received half yearly in advance.

What amounts of interest payable and unearned rent should be shown in the statement
of financial position as on 31 December 2019?
(a) Interest payable Rs. 900,000; Unearned rent Rs. 270,000
(b) Interest payable Rs. 825,000; Unearned rent Rs. 45,000
(c) Interest payable Rs. 450,000; Unearned rent Rs. 45,000
(d) Interest payable Rs. 825.000; Unearned rent Rs. 250,000 (02)
(ix) An entity acquired laptops in exchange of desktops which have carrying amount of
Rs. 450,000 and fair value of Rs. 300,000 at the date of exchange. The list price of the
laptops acquired is Rs. 600,000. The entity is also required to pay cash of Rs. 275,000
in this exchange transaction.

The laptops should be initially recognized at:

(a) Rs. 300,000 (b) Rs. 575,000 (c) Rs. 450,000 (d) Rs. 600,000 (01)

Section B

Q.5 Kallar Traders (KT) deals in various consumer products. KT follows perpetual inventory
system and uses first-in-first-out (FIFO) method to measure cost of its inventory. Following
information for the month of January 2020 pertains to one of its products Beta:
Date Description
01-Jan Opening inventory:
2,800 units Rs. 140,000
1,200 units Rs. 62,400
03-Jan Purchased 3,000 units on cash having a list price of Rs. 60 per unit at a trade
discount of 5%.
08-Jan Sold 2,900 units on 30 days’ credit for Rs. 266,800 subject to 2% discount on
payment within 10 days.
15-Jan Sold 1,800 units on credit at a list price amounted to Rs. 171,000 and allowed
a discount thereon at 5%.
20-Jan Returned 500 damaged units purchased on 3 January 2020. The return
amount was set-off against balance payable to the supplier.
25-Jan Purchased 3,000 units for Rs. 174,000 against issuance of a post-dated cheque.
30-Jan Purchased 2,000 units on credit for Rs. 120,000. These units were collected by
KT’s transporter on 30 January 2020 and received at warehouse on
3 February 2020.
As per physical inventory count carried out on 31 January 2020:
 100 units were found expired and can be sold as scrap at Rs. 20 per unit; and
 600 units were found short and it was determined that these units were stolen by an
employee who left the job.
 Introduction to Accounting Page 4 of 6

Required:
(a) Prepare inventory ledger card for product Beta for the month of January 2020. (08)
(b) Prepare accounting entries from the above information. (Narrations are not required) (07)

Q.6 Following information pertains to Zahrba Stationers (ZS) for the month of January 2020:

PURCHASES DAY BOOK

Date Name of supplier Rs. in '000
06-Jan Satpara & Co. (SC) 1,500
17-Jan Ravi Traders (RT) 1,714
28-Jan Balistan Brothers (BB) 856
4,070

SALES DAY BOOK

Date Name of customer Rs. in '000
02-Jan Skardu & Sons (SS) 1,800
04-Jan Gilgit Limited (GL) 2,000
25-Jan Keenjhar Enterprises (KE) 1,137
4,937

CASH BOOK
Cash Bank Cash Bank
Date Description Date Description
--- Rs. in '000 --- --- Rs. in '000 ---
01-Jan Balance 110 - 01-Jan Balance - 180
02-Jan Sales 290 - 05-Jan Purchases 250 -
08-Jan GL - net of 5% discount - 1,900 09-Jan SC - net of 4% discount - 1,440
10-Jan SS - 1,590 12-Jan Utility bills 98 -
18-Jan Scrap sale 25 16-Jan Petty cash - 50
20-Jan Bank 200 - 20-Jan Cash - 200
26-Jan Sales 295 - 25-Jan Repair & maintenance 67 -
27-Jan Long-term-loan - 100
28-Jan RT - 1,378
31-Jan Balance 480 167
895 3,515 895 3,515

Additional information
(i) The petty cash fund was established during the month. As at 31 January 2020 petty
cash balance in hand was Rs. 20,000.
(ii) Repair and maintenance payment includes Rs. 25,000 paid for repair of owner’s
premises.
(iii) Payment of loan amount includes interest of Rs. 15,000.
(iv) The cheque issued to RT was presented to the bank in February 2020.
(v) On 29 January 2020, goods costing Rs. 100,000 purchased from BB were found
damaged and returned.
(vi) A part of goods sold on cash to Haleji & Sons on 26 January 2020 for Rs. 70,000 were
returned on 31 January 2020 and the amount due was paid on 4 February 2020.
(vii) Other assets and liabilities as at 1 January 2020, are as under:
Rs. in '000
Fixed assets – net (Cost Rs. 1,600,000) 1,254
Trade debtors 2,423
Inventory 850
Trade creditors 1,800
Long-term-loan 800

Required:
Prepare trial balance for the month ended 31 January 2020. (Preparation of ledger accounts is
not necessary) (15)
 Introduction to Accounting Page 5 of 6

Q.7 Hanna Traders (HT) is a partnership with two partners A and Zee. Following is the
summarized trial balance of HT for the year ended 31 December 2019:

Rs. in million
Description Debit Description Credit
Property, plant and equipment 140 Accumulated depreciation 64
Inventories – 1 Jan 2019 35 Trade payables 30
Trade receivables 48 Other payables and accruals 8
Cash and bank balances 3 Capital account – A 67
Prepayments 6 Capital account – Zee 45
Other receivables 4 Current account – Zee 2
Provision for doubtful receivables 3 Sales 315
Purchases 170 Other income 6
Import duties 39
Returns 7
Freight in 5
Operating expenses 52
Financial charges 5
Depreciation expense 16
Current account – A 4
537 537

Additional information:
(i) Physical inventories as at 31 December 2019 were valued at Rs. 30 million.
(ii) Goods costing Rs. 3 million were issued to A but not recorded. A informed that:
 goods costing Rs. 2 million were distributed to potential customers as samples;
and
 goods costing Rs. 1 million were gifted to one of his friends.
(iii) Sales commission of Rs. 8 million was paid to Zee during the year which was charged
to operating expenses.
(iv) Operating expenses include insurance premium of Rs. 4 million that pertained to an
insurance policy expiring on 31 March 2020.
(v) On 1 August 2019, Rs. 6 million was received being 50% advance payment against a
maintenance contract valid up to 31 March 2020. Remaining amount is due on
completion of the contract. The amount received was credited to other payables.
(vi) Due to a calculation error, prepaid rent has been over recorded by Rs. 2 million.
(vii) Rs. 2 million received in full and final settlement of a previously written off balance of
Rs. 5 million, was credited to trade receivables. HT maintains provision for
doubtful receivables at 4% of the year-end balance.
(viii) A fully depreciated machine costing Rs. 28 million was sold for Rs. 10 million through
an agent who is entitled for a sale commission of 5%. The sale proceeds was received
on 20 January 2020. Nothing has been recorded in this respect.

Under the partnership agreement:

(i) A is entitled for a monthly salary of Rs. 1 million whereas Zee is entitled for
6% commission on net sales.
(ii) Remaining profit would be shared by A and Zee in the ratio of 3:2 respectively.
(iii) To expand the business, 20% of appropriated profits is transferred to capital accounts.

Required:
(a) Prepare statement of profit or loss for the year ended 31 December 2019. (08)
(b) Show how HT’s profit for the year ended 31 December 2019 would be shared between
the partners. (04)
(c) Prepare statement of financial position as at 31 December 2019. (08)
 Introduction to Accounting Page 6 of 6

Q.8 Following draft statement of financial position as on 31 December 2019 of Naltar

Establishment (NE) is under review:

Assets Rs. in ‘000 Equity & liabilities Rs. in ‘000

Fixed assets – net 22,590 Opening capital 32,240
Current assets: Net profit for the year 9,360
Stock 15,320 41,600
Trade receivables 19,730 Current liabilities:
Drawings 1,400 Trade payables 17,332
Cash & bank 3,850 Other payables 2,680
40,300 Suspense account 798
Discount received 480
21,290
62,890 62,890

The following matters are identified:

(i) Goods costing Rs. 5,800,000 received on 31 December 2019 were included in the
year-end physical count. However, these goods were recorded in purchases day book
on 5 January 2020 on receipt of the invoice.
(ii) Year-end physical count sheets include a third party stock of Rs. 1,320,000.
(iii) Goods sold on credit at a trade discount of 10% were recorded at gross amount of
Rs. 6,400,000.
(iv) An unidentified credit of Rs. 294,000 appearing in the bank statement was accounted
for in the suspense account. It was discovered that the credit was a settlement of an old
outstanding balance previously written off. The amount was net of 2% bank charges.
(v) A cheque of Rs. 500,000 issued by a customer as an advance was dishonored and
returned by the bank on 31 December 2019. No entry was made on return of cheque.
(vi) Operating expenses include insurance premium of Rs. 900,000 paid during the year,
out of which Rs. 200,000 pertain to owner's residential premises. The policy is valid
up to 30 June 2020.
(vii) An upgradation of a plant to improve quality and efficiency was completed on
1 July 2019 at a cost of Rs. 2,500,000. The cost was charged to repair and maintenance
expense.
(viii) Total sales of 26 December 2019 as per sales day book was Rs. 167,000. This was
posted in trade receivable control account as Rs. 671,000. Trial balance was balanced
by taking the difference to the suspense account.

Other information:
NE uses periodic stock method. The plant is depreciated at 20% using diminishing balance
method.

Required:
Prepare corrected statement of financial position as on 31 December 2019. (17)

(THE END)
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2020

A.1 Shangrila Enterprises

Book value of the plant as at 31 December 2019
Rs. in million
Initial cost of the plant:
(i) Cost of the plant 780.00
(ii) Sale of old plant/investments -
(iii) Freight charges 3.50+1.50 5.00
Repair of plant damages -
(iv) Preparation of site 4.6+1.2 5.80
(v) Installation work 5.00
Allocated cost -
(vi) Customisation of the plant 12.00
(vii) Purchase of safety equipment -

Initial cost 807.80

Depreciation for 2019 (807.80‒100)×1/20×8/12 (23.59)
Book value of the plant as at 31December 2019 784.21

A.2 Formats of statement of profit or loss

(a) Analysis of expenses by nature

Description Rs.
Revenue x
Other income x
Changes in inventories x
Raw materials and consumables used/Purchases x
Employee benefits expense/Salaries x
Depreciation and amortization expense x
Other expenses x
Total expenses (x)
Profit x

(b) Analysis of expenses by function

Description Rs.
Revenue x
Cost of sales (x)
Gross profit x
Other income x
Distribution costs (x)
Administrative expenses (x)
Other expenses (x)
Profit x

Page 1 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2020

A.3 Paristan Brothers

Accounting equation
Assets = Equity + Liabilities
S.No. Head of account
----------- Rupees [Increase/(Decrease)] -----------
(i) Travel expenses (85,000)
Capital 85,000
(ii) Drawings (45,000)
Bank/Cash (45,000)
(iii) Bank/Cash 100,000
Accumulated depreciation 190,000
Fixed assets (250,000)
Gain on sale of fixed assets 40,000
(iv) Trade creditors (1,500,000)
Capital 1,500,000
(v) Rent expense (210,000)
Sale 210,000
Cost of sales (180,000)
Inventory (180,000)
(vi) Bank/Cash 400,000
Provision for doubtful
debts 480,000
Account receivable (800,000)
Reversal of provision 80,000

A.4 (i) (c) Contra asset account

(ii) (d) Normal loss
(iii) (b) Deducted from balance of bank statement or added to balance of cash book
(iv) (a) Only (I) is correct
(v) (d) Rs. 140,000
(vi) (c) Error of principle
(vii) (c) General journal
(viii) (b) Interest payable Rs. 825,000; Unearned rent income Rs. 45,000
(ix) (b) Rs. 575,000

Page 2 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2020

A.5 Kallar Traders

(a) Inventory ledger card for the month of January 2020 - Beta
Transaction Balance
Cost per Cost per
Dates Description No. of No. of
unit Rupees unit Rupees
units units
(Rs.) (Rs.)
01-Jan Opening inventory 2,800 50 140,000
1,200 52 62,400
03-Jan Purchase 3,000 57 171,000 2,800 50 140,000
1,200 52 62,400
3,000 57 171,000
08-Jan Sale (2,800) 50 (140,000) 1,100 52 57,200
(100) 52 (5,200) 3,000 57 171,000
15-Jan Sale (1,100) 52 (57,200)
(700) 57 (39,900) 2,300 57 131,100
20-Jan Purchase return (500) 57 (28,500) 1,800 57 102,600
25-Jan Purchase 3,000 58 174,000 1,800 57 102,600
3,000 58 174,000
31-Jan Shortages (600) 57 (34,200) 1,200 57 68,400
3,000 58 174,000
31-Jan Scrap units (100) 57 (5,700) 1,100 57 62,700
3,000 58 174,000

(b) General Journal

Debit Credit
Date Description
Rupees
03-Jan-2020 Inventory 3,000×60×0.95 171,000
Cash 171,000

08-Jan-2020 Cost of sales 140,000+5,200 145,200

Inventory 145,200
Account receivable 266,800
Sales 266,800

15-Jan-2020 Cost of sales 57,200+39,900 97,100

Inventory 97,100
Account receivable 171,000×0.95 162,450
Sales 162,450

20-Jan-2020 Trade payable 500×60×0.95 28,500

Inventory 28,500

25-Jan-2020 Inventory 174,000

Account payable 174,000

30-Jan-2020 Goods in transit 120,000

Account payable 120,000

31-Jan-2020 Profit and loss account / Stock loss 34,200

Inventory 34,200

31-Jan-2020 Scrap units - inventory 100×20 2,000

Cost of sales Balancing 3,700
Inventory 5,700

Page 3 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2020

A.6 Zahrba Stationers

Trial balance for the month of January 2020

Debit Credit
Description
----- Rs. in '000 -----
Cash 480
Bank 167
Sales 4,937+290+295 5,522
Trade debtors 2,423+4,937–(1,900÷0.95)–1,590 3,770
Other income (scrap sale) 25
Purchases 4,070+250 4,320
Trade creditors 1,800+4,070–(1,440÷0.96)–1,378–100 2,892
Utility expenses 98
Petty cash in hand 20
Repair and maintenance 67–25 42
Long term loan 800–100+15 715
Sales return 70
Other payable 70
Purchase return 100
Interest expense 15
Drawings 25
Petty cash expenses 50–20 30
Fixed assets 1,600
Accumulated depreciation 1,600–1,254 346
Opening inventory 850
Capital 110+1,254+2,423+850–180–1,800–800 1,857
Discount allowed 1,900÷0.95×0.05 100
Discount received 1,440÷0.96×0.04 60
11,587 11,587

A.7 (a) Hanna Traders

Statement of profit or loss for the year ended 31 December 2020
Rs. in million
Sales revenue 315.00
Sales return (7.00)
308.00
Cost of sales:
Opening inventory 35.00
Purchases 170–3 167.00
Import duties 39.00
Freight-in 5.00
Closing inventory (30.00)
(216.00)
Gross profit 92.00

Expenses:
Operating expense 52–8–1 43.00
Samples/advertising 2.00
Bad debt expense (48+2)×0.04+3 5.00
Rent expense 2.00
Financial charges 5.00
Page 4 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2020

Depreciation expense 16.00

(73.00)
Miscellaneous income:
Maintenance contract 6×2×5÷8 7.50
Gain on disposal of fixed assets 10×0.95 9.50
Bad debt recovered 2.00
Other income 6.00
25.00
Net profit 44.00

(b) Appropriation account for the year ended 31 December 2019

Profit sharing
Total
A Zee
-------- Rs. in million --------
Profit available for appropriation 44.00
Salary to A 1×12 (12.00) 12.00
Sales commission on sale to Zee 308×6% (18.48) 18.48

Distribution of remaining profit in the ratio of 3:2 (13.52) 8.11 5.41

- 20.11 23.89
20% of appropriated profit transferred to capital accounts (4.02) (4.78)
16.09 19.11

(c) Statement of financial position as at 31 December 2019

Rs. in million
Assets
Non-current assets
Property, plant and equipment – cost 140–28 112.00
Accumulated depreciation 64–28 (36.00)
76.00
Current assets
Trade receivables 48+2 50.00
Provision of doubtful debts 50×0.04 (2.00)
48.00
Inventory 30.00
Prepayments 6+1–2 5.00
Other receivables 4+10+1.5 (7.5–6) 15.50
Cash and bank balances 3.00
101.50
177.50

Equity and liabilities

Capital account: A 67+4.02 71.02
Zee 45+4.78 49.78
Current account: A –4–1+16.09 11.09
Zee 2‒8+19.11 13.11
145.00
Current liabilities
Trade payable 30.00
Other payable and accruals 8–6+(10×0.05) 2.50
32.50
Page 5 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2020

177.50

A.8 Naltar Establishment

Statement of financial position as at 31 December 2019
Rs. in '000
Assets
Fixed assets – net 22,590+2,500–250 24,840
Current assets:
Closing stock 15,320–1,320 14,000
Trade receivables 19,730–640–504 18,586
Prepayment 350
Cash & bank 3,850–500 3,350
36,286
61,126
Equity & liabilities
Opening capital 32,240
Net profit for the year (W-1) 5,174
Drawings 1,400+200 (1,600)
Net equity 35,814
Current liabilities:
Trade payables 17,332+5,800 23,132
Other payables 2,680–500 2,180
Suspense account 798–294–(671–167) -
Discount received 480–480 -
25,312
61,126

W-1: Corrected net profit for the year Rs. in '000

Balances as per draft financial statements 9,360
Corrections:
(i) Purchases of Dec. 2019 recorded in Jan. 2020 (5,800)
(ii) Third party stock included in NE closing stock (1,320)
(iii) Goods sold recorded at gross of 10% trade discount 6,400×10% (640)
(iv) Clearance of unidentified credit taken to suspense account:
- Bank commission at 2% 294÷0.98×0.02 (6)
- Recovery of previously written off balance 294÷0.98 300
(vi) Insurance premium paid pertains to:
- Owner 200
- Prepayments (900–200)÷2 350
(vii) Upgradation cost of a plant charged to repair and maintenance:
- Repair and maintenance expense 2,500
- Depreciation expense (2,500×20%×6÷12) (250)
Discount received shown as a liability 480
Revised net profit 5,174

(THE END)

Page 6 of 6
 Certificate in Accounting and Finance Stage Examination

The Institute of 2 September 2019

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Introduction to Accounting
Section A

Q.1 Lamda Establishment is preparing bank reconciliation statement on 30 June 2019. In this
respect, the following information is available:
(i) Cash book showed an overdrawn balance of Rs. 3,928,000.
(ii) Cheques outstanding as at 30 June 2019 amounting to Rs. 1,250,000 included:

a cheque of Rs. 10,000 dated 8 December 2018 issued to a welfare organisation
for donation.

a cheque of Rs. 150,000 dated 20 June 2019 mailed to a supplier on 10 July 2019.
(iii) A cheque of Rs. 391,000 issued to a supplier was recorded in the cash book as
Rs. 319,000.
(iv) Cheques received from customers amounting to Rs. 670,000 were recorded in the cash
book but not credited in bank statement. These cheques included a cheque dated
10 July 2019 amounting to Rs. 25,000 received from a customer on 28 June 2019.
(v) A bank debit advice dated 30 June 2019 for interest charges amounting to Rs. 80,000
was received in July 2019.

Required:
(a) Compute the corrected cash book balance as at 30 June 2019. (04)
(b) Compute the bank balance as would be appearing in the bank statement as at
30 June 2019. (04)

Q.2 Omikron Traders (OT) deals in one product. Following information for the month of
June 2019 has been collected for preparation of trading account:
Description Units Rupees Remarks
Opening inventory 4,000 745,000 At cost
Purchases 11,000 2,340,000 Inclusive of sales tax
Sales 12,000 4,800,000 Exclusive of sales tax
Additional information:
(i) Sales tax @ 17% on purchases is adjustable against sales tax payable by OT.
(ii) Handling and transportation costs to OT's premises are Rs. 20 per unit.
(iii) Units purchased are polished at a cost of Rs. 10 per unit prior to transferring to the
warehouse.
(iv) Units are stored in a warehouse which is acquired at a monthly rent of Rs. 380,000.
(v) 350 units were withdrawn for personal use during the month.
(vi) During the month-end physical inventory verification, it was observed that:

20 units were found short.

150 units were damaged during handling and are saleable at 40% of its selling
price after incurring an additional cost of Rs. 15 per unit.
Shortages/damages upto 200 units in a month are treated as normal loss.
(vii) OT uses periodic inventory method and cost is determined using weighted average
cost method.
 Introduction to Accounting Page 2 of 6

Required:
Prepare ‘Trading account’ for the month of June 2019. (08)

Q.3 Sigma Brothers (SB) has three partners A, B and C sharing profits and losses in the ratio of
3:2:5 respectively. SB’s draft statement of profit or loss for the year ended 30 June 2019
shows net profit of Rs. 4,100,000. On review of the financial statements, the partners have
identified the following matters:

(i) Annual bonus to SB’s employees at 10% of the net profit after bonus has not been
accrued.
(ii) Salaries withdrawn by the partners were charged to profit or loss. Salary for June 2019
was not withdrawn by C.
(iii) On 1 May 2019, SB opened a new outlet in a rented building. Annual rent effective
from 1 April 2019 amounting to Rs. 1,200,000 was paid in advance by C from his
personal bank account. The rent paid has not been accounted for in the books of SB.

As per the partnership agreement:

(i) A and C are entitled to a monthly salary of Rs. 50,000 each.
(ii) A is entitled to a minimum profit share of Rs. 1,800,000 per annum. Shortfall in profit,
if any, would be shared by B and C in their profit sharing ratio.

Required:
Show how SB’s profit for the year ended 30 June 2019 would be shared among the partners. (07)

Q.4 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions (MCQs).

(i) The matching concept matches:

(a) assets with liabilities (b) income with expenses

(c) capital with reserves (d) expenses with capital (01)

(ii) An inexperienced accountant has prepared the current account of one of the partners
as follows:

Current Account
Rs. Rs.
Interest on capital 33,000 Balance b/d 50,000
Balance c/d 40,000 Drawings 10,000
Share of residual profit 13,000
73,000 73,000

The balance brought down is entered correctly and the amounts of other entries are
correct. However, the accountant is not sure of the difference between debits and
credits.

What should be the correct amount of balance carried down?

(a) Rs. 60,000 (b) Rs. 70,000 (c) Rs. 86,000 (d) Rs. 96,000 (01)

(iii) Which of the following errors will create balance in a suspense account?

(a) Repairs expense was considered as purchase of asset

(b) Purchase of inventory was considered as purchase of non-current asset
(c) An invoice of Rs. 2,500 was totally omitted from the books
(d) Petty cash expenses of Rs. 500 were only credited to bank account (01)
 Introduction to Accounting Page 3 of 6

(iv) The purpose of depreciation is to:

(a) allocate the depreciable cost on a systematic basis over the asset’s useful life
(b) write the asset down to its realisable value each period
(c) accumulate a fund for asset replacement
(d) recognise that assets lose value over time (01)

(v) Zee bought goods on credit from Shan Traders (ST). The goods were not according to
the required specifications and therefore returned to ST. Which document should Zee
send to ST?

(a) Credit note (b) Debit note

(c) Invoice (d) Statement of account (01)

(vi) International Financial Reporting Standards are issued by:

(a) Financial Accounting Standards Board

(b) International Accounting Standards Board
(c) International Accounting Standards Committee
(d) Generally Accepted Accounting Principles Board (01)

(vii) The cost of a wastebasket having an estimated useful life of 5 years is charged off as an
expense upon purchase. This is an example of the application of the:

(a) consistency (b) matching principle

(c) materiality concept (d) historical cost principle (01)

(viii) Debit always means:

(a) left side of an account (b) right side of an account

(c) increase (d) increase in assets (01)

(ix) How will these assets expire?

Prepaid rent Office supplies

(a) With the passage of time Through use and consumption
(b) Through use and consumption With the passage of time
(c) With the passage of time With the passage of time
(d) Through use and consumption Through use and consumption (02)

(x) An unearned revenue in the books of a receiver is likely to be:

(a) a prepaid expense in the books of the payer

(b) an unearned revenue in the books of the payer
(c) an accrued expense in the books of the payer
(d) an accrued revenue in the books of the payer (01)

(xi) Which of the following is NOT an asset that falls under the scope of IAS 16 Property,
Plant and Equipment?

(a) Tangible assets

(b) Assets held for the production or supply of goods or services
(c) Assets held for sale in the normal course of business
(d) Assets expected to be used for more than one period (01)
 Introduction to Accounting Page 4 of 6

Section B

Q.5 Following information pertains to Omega Limited (OL) for the month of July 2019:

(i) Opening balances:

Rupees
Cash in hand 85,000
Cash at bank - as per cash book 650,000
- as per bank statement 780,000

OL maintains two columns cash book.

(ii) Transactions for the month:

Date Transactions
02-Jul Goods purchased on credit from Danish Stores for Rs. 475,000 (net of
5% trade discount).
04-Jul Goods sold on credit to XYZ & Co. for Rs. 500,000 after a trade
discount of 10%. In this respect, transportation charges of Rs. 15,000
were paid in cash by OL.
05-Jul Goods sold on credit to Zaid Brothers for Rs. 640,000 and offered a
discount of 5% on payment within 30 days.
07-Jul Cheques issued to Zee & Co. for Rs. 400,000 in full and final settlement
of one of its old invoice of Rs. 425,000 and ABC Stores for Rs. 190,000
(net of 5% payment discount).
09-Jul Goods sold to Qavi & Sons and received a cheque of Rs. 58,000.
10-Jul Cash payment of utility bills amounted to Rs. 45,000. This included a
bill of Rs. 5,000 belonged to the owner’s residence.
12-Jul Goods returned by Zaid Brothers amounted to Rs. 135,000.
12-Jul Goods returned to Danish Stores amounted to Rs. 50,000.
13-Jul Goods purchased on credit for Rs. 700,000 from Chenab Stores subject
to 10% discount on payment within 30 days.
15-Jul A cheque of Rs. 100,000 was encashed for day to day cash requirements.
20-Jul Fully depreciated laptops costing Rs. 134,000 were scrapped.
21-Jul New laptops were purchased for Rs. 245,000 from Shifa Electronics and
issued a cheque of Rs. 100,000 in part payment.
23-Jul 40% of the goods sold to Qavi & Sons on 9 July were returned and the
amount was refunded in cash. These goods were sold at cost plus 25%.
26-Jul Goods purchased for cash from Ravi Brothers having list price of
Rs. 68,000 and availed discount of 5%.
30-Jul Cheques received from Zamil Store of Rs. 285,000 (net of 5% payment
discount) and Zaid Brothers of Rs. 500,000 in settlement of an old
invoice of Rs. 550,000.

Required:
Enter the above transactions in the books of prime entry in a proper format. (Narrations are
not required) (15)

Q.6 Following information pertains to plant and machinery of Alpha Enterprises (AE):

(i) As at 1 January 2018, balances of cost and accumulated depreciation amounted to

Rs. 12,700,000 and Rs. 6,240,000 respectively.

(ii) On 1 April 2018, an old machine having fair value of Rs. 340,000 was exchanged for a
new machine. The balance of the purchase price was paid through a cheque of
Rs. 680,000. The list price of the new machine was Rs. 1,130,000. The old machine
had been acquired for Rs. 870,000 on 1 September 2015.
 Introduction to Accounting Page 5 of 6

(iii) On 1 February 2018, a plant having a list price of Rs. 10,000,000 was acquired. A
trade discount of 5% was allowed on the list price. The plant was ready for use on
1 August 2018 after incurring the following costs:
Rs. in '000
Freight charges 660
Consultant fees 540
Installation and testing 600
Administration and other general overheads 160
Staff training 120
Opening ceremony 100
2,180
(iv) On 31 October 2018, another machine was sold for Rs. 334,000. It was acquired on
1 January 2015 and had a net book value of Rs. 512,000 on 1 January 2018. A cost of
Rs. 25,000 was incurred on its disposal.
(v) AE depreciates plant and machinery at 20% per annum using the reducing balance
method.

Required:
Prepare following ledger accounts pertaining to the plant and machinery for the year ended
31 December 2018:
(a) Cost (06)
(b) Accumulated depreciation (06)
(c) Assets disposal (04)

Q.7 Financial statements of Zeta Traders (ZT) for the year ended 30 June 2019 is under
preparation. Following information has been gathered in this respect:

(i) Trade receivables as at 30 June 2019:

Rupees
Trade receivables 2,500,000
Provision for doubtful debts (400,000)
Net trade receivables 2,100,000

It was noted that:

an old outstanding balance of Rs. 250,000 which was written off previously was
settled during the year at 20% discount. The amount received was credited to
trade receivables.

purchase return amounting to Rs. 500,000 was mistakenly debited to trade
receivables.

Rana and Sons having a balance of Rs. 80,000 due for more than one year was
declared bankrupt and its balance needs to be written off.
ZT maintains provision for doubtful debts:

at 25% for balances outstanding for more than six months. As at 30 June 2019,
such balances are aggregated to Rs. 600,000 (excluding balance of Rana and
Sons); and

at 5% for the remaining balances

(ii) A cheque dated 25 June 2019 for Rs. 150,000 was received from an insurance company
and deposited by the owner in his personal bank account. The cheque was received in
settlement of an inventory loss claim. Actual inventory loss was determined at
Rs. 180,000. No entries have been made for loss of inventory and insurance claim.
 Introduction to Accounting Page 6 of 6

(iii) The opening balance of accumulated depreciation was brought forward as

Rs. 280,000 instead of Rs. 820,000. The error was tried to be corrected with the
difference by crediting accumulated depreciation and debiting depreciation expense.
(iv) Goods amounting to Rs. 350,000 received from a supplier on 30 June 2019 were
included in the year-end physical inventory count but recorded in purchases day book
on 1 July 2019.
(v) Third party stock of Rs. 500,000 lying on ZT premises has been included in ZT’s
year-end inventory.
(vi) ZT uses periodic inventory method.

Required:
(a) Prepare adjusting / correcting entries for the year ended 30 June 2019. (Narrations are
not required) (13)
(b) Compute the net effect of the above on ZT’s profit for the year ended 30 June 2019. (03)

Q.8 Following is the summarised trial balance of Delta Enterprises (DE), for the year ended
30 June 2019:
Rs. in '000
Description Debit Description Credit
Property, plant and equipment 230,600 Capital 145,000
Inventory – 30 June 2019 67,800 Profit or loss – 1 July 2018 34,500
Cash and bank balances 4,600 12% Bank loan 90,000
Trade receivables 94,800 Accumulated depreciation 44,300
Prepayments 3,000 Trade payables 41,400
Other receivables 5,300 Sales revenue 487,800
Cost of sales 354,700 Other income 2,600
Selling expenses 29,400
Administration expenses 25,900
Depreciation 19,800
Interest on bank loan 9,000
Bank charges 700
845,600 845,600

Additional information:
(i) Goods returned by a customer on 30 June 2019 were recorded on 1 July 2019. These
goods had been sold on credit for Rs. 1,950,000 at cost plus 30%.
(ii) On 1 October 2018, a printer was acquired on rent from Qazi & Co. The annual rent
of Rs. 480,000 was paid in advance and debited to prepayments. However, the printer
was purchased by DE on 1 April 2019 for Rs. 1,240,000. The payment net of rent
adjustment was made in July 2019. The purchase has not been accounted for. DE
depreciates office equipment at 20% using reducing balance method.
(iii) DE allocates depreciation to selling and administration in the ratio of 4:6 respectively.
(iv) Annual fire insurance premium of Rs. 4,500,000 was paid in advance on
1 January 2019 and debited to administration expenses. The payment also includes
Rs. 1,350,000 pertaining to the owner's personal property.
(v) Other income includes Rs. 900,000 collected on 1 April 2019 in respect of a service
agreement for the six months ending 30 September 2019.
(vi) An amount of Rs. 960,000 receivable on 1 August 2019 on completion of a service
agreement for the six months ended 31 July 2019 has not been accounted for.
(vii) 12% bank loan was acquired on 1 April 2018. The principal is repayable in ten equal
yearly installments commencing from 1 April 2019. Interest is payable on
1 October and 1 April each year.

Required:
(a) Prepare statement of profit or loss for the year ended 30 June 2019. (09)
(b) Prepare statement of financial position as at 30 June 2019. (09)
(THE END)
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.1 Lamda Establishment

(a) Bank in cash book

Description Rupees Description Rupees
Donation expense 10,000 Balance b/d 3,928,000
Account payable 150,000 Account payable (391,000-319,000) 72,000
Balance c/d 3,945,000 Account receivable 25,000
Interest charges 80,000
4,105,000 4,105,000

(b) Bank balance as per the bank statement as at 30 June 2019

Rupees
Balance as per cash book – overdraft A (3,945,000)
Add: Outstanding cheques:
As given in the question 1,250,000
Time barred cheque (10,000)
Cheque dated 20 June 2019 mailed on 10 July 2019 (150,000)
B 1,090,000
Less: Cheques deposited and still under clearance
As given in the question (670,000)
Post-dated cheque dated 10 July 2019 25,000
C (645,000)
Balance as per the bank statement - Overdraft (A+B+C) (3,500,000)

A.2 Omikron Traders

Trading account for the month of June 2019
Units Rupees
Sales 12,000 4,800,000
Cost of sales:
Opening stock 4,000 745,000
Purchases 11,000 2,340÷1.17 2,000,000
Handling and transportation 11,000×20 220,000
Cost of polishing 11,000×10 110,000
3,075,000
Goods withdrawn (350) 205 (W-2) (71,750)
Closing stock W-1 (530,150)
(2,473,100)
Gross profit 2,326,900

W-1: Closing stock (at lower of cost or NRV)

Inventory shortage 20 - -
Damaged units at NRV 150 (400×0.4–15) 21,750
Good units at cost Balancing 2,480 205 (W-2) 508,400
15,000–12,000–350 2,650 (530,150)

W-2: Average cost per unit 3,075,000÷15,000(4,000+11,000) 205

Page 1 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.3 Sigma Bros.

Correction of profit
Rs. in '000
Given 4,100
Salaries paid to A and C mistakenly charged to expense (50×12)+(50×11) 1,150
Office building rent paid by C not accounted for in SB books 1,200÷12×3 (300)
Corrected profit before bonus to employees 4,950
Bonus to employees 4,950÷110×10 (450)
Net profit after corrections 4,500

Distribution of profit A B C Total

---------------- Rs. in '000 ----------------
Net profit after corrections 4,500
Partners' salaries 600 - 600 (1,200)
Remaining profit in the ratio of 3:2:5 990 660 1,650 (3,300)
1,590 660 2,250 -
Shortfall in guaranteed profit to A (1,800–1,590) 210 210
Shortfall to be made up by B and C in 2:5 - (60) (150) (210)
1,800 600 2,100 -

A.4 (i) (b) income with expenses

(ii) (c) Rs. 86,000
(iii) (d) Petty cash expenses of Rs. 500 were only credited to bank account
(iv) (a) allocate the depreciable cost on a systematic basis over the asset’s useful life
(v) (b) Debit note
(vi) (b) International Accounting Standards Board
(vii) (c) materiality concept
(viii) (a) left side of an account
(ix) (a) Prepaid rent Office supplies
With the passage of time Through use and consumption
(x) (a) a prepaid expense in the books of the payer
(xi) (c) Assets held for sale in the normal course of business

Page 2 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.5 Omega Limited

Books of prime entry
Purchases day book
Date Supplier Rupees
2-Jul Danish Stores 475,000
13-Jul Chenab Stores 700,000
1,175,000
Sales day book
Date Customer Rupees
4-Jul XYZ & Co. 500,000
5-Jul Zaid Brothers 640,000
1,140,000

Purchases returns day book

Date Supplier Rupees
12-Jul Danish Stores 50,000

Sales returns day book

Date Customer Rupees
12-Jul Zaid Brothers 135,000

General Journal
Debit Credit
Date Description
------ Rupees ------
7-Jul Trade payables – Zee & Co. (425,000–400,000) 25,000
Trade payables – ABC stores (190,000÷0.95×0.05) 10,000
Discount received 35,000

20-Jul Accumulated depreciation office equipment (laptops) 134,000

Office equipment (laptops) 134,000

21-Jul Office equipment (laptops) 145,000

Other payables – Shifa Electronics 145,000

30-Jul Discount allowed 65,000

Trade receivables – Zamil Stores 285,000÷0.95×0.05) 15,000
Trade receivables – Zaid Brothers (550,000–500,000) 50,000

Cash book
Receipts Payments
Date Description Cash Bank Date Description Cash Bank
1-Jul Balance 85,000 650,000 4-Jul Transportation expense 15,000
9-Jul Sales 58,000 7-Jul Trade payable - Zee & Co. 400,000
15-Jul Bank 100,000 7-Jul Trade payable - ABC Stores 190,000
30-Jul Trade rec. - Zamil Store 285,000 10-Jul Utility bills 40,000
30-Jul Trade rec. - Zaid Brothers 500,000 10-Jul Drawings 5,000
15-Jul Cash 100,000
21-Jul Office equipment (laptops) 100,000
Sales return
23-Jul (58,000×40%) 23,200
26-Jul Purchases (68,000×95%) 64,600
31-Jul Balance 37,200 703,000
185,000 1,493,000 185,000 1,493,000

Page 3 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.6 Alpha Enterprises

Plant and machinery - Cost
Date Description Rs. in '000 Date Description Rs. in '000
1-Jan-2018 Balance 12,700 1-Apr-2018 Assets disposal 870
1-Apr-2018 Exchanged (340+680) 1,020 31-Oct-2018 Assets disposal (W-2) 1,000
1-Aug-2018 Capital work in progress (W-4) 11,300 31-Dec-2018 Balance 23,150
25,020 25,020

Accumulated depreciation - Plant and machinery

1-Apr-2018 Assets disposal (W-1) 376 1-Jan-2018 Balance 6,240
31-Oct-2018 Assets disposal (W-2) 573 31-Dec- Depreciation exp. (W-3) 2,292
2018
31-Dec-2018 Balance 7,583
8,532 8,532

Assets disposal - Plant and machinery

1-Apr-2018 Cost 870 1-Apr-2018 Acc. depreciation (W-1) 376
31-Oct-2018 Cost 1,000 1-Apr-2018 Cost (Trade in) 340
31-Oct-2018 Bank (disposal cost) 25 31-Oct-2018 Acc. depreciation (W-2) 573
31-Oct-2018 Bank (Sales proceeds) 334
31-Dec-2018 Loss on disposal (P&L) 272
1,895 1,895

W-1: Accumulated depreciation – Machine exchange Rs. in '000

Depreciation for 2015 870×0.2×4÷12 58
Depreciation for 2016 (870–58)×0.2 162
Depreciation for 2017 (870–58–162)×0.2 130
Accumulated depreciation upto 31-12-2017 350
Depreciation for 2018 (870–350)×0.2×3÷12 26
376

W-2: Accumulated depreciation – Machine sold Rs. in '000

Cost [512÷(0.8)3] 1,000
WDV as at 01-01-2018 (512)
Accumulated depreciation upto 01-01-2018 488
Depreciation for 2018 512×0.2×10÷12 85
573

W-3: Depreciation expense for the year:

Acc. Dep WDV
Cost
as at 01-01-2018
On opening balance ------------ Rs. in ‘000 ------------ Rs. in '000
Disposal of: Old machine 870 350 520 W-1 26
Another machine 1,000 488 512 W-2 85
Remaining machines 10,830 5,402 5,428 ×0.2 1,086
Balance as at 1-1-2018 12,700 6,240 6,460

On additions during the year Machine 1,020×0.2×9÷12 153

Plant 11,300(W-4)×0.2×5÷12 942
2,292

W-4: Cost of the plant: Rs. in '000

Purchase price of the plant 10,000×0.95 9,500
Other relevant cost 660+540+600 1,800
11,300

Page 4 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.7 (a) Zeta Traders

Adjusting/correcting entries
General journal
Debit Credit
Description
------ Rupees ------
(i) Trade receivables 200,000
Bad debt expense/Bad debts recovered 200,000
Trade payables 500,000
Trade receivables 500,000
Provision for doubtful debts 80,000
Trade receivables 80,000
Provision for doubtful debts (W-1) 94,000
Bad debt expense 94,000
(ii) Abnormal loss (P&L) 180,000
Purchases 180,000
Drawings 150,000
Abnormal loss (P&L) 150,000
(iii) Suspense (820,000–280,000) 540,000
Depreciation expense 540,000
(iv) Purchases 350,000
Trade payables 350,000
(v) Trading account/COGS 500,000
Closing inventory 500,000

W-1: Provision for bad debts: Rupees

Provision for bad debts as at 1 July 2018 400,000
Rana & Sons’ balance written off (80,000)
320,000
Provision required as at 30 June 2019:
- 25% on balances outstanding for more than 6 months
600,000×25%) 150,000
- 5% on other balances [2,500+(250×0.8)–500–80–600]×5% 76,000
226,000
Excess provision to be reversed (94,000)

(b) Increase/ (decrease) in net profit Rupees

(i) Recovery of old outstanding balance previously written-off 200,000
Adjustment for provision for doubtful debts 94,000
(ii) Insurance claim 150,000
(iii) Correction in depreciation expense 540,000
(iv) Purchases of 30 June 2019 (350,000)
(v) Third party inventory (500,000)
Net increase in net profit 134,000

Page 5 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.8 (a) Delta Enterprises

Statement of profit or loss for the year ended 30 June 2019
Rs. in '000'
Net sales 487,800-1,950 485,850
Cost of sales 354,700–1,500(1950÷1.3) (353,200)
Gross profit 132,650
Selling expenses W-1 (37,345)
Administration expenses W-1 (35,132)
Financial charges 9,000+2,700(90,000×0.12×3÷12)+700 (12,400)
Other income 2,600–450(900×3÷6)+800(960×5÷6) 2,950
Net profit 50,723

(b) Statement of financial position as at 30 June 2019

Rs. in '000'
Assets
Non-current assets
Property, plant and equipment (230,600+1,240)–(44,300+62(W-1)) 187,478

Current assets
Inventory 67,800+1,500(PL) 69,300
Trade receivables 94,800–1,950 92,850
Prepayments 3,000+1,575(W-1) –240–240 4,095
Other receivables 5,300+800(PL) 6,100
Cash and bank balances 4,600
176,945
364,423
Equity and liabilities
Equity
Capital 145,000
Profit or loss 34,500+PL 85,223
Drawings (1,350)
228,873

Long-term loan 90000×8÷9 80,000

Current liabilities
Trade & other payables 41,400+(1,240–480×6÷12) 42,400
Unearned revenue PL 450
Interest payable PL 2,700
Current maturity of long-term loan 90,000×1÷9 10,000
55,550
364,423

W-1: Selling and administration expenses Selling Administration

-------- Rs. in ‘000 --------
As given 29,400 25,900
Depreciation [19,800+62(1,240×0.2×3÷12)] in 40:60 7,945 11,917
Printer's rent 480×6÷12 - 240
Insurance pertaining to the owner's property (1,350)
Prepaid insurance [(4,500–1,350)÷2] - (1,575)
37,345 35,132

(THE END)

Page 6 of 6
 Certificate in Accounting and Finance Stage Examination
The Institute of 4 March 2019
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Introduction to Accounting
Q.1 Chaman Stores commenced its business on 1 January 2019. The following books of prime
entry are available for the month of January 2019:

CASH BOOK
------------------- Receipts ------------------- ------------------- Payments -------------------
Cash Bank Cash Bank
Date Description Date Description
Rs. in '000 Rs. in '000
1-Jan Capital 500
2-Jan Cash 140
2-Jan Bank 140 5-Jan Security deposit - shop 45
10-Jan Sales 19 36
10-Jan Furniture 40 35
15-Jan Bank loan 200
11-Jan Insurance 15
27-Jan Rafiq Limited - net 95
12-Jan Shabbir & Sons - net 44 100
15-Jan Purchases 35 43
21-Jan Returns 4
27-Jan Salaries to staff 76
30-Jan Utilities 18
31-Jan Balance c/f 36 359
159 831 159 831

SALES DAY BOOK

Date Name of customer Rs. in '000
9-Jan Arif Sons 65
17-Jan Rafiq Limited 130
24-Jan Zubair Brothers 72
267

SALES RETURN DAY BOOK

Date Name of customer Rs. in '000
22-Jan Rafiq Limited 30

PURCHASES DAY BOOK

Date Name of supplier Rs. in '000
3-Jan Shabbir & Sons 150
19-Jan Ameer & Sons 220
370

Additional information:
(i) Stock in trade as at 31 January 2019 amounted to Rs. 85,000.
(ii) Utilities paid on 30 January 2019 include Rs. 6,000 against bills of owner's residence.
(iii) Shop rent of Rs. 22,000 for the month of January 2019 was paid on 3 February 2019.
(iv) Goods costing Rs. 30,000 were withdrawn by owner for personal use.
(v) Furniture purchased on 10 January 2019 had a total cost of Rs. 130,000. Remaining
amount is due to be paid within 30 days.
(vi) Goods costing Rs. 13,000 were returned to Ameer & Sons on 31 January 2019.
(vii) Rafiq Limited and Shabbir & Sons had no balance at month end.
 Introduction to Accounting Page 2 of 5

Required:
Prepare trial balance for the month ended 31 January 2019. (Preparation of ledger accounts is
not necessary) (15)

Q.2 (a) Identify any five potential user groups who may be interested in an entity’s financial
statements and specify what type of information would be of their interest. (05)

(b) List and briefly explain the purpose of any five documents issued/used in sales cycle. (05)

Q.3 Following information pertains to Swat Enterprises (SE):

(i) A machine was purchased for Rs. 3,500,000 against which 100% advance had already
been paid. SE also paid transportation and installation costs of Rs. 60,000 and
Rs. 125,000 respectively on this machine.
(ii) Insurance premium amounting to Rs. 180,000 was paid which included an amount of
Rs. 30,000 for the proprietor’s personal vehicle.
(iii) Office equipment having cost and carrying value of Rs. 265,000 and Rs. 89,000
respectively was sold for Rs. 95,000.
(iv) SE entered into rent agreement with the owner of a shop for annual rent of
Rs. 300,000.
(v) Stock amounting to Rs. 75,000 was destroyed in fire in the warehouse. The stock was
insured and insurance company agreed to pay Rs. 65,000.
(vi) SE incurred costs of Rs. 1,200,000 on extension of warehouse and Rs. 250,000 on
miscellaneous repairs.

Required:
Show the effects, if any, of each of the above information in the form of accounting
equation. (08)

Q.4 Multan Traders (MT) held 200 units of product A valued at Rs. 175 each on
1 December 2018. Following transactions related to product A have occurred during
December 2018:

Date Description
07 Purchased 400 units from Alpha on credit for Rs. 80,700. Alpha gave further
50 units at no cost under a promotion scheme.
13 Sold 360 units on cash for Rs. 72,000.
16 Purchased 500 units from Bravo on credit for Rs. 89,000. MT also incurred
transportation cost of Rs. 1,580.
21 Sold 440 units for Rs. 92,400 on credit to Charlie. To avail the 5% discount on
early payment, Charlie paid the amount on 24 December 2018.
25 Purchased 350 units from Delta on credit. Delta offered discount of 8% on list
price of Rs. 200 per unit if at least 250 units were purchased. Delta also offered
further 2% discount if payment was made within 10 days.
27 30 units were found in unsaleable condition and were removed from the
inventory.
28 Sold 300 units on cash for Rs. 61,000. MT incurred cost of Rs. 1,600 for delivery.

MT follows weighted average method for valuation of its inventory.

Required:
(a) Prepare inventory ledger card for product A for the month of December 2018 under
perpetual inventory system. (09)
(b) Compute gross profit on sale of product A for December 2018. (02)
 Introduction to Accounting Page 3 of 5

Q.5 Following is the summarised trial balance of Qambar Enterprises (QE) for the year ended
31 December 2018:

Rs. in ‘000
Debit Credit
Furniture – cost 2,535 Accumulated dep. at 1 Jan 2018:
Vehicles – cost at 1 Jan 2018 4,500 – Furniture 975
Inventories at 1 Jan 2018 4,450 – Vehicles 1,450
Trade receivables 2,970 Capital at 1 Jan 2018 5,223
Office and sales supplies 210 12% Bank loan 1,500
Cash and bank balances 746 (obtained on 1 April 2018)
Purchases 12,364 Trade payables 3,943
Returns 826 Sales 18,184
Salaries and commission 1,295 Other income 275
Rent and insurance 545
Utilities and repairs 420
Goods withdrawn 644
Provision for doubtful receivables 45
31,550 31,550

Additional information:
(i) Inventories as at 31 December 2018 were valued at Rs. 3,860,000. Office and sales
supplies costing Rs. 90,000 are still unused. However, 30% of these supplies are not
usable due to deterioration in quality.
(ii) Rent and insurance includes Rs. 75,000 paid for a photocopying machine. The
machine was obtained on 1 November 2018 at a fixed rent of Rs. 75,000 per quarter
and an additional Re. 0.40 for each copy. 40,000 copies have been made by QE up to
31 December 2018.
(iii) QE received 5% discount on list price of goods purchased for cash which was credited
to other income. List price of such purchases was Rs. 2,500,000.
(iv) Cost of office repairs amounting to Rs. 85,000 was paid by the owner from personal
cash.
(v) On 1 November 2018, a vehicle was completely destroyed in an accident. In
December 2018, insurance company agreed to pay Rs. 500,000 in January 2019. The
vehicle was purchased for Rs. 600,000 on 1 January 2016.
(vi) On 1 September 2018, a vehicle was invested into the business by the owner. The
vehicle was purchased by the owner on 1 July 2015 for Rs. 1,050,000 and had a fair
value of Rs. 960,000 on 1 September 2018.
(vii) QE depreciates vehicles at 10% using straight line method while furniture is
depreciated at 15% using reducing balance method. Cost of furniture includes an item
of furniture purchased for Rs. 400,000 on 1 May 2018.
(viii) Sales include Rs. 335,000 received from a customer though the related goods were
dispatched on 5 January 2019.
(ix) Trade receivables include Salman’s balance of Rs. 370,000. It has been decided to
set-off Rs. 100,000 payable by QE to Salman and make a specific provision of 30%
against the remaining balance.
(x) A general provision of 4% of remaining trade receivables is maintained. Trade
receivables amounting to Rs. 131,000 were written off and debited to provision for
doubtful receivables during 2018.

Required:
(a) Prepare statement of profit or loss for the year ended 31 December 2018. (12)
(b) Prepare statement of financial position as at 31 December 2018. (11)
 Introduction to Accounting Page 4 of 5

Q.6 The trial balance of Sibi Brothers (SB), dealer of equipment and machines, did not agree as
at 31 December 2018 and the difference was carried to suspense account. The financial
statements prepared from the trial balance showed a gross profit of Rs. 854,000.

During review, following errors were detected:

(i) A sales invoice of Rs. 24,000 was debited to the debtor’s account as Rs. 42,000.
(ii) A purchase of Rs. 23,000 was entered in purchases day book as Rs. 32,000 and
posted to the creditor’s account as Rs. 3,200.
(iii) An item was included in closing inventory at its cost of Rs. 94,000. Due to lower
demand, it had a net realizable value of Rs. 81,000.
(iv) A sub-total of Rs. 49,000 was carried forward in the sales day book as Rs. 94,000.
(v) Return inward and return outward appearing in the trial balance were Rs. 82,000 and
Rs. 99,000 respectively. While preparing the financial statements, the amount of
return inward was shown as return outward and vice versa.
(vi) Discount received of Rs. 4,100 was posted to the debit of discount allowed.
(vii) SB started using an inventory item as office machine effective from 1 October 2018.
No adjustment has been recorded and this item is included in closing inventory. The
cost and selling price of this item are Rs. 145,000 and Rs. 182,000 respectively.
(viii) Another office machine costing Rs. 270,000 with a carrying value of Rs. 127,200 as
on 1 January 2018 was disposed off on 1 September 2018 for Rs. 80,000. The sale
proceeds were credited to accumulated depreciation account and whole year’s
depreciation was provided on the machine.

The balance as per bank statement as on 31 December 2018 was reconciled with cash book.
During review, following matters were noted in bank reconciliation statement:
(i) List of unpresented cheques included:

a cheque issued to a creditor on 30 April 2018 amounting to Rs. 28,000.

a cheque dated 30 December 2018 amounting to Rs. 16,000 which was handed
over to the creditor on 6 January 2019.
(ii) List of deposits in transit included a cheque dated 15 January 2019 from a debtor
amounting to Rs. 35,000.
(iii) Bank charges of Rs. 3,100 correctly debited by bank had been added back.

Other information:
SB uses periodic inventory method to record the inventory. Office machines are depreciated
at 10% from the month of addition to the month prior to disposal using reducing balance
method. Control accounts are not maintained for Debtors and Creditors.

Required:
(a) Prepare journal entries to correct the above errors. (Narrations are not required) (15)
(b) Compute the corrected gross profit. (03)
 Introduction to Accounting Page 5 of 5

Q.7 Bannu Traders has three partners A, B and C. The net profit for the year ended
31 December 2018 was Rs. 5.8 million. Following further information pertains to the year
ended 31 December 2018:

A B C
------- Rs. in ‘000 -------
Opening balances: Capital accounts 9,000 6,000 3,000
Current accounts 800 1,700 (600)
Drawings during the year 2,500 750 1,000

As per the partnership agreement:

(i) interest on the partners’ opening capital is allowed at 10% per annum if the partner
has positive opening current account balance.
(ii) A and C are entitled to monthly salaries of Rs. 100,000 and Rs. 120,000 respectively
for the months in which they attend the partnership office. C did not attend the office
for 3 months during 2018.
(iii) interest is charged at 8% per annum on drawing balances as at 31 December in excess
of salary entitlement.
(iv) B is entitled to a bonus of 10% of profit after partners’ salaries.
(v) residual profit is to be shared as follows:

Up to Rs. 1.2 million equally; and

Balance would be shared by A, B and C in the ratio of 3:3:2 respectively.

However, B is entitled to a minimum annual profit share of 30% of his capital

balance. Any shortfall is to be contributed by A and C in the ratio of their capital
balances.

Required:
For the year ended 31 December 2018:
(a) show how the partnership profits would be shared among the partners. (09)
(b) prepare partners’ current accounts. (03)
(c) compute the profit at which B would receive the guaranteed minimum profit share
without any contribution by A and C. (03)

(THE END)
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2019

Ans.1 Chaman Stores

Trial balance for the month of January 2019
Debit Credit
S. No. Description
----- Rs. in ‘000 -----
1. Cash 36
2. Bank 359
3. Capital 500
4. Sales 267 + 19 +36 322
5. Bank loan 200
6. Trade receivables 267  30  95 5 137
7. Security deposit 45
8. Furniture 40 +35 + 55 130
9. Insurance 15
10. Trade payables 370  144  13  6 207
11. Purchases 370+35 +43 30 418
12. Return inward 30 + 4 34
13. Salaries 76
14. Utilities 186 12
15. Drawings 6 + 30 36
16. Rent 22
17. Rent payable 22
18. Other payables 55
19. Return outward 13
20. Discount allowed 130  30  95 5
21. Discount received 150  44  100 6
1,325 1,325

Ans.2 (a) Potential user groups and information that would be of interest to them:

(i) Investors require information to assess the ability of an entity to earn profits and
to pay dividends. Principally, they need to decide whether to buy, hold or sell
shares.

(ii) Employees and their representative groups (e.g. trade unions) require information
to assess the ability of an entity to provide remuneration, retirement benefits and
employment opportunities.

(iii) Lenders are interested in information that enable them to determine whether their
loans and interest entitlements will be paid when due.

(iv) Suppliers require information which will enable them to assess whether the entity
has the ability to pay amounts owed when they fall due.

(v) Customers are interested in assessing the continuance of an entity where they have
a long-term involvement with them and/or are dependent on them for supplies.

(b) Document Purpose

Sales order It is issued by customers to place their order.
Goods dispatched To inform the customers that the goods have been dispatched and
note are on their way.

Page 1 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2019

Delivery note A note that accompanies the goods. A customer will check this to
make sure that it agrees with his order and that it is consistent with
what has actually been delivered.
Sales invoice A request to the customer demanding payment for goods delivered.
Invoices normally show a date, details of transaction and payment
terms.
Credit note Issued when a customer returns goods and the business agrees to
this. The business issues a credit note to acknowledge that the
amount specified is no longer owed to them by the customer.

Ans.3 Swat Enterprises

S. No. Head of account Assets = Equity + Liabilities
Rupees [Increase/(Decrease)]
(i) Machinery (3,500+60+125) 3,685,000
Cash/Bank (185,000)
Advance (3,500,000)
(ii) Cash/Bank (180,000)
Drawings (30,000)
Insurance (150,000)

(iii) Cash/Receivables 95,000

Office equipment - cost (265,000)
Office equipment – accumulated dep. 176,000
Book value (89,000)
Gain on disposal 6,000
(iv) No business transaction takes place by entering into rent agreement.
(v) Stock (75,000)
Insurance claim receivable 65,000
Loss of stock (10,000)
(vi) Warehouse 1,200,000
Repairs and maintenance (250,000)
Cash/Bank (1,450,000)

Ans. 4 Multan Traders

(a) Inventory ledger card - weighted average
Receipts Issues Balance
Date
Unit Rate Amount Unit Rate Amount Unit Rate Amount
01 Balance 200 175 35,000
07 Purchases 450 179.33 80,700 650 178 115,700
13 Sales 360 178 64,080 290 178 51,620
16 Purchases 500 181.16 90,580 790 180 142,200
21 Sales 440 180 79,200 350 180 63,000
25 Purchases 350 184 64,400 700 182 127,400
27 Unsaleable 30 182 5,460 670 182 121,940
28 Sales 300 182 54,600 370 182 67,340
1,300 235,680 1,130 203,340
(b) Gross Profit: Rupees
Sales: (72,000 for 360 units)+(92,400 for 440 units)+(61,000 for 300 units) 225,400
Cost of goods sold (203,340)
Gross profit 22,060

Page 2 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2019

Ans.5 Qambar Enterprises

(a) Statement of profit or loss for the year ended 31 December 2018
Rs. in '000
Revenues
Sales 18,184 –335 17,849
Return inward (826)
Net sales 17,023

Cost of sales
Opening inventory 4,450
Purchases 12,364 –125(2,500×5%) 12,239
Closing inventory (3,860)
Cost of sales (12,829)
Gross profit 4,194

Expenses:
Salaries and commission 1,295
Rent and insurance 545–25(75/3)+16(40×40%) 536
Utilities and repairs 420+85 505
Office and sales supplies 210–63(90×70%) 147
Bad debts 45+185(BS) 230
Depreciation - vehicle 472
Disposal 600×10%×10/12 = 50
Additions 960×10%×4/12 = 32
=
Others (4,500–600)×10% 390
Depreciation- furniture 214
Addition 400×15%×8/12 = 40
=
Others (2,535–400–975)×15% 174
Interest 1,500×12%×9/12 135
(3,534)

Other income
Gain on disposal 500–[600– 120(600×10%×2)–50(600×10%×10/12)] 70
Other income 275 –125(PL) 150
220
Net profit 880

(b) Statement of financial position as at 31 December 2018 Rs. in '000

Assets
Non-current assets
Vehicle - cost 4,500+960–600 4,860
Accumulated depreciation 1,450+472(PL)–170(120+50) (1,752)
3,108

Furniture - cost 2,535

Accumulated depreciation 975+214(PL) (1,189)
1,346
4,454
Page 3 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2019

Current assets
Trade receivables 2,970 –100 2,870
Provision of doubtful receivables 270×30%+(2870–270)×4% (185)
2,685
Inventories 3,860
Office and sales supplies PL 63
Prepaid rent 25(PL)–16(PL) 9
Insurance claim PL 500
Cash and bank balances 746
7,863
12,317

Equity and liabilities

Equity
Capital 5,223+85+960 6,268
Profit for the year 880
Drawings (644)
6,504

Non-current liability
Bank loan 1,500

Current liabilities
Trade payables 3,943–100 3,843
Advances from customers 335
Accrued interest PL 135
4,313
12,317

Ans.6 (a) General journal

Debit Credit
Description
Rupees
(i) Suspense 42,000–24,000 18,000
Debtors 18,000
(ii) Suspense 28,800
Purchases 32,000–23,000 9,000
Creditors 23,000–3,200 19,800
(iii) Trading / Cost of goods sold 13,000
Closing inventory 13,000
(iv) Sales 94,000 – 49,000 45,000
Suspense 45,000
(v) No entry
(vi) Suspense 8,200
Discount allowed 4,100
Discount received 4,100
(vii) Machine / Fixed assets 145,000
Purchases 145,000
Trading / Cost of goods sold 145,000
Page 4 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2019

Closing inventory 145,000

Depreciation expense 3,625
Accumulated depreciation
145,000×10%×3/12 3,625
(viii) Depreciation expense (W-1) 3,760
Accumulated depreciation 3,760
Accumulated depreciation 142,800+80,000+3,760+4,720 231,280
Loss on disposal 38,720
Machine 270,000
(i) Bank 28,000+16,000 44,000
Creditors 44,000
(ii) Debtors 35,000
Bank 35,000
(iii) Bank charges 3,100
Bank 3,100

W-1: Depreciation expense Rupees

Correct depreciation 127,200×10%×8/12 8,480
Depreciation charged during the year (127,200 – 80,000)×10% (4,720)
3,760

(b) Correct gross profit

Rupees
Given 854,000
(ii) Purchases overstated 9,000
(iii) NRV adjustment (13,000)
(iv) Sales overstated (45,000)
(v) Return inward overstated (99,000-82,000) 17,000
(v) Return outward understated (99,000-82,000) 17,000
Correct gross profit 839,000

Ans.7 Bannu Traders

(a) Profit sharing for the year ended 31 December 2018

Profit sharing
Total
A B C
--------------- Rs. in '000 ---------------
Profit available for appropriation 5,800

Interest on partner's capital (1,500) 900 600 -

Salary to partners A: (100×12) and C: (120×9) (2,280) 1,200 - 1,080
Interest on drawings
A:(2,5001,200)×8%, B: (750×8%) 164 (104) (60) -
Bonus to B (5,8002,280) ×10% (352) - 352 -
1,832
Distribution of Rs. 1.2 million (1,200) 400 400 400
Distribution of remaining in 3:3:2 (632) 237 237 158
- 2,633 1,529 1,638
Guaranteed profit to B: (6,000×30%1,529) 271
Sharing of Guaranteed profit by A and C 271 in 3:1 (203) - (68)
2,430 1,800 1,570

Page 5 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Spring 2019

(b) A B C A B C
Description Description
------- Rs. in ‘000 ------- ------- Rs. in ‘000 -------
Opening balance 600 Opening balance 800 1,700
Drawings 2,500 750 1,000 Appropriation a/c 2,430 1,800 1,570
Closing balance 730 2,750 - Closing Balance 30
3,230 3,500 1,600 3,230 3,500 1,600

(c) B’s share in additional profit of Rs. 100

Bonus to B 100×10% 10.00
B's share in remaining profit (10010)×3/8 33.75
43.75

Additional profit for a share of Rs. 271,000 271,000×(100/43.75) Rs. 619,429

Total profit (5,800,000 + 619,429) Rs. 6,419,429

(THE END)

Page 6 of 6
 Certificate in Accounting and Finance Stage Examination
The Institute of 3 September 2018
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Introduction to Accounting
Q.1 Henry Brothers (HB) is engaged in trading of textile products. As at 1 July 2018, HB had
cash and bank balances of Rs. 76,000 and Rs. 286,000 respectively. Following transactions
pertain to the month of July 2018:

4 July Purchased goods on credit amounting to Rs. 250,000 and Rs. 180,000 from
Alpha Enterprises (AE) and Bravo Traders respectively. AE offered 3%
discount if payment was made within 15 days.
6 July Purchased office furniture costing Rs. 90,000 from Lavish Designs and paid
Rs. 50,000 through cheque. Rs. 40,000 had already been paid in June 2018 and
debited to Advances.
8 July Sold goods to HRS Garments and received a cheque of Rs. 300,000. Also sold
goods on cash to Shan Garments having list price of Rs. 250,000 and offered
discount of 2%.
14 July 20% goods sold to Shan Garments on 8 July were returned and the amount was
refunded in cash. These goods were sold on mark up of 25% of cost.
16 July Sold old office furniture on cash for Rs. 12,000. The cost of furniture was
Rs. 75,000 and its book value was nil.
17 July Goods costing Rs. 35,000 were returned to AE and the remaining amount was
paid through cheque.
23 July Sold goods on cash to Salim Sons for Rs. 236,500.
26 July Saleh & Co. offered discount of 5% on list price of Rs. 500 per unit if at least
250 units are purchased. HB purchased 300 units to avail the discount and paid
through cheque.
28 July Paid loan instalment of Rs. 150,000 including interest of Rs. 35,000 in cash.
30 July Deposited cash into bank Rs. 200,000.

Required:
Record the above transactions in the relevant books of prime entry in a proper format.
(Narrations are not required) (15)

Q.2 The following table depicts the effects of certain transactions of Ben Ten Trader in
accounting equation form:
Assets Owner’s
= Liabilities +
Cash Debtors Inventory Equipment equity
(i) +50,000 +50,000 −75,000 +25,000
(ii) +20,000 −50,000 −30,000
(iii) −23,000 −23,000
(iv) −15,000 +65,000 +50,000
(v) −15,000 −15,000
(vi) +60,000 −55,000 +5,000
(vii) −2,500 −17,500 −20,000
(viii) −17,000 +17,000
(ix) −35,000 +28,000 −7,000
(x) −39,200 −40,000 +800

Required:
Give brief narrative/description of each of the above transactions. (10)
 Introduction to Accounting Page 2 of 5

Q.3 On reviewing the draft financial statements of Aladdin Traders (AT) for the year ended
30 June 2018, following matters have been identified:
(i) Freight-in incurred on merchandise was classified into administration expenses. Last
year such cost was charged to cost of sales.
(ii) Depreciation on land and building has not been charged due to rising market values.
(iii) Cost of improvements and repairing equipment was capitalized to the cost of the
equipment.
(iv) A part of the business premises is used by owner for residential purposes. However,
total rent and utilities of the premises are charged to expenses.
(v) A leased vehicle has been recorded in the books as non-current asset although the
vehicle is registered in the bank’s name.
(vi) Sales has been recorded for goods not yet dispatched.

Required:
Identify and briefly describe the accounting concept(s) that has been applied or needs to be
considered in each of the above situations. (08)

Q.4 Toby Apparels has three partners A, B and K. The net profit for year ended 30 June 2018
was Rs. 12.5 million which arose evenly throughout the year. Following further information
pertains to the year ended 30 June 2018:

A B K
------- Rs. in ‘000 -------
Opening balances: Capital accounts 5,000 13,000 7,000
Current accounts (500) 100 2,800
Drawings for the year 3,100 4,300 3,400

As per the partnership agreement valid up to 30 September 2017:

(i) A, B and K shared profit in the ratio of 3:7:5 respectively.
(ii) All partners were entitled to receive interest on capital at 12% per annum.
(iii) A was entitled to monthly salary of Rs. 50,000.
(iv) B was entitled to commission of 4% of net profit.

On 1 October 2017, all partners agreed to revise the partnership agreement. Before revision,
they agreed to make the following changes in the capital accounts:

(i) Goodwill was recognized at 2 times the average annual profit for the last 3 completed
years in excess of Rs. 6 million. The profits for the firm were as follows:

30 June 2017 30 June 2016 30 June 2015

----------------- Rs. in ‘000 -----------------
10,500 9,500 9,250

(ii) Partner A made additional investment of Rs. 3.5 million while B withdrew
Rs. 4.5 million of his capital. Partner K transferred Rs. 2.5 million from his current
account to capital account.

As per the revised partnership agreement effective from 1 October 2017:

(i) All partners will be entitled to interest on capital at 9% per annum.
(ii) A will be entitled to monthly salary of Rs. 60,000 while B and K will be entitled to
monthly salary of Rs. 75,000 each.
(iii) A, B and K will share profit in the ratio of 2:4:3 respectively.

Required:
For the year ended 30 June 2018:
(a) show how the partnership profits would be shared among the partners. (09)
(b) prepare partners’ current and capital accounts. (06)
 Introduction to Accounting Page 3 of 5

Q.5 Following is the trial balance of Sofia Trader (ST) for the year ended 30 June 2018:

Debit Credit
---------- Rs.'000 ----------
Equipment - cost 17,000
Equipment - accumulated depreciation - 1 Jul 2017 4,800
Vehicles - cost 3,000
Vehicles - accumulated depreciation - 1 Jul 2017 1,200
Inventory - 1 Jul 2017 5,500
Trade receivables 5,350
Provision for doubtful receivables 220
Prepaid insurance - 1 Jul 2017 140
Advance 384
Bank deposit (invested on 1 Feb 2017 at 7%) 1,400
Cash and bank balances 620
Capital 16,000
Drawings 352
Trade payables 3,500
Accruals and other payables 1,520
Sales 32,350
Purchases 21,000
Returns 950 700
Salaries and utilities 2,790
Rent 1,000
Discounts 270 220
Other expenses 480
Insurance 300
Bad debts 106
Interest income on bank deposit 82
Suspense account 50
60,642 60,642

Following further information is available:

(i) Cost of closing physical inventory was Rs. 7,400,000. Inventory included goods
costing Rs. 240,000 which were damaged in the warehouse. These goods can be sold
for Rs. 250,000 after incurring a cost of Rs. 16,000.
(ii) Rent includes payment of annual rent of Rs. 240,000 expiring on 30 November 2018
for owner’s residence.
(iii) Prepaid insurance represents premium which expired on 31 January 2018 while
insurance represents annual premium which is expiring on 31 January 2019.
(iv) Suspense account represents goods returned by ST which were debited to supplier's
account.
(v) On 29 June 2018, dishonoured cheque of Rs. 285,000 was returned by a bank. No
entry has been made in the books for this return. This cheque was received from a
customer net of 5% settlement discount.
(vi) ST maintains a 4% provision against trade receivables.
(vii) ST paid Rs. 388,000 (net of 3% settlement discount) which was debited to supplier's
account with the same amount.
(viii) On 1 March 2018, an equipment was sold for Rs. 400,000 and its sale proceeds were
credited to the equipment account. This equipment had been purchased at a cost of
Rs. 500,000 and on 1 July 2017 its book value was Rs. 360,000.
(ix) Advance represents 40% payment made for purchase of vehicle. Remaining balance
would be paid in September 2018. No entry was passed when the vehicle was
delivered on 1 June 2018.
(x) ST depreciates equipment and vehicles at 15% and 25% respectively using reducing
balance method.
 Introduction to Accounting Page 4 of 5

Required:
(a) Prepare statement of profit or loss for the year ended 30 June 2018 (11)
(b) Prepare statement of financial position as at 30 June 2018 (11)

Q.6 Draft income statement of Timothy Enterprises (TE) for the year ended 31 December 2017
shows gross profit of Rs. 850,000 and net profit of Rs. 460,000.

During the review of the financial statements, following errors were noticed:
(i) An invoice of Rs. 3,700 was debited to purchases but the goods were received after
year-end and were not included in the closing inventory.
(ii) Transportation inward amounting to Rs. 2,000 was included in transportation
outward.
(iii) The sub-total of a closing stock sheet had been carried forward as Rs. 21,830 instead of
Rs. 21,380.
(iv) A receipt of Rs. 21,850 was credited to sales. The amount was received from a debtor
as full and final settlement of an outstanding balance of Rs. 23,000.
(v) Goods having sales value of Rs. 4,500 were used for office repairs. No entry has been
made in the books.
(vi) Purchase of office computer on 1 April 2017 amounting to Rs. 42,000 was entered in
the purchase account.
(vii) An item of furniture was sold on credit for Rs. 3,000 and entered in the sales day book.
The book value of this item was Rs. 5,000.
(viii) Purchase return amounting to Rs. 6,700 has been recorded as sales return.
(ix) The owner had withdrawn goods costing Rs. 4,680 for personal use. No entry has
been made in the books.

TE uses periodic inventory method. Goods are sold at cost plus mark up of 25%.
Depreciation on office computer is provided at the rate of 25%.

Required:
Compute the corrected gross profit and net profit for the year. (14)

Q.7 (a) Following balances were extracted from the records of Automan Enterprises:

31 Dec 2017 31 Dec 2016

Trade receivables Rs. 618,500* Rs. 558,800
*after writing off receivables of Rs. 32,000 during 2017

The following adjustments need to be made at 31 December 2017:

(i) Cash of Rs. 17,850 was received from MJM Traders whose balance had been
written off in 2016. The amount received was credited to suspense account.
(ii) Receivable from Noor Merchant of Rs. 31,800 which had been specifically
provided for in full in 2016 is to be written off.
(iii) A specific provision at 75% is to be made against balance of QT Bakers
amounting to Rs. 24,200.
(iv) A general provision is always maintained at 4% of the remaining receivables.

Required:
Prepare following ledger accounts for the year ended 31 December 2017:

Provision for doubtful receivables

Bad debt expense (07)

(b) What accounting entries are made for normal and abnormal loss of stock under:
(i) Periodic inventory method
(ii) Perpetual inventory method (04)
 Introduction to Accounting Page 5 of 5

(c) The details of two office buildings acquired on rent by Ninja Enterprises (NE) are as
follows:

(i) On 1 April 2016, Building I was acquired on annual rent of Rs. 2,400,000.
Effective from 1 October 2017 the rent was increased by 20%. NE pays rent on
half yearly basis in advance.
(ii) On 1 September 2016, Building II was acquired on annual rent of Rs. 900,000.
Payments were made on quarterly basis in advance. However, the quarterly
payment due on 1 December 2017 was made on 15 January 2018.

NE’s financial year ends on 31 December each year.

Required:
Prepare rent expense account for the year ended 31 December 2016 and 2017. (05)

(THE END)
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2018

Note:
The suggested answers are provided for the guidance of the students. However, there are
alternative solution(s) to the questions which are also considered by the Examination Department
while marking the answer scripts.

A.1 Henry Brothers

Books of prime entry

Purchase day book

Date Supplier Rupees
4-Jul-18 Alpha Enterprises 250,000
4-Jul-18 Bravo Traders 180,000
430,000

Purchase return day book

Date Supplier Rupees
17-Jul-18 Alpha Enterprises 35,000
35,000

Cash Book/Bank Book

Receipts Payments
Cash Bank Cash Bank
Date Description Date Description
----- Rupees ----- ----- Rupees -----
1-Jul-18 Balance b/d 76,000 286,000 6-Jul-18 Office furniture 50,000
8-Jul-18 Sales 300,000 14-Jul-18 Return inwards 49,000
8-Jul-18 Sales 245,000 {(245,000)×0.2}
(250,000×0.98) 17-Jul-18 Alpha Enterprises - 208,550
16-Jul-18 Disposal/gain on 12,000 Account payable
disposal {(250,000-35,000)×0.97}
23-Jul-18 Sales 236,500 Purchases
30-Jul-18 Cash 200,000 26-Jul-18 {(300×500×0.95)} 142,500
28-Jul-18 Loan 115,000
Interest account 35,000
30-Jul-18 Bank 200,000
31-Jul-18 Balance c/d 170,500 384,950
569,500 786,000 569,500 786,000

General Journal
Debit Credit
Date Description
-------- Rupees --------
6-Jul-18 Office furniture - cost 40,000
Advances 40,000

16-Jul-18 Office furniture - Accumulated depreciation 75,000

Office furniture - cost 75,000

17-Jul-18 Payable control account (250,000–35,000)×3% 6,450

Discount received 6,450

Page 1 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2018

A.2 (i) Goods costing Rs. 75,000 were sold for Rs. 100,000 and part payment of Rs. 50,000
received in cash.
(ii) An amount of Rs. 20,000 was received from a debtor and remaining Rs. 30,000 were
written off.
(iii) Goods purchased on credit for Rs. 23,000 were returned.
(iv) Equipment was purchased for Rs. 65,000 against part payment of Rs. 15,000.
(v) Inventory costing Rs. 15,000 was destroyed/lost/used in office/distributed as
sample/withdrawn by owner.
(vi) Equipment having a net book value of Rs. 55,000 were sold for cash of Rs. 60,000.
(vii) A liability of Rs. 20,000 was settled by adjusting receivable from same party of Rs. 17,500
and cash payment of Rs. 2,500.
(viii) Owner paid to supplier Rs. 17,000 from personal cash. / A liability of Rs. 17,000 was
written back as it was no more payable.
(ix) Goods costing Rs. 28,000 and sold on credit for Rs. 35,000 were returned by a customer.
(x) Payment of Rs. 39,200 was made to a supplier in settlement of Rs. 40,000.

A.3 (i) Consistency:

The contents of financial statements must be presented consistently from one period to
another. Therefore, cost of freight-in should be consistently charged to cost of sales rather
than operating expenses.

(ii) Matching:
Depreciation is the systematic allocation of the cost of property, plant and equipment over
its estimated useful life and is not a valuation method.

Building needs to be depreciated over useful life irrespective of its market value. However,
land should not be depreciated because of indefinite useful life.

(iii) Capital or Revenue Expenditure:

Expenditure made to improve equipment are capitalized while costs of repairs are expensed
out.

(iv) Business entity/separate entry:

This concept implies that affairs of a business are to be treated as being quite separate from
the non-business activities of its owner(s). Therefore, rent related to residential premises
should be treated as drawings instead of business expenses.

(v) Substance over form:

It is an accounting principle that transactions and other events must be accounted for and
presented according to their substance and financial / economic reality instead of according
to their legal form. In a financial lease, the lessor obtains title to the assets only at the end of
the lease. However, the substance of the transaction is that the lessee obtains substantial
rights on the asset from the outset of the lease. Thus, we treat the asset as if it was purchased
outright at the start.
(vi) Accrual concept / Revenue recognition:
Revenue from sales and other income should be reported in the period in which the income
is earned i.e., when the goods are dispatched.

Page 2 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2018

A.4 Toby Apparels

Appropriation of profit for the year ended 30 June 2018
Profit for Appropriation of profit
the period A B K
--------------- Rs. in '000 --------------
Profit for 3 months ended 30 Sep 2017:(12,500,000/12×3) 3,125
– 3 months' interest at 12% p.a. on capital balances (750) 150 390 210
– Salary to A (150) 150
– Commission to B at 4% of net profit (3,125×4%) (125) 125
– Remaining profit in the ratio of 3:7:5 (2,100) 420 980 700

Profit for 9 months ended 30 Jun 2018:(12,500,000/12×9) 9,375

– 9 months' interest at 9% p.a. on updated capital (2,295) 675 810 810
– Salary to B and K @ Rs.75,000 p.m and to A @ Rs.60,000 p.m. (1,890) 540 675 675
– Remaining profit in the ratio of 2:4:3 (5,190) 1,153 2,307 1,730

- 3,088 5,287 4,125

Partners' current accounts

A B K A B K
Description Description
-------- Rs. in '000 -------- -------- Rs. in '000 --------
Opening balance 500 Opening balance 100 2,800
Transferred to capital 2,500 Appropriation a/c 3,088 5,287 4,125
Drawings 3,100 4,300 3,400
Closing balance 1,087 1,025 Closing balance 512
3,600 5,387 6,925 3,600 5,387 6,925

Partners' capital accounts

A B K A B K
Description Description
-------- Rs. in '000 -------- -------- Rs. in '000 --------
Capital withdrawn 4,500 Opening balance 5,000 13,000 7,000
Goodwill (W-1) 1,500 3,500 2,500
Further investment 3,500
Transfer from current
Closing balance 10,000 12,000 12,000 account 2,500
10,000 16,500 12,000 10,000 16,500 12,000

W-1: Goodwill calculation Rs. in '000

3 years average profit (10,500+9,500+9,250)/3 9,750
Excess over 6 million 9,750 – 6,000 3,750
Goodwill 3,750×2 7,500

Page 3 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2018

A.5 Sofia Traders

(a) Statement of profit or loss for the year ended 30 June 2018
Rs. in '000'
Revenues
Sales 32,350
Return inward (950)
Net sales 31,400

Cost of sales
Opening inventory 5,500
Purchases 21,000
Return outward 700+50 (750)
Closing inventory 7,400–6{240–(250–16)} (7,394)
Cost of sales (18,356)
Gross profit 13,044

Selling and administration expenses:

Salaries and utilities 2,790
Rent 1,000–240 760
Discount allowed 270–15[300(BS)–285] 255
Insurance 300–175(300×7/12)+140 265
Bad debts 106+{226(BS)–220} 112
Depreciation - equipment 1,872
Disposal (500–140)×15%×8/12 = 36
Others [(17,000+400–500)–(4,800–140)]×15% = 1,836
Depreciation- vehicle 470
Addition 960(BS)×25%×1/12 = 20
Others (3,000–1,200)×25% = 450
Other expenses 480
(7,004)

Other income
Gain on disposal 400–[360–36(PL)] 76
Discount received 220+12(388/97×3) 232
Interest income 82+16{1,400×7%–82} 98
406
Net profit 6,446

(b) Statement of financial position as at 30 June 2018 Rs. in '000

Assets
Non-current assets
Equipment - cost 17,000+400–500 16,900
Accumulated depreciation 4,800+1,872(PL)–176(140+36) (6,496)
10,404

Vehicle - cost 3,000+960(384/0.4) 3,960

Accumulated depreciation 1,200+470(PL) (1,670)
2,290

Page 4 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2018

Current assets
Trade debtors 5,350+300(285/0.95) 5,650
Provision of doubtful debts (5,650×4%) (226)
5,424
Closing inventory 7,400–6(PL) 7,394
Prepayments PL 175
Accrued income/Interest receivable PL 16
Deposits at 7% 1,400
Cash and bank balances 620–285 335
13,344
27,438

Equity and liabilities

Equity
Capital 16,000
Profit for the year 6,446
Drawings 352+240 (592)
21,854

Current liabilities
Trade creditors 3,500–12(PL) 3,488
Accruals and other payables 1,520+576[960(BS)×0.6] 2,096
5,584
27,438

A.6 Timothy Enterprises

Gross Profit Net Profit

Statement for ascertaining correct gross and net profit (Rs.) (Rs.)
Profits - as reported 850,000 460,000

(i) Reversal of purchase / Increase in closing stock 3,700 3,700

(ii) Misclassification of transportation costs (2,000) -

(iii) Error in stock sheet (450) (450)

(iv) Reversal of sales (21,850) (21,850)

Discount allowed - (1,150)
(21,850) (23,000)

(v) Goods used for repairs (4,500/1.25) 3,600 -

(vi) Office computer wrongly credited to purchases account 42,000 42,000

Depreciation on office computer (42,000×25%×9/12) - (7,875)
42,000 34,125

(vii) Reversal of sales (3,000) (3,000)

Loss on sale of furniture - (2,000)
(3,000) (5,000)

(viii) Purchase returns recorded 6,700 6,700

Sales returns reversed 6,700 6,700
13,400 13,400

(ix) Goods withdrawn by owner 4,680 4,680

Adjusted gross/net profit 890,080 487,455

Page 5 of 6
 Introduction to Accounting
Suggested Answers
Certificate in Accounting and Finance – Autumn 2018

A.7 (a) Automan Enterprises

Bad debt expense
Description Rs. in '000 Description Rs. in '000
Provision for doubtful debts 51,570 Bad debts recovered - MJM Traders 17,850
P & L (Bal. figure) 33,720
51,570 51,570
Provision for doubtful receivables
Description Rs. in '000 Description Rs. in '000
Write off during the year 32,000 Opening balance (W-1) 52,880
Write off - Noor Merchant 31,800 Bad debts expense (Bal. figure) 51,570
Closing balance (W-2) 40,650
104,450 104,450

W-1: Opening provision for doubtful receivables Rs. in '000

Specific - Noor merchant 31,800 × 100% 31,800
General (558,800 – 31,800) × 4% 21,080
52,880

W-2: Closing provision for doubtful receivables Rs. in '000

Specific - QT Bakers 24,200 × 75% 18,150
General (618,500 – 31,800 – 24,200) × 4% 22,500
40,650

(b) Entry in periodic inventory Entry in perpetual inventory

Normal loss No entry Dr Cost of goods sold
Cr Inventory
Abnormal loss Dr Abnormal loss/P&L/ Expense Dr Abnormal loss/P&L/Expense
Cr Purchases Cr Inventory

(c) Ninja Enterprises

Rent expense - 2016
Rs. in Rs. in
Date Description Date Description
'000 '000
1-Apr-16 Cash - B1 1,200 31-Dec-16 Expense - P&L – B1 1,800
1-Sep-16 Cash - B2 225 31-Dec-16 Expense - P&L – B2 300
1-Oct-16 Cash - B1 1,200 31-Dec-16 Closing prepaid– B1 600
(1,200/6×3)
1-Dec-16 Cash - B2 225 31-Dec-16 Closing prepaid– B2 150
(225/3×2)
2,850 2,850
Rent expense - 2017
Rs. in Rs. in
Date Particulars Date Particulars
'000 '000
1-Jan-17 Opening prepaid - B1 600 31-Dec-17 Expense - P&L – B1 2,520
1-Jan-17 Opening prepaid - B2 150 31-Dec-17 Expense - P&L – B2 900
1-Mar-17 Cash - B2 225 31-Dec-17 Closing prepaid - 720
1-Apr-17 Cash - B1 1,200 B1(1,440/6×3)
1-Jun-17 Cash - B2 225
1-Sep-17 Cash - B2 225
1-Oct-17 Cash - B1 (1,200×1.2%) 1,440
31-Dec-17 Closing accrued - B2 75
(225/3×1)
4,140 4,140
(THE END)

Page 6 of 6
 Topical Past Papers 
Ch‐01 & Ch‐02 
Q.1 
Identify accounting concepts/principles on which the following statements are based.   
 
(i) Expenses are recognized on the basis of a direct association between the costs 
incurred  and the earning of specific items of income. 
(ii) Accounting policies in use are applied from one period to the next. 
(iii) Overstating assets/income and understating liabilities/expenses are avoided. 
(iv) Revenue and other income are recognised when these are earned, irrespective of 
the  date of receipt. 
(v) Any information, omitting or misstating of which could influence a decision of a user 
of the financial statements, is disclosed. 
(05) 
Ans.1 
i. Matching Concept 
ii. Consistency 
iii. True and Fair View 
iv. Accrual Basis 
v. Materiality 
 
Q.2 
Following principles are used by ABC Enterprises for preparation of its financial statements: 
 
(i) Fixed assets are stated at cost less accumulated depreciation. 
(ii) Items of capital nature, costing less than Rs. 1,000 are charged to cost. 
(iii) Stock‐in‐trade is valued on the same basis as is being followed for last many years. 
(iv) Appropriate provision is made for bad and doubtful debts. 
(v) Sales revenue is recorded on dispatch of goods to customers irrespective of the date 
of  receipt of payment. 
(vi) Cost of sales is recorded in the same period in which the revenue earned from the sale 
is  recorded. 
Required: 
Identify   and   explain   the   above   accounting   concepts/principles   being   followed   by ABC 
Enterprises for preparation of its financial statements.   
(11) 
Ans.2 
(i)  Historical cost 
This is the actual amount of cash paid or received. For example, the historical cost
of an item of fixed assets is the amount that was paid to buy it in the past. 
(ii)  Materiality 
Information  is  material  if  omitting  it  or  misstating  it  could influence  decisions 
that  users make on the basis of financial statements of an entity. 
 (iii)  Consistency 
The  financial  statements  must  be  presented  consistently  from  one  period  to
another.  The  presentation  may  be  changed  only  if  necessary  to  improve  the 
quality  of  information  presented  in  terms  of  its  usefulness  to  the  users  or  if  a
new rule requires a change
 
(iv) Prudence 
Prudence  involves  allowing  for  some  caution  in  preparing  financial  statements, 
by  making  reasonable  and  sensible  allowance  in  order  to  avoid  overstating 
assets or  income and to avoid understating liabilities and expenses. 
 
(v) Accrual basis accounting 
Revenue  from  sales  and  other  income  should  be  reported  in  the  period 
when  income  arises  (which  might  not  be  the  same  as  the  period  when  the 
cash  is  received) 
 
(vi) Matching concept 
     The cost of sales in the statement of comprehensive income must be matched with   
     the sales. 
 
Q.3 
Consider the following situations: 
 
(i) Due  to  heavy  losses  during  the  current  year,  Quality  Traders  (QT)  decided  to 
discontinue  its  operations  with  effect  from  1  August  2016.  However,  QT’s 
financial  statements for the year ended 30 June 2016 were prepared using the same 
basis as last  year. 
 
(ii) Results of Shan Enterprises (SE) fluctuate widely from year to year. Therefore, SE’s 
management  has  decided  to  create  certain  provisions  in  the  periods  of  higher 
profits  and  adjust  those  provisions  in  the  period  of  lesser  profits  to  maintain 
profits  at  a  consistent level from year to year. 
 
Required: 
 
  Identify and explain the accounting concept/principle relevant to each of the above
  situations  (04)
 
 
Ans.3 
 
(i) Accounting concept that effects preparation of QT's financial statements for the year ended 
30 June 2016 is 'going concern'. 
This means that financial statements are prepared on the assumption that the entity will 
continue to operate for the foreseeable future and does not intend to go into nor will be 
forced into liquidation 
 (ii) Accounting  concept  pertaining  to  this  situation  is  'true  and  fair  view'  (faithful 
representation). 
According to this concept, financial statements should give true and fair view/faithful 
representation of the financial position, financial performance, and changes in financial 
position of an entity. 
Q.4 
Identify any four potential user groups who may be interested in an entity's financial statements and 
specify what type of information would be of interest to them. 
(05) 
Ans.4 
User Groups and information that would be of interest to them: 
 
(i) Investors require information to assess the ability of an entity to earn profits and to 
pay  dividends. Principally, they need to decide whether to buy, hold or sell shares. 
 
(ii) Employees and their representative groups (e.g. trade unions), require information to 
assess  the  ability  of  an  entity  to  provide  remuneration,  retirement  benefits  and 
employment  opportunities. 
 
(iii) Lenders are interested  in information  that  enable  them  to  determine  whether their 
loans and  interest entitlements will be paid when due. 
 
(iv) Suppliers  require  information  which  will  enable  them  to  assess  whether  the  entity 
has the  ability to pay amounts owed when they fall due. 
 
(v) Customers are interested in assessing the continuance of an entity where they have a 
long‐  term involvement with them and/or are dependent on them for supplies. 
 
(vi) Government and their agencies require information for a variety of purposes. These 
include  resource  allocation  decisions  (e.g.  government  grants),  to  assess  taxable 
capacity and for  regional and national planning purposes. 
 
(vii) Public  is  interested  in  variety  of   ways   which   include   employment   potential, 
Q.5 
  (a)   In respect of each of the following, give example of a transaction which would result in: 

(i) Decrease in a liability and increase in another liability. 
(ii) Increase in an asset and decrease in another asset. 
(iii) Decrease in an asset and decrease in liability. 
(iv) Decrease in capital and decrease in asset.  (04) 

(b) While preparing the financial statements, you are faced with the following situations: 

(i) The future existence of the company is uncertain. 
(ii) The credit cards bills of the proprietor were paid and charged to the business. 
(iii) Property,  plant  and  equipment  now  costs  more  than  the  price  at 
 which  it  was  purchased  at  the  inception  of  business.  However, 
the  current  prices  are  not  reflected in the financial statements. 
(iv) During the year, the company purchased stationery worth Rs. 30,000. 
The  amount  has  been  charged  to  office  supplies  consumed, 
however  major  portion  of  the  stationery  was  consumed  after  year‐
end. 
(v) The  company  had  a  poor  trading  year  and  the  owners  have 
decided  to  adopt  weighted average valuation method instead of 
FIFO. 
(vi) Leased  equipment  have  been  recorded  as  assets  although  these 
are  not  owned  by the organization. 

Required: 
State the accounting concept that has been applied or needs to be considered in each of the above 
situations.   
(06) 
 
Ans.5 
(a)  (i)  Payment of creditors by bank overdraft 
  (ii)  Purchase of machine againstcash
(iii)  Creditors paid through bank 
(iv)  Cash withdrawal by the proprietor 
Note: Examples other than mentioned above are also correct. 
 
        (b)    Accounting  Concepts: 
 
(i) Going concern 
(ii) Business entity 
(iii) Historical cost 
(iv) Materiality/Matching/ Accrual 
(v) Consistency 
(vi) Substance over form 
Q.6 
Explain the term ‘business transaction’ and discuss whether you would consider the following events as 
business transactions: 
1) A businessman purchased a vehicle for his private use by drawing cash from business. However, 
he also uses it for coming to the office. 
2) ABC & Company has paid the electricity bill of one of its partners. However, the amount is 
recoverable from that partner. 
3) Furniture and fixtures lying in the office were destroyed by fire. Furniture was owned by one of 
the partner and it was not in the use of business. 
4) The proprietor provides a generator to the office. The generator is presently not working and it 
would have to be repaired before it can be used. Previously the generator was lying in the 
proprietor’s house. 
5) Balance recoverable from an employee was written off after his death. 
 (09) 
Ans.6 
  Business  Transactions: 
A business transaction is an interaction between a business and customer, supplier or any 
other  party with whom they do business. It is an economic event that must be recorded in the 
business’s  accounting system. 
 
(i) A businessman leases vehicle from a bank: 
Purchase  of  a  vehicle  is  not  a business  transaction.  However,  the  cash  withdrawal 
is  a  business transaction. 
 
(ii) ABC and Company has paid the electricity bill of one of its partners: 
Payment on behalf of the partner is recoverable by the business. Hence this is a 
business  transaction. 
 
(iii) Furniture and fixtures owned by a partner but lying in the office were destroyed by 
fire:  It is not a business transaction as the ownership of furniture do not lies with 
the business  entity but to one of the partner. 
 
(iv) The proprietor provides a generator to the office. The generator was previously lying 
in  the house of the proprietor: 
It is a business transaction and it is required to be recorded as capital invested in 
business in  the form of generator. 
(v) An amount recoverable from an employee was written off after his death: 
This is a business transaction as the employee was working for the business and such 
waiver  is a form of benefit to the employee. 
Q.7 
 
  (a)  Briefly describe the concept of ‘Substance over form’. Give two examples.  (04)
  (b)  Big  Traders,  who  is  a  multi‐million  rupees  trading  house,  purchased  a  calculator  for  Rs.   
 
1,500.  The  calculator  is  to  be  used  for  3  years.  Keeping  in  view  the  relevant 
(03)
accounting concepts, describe the accounting treatment of the above transaction. 
Ans.7 
   
   
(a)  Substance over form: 
It is an accounting principle that transactions and other events must be accounted for and
  presented according to their substance and financial / economic reality instead of according
  to their legal form. 
  Example 1: Leased assets: 
  In  a  financial  lease,  the  lessor obtains title to the assets only at the  end  of  the
  However, the substance of the transaction is that the lessor obtains use of the asset from
  outset of the lease. Thus, we treat the asset as if it was purchased outright at the start.
  Example 2: Sale and lease‐back agreements:
   In such agreements there is a legal form of sale with one party having the right to buy the
  goods back and the other party to sell back. However in substance, there is a loan by one
  party to another and so it is recorded.
  Example 3: Accounting for groups:
  Although the parent and subsidiaries are separate legal entities, the group is effectively a
  single operating unit and under the substance over form concept, a single set of accounts is
  prepared known as consolidated accounts.

(b)  The matching concept directs the Big Traders to expense the cost of the calculator over 
the  period of three years i.e. Rs. 500 per year. 
 
However, in view of the materiality concept, Big Traders may expense the entire cost of Rs.
  1,500 in the year of purchase as this transaction would not render the financial statements
  misleading. 
Q.8 
 Name the accounting concepts/principles on which the following rules are based. 
 
(i)  Nothing material is left out that would be vital to investors or other users in assessing  the   
  underlying events and conditions of the business. 
(ii)  Whether the item in questionaffectsdecisionof theusersofthefinancial statements?
(iii)  A company is separate and distinct from its owners.
(iv)  Financial information must not only represent relevant phenomena but it must also be   
  complete, neutral and free from error.   
(v)  Expenses incurred in a particular time period should be compared with the revenue  earned   
  during the same time period.   
(vi)  Caution should be exercised while preparing financial statements in order to avoid   
  overstatement of net assets and net income.   
(vii)  The assumption that a business entity will continue in existence for the foreseeable   
  future.   
(viii)  Same accounting policy shall be applied to accounting events from period to period. (08)
     
Ans.8                (i)  Completeness 
(ii) Materiality 
(iii) Business entity concept 
(iv) Faithful representation / True and fair view 
(v) Matching principle / Accrual concept 
(vi) Prudence / Conservatism 
(vii) Going concern concept 
(viii) Consistency principle 
Q.9 
Explain the following accounting terms:
(i) Asset
(ii) Liability
(iii) Accrual basis of accounting
(iv) Going concern basis
 
 
Ans.9 
(b) (i) Asset
 It is a resource controlled by the entity;
 It is a result of past events; and
 It is expected that future economic benefits would flow from it to the entity.
 
(ii) Liability:
 It is a present obligation of an entity.
 It is a result of past events.
 It is expected that its settlement would result in an outflow of resources
that embody economic benefits.
 
(iii) Accrual basis of accounting:
It is an accounting system/principle based on which:
 revenue is recognised when it is earned, irrespective of the date of receipt.
 expense is recognised in the period in which it is incurred irrespective of
the date of payment.
 
(iv) Going concern basis:
 It means that financial statements are prepared on the assumption that the
entity will continue to operate for the foreseeable future; and
 It does not intend to go into nor will be forced to liquidate. The
going concern assumption is particularly relevant for the valuation of
assets.
 
 CH‐03 
Q.1 
The following table depicts the effects of certain transactions in accounting equation form:

 
Required:
Give brief narration/description of each of the above transactions.

(08)

Ans.1

 
 

Q.2 

Following information pertains to Arish Enterprises (AE) for the month of August 2016:
i. Goods purchased on credit for Rs. 842,000 were returned to the supplier.
ii. A customer bought goods amounting to Rs. 96,000. 40% payment was made in cash
and the balance amount was set off against amount payable by AE to the customer.
iii. An unidentified amount of Rs. 11,000 received in the bank account was credited to the
suspense account. At month end, it was found that the amount received represents a
direct transfer into AE’s bank account by a foreign customer. The bank had credited
AE’s account net of bank charges of Rs. 1,000.
iv. A customer owes Rs. 348,000 to AE. It is expected that AE would be able to recover
60% and a provision for doubtful debts is to be made for the remaining amount.
v. The owner withdrew cash of Rs. 35,000 and goods costing Rs. 65,000 for his own use.
Required:
Show the effect of the above in the form of accounting equations.

(08)

Ans.2

Arish Enterprises
Assets = Equity + Liabilities
S.No. Head of account
----------- Rupees [Increase/(Decrease)] -----------
(i) Account payable - (842,000)
  Purchase return - 842,000 -
(ii) Sales - 96,000 -
  Cash 38,400 - -
  Account payable - - (57,600)
(iii) Bank charges - (1,000) -
  Trade debtors (12,000) -
   Suspense - - (11,000)
(iv) Bad debt expense - (139,200 ) -
  Provision for doubtful debts (139,200) - -
(v) Drawings - (100,000) -
  Purchases - 65,000 -
  Cash (35,000) - -
Q.3 

Following transactions were recorded in the books of Kamyab Traders (KT) in the month of
February 2015:
(i) Stocks costing Rs. 80,000 were sold to customers at a margin of 20% on sales. 70% of the
sales were made to customers on one month’s credit and the balance on cash.
(ii) Stocks worth Rs. 60,000 were purchased on two months credit.
(iii) A bad debt of Rs. 10,000 was written off. No provision had been made prior to write off.
(iv) A new partner Mr. Sathi was admitted to KT’s business. Mr. Sathi brought Rs. 150,000 as
his capital and Rs. 65,000 as his share of goodwill.
(v) Stocks bought from a supplier amounting to Rs. 5,000 in January 2015 had been posted to
the credit of his account as Rs. 50,000. The difference in trial balance was entered in a
suspense account. The error has now been rectified.
(vi) Borrowed Rs. 200,000 from bank at 12% mark-up.
Required:
Show the effect of each of the above transactions in the form of an accounting equation.

(10)

Ans.3

 
Q.4 

The effect of certain transactions is summarised below in equation form:

All amount in Rupees

Owner’s
Assets = Liabilities +
Description equity
Cash Debtors Land Stocks Machine Creditors   Capital
Opening balance 118,600 177,800 500,000 206,800 164,200   191,500   975,900
(i) –14,600 - - - +14,600 - -
(ii) +4,100 –4,100 - - - - -
(iii) –16,000 - - - +61,600 +45,600 -
(iv) - - - –66,100 - –66,100 -
(v) +68,400 - - - - - +68,400
(vi) - - - - +9,600 +9,600 -
(vii) –22,000 - - - - - –22,000
(viii) - –15,000 - - - –15,000
Closing balance 138,500 158,700 500,000 140,700 250,000 165,600 1,022,300

Required:
Give brief narrative/description of each of the above transactions.

(08)

Ans.4

              (i) Purchased machine for cash at a cost of Rs. 14,600.

(ii) Received Rs. 4,100 cash from debtors.
(iii) Purchased machine at a cost of Rs. 61,600; paid Rs. 16,000 cash and incurred a
liability for the remaining balance.
(iv) Returned stock of Rs. 66,100 to supplier/creditor.
(v) The owner invested Rs. 68,400 cash in business.
(vi) Purchased machine on credit for Rs. 9,600.
(vii) Amount of Rs. 22,000 drawn by the owner from business.
(viii) Contra settlement of Rs. 15,000 between debit and credit balances of the
same party.
Q.5

Ans.5

Paracha Enterprises
   
Assets = Equity + liabilities
S. # Head of account
Rupees [Increase/(Decrease)]
(i) Cash/Bank/Receivables 150,000  
Fixed assets - cost (450,000)  
Accumulated depreciation 330,000  
Fixed assets – net of Accumulated dep. (120,000)  
Gain on disposal 30,000  
(ii) No business transaction takes place by issuing and accepting a purchase order.
Therefore, there is no effect on accounting equation.
(iii) Stock in trade (200,000)  
Cost of sales (200,000)  
Sales (200,000×140÷100) 280,000  
  80,000  
Advance from customers      
(280,000×20%) (56,000)
Account receivable    
(280,000×80%) 224,000
(iv) Cash/Bank (600,000)  
Accrued rent (600,000×40%) (240,000)
Rent expense OR (360,000)  
Prepaid rent 360,000  
(v) Cash/Bank (545,000)  
Loan (500,000)
Interest expense (45,000)  
  
CH‐04 & CH‐05 
Q.1 
Following transactions pertain to Gul Brothers (GB) for the month of February 2017:

3-Feb Bought goods on credit from QT Stores for Rs. 295,000.

3-Feb Purchased goods in bulk on 15 days credit from Bana & Co. at a price of
Rs. 190,000 (net of 5% trade discount).
8-Feb Sold goods on cash for Rs. 300,000.
Issued a cheque of Rs. 90,000 to XYZ in full and final settlement of an old

Sold goods on 15 days credit to Qavi for Rs. 275,000. Qavi would be
entitled to 2% discount if payment is made on the due date.
Sold goods on credit to Child Care Centre at a concessional price of cost
plus 10%. The cost of goods was Rs. 158,000.
Johar & Sons, a debtor owing a balance of Rs. 65,000 was declared
bankrupt. The balance due was written-off. GB maintains adequate

Received cheques from debtors – Chenab Rs. 68,000 and Ameen Stores

Required:
(a) Enter the above transactionsin the related books of prime entry.   (09)
(b) Post the entries to Receivables Control Account and Payables Control Account.
(Balancing of control accounts is not required) (03)
Ans.1 
Gul Brothers
(a) Books of prime entry

Purchase Day Book

Date Supplier Rupees
3-Feb QT Stores 295,000
3-Feb Bana & Co. 190,000
Total 485,000

Sales Day Book

Date Customer Rupees
18-Feb Qavi 275,000
18-Feb Child Care Centre (158,000×1.10) 173,800
Total 448,800

Cash book
Cash Bank Descri Cash Bank
Date Description Date
(Rs.) (Rs.) ption (Rs.) (Rs.)
8-Feb Cash sales 15- XYZ
    300,000 - Feb - 90,000
25-Feb Chenab - 68,000
25-Feb Ameen
Stores - 32,000
 Debit Credit

15-Feb
10,000
23-Feb

65,000
(b) Control accounts

Payables control account

Date Description Rupees Date Description Rupees
15-Feb Bank - XYZ 3-Feb Purchases
90,000 (295,000+190,000) 485,000
15-Feb Discount income -
XYZ 10,000

Receivables control account

Date Description Rupees Date Description Rupees
18-Feb Sales 23-Feb Prov. for doubtful
[275,000+(158,0 debts (Johar &
00×1.1)] 448,800 Sons) 65,000
25-Feb Bank  
(68,000+32,000) 100,000

 
Q.2 
(a) List the documents used in a system designed to control and account for purchases and briefly
describe the purpose for issuance of these documents.
(04)
(b) Following transactions pertain to Rana Brothers for the month of August 2016:

Date Name of suppliers Description Rupees

05-Aug Bravo Traders Credit purchase 950,000
05-Aug Alpha & Sons Credit purchase 438,000
08-Aug Bravo Traders Return of goods purchased on credit 60,000
09-Aug Charlie Brothers Goods received against advance
payment made on 3 July 2016 540,000
10-Aug Alpha & Sons Credit purchase 800,000
10-Aug Bravo Traders Credit purchase 635,000
11-Aug   Goods destroyed in fire to be recovered
from Rahat Insurance Co. 79,000

Required:
(i) Enter the above transactions in the related booksof prime entry.   (08)
(ii) Prepare relevant general ledger accounts and subsidiary ledger accounts.
(Balancing of ledger accounts is not required) (07)
 
 
 
Ans.2 
(a) Documents used in a system designed to control and account for purchases.
Document Purpose for issuance of document
(i) Purchase order Sent by a buyer to place an order
(ii) Goods receiving note Prepared to record goods received and for verification of invoice
prior to its payment.
(iii) Purchase invoice A request for payment from the supplier for goods delivered.
(iv) Credit note/debit note Issued by a supplier/customer on return of goods or allowing
any discount.
(v) Statement of account A document from a supplier listing the outstanding invoices at a
point in time.
(b) (i) Entries in the books of prime entry

Purchase day book

Date Suppliers Rs.
5-Aug-2016 Bravo Traders 950,000
  Alpha & Sons 438,000
    1,388,000
10-Aug-2016 Alpha & Sons 800,000
  Bravo Traders 635,000
    1,435,000
  Total 2,823,000

Purchase return day book

Date Suppliers Rs.
8-Aug-2016 Bravo Traders 60,000
General
journal
Date Particulars Debit (Rs.) Credit (Rs.)
9-Aug-2016 Purchases 540,000
Advance to supplier   540,000
(To record purchases against advance payment)  
11-Aug-2016 Insurance claim 79,000
Purchases/inventory   79,000
(Goods lost in fire and recoverable from the    
insurance company)
31-Aug-2016 Purchases 2,823,000
Trade payable control account   2,823,000
(To record credit purchases)  
31-Aug-2016 Trade payable control account 60,000
Purchases return   60,000
(To record return of goods purchased on credit)  
 
(ii) Main ledger accounts:
 
Purchases
9-Aug-2016 Adv. to suppliers 540,000 11-Aug-2016 Insurance claim 79,000
 31-Aug-2016 Trade payable 2,823,000      
control account

Purchases Return
      31-Aug-2016 Trade payable 60,000
control account
     

Advance
to
suppliers
9-Aug-2016 Purchases 540,000
     
Trade payable control account
Date Particulars Rupees Date Particulars Rupees
31-Aug-2016 Purchase return 60,000 31-Aug-2016 Purchases 2,823,000
     
Insurance
Claim
11-Aug-2016 Purchases 79,000
     

Subsidiary purchase ledger accounts

Alpha & Sons
    5-Aug-2016 Purchases daybook 438,000
    10-Aug-2016 Purchases day book 800,000

Bravo
Traders
8-Aug-2016 Purchase return 60,000 5-Aug-2016 Purchase day book 950,000
day book
    10-Aug-2016 Purchase day book 635,000
 
Q.3 
Lotus Pharma (LP) was established on 1 January 2016. Following transactions pertain
to the first month of business:

Transaction
Description
Bought medicines on credit from the following suppliers:
Rs. in million
Shan Traders 8.50
Rahat Stores 12.50
Quality Medicos 15.00
Bought medicines on cash for Rs. 3.8 million.
Medicines worth Rs. 2.5 million were returned to Rahat Stores.
A part payment of Rs. 5.8 million was made to Shan Traders.
Amount payable to Quality Medicos was fully settled to avail an early
payment discount of 2%.
Rahat Stores was paid in full after adjusting Rs. 1.2 million against its
 Required:
(a) Prepare extracts of purchaseday book forthe abovetransactions. (02)
(b) Prepare subsidiary and control accounts for trade payables. (08)
 
 
Ans.3 
(a) Lotus Pharma
Purchase day book
Date Suppliers Rs. in million
1-Jan-2016 Shan Trader 8.50
  Rahat Store 12.50
  Quality Medicos 15.00
    36.00
(b) Subsidiary purchase ledger accounts
 
              Shan Trader
Rs. in Rs. in
Date Particulars Date Particulars
million million
24-Jan Bank 5.80 1-Jan Purchases 8.50
31-Jan Balance c/f 2.70
    8.50 8.50
Quality Medicos
Rs. in Rs. in
Date Particulars Date Particulars
million million
28-Jan Bank (1598%) 14.70 1-Jan Purchases 15.00
28-Jan Discount received      
(152%) 0.30
    15.00 15.00
Rahat Store
Rs. in Rs. in
Date Particulars Date Particulars
million million
20-Jan Purchase return 2.50 1-Jan Purchases 12.50
31-Jan Account receivable 1.20
31-Jan Bank 8.80
    12.50 12.50

Trade payables control account

Rs. in Rs. in
Date Particulars Date Particulars
million million
20-Jan Purchase return-Rahat 2.50 1-Jan Purchases 8.5+12.5+15 36.00
24-Jan Bank-Shan Traders 5.80
28-Jan Bank-Quality Medicos 14.70
28-Jan Discount received 0.30
31-Jan Trade account rec. - Rahat 1.20
31-Jan Bank-Rahat 12.5‐2.5‐1.2 8.80
31-Jan Balance c/f 2.70
    36.00 36.00
Q.4 
In August 2015, Ali established a stationery store named as Ali Baba Stationers.
The transactions during the month are listed below:

Required:
(a) Enter the purchase and sale transactions in the related books of prime entry
other than cash book and journal.
(b) Prepare the following:
(i) Receivables Control Account
(ii) Payables Control Account
(iii) Cash and Bank Account
(16)
Ans.4
Ali Baba Stationers 
      Day Books 

Purchase Day Book

Date  Supplier Rupees
3-Aug-15 The pen store 425,000
  The School Shop 200,000
  Galaxy Stationers 350,000
  The StationaryStore 400,000
  The Office Store 800,000
    2,175,000

Sales Day book

Date  Customer Rupees
5-Aug-15 Murjeena Traders 200,000
  Qasim and Company 500,000
  Chiragh Limited 250,000
  Sameer Enterprises 400,000
  Hamid and Company 800,000
    2,150,000

21-Aug-15 Murjeena Traders 300,000

  Qasim and Company 200,000
  Chiragh Limited 550,000
  Sameer Enterprises 200,000
    1,250,000

PurchaseReturnBook
Date  Supplier Rupees
6-Aug-15 Galaxy Stationers 10,000
  Stationary Store 40,000
    50,000

Sales Return Book

Date  Customer Rupees
15-Aug-15 Murjeena Traders 25,000
  Chiragh Limited 30,000
    55,000
 
(b) 
Receivable control account 
          Rupees Rupees
5-Aug-15 Sales 2,150,000 7-Aug-15 Cash & bank 1,300,000
21-Aug-15 Sales 1,250,000 15-Aug-15 Sales return 55,000
    25-Aug-15 Cash and bank 600,000
    25-Aug-15 Sales discount 75,000
    31-Aug-15 Balance c/d 1,370,000
     3,400,000 3,400,000
 
 
Payable control account 
    Rupees Rupees
6-Aug-15 Purchasereturn 50,000 3-Aug-15 Purchases 2,175,000
10-Aug-15 Cash 840,000
10-Aug-15 Purchase discount 25,000
31-Aug-15 Balance c/d 1,260,000
    2,175,000 2,175,000
   
 

Cash and Bank 
    Rupees Rupees
3-Aug-15 Capital 5,000,000 7-Aug-15 Shop rent 300,000
7-Aug-15 Receivable control a/c 1,300,000 10-Aug-15 Payable control a/c 840,000
12-Aug-15 Sales 250,000 11-Aug-15 Shop repairs 60,000
25-Aug-15 Receivable control a/c 600,000 18-Aug-15 Purchases 150,000
    31-Aug-15 Balance c/d 5,800,000
7,150,000 7,150,000
Q.5 
(a) Mr. Karobari is a sole proprietor and is engaged in the business of selling plastic bottles to 
hospitals and dispensaries. Following two transactions were recorded in the month of February 
2015: 
 
 Goods worth Rs. 57,000 were returned to a credit supplier. 
 A cheque for Rs. 15,000 was drawn for cash. 
 
Required: 
 
(i)  Identify the source document and the subsidiary book used for each of the above two 
transactions.   
(ii) Prepare journal entries to record the above two transactions.                                               (04)        
(b) 
(i) What are the two main purposes of a trial balance? (02)

(ii) Briefly describe the primary reason for issuance of various documents used in a system
designed to account for sales. (06)
 
 
 
 
 
 
 
 
Ans.5 

(a) Source document and subsidiary book used:

  Transaction Source document
  (Purchase) credit note Purchase returns day book/journal OR
  returns outwards day book/journal
Cheque book counterfoil Cash book
 
 
Transaction Particulars Debit Credit
 
(1) Trade payable/creditors
 
 
  Cash
  Bank
 
(b) 
(i) Purposes of a trial balance:
Following are the two main purposes of a trial balance:
(i) It is a starting point for producing a statement of comprehensive
income and a statement of financial position at the end of an accounting
period.
(ii) It is a useful means of checking arithmetical errors in the accounting
system. Errors must have occurred if the totals of debit and credit
balances are not equal.

(ii) Following are the documents which may be used in a system designed to account
for sales:

Document Purpose
Sales order From the customer placing an order.
Goods despatched note A notice to the customer to inform them that the goods
have been despatched and are on their way.
Delivery note A note that accompanies the goods. (A customer will check
this to make sure that it agrees with his order and that it is
consistent with what has actually been delivered.
Sales invoice A request for payment from the customer for goods
delivered.
Statement A document to show the customer the amount still owed at
a point in time.
Credit note Issued when a customer returns goods and the business
agrees to this.
 
 
 
 
 
 
 
 
Q.6 

 
 
Ans.6 

 
 
 
 
 
 
  
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q.7 

 
 
  
Ans.7 
Ravi Traders
Trial balance for the month of January 2018
 
  Debit Credit
Description
Rupees
Capital 1,000+8,000+300   9,300
Purchase return /Return outward 900+50   950
Discount allowed 150+90-150 90
Sales 16,600+1,250   17,850
Office rent 200+300 500
Fixed assets 1,500+250+300-50 2,000
Purchases 18,000+650-100 18,550
Sales return /Return inward 60
Drawings 100+180+100+50 430
Utility bills 120+140 260
Trade debtors (W-1) 10,300
Trade creditors (W-2)   8,600
Discount received   100
Cash in hand 1,850-1,230 620
Cash at bank 16,760-12,770 3,990
  36,800 36,800
 
W-1: Trade debtors
  Rupees
Quality Traders 6,250 -150-6,100+6,100+150 6,250
Himalaya Super Store 2,350 -90-300-1,410 550
ABC & Co. 8,000 -4,500 3,500
16,600 10,300
W-2: Trade creditors Rupees
ABC & Co. 4,500 -4,500 -
Zee Traders 6,000 -900-100-500-3,400 1,100
Unity Enterprises 7,500 7,500
18,000 8,600
 CH‐ 06 
Q.1 
The following balances pertaining to fixed assets have been extracted from the trial balance of  Star 
Traders for the year ended 31 December 2016: 
 
  Rupees 
Fixed assets – cost 25,000,000 
Accumulated depreciation 6,250,000 
Depreciation expense 1,250,000 
Gain on disposal of fixed assets 58,000 

Depreciation on fixed assets is charged from the month of addition to the month prior to 
disposal using reducing balance method at 20% per annum. 
Depreciation expense for the current year has been correctly calculated and recorded except  for 
the following: 
 
(i) Physical verification  of  fixed  assets  carried out  on  31 December  2016,  revealed 
the  following matters: 
 Two laptops purchased on 1 July 2015 at a cost of Rs. 245,000 were withdrawn 
by  the proprietor on 1 May 2016 for his personal use. 
 Equipment costing Rs. 800,000 purchased on 1 January 2014 was damaged in rain 
in December 2016 and was scrapped. 
 A machine  costing  Rs. 75,000 is not  in  the  list of fixed  assets,  but has been in 
the  use of sales department since 1 March 2016. On investigation it was found 
that the  machine  was  transferred  from  stock‐in‐trade  but  no  adjustment  was 
made in the  books. 
(ii) Installation  of  an  assembly  plant  was  completed  on  1  December  2016. 
Installation  charges  amounting  to  Rs.  240,000  have  not  yet  been  recorded  in  the 
books due to  non‐receipt of the invoice. 
(iii) An invoice of Rs. 683,000 for a machine purchased on 1 October 2016 was 
mistakenly  accounted for as Rs. 863,000. 
Required: 
Prepare necessary adjusting and closing entries for the year ended 31 December 2016.                        (14) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ans.1 
 

 
 

 
 
  
 
 
Q.2 

 
(iii) Other information:
 Cost of freehold land includes property tax for 2017-18 and transfer fee of Rs. 120,000 and Rs.
850,000 respectively.
 Factory building was available for use from 1 July 2017. The final invoice of Rs. 19,000,000 is
still unpaid.
 Transportation and import charges of the plant include annual fire insurance premium and
insurance in-transit of Rs. 350,000 and Rs. 60,000 respectively.
 The plant started operations on 1 August 2017. Remaining amount was paid on 31 August 2017.
  Old plant was sold on 1 September 2017 at its written down value plus 20%. The plant was
purchased on 1 April 2015 at a cost of Rs. 8,500,000.
 Building and plant are depreciated at the rate of 5% and 10% respectively on reducing balance
method.
Required:
(a) Pass journal entry to record disposal of the old plant.
(b) Determine written down value of the fixed assets as at 31 December 2017.

Ans.2 
Rose Enterprises
(a) Journal entry for disposal of old plant:
  Debit Credit
--------- Rs. in '000 ---------
Bank/Cash/Receivable (8,500–1,896)×1.2 7,925  
Accumulated depreciation (W-1) 1,896  
Fixed assets (Plant) 8,500
Gain on disposal (Balancing figure) 1,321
 
W-1: Accumulated depreciation:
  Rs. in ‘000
From 1 April to 31 December 2015 (8,500 × 0.1 × 9 ÷ 12) 638
For the year ended 31 December 2016 (8,500 – 638) × 0.1 786
From 1 January to 31 August 2017 (8,500 – 638 – 786) × 0.1 × 8 ÷ 12 472
  1,896
 
(a) WDV as at 31 December 2017
  Freehold    
Building Plant
land
-------------- Rs. in '000 --------------
Costs    
Purchase price 25,000    
Property tax for the year 2017-18 (120)    
Transfer fee -    
Demolition of old building 1,500    
Proceeds from sale of building scrap (250)    
Architect fee paid to ABC consultant 800  
25% Advance paid to QC 6,000  
Further payment 35,000  
Final invoice under process for payment 19,000  
Advance paid for the plant   4,000
Transportation and import charges   1,250
Fire insurance premium   (350)
Insurance in transit   -
Installation charges   400
Remaining cost of plant (4,000÷0.25-4,000)   12,000
Cost to be capitalised 26,130 60,800 17,300
Depreciation for 2017    
 Land -    
Building (60,800 × 0.05 × 6 ÷ 12) (1,520)  
Plant (17,300 × 0.1 × 5 ÷ 12)   (721)
WDV of fixed assets as at 31 December 2017 26,130 59,280 16,579
 CH-7
Q.1
Following  information  pertains  to  Global  Network  Supplies  (GNS)  for  the  year  ended  30 
June 2017: 
 

   
  Rs. in '000
Trade debtors – as at 1 July 2016 55,975
Transactions for the year ended30June2017:
–  Sales (including cash sales which is 20% of credit sales) 540,000
–  Sales returns pertainingtocreditsales 6,300
–  Collection from credit customers (including Rs. 8.1 million  from 
customers who availed 10% discount)  438,000
GNS  maintains  specific  provision  for  doubtful  debts  on  the  basis  of  assessment  of  its  debtors. In 
addition, a general provision is maintained at 4% of the remaining customers’  balances. 
The status of debtors being considered for the purpose of specific provision is as under:

 
*before adjustment
Required:
Prepare following ledger accounts for the year ended 30 June 2017:
(a) Trade debtors (04)
(b) Provision for doubtful debts (05)
(c) Bad debt expense (03)

 
 
 
Ans.1 

 
 
 

 
 
Q.2 
You have been provided following information relating to the business of Ghazi
Traders (GT) for the year ended 30 June 2015.

Sales 12,000,000
Sales return 700,000
Discount allowed 500,000
Collection from customers 8,540,000
(i) Credit sales were 80% of the total sales.
(ii) As at 1 July 2014, debtors account and provision for doubtful debts
account had a balance of Rs. 5,630,000 and 690,000 (comprising of
specific provision of Rs. 430,000) respectively.
(iii) Details of specific provision on 30 June 2014 and recoveries there against
during the year ended 30 June 2015 are as follows:

Recoveries
and provided

Remaining debt from Zubair Associates needs to be written off.

(iv) Specific provision is also required to be made against the entire balances
of the following debtors:
  Rupees
  Rahil Stores 50,000
  Adam Enterprises 75,000
  Shahid Traders 25,000
      150,000
(v) A customer Nadir who had a debit balance of Rs. 280,000 had also supplied
goods to GT worth Rs. 250,000. The two balances were adjusted with mutual
consent.
(vi) Sales return and discount allowed pertain to credit sales only.
(vii) GT follows a policy of making a general provision of 5% against debtors.
(viii) Collection from customers includes recovery against debts written off during
the year ended 30 June 2014 amounted to Rs. 199,000.

Required:
Prepare debtors account and provision for doubtful debts.                                
Ans.2
Debtors Account 
      Rupees Rupees
  1-Jul-14 Balance b/d  5,630,000 Sales return 700,000
    Sales A/c (80% X 1,200,000)  9,600,000 Discount allowed  500,000
    Debts previously written off  199,000 Collection 8,540,000
          Debtswrittenoff Zubair  150,000
  Associates
          Contra adjustment with  250,000 
  creditors
      30-Jun-15 Balancec/d(Working)  5,289,000
      15,429,000 15,429,000
Allowance  for 
Doubtful debts 
  Debtors written off‐  150,000 1‐Jul‐14 Balance 690,000
Zubair Associates 
  Bad debt expense  213,300   Debts previously 199,000
written off 
30‐Jun‐15  Balance c/d (Working)  525,700  
  889,000 889,000
 
 
Working: Provision for doubtful debts   

  Rupees
Debtors balances as on 30 June 2015  5,289,000
Less: Specific provisions   
Sabir  Enterprises  50,000
Babur Traders  75,000
Rahil Stores  50,000
Adam Enterprises  75,000
Shahid traders  25,000
  275,000
Debtors balance on which general provision is to be made 5,014,000
   
5 % of debtors (5,014,000 X 5%)  250,700 
Specific provision (as worked out above)  275,000
Balance to be maintained  525,700
 
 
 
 
 
 
 
 
 
 
 
 
 
Q.3 
Ravi Enterprises (RE) maintains specific provision for doubtful debts on the
basis of individual assessment of its major customers. A general provision is also
made at 5% of the remaining month-end balances. Following information pertains to
trade debtors and provision for doubtful debts for the month of August 2016:

(i) Opening balance:

Rs. in million

BEE Traders, 100% of the balance

RAY Brothers, 60% of the balance
5% of the remaining balance

(ii) Credit sales for the month amounted to Rs. 900 million.
(iii) Collections from customers were Rs. 850 million, which included:
 a recovery of Rs. 4.5 million against trade debts written-off in previous years; and
 an amount of Rs. 7.2 million received net of 10% discount in full
and final settlement of invoices.

(iv) RAY Brothers were declared bankrupt and their debt has to be written-off.
(v) A customer, TAJ & Co. has disputed certain sales invoices aggregating Rs.
2.8 million which have been outstanding for more than one year. RE
estimates that the customer will eventually pay half of the disputed amount.
(vi) Amounts aggregating Rs. 1.5 million due from general customers are not
recoverable and have to be written-off.
Required:
Prepare following ledger accounts for the month of August 2016:
(a) Provision for doubtful debts (10)
(b) Bad debt expense (02)
Ans.3 

 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CH‐8 
Q.1 
(a) What do you understand by accrual basis of accounting? Identify the main advantage of following the
accrual basis of accounting.
(03)
(b) Zamil Traders (ZT) commenced business on 1 January 2016 and is maintaining its accounting records
under ‘cash basis’. The following transactions are appearing in its records:

Required:
Prepare adjusting entries to enable ZT to finalise its monthly financial statements for the month of
January 2016 under ‘accrual basis’ of accounting.
(06)
Ans.1

(a) Accrual basis of accounting:
Under accrual basis of accounting:
Revenue is recognised when it is earned, irrespective of the date of receipt.
Expense is recognised in the period in which it is incurred irrespective of the date of
payment.
Main advantage of accrual basis of accounting:
The accrual basis of accounting gives a better measurement of profitability than does the cash basis.
Because accrual basis matches revenues with expenses that an entity incurred to earned it.
Q.2
Ans.2
 CH‐09 
Q.1 

 
A.1 

 
  
Q.2 

 
 
  
A.2 

 
Q.3 

 
Required:
Compute the value of closing inventory using:
(a) Weighted average cost (09)
(b) FIFO (03)

A.3

 
 
  
Q.4 

 
 

 
A.4 

 
Q.5 

 
 

 
Ans.6 

 
 CH‐10 
Q.1 

 
 

   

 
Ans.1 

 
Q.2 

 
 
  
Required:
Prepare the following:
(i) Receivables Control Account
(ii) Payables Control Account

Ans.2(i)

(ii)
Q.3

Required:
Prepare control accounts for trade payables.

Ans.3
Q.4

Required:
Post the entries to Receivables Control Account and Payables Control Account.
(Balancing of control accounts is not required)

Ans.4
Q.5

Ans.5
Q.6
Ans.6
 Ch‐11 
Q.1 

 
A.1 
(a) Possible causes of disagreements between the bank balance shown in the bank statement 
and the bank book balance include: 
(i) Uncredited lodgement / Cheque deposited but not cleared
(ii) Unpresented cheques
(iii) Bank charges/interest
(iv) Posting errors
(v) Casting errors
(vi) Direct credit
(vii) E-payment
(viii) Automated teller machine (ATM) withdrawal
(ix) Standing order
(x) Credit/Debit transfer
(xi) Dishonoured cheques

Q.2 
On 30 June 2015, the bank book of Ranjha Enterprises (RE) reflected a credit balance of
Rs. 3,450,000 whereas the bank statement showed an overdraft of Rs. 2,415,000. On
scrutinizing the record, following issues were discovered:
(i) Cheques deposited in bank in the last week of June 2015, amounting to Rs. 1,550,000 were wrongly
credited in the bank book. Out of these, cheques amounting to Rs. 1,050,000 were cleared by the bank in
July 2015 whereas a cheque of Rs. 500,000 deposited on 29 June 2015 was dishonoured by the bank on 2
July 2015.
(ii) Financial charges on bank overdraft amounting to Rs. 750,000 were recorded in the bank statement.
However, review by the Accounts Officer indicated an error and RE recorded the correct amount of Rs.
510,000 in the bank book. The error was corrected by the bank on 10 July 2015.
(iii) A cheque issued to a supplier amounting to Rs. 4,005,000 was entered in the bank book as Rs.
4,050,000. However, the bank erroneously recorded the amount as Rs. 4,500,000.
(iv) A supplier was issued a cheque of Rs. 125,000 in place of a time barred cheque on 25 June 2015 and
was cleared on the next day. However, the cancellation of time barred cheque was not recorded by RE.
(v) A payment of Rs. 50,000 through cheque was recorded twice in the bank book.
Required:
Determine the correct balance that should be reported in the bank book and prepare a statement
reconciling the corrected balance with that shown in the bank statement.
(09)
A.2

Q.3
A.3
Q.4
A.4
Q.5
A.5
Q.6
Ans.6

Unique Traders
Bank reconciliation statement as on 28 February 2018

  Bank Bank
Description book statement
Rupees
Balance as per bank book/bank statement 441,500 316,000
Error in opening balance in the bank book (133,500×2) (267,000)
Cheque no. X10 wrongly recorded in the bank book (352,000-325,000) 27,000
Direct transfer from a debtor 38,000
Standing instructions (15,000)
Dishonoured cheque (200,000)
Bank charges not recorded in bank book (4,500)
Deposits in transit:  
 Cheque of 25 February 2018   182,000
 Cheque of 26 February 2018   294,000
Unpresented cheques:  
 Cheque no. X06 dated 31 January 2018   (150,000)
 Cheque no. X11 dated 8 February 2018   (622,000)
Corrected balance 20,000 20,000
 Ch‐12 
Q.1 

 
 

Ans.1 

 
Q.2 

 
Ans.2 
(a) Sky Electronics
Accounting entries for correction of the errors
   
Debit Credit
Date Description
Rupees
(i) Fixed assets (Computers) 240,000  
  Purchases 240,000

  Depreciation expense [240,000×0.2÷12×4] 16,000  

  Accumulated depreciation 16,000

(ii) Accumulated depreciation (1,200,000×0.1×2÷12) 20,000  

  Depreciation expense 20,000

  Sales 700,000  
  Accumulated depreciation [(1,200,000-670,000)-20,000] 510,000  
  Fixed assets (Furniture) 1,200,000
  Gain on disposal (Balancing figure) 10,000

(iii) Rent income (900,000÷12×3) 225,000  

  Advance rent 225,000
 (iv) Bad debt expense 180,000  
  Trade receivables 180,000

  Trade receivable 96,000  

  Bad debt expense/Bad debt recovered 96,000

  Provision for doubtful debts (180,000-96,000)×5% 4,200  

  Bad debt expense 4,200

(v) Bank 192,000-(192,000÷0.96×0.04) 184,000  

  Discount allowed 184,000
 

(b) Types of errors which a trial balance fails to disclose:

(i) Errors of commission
(ii) Errors of omission
(iii) Errors of principle
(iv) Compensating error
Posting/Recording wrong amount in the books of primary (original) entry 
 Ch‐13 

Q.1 

 
Additional information:
(i) RL uses perpetual inventory method to record its inventory. During the physical
inventory count carried out on 31 December 2016, following matters were noted:
Inventory shortages amounted to Rs. 2 million which is considered to be normal.
Goods costing Rs. 15 million were damaged in fire and have no sales value.
Goods costing Rs. 1 million were withdrawn by the owner for his personal use but
no adjustment was made in the books.
Goods sold on credit for Rs. 7 million were returned but have not been accounted
for. These goods were sold at cost plus 40%.
(ii) Goods sold on credit at a trade discount of 5% were recorded at gross amount of
Rs. 20 million.
(iii) Rs. 2 million were recovered in full and final settlement of an old outstanding balance
of Rs. 3 million which had been written-off last year. The amount recovered was
credited to trade debtors account.
(iv) RL maintains a provision for doubtful debts at 3% of the year-end balance.
(v) Miscellaneous income includes Rs. 12 million received against an annual maintenance
contract expiring on 30 April 2017.
(vi) Annual rent amounting to Rs. 24 million was paid in advance on 1 October 2016 and
charged as an expense.
(vii) Long-term loan was acquired on 1 February 2016 and is repayable in 2020. Interest
thereon is due semi-annually on 1 August and 1 February each year. Interest is
charged to expenses at the time of payment.
(viii) An equipment costing Rs. 8 million was purchased on 1 September 2016 against
advance payment. The equipment was not used and returned on 31 December 2016.
The supplier agreed to set-off the cost of the equipment against the amount payable by
RL. The return as well as reversal of depreciation is yet to be recorded in the books.
(ix) Depreciation on fixed assets is charged at 15% per annum from the month of addition
to the month prior to disposal using reducing balance method.
Required:
(a) A statement of comprehensive income for the year ended 31 December 2016. (10)
(b) A statement of financial position as at 31 December 2016. (11) 

A.1 

 
 

 
  

 
 
  
Q.2 

 
(ii) On 1 March 2016, FT paid an advance of Rs. 330,000 for purchase of a machine and
debited it to plant and machinery. The machine was delivered on 1 September 2016.
(iii) Closing inventory was valued at Rs. 1,560,000. This included goods costing Rs. 35,000
returned by a customer on 30 June 2016 but not yet accounted for. These goods were
earlier sold at cost plus 40%.
(iv) The loan was acquired on 1 January 2016 and the principal amount is repayable in
eight equal half yearly installments commencing from 1 January 2017. Interest is
payable half yearly on 1 January and 1 July each year.
(v) Selling and administration expenses include fire insurance premium amounting to
Rs. 430,000 and Rs. 240,000 paid for office and owner's personal premises
respectively. The policies are valid upto 31 December 2016.
(vi) Rent and salaries amounting to Rs. 137,000 and Rs. 89,000 respectively are to be
accrued at 30 June 2016.
(vii) At 30 June 2016, the provision for doubtful debts is to be reduced by Rs. 30,000.
(viii) Suspense account represents an error which occurred when a credit note of Rs. 30,000
received for goods returned to a supplier was mistakenly posted as credit to trade
payable account.
Required:
(a) Prepare a statement of comprehensive income for the year ended 30 June 2016. (08)
(b) Prepare a statement of financial position as at 30 June 2016. (09) 

A.2 

 
 
 
Q.3 

 
Required:
Prepare statement of comprehensive income (Trading and Profit and Loss account) for the
year ended 30 June 2014 and statement of financial position (Balance Sheet) as at
30 June 2014.
 (20)

Ans.3

 
  
 
 
 
Q.4 

 
A.4

 
  
 

 
Q.5

 
  
Required:
(a) Prepare a statement of comprehensive income for the year ended 31 December 2015. (11)
(b) Prepare a statement of financial position as at 31 December 2015. (09)

Ans.5

 
 

 
  
 

 
Q.6 

 
Additional information:
(i) Cost of closing physical inventory was Rs. 9,000,000. However, goods returned by a credit
customer on 30 June 2017 were received after completion of the count, therefore, not included
in the inventory. These goods had been sold for Rs. 400,000 at cost plus 25%. However, the
goods are damaged and can be sold at normal price after a repair cost of Rs. 90,000. The
return has not yet been accounted for.
(ii) Suspense account represents an online transfer of funds by a customer who availed 5%
discount on settlement of the pending amount by 30 June 2017. The amount was credited by
the bank net of its charges of Rs. 10,000.
(iii) HA maintains a 5% provision against trade receivables.
(iv) Running and maintenance expenses totaling Rs. 110,000 were incurred in June 2017.
Related invoices were received and accounted for in July 2017.
(v) A machine was rented-out to Zee Trader (ZT) on 1 October 2016. Annual rent of Rs.
120,000 received in advance is included in ‘Accruals and other payables’. However, on 16 June
2017, the machine was sold to ZT for Rs. 450,000. The sale proceed net of rent adjustment was
received in July 2017. The disposal has not yet been accounted for.
The machine had been purchased on 1 January 2016 and had written down value of Rs.
540,000 as at 1 July 2016.
(vi) HA depreciates its fixed assets at 20% per annum from the month of addition to the month
prior to disposal using reducing balance method. There were no additions/disposals during the
year except as mentioned above.

Required:
(a) Prepare statement of profit or loss for the year ended 30 June 2017. (11)
(b) Prepare statement of financial position as at 30 June 2017. (09) 

Ans.6 

 
 
  
Q.7 

 
  

 
 
Ans.7 
Tulip Enterprises
(a) Statement of profit or loss for the year ended 31 December 2017 

  Rs. in '000
Sales 35,230
Cost of sales 23,580+70{1,000-(1,130-200)} (23,650)
Gross profit 11,580
Selling and administration expenses:  
Salaries and wages (2,610)
Fuel and power (450)
Bad debt expense 230+[ 246(BS)-220] (256)
Rent and insurance 2,900-200-300{(800-200)×0.5)}-800(1,200×8÷12) (1,600)
Depreciation expense [1,180.5{(12,500-4,630) ×0.15}]+{16.88(450×0.15×3÷12)} (1,197)
Repair and maintenance (920)
  (7,033)
Miscellaneous income 940-120(480×0.5×3÷6)+150 970
Profit from operation 5,517
Financial charges (700)
Net profit 4,817
(a) Statement of financial position as at 30 June 2017
  Rs. in '000
Assets  
Non-current assets  
Property, plant and equipment - cost 12,500+450 12,950
Accumulated depreciation 4,630+ 1,197(PL) (5,827)
  7,123
Current assets  
Trade receivables 4,400
Provision for doubtful debts (1,000×0.05)+(900×0.1)+(530×0.2) (246)
  4,154
Stock-in-trade 3,900-70(PL)-670 3,160
Prepayments & advances 1,740+300(PL)+800(PL)-450 2,390
Other receivables 150
Cash and bank 2,320
  12,174
  19,297
Equity and liabilities 
Equity 
Capital  6,000
Net profit PL 4,817
Drawings 490 +200 (690)
  10,127
12% Long-term loan 5,150-150(5,150×3÷103) 5,000

Current liabilities  
Trade payables 3,250-670 2,580
Accruals and other payables 1,320+120(PL)+150(BS) 1,590
  4,170
  19,297
 Ch‐14 
Q.1 

Chagi Prides has three partners B, P and S. Following information pertains to the
year ended 31 December 2016:

Opening balances: Capital accounts 21,000 13,500 9,000

Current accounts 2,000 (2,000) 2,300
Drawings for the year (other than salary) 5,500 3,800 3,500

As per the partnership agreement applicable up to 31 May 2016:

(i) B, P and S share profit in the ratio of 3:2:1 respectively.

(ii) Interest on partners' capital is allowed at 8% per annum.

The partnership agreement was revised with effect from 1 June 2016 as follows:

(i) There will be no change in B’s share of profit whereas P and S will have equal share.
(ii) Interest on partners' capital will be increased to 12% per annum.
(iii) S will be entitled to a monthly salary of Rs. 135,000.
(iv) Goodwill will be recognized at two years purchase of average net profit of
the last three completed years.

Profits for the relevant years are as under:

S has not withdrawn salaries for the months of November and December 2016 due
to weak liquidity position of the firm.
Required:
For the year ended 31 December 2016:

(a) show how the partnershipprofitsshouldbesharedamongthepartners. (11)

(b) prepare partners’ current accounts. (04)
 
 

Ans.1 (a) 

Statement showing distribution of profit among the partners for the period from January 2017 to May 
2017. 

Particulars  Rupees (000) 

Profit for the period  6,100 
Less Interest on capital  (1,450) 
B = (21,000 X 8% X 5/12) =700 
P = (13,500 X 8% X 5/12) =450 
S = (9,000 X 8% X 5/12)   =300 
Profit distributed among partners  (4,650) 
B = (6100‐1450) X 3/6 =2,325 
P = (6100‐1450) X 2/6 = 1,550 
S = (6100‐1450) x 1/6 = 775 
 

Statement showing distribution of profit among the partners for the period from June 2017 to 
December 2017. 

Particulars  Rupees (000) 

Profit for the period  8,000 
Less Interest on capital  (4,599) 
B =[(21,000+11,100 (w‐2)) X 12% X 7/12] =2,247 
P = [(13,500+5,550 (w‐2)) X 12% X 7/12] =1,463 
S = [(9,000+5,500 (w‐2)) X 12% X 7/12]   =889 
Salary to S (135 X 7)  (945) 
Profit distributed among partners  (2456) 
B = (6100‐1450) X 2/4(w‐1) =1,228 
P = (6100‐1450) X 1/4 = 614 
S = (6100‐1450) x 1/4  = 614 
 

Calculation of New Ratio: (w‐1) 
B Share is same so  
Share of B = 3/6 
And remaining  3/6 share will be divided among the P and S. 
New P&L share ratio is 
B = 3/6 
P = 1.5/6 
S = 1.5/6 
 
B :    P :   S 
3 : 1.5 : 1.5 
After simplifying Ratio becomes as B : P : S =  2 : 1 : 1 
 
Ans.1 (b) 
 (Rs.000)                       Partner’s Current Account                          (Rs. 000) 
Particulars  B  P  S  Particulars  B  P  S 
Opening Balance  ‐‐  2000  ‐‐  Opening Balance  2,000  ‐‐  2,300 
Drawing  5500  3800  3500  Interest on Capital  700  450  300 
for the period jan‐
May 
Drawing (salary)      675  Profit for the period  2,325  1550  775 
Jan ‐May 
        Interest on Capital  2,247  1,463  889 
for the period june‐
Dec 
Closing Balance  3,000  ‐‐  1,648  Profit for the period  1,228  614  614 
June‐Dec 
        Salary  ‐‐  ‐‐  945 
        Closing Balance  ‐‐  1,723  ‐‐ 
Total  8,500  5,800  5,823  Total  8,500  5,800  5,823 
Calculation of Good will (w‐2) 
Average profit for the  last three years 
(11,000 + 9300 + 13000)/3 = 11,100 
Good will =  2 X 11,100 = 22,200 
 

B = 22,200 X 2/4=11,100 

P = 22,200 X 1/4= 5,550 

S = 22,200 X 1/4= 5,550 
 

Q.2 

Galaxy Traders is a partnership with three partners, Z, A and B. The following information
is available in respect of the year ended 31 December 2016:

(i) Partners’ balances:

Opening balances: Capitalaccounts 12,000 8,000 10,000

Current accounts 500 700 600
Drawings by the partnersduringthe year 4,500 5,000 4,000

(ii) Profit sharing arrangement:

  Z, who is working as managing partner, is entitled to receive commission
at 5% on profit after commission.
 A and B are entitled to a monthly salary of Rs. 50,000 each.
 All partners are entitled to receive interest at 8% on their opening capital balances.
 The remaining profit is shared by the partners in the ratio of their opening
capital account balances. However, the agreement guarantees a
minimum annual profit share of Rs. 5 million to A and Rs. 3 million
to B. Further, 20% of the profit allocated to each partner is to be
retained for business expansion and transferred to the partners' capital
accounts.

(iii) The net profit for the year ended 31 December 2016 was Rs. 34 million.
However, the partners have noted that no provision for doubtful debts is
being maintained. In this respect, ageing analysis of the closing account
receivable balances was carried out and it has been agreed that prior to
appropriation of profit, provision for doubtful debts is to be accounted for as
under:

Required:
Compute the partners' current and capital account balances as on 31 December 2016.

(15) 

 
Ans.2 

 
 

 
Q.3 

 
 

 
Ans.3 

Famous Garments

(a) Correction of profit and its distribution among the partners

  Rs. in '000
Net profit 15,000
Correction of errors:  
(i) Salaries withdrawn by the partners mistakenly charged to P&L (45×9+45×10) 855
(ii) Reversal of depreciation for 2017 on a vehicle sold to A (1,200-660)÷2.25 240
(iii) Goods withdrawn by A were mistakenly recorded as sale (400-300) (100)
    995
    15,995
  Reversal of bonus to fashion designers (15,000×5%) 750
  Bonus to fashion designers based on revised profit (15,995+750)×(5÷105) (797)
    (47)
Corrected profit 15,948

Distribution of profit M A J Total

Rs. in '000
Net profit after correction 15,948
Salaries entitlement for M and J 540 - 540 (1,080)
Interest at 10% on partners' opening capital balances 300 500 400 (1,200)
Remaining profit in the ratio of 2:3:1 4,556 6,834 2,278 (13,668)
  5,396 7,334 3,218  
Shortfall in guaranteed profit of J (3,500-3,218) - - 282
Shortfall to be to be shared by M and A in the ratio of 2:3
(282÷5×2:3) (113) (169) -
Share of profit for the year ended 31 December 2017 5,283 7,165 3,500 -
 

(b) Partners' current account 

 
M A J M A J
Description Description
---------- Rs. in '000 ---------- ---------- Rs. in '000 ----------
Opening balance - 200 - Opening balance 800 - 600
Drawings 4,500 6,250 5,000 Share of profit 5,283 7,165 3,500
Salaries drawn 405 - 450 Closing balance - - 1,350
Vehicle(660+240) 900 - -  
Purchases - 300 -  
Closing balance 278 415 -  
6,083 7,165 5,450 6,083 7,165 5,450