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Mock Test Paper - Series II: May, 2024

Date of Paper: 22nd May, 2024
Time of Paper: 2 P.M. to 5 P.M.
MOCK TEST PAPER II
FOUNDATION COURSE
PAPER – 1: ACCOUNTING
ANSWERS
1. (a) (i) True: Insurance claim received on account of plant and machinery
completely damaged by fire is a capital receipt as it is not obtained
in course of normal business activities.
(ii) True: According to Section 52 of the Companies Act, 2013,
Securities Premium Account may be used by the company to write
off preliminary expenses of the company. Thus, the accountant can
use the balance in securities premium account to write off the
preliminary expenses amounting ` 15 lakhs.
(iii) True: The financial statements must disclose all the relevant and
reliable information in accordance with the Full Disclosure
Principle.
(iv) False: In case of admission of new partner in a partnership firm,
profit/loss on revaluation account is transferred to old partners in
their old profit-sharing ratio.
(v) False: The debit notes issued are used to prepare purchases return
book.
(vi) False: Debenture holder does not enjoy voting rights in company.
He is only a creditor of the company.
(b) Change in accounting policy may have a material effect on the items of
financial statements. For example, cost formula used for inventory
valuation is changed from weighted average to FIFO. Unless the effect
of such change in accounting policy is quantified, the financial
statements may not help the users of accounts.
(c) Calculation of depreciation for 5 th year
Depreciation per year charged for four years = ` 80,00,000 / 10 =
` 8,00,000
WDV of the machine at the end of fourth year = ` 80,00,000 – ` 8,00,000
× 4 = ` 48,00,000.
Depreciable amount after revaluation = ` 48,00,000 + ` 3,20,000
= ` 51,20,000
Remaining useful life as per previous estimate = 6 years
Remaining useful life as per revised estimate = 8 years

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Depreciation for the fifth year and onwards = ` 51,20,000 / 8

= ` 6,40,000.
2. (a) Profit and Loss Adjustment A/c
` `
To Advertisement 3,20,000 By Net profit 32,00,000
(samples)
To Sales 8,00,000 By Electric fittings 1,20,000
(goods approved By Samples 3,20,000
in April to
be taken as April By Stock 20,00,000
sales) (Purchases of
March
To Adjusted net 67,20,000 not included in
profit stock)
By Sales (goods 16,00,000
sold in March
wrongly taken
as April sales)
By Stock (goods 6,00,000
sent on approval
basis not included in
stock)
78,40,000 78,40,000
Calculation of value of inventory on 31st March, 2024
`
Stock on 31st March, 2024 (given) 30,00,000
Add: Purchases of March, 2024 not included in the 20,00,000
stock
Goods lying with customers on approval basis 6,00,000
56,00,000
(b) (i) Cash Book (Bank Column)
Date Particulars Amount Date Particulars Amount
2023 ` 2023 `
Sept. Sept.
30 30
To Party A/c 64,000 By Balance b/d 16,248
To Customer A/c By Bank charges 2,320
(Direct deposit) 4,69,600 By Customer A/c 5,60,000
To Balance c/d 44,968 (B/R dishonoured)
5,78,568 5,78,568

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(ii) Bank Reconciliation Statement as on 30th September, 2023

Particulars Amount
`
Overdraft as per Cash Book 44,968
Add: Cheque deposited but not collected upto
30th Sept., 2023 52,56,000
53,00,968
Less: Cheques issued but not presented for payment
upto 30 th Sept., 2023 (53,04,000)
Credit by Bank erroneously on 6th Sept. (80,000)
Credit balance as per bank statement 83,032
Note: Bank has credited Akhil by 80,000 in error on 6th September, 2023.
If this mistake is rectified in the bank statement, then this will not be
deducted in the above statement along with ` 53,04,000 resulting in
credit balance of ` 3,032 as per pass-book.
3. (a) Manufacturing A/c
Particulars ` Particulars `
To Raw Material Consumed 9,15,000 By Trading A/c 18,32,000
(Balancing Figure) (W.N. 4)
To Wages (W.N. 2) 3,15,000
To Depreciation (W.N. 1) 3,95,000
To Direct Expenses 2,07,000
(W.N. 3)
18,32,000 18,32,000
Raw Material A/c
Particulars ` Particulars `
To Opening Stock 1,27,000 By Raw Material
A/c Consumed (from 9,15,000
Manufacturing A/c above)
To Creditors A/c 14,40,000 By Closing Stock A/c 6,52,000
(W.N. 5) (Balancing Figure)
15,67,000 15,67,000
Working Notes:
(1) Since purchase of Machinery worth ` 12,00,000 has been omitted.
So, depreciation omitted from being charged = 12,00,000 X 15%
= ` 1,80,000
Correct total depreciation expense = ` (2,15,000+1,80,000)
= 3,95,000

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(2) Wages worth ` 50,000 will be excluded from manufacturing account

as they pertain to office and hence will be charged P&L A/c. So the
revised wages amounting ` 3,15,000 will be shown in
manufacturing account.
(3) Expenses to be excluded from direct expenses:
Office Electricity Charges (80,000 X 25%) 20,000
Delivery Charges to Customers 22,000
Total expenses not part of Direct Expenses 42,000
=> Revised Direct Expenses = ` (2,49,000 - 42,000)
= ` 2,07,000
Fuel charges are related to factory expenses and also freight
inwards are incurred for bringing goods to factory/ godown so they
are part of direct expenses.
(4) Revised Balance to be transferred to Trading A/c:
Particulars `
Current Balance transferred 17,44,000
Add: Depreciation charges not recorded earlier 1,80,000
Less: Wages related to Office (50,000)
Less: Office Expenses (42,000)
Revised balance to be transferred 18,32,000
(5) Creditors A/c
Particulars ` Particulars `
To Bank A/c 23,50,000 By Balance b/d 15,70,000
To Balance By Raw Materials A/c
c/d 6,60,000 (Bal. figure) 14,40,000
30,10,000 30,10,000
(b)
Particulars Ram Lakhan Bharat Total
Profit of
firm
I. Amount already credited:
Share of profit (in the ratio
78,000 78,000 78,000 2,34,000
of 1:1:1) (2022-23, 2023-24)
II. Amount which should have been
credited:
C’s Salary (2022-23, 2023-24) 30,000
Interest on Capital (2022-23, 15,000 7,500 7,500
2023-24)

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Share of Profit 87,000 43,500 43,500 1,74,000

1,02,000 51,000 81,000
Net effect (I-II) (24,000) 27,000 (3,000) -
The necessary journal entry will be:
Particulars Debit (`) Credit
(`)
Lakhan’s Current A/c 27,000
To Ram’s Current A/c 24,000
To Bharat’s Current A/c 3,000
(Salary to Bharat, Interest on capital charged
and profit shared among partners in the ratio of
capital)
(c) Total Profit for 3 years = (` 17,000) + ` 50,000+` 75,000= ` 1,08,000.
TotalProit `1,08,000
Average profits =  =`36,000
No. of years 3
Average Profits for Goodwill = ` 36,000 – Proprietor Remuneration
= ` 36,000 – ` 6,000 = ` 30,000
Normal Profit=Interest on Capital employed
= ` 20,000 (i.e. ` 2,00,000 x10/100) = ` 20,000
Super Profit = Average Profit-Normal Profit = ` 30,000 – ` 20,000
= ` 10,000
Goodwill = Super Profit x No of years purchases = ` 10,000 x 2 =
` 20,000
4. (a) Revaluation A/c
` `
To Plant & Machinery 25,500 By Land & Building 1,52,000
(1,70,000 x 15%) A/c
To Provision for Bad &
Doubtful Debts (60,000 3,000
x 5%)
To Outstanding Repairs to
6,000
Building
To X’s Capital A/c (5/8) 73,438
To Y’s Capital A/c (3/8) 44,062
1,52,000 1,52,000
Partners Capital A/c
X Y Z X Y Z
To X’s - - 20,000 By Balance 4,10,000 3,30,000 -
Capital A/c b/d
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To Y’s By Revaluation
12,000 73,438 44,062 -
Capital A/c A/c
To Y’s By Profit &
- 68,062 70,000 42,000 -
Current A/c Loss A/c
To Balance
6,00,000 3,60,000 2,40,000 By Bank - - 2,72,000
c/d
By Z’s Capital
20,000 12,000 -
A/c
By X’s Current
26,562 - -
A/c
6,00,000 4,28,062 2,72,000 6,00,000 4,28,062 2,72,000

Calculation of New Profit Sharing Ratio and gaining ratio:

Z’s Share of Profit = 1/5 = 2/10
Remaining Share = 1 – 1/5 = 4/5
X’s Share = 5/8 x 4/5 = 20/40 = 5/10
Ys Share = 3/8 x 4/5 = 12/40 = 3/10
New Profit sharing Ratio = 5:3:2
Gaining ratio = 5:3 (same as old profit sharing ratio among old partners)
Balance sheet of Alpha and Associates as on 31.3.2024
Liabilities ` Assets
Capital Accounts: Land & 5,32,000
Buildings
X Plant &
6,00,000 1,70,000
Machinery
Y Less:
3,60,000 25,500 1,44,500
Depreciation
Z 2,40,000 12,00,000 Furniture 1,09,480
Y’s Current A/c 68,062 Stock 1,45,260
Sundry
Trade Creditors 54,800 60,000
Debtors
Outstanding Repairs 6,000 Less: 3,000
57,000
to Building Provision
Cash at Bank 3,14,060
X’s current A/c 26,562
13,28,862 13,28,862

Working Note:
Required Balance of Capital Accounts
Z’s Capital after writing off Goodwill = 2,72,000 – 32,000 = 2,40,000
Z’s Share of Profit = 1/5
Thus Capital of the firm shall be = 2,40,000 x 5 = 12,00,000
X’s Capital = 12,00,000 x 5/10 = 6,00,000 and

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Y’s Capital = 12,00,000 x 3/10 = 3,60,000

(b) Trading A/c
for the year ended 31 st March, 2024
` `
To Opening stock 2,80,000 By Sales
To Purchases 7,70,000 Cash 2,40,000
To Gross Profit 3,10,000 Credit 10,00,000 12,40,000
@ 25%
By Closing Stock 1,20,000
(bal.fig.)
13,60,000 13,60,000
Profit and Loss Account
for the year ended 31 st March, 2024
` `
To Salaries 40,000 By Gross Profit 3,10,000
To Business expenses 1,20,000
To Interest on loan 5,000
(10% of 1,00,000*6/ 12)
To Net Profit 1,45,000
3,10,000 3,10,000
Balance Sheet as at 31st March, 2024
Liabilities ` ` Assets `
Ram’s capital: Cash in hand 10,000
Opening 3,00,000 Cash at Bank 80,000
Add: Net Profit 1,45,000 Sundry Debtors 3,50,000
4,45,000 Stock in trade 1,20,000
Less: Drawings (80,000) 3,65,000
Loan from Laxman 1,05,000
(including interest
due)
Sundry Creditors 90,000 _______
5,60,000 5,60,000
Working Notes:
1. Sundry Debtors Account
` `
To Balance b/d 1,00,000 By Bank A/c 7,50,000
To Credit sales (Bal. fig) 10,00,000 By Balance c/d 3,50,000
11,00,000 11,00,000
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2. Sundry Creditors Account

` `
To Bank A/c 7,00,000 By Balance b/d 40,000
To Cash A/c 20,000 By Purchases (Bal. fig.) 7,70,000
To Balance c/d 90,000
8,10,000 8,10,000
3. Cash and Bank Account
Cash Bank Cash Bank
` ` ` `
To Balance 10,000 By Balance b/d 50,000
b/d
To Sales 2,40,000 By Bank A/c (C) 1,00,000
(bal. fig)
To Cash (C) 1,00,000 By Salaries 40,000
To Debtors 7,50,000 By Creditors 20,000 7,00,000
To Laxman’s By Drawings 80,000
loan 1,00,000 By Business
expenses 1,20,000
By Balance c/d 10,000 80,000
2,50,000 9,50,000 2,50,000 9,50,000
4. Calculation of Ram’s Capital on 1st April, 2023
Balance Sheet as at 1st April,2023
Liabilities ` Assets `
Ram’s Capital (bal. fig) 3,00,000 Cash in hand 10,000
Bank Overdraft 50,000 Sundry Debtors 1,00,000
Sundry Creditors 40,000 Stock in trade 2,80,000
3,90,000 3,90,000
5. (a) Rectification entries in the books of M/s VB Wires
Particulars L.F. Dr. Cr.
` `
1. Profit and Loss Adjustment Account Dr. 37,500
To Building Account 37,500
(Repairs amounting ` 37,500 wrongly debited
to building account, now rectified)
2. Profit and Loss Adjustment Account Dr. 4,500
To Suspense Account 4,500
(Addition of freight column in purchase
journal was under casted, now rectification
entry made)

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3. Suspense Account Dr. 6,300

To Seven & Co. 6,300
(Goods returned by Seven & Co. had been
posted wrongly to the debit of her account,
now rectified)
4. Profit and Loss Adjustment Account Dr. 90,000
To Furniture account 90,000
(Being sale of furniture wrongly entered in
sales book, now rectified)
5. Comfort & Co. Dr. 60,000
To Bills receivable account 60,000
(Bill receivable dishonoured debited to Bills
receivable account instead of customer
account, now rectified)
(b) Receipts and Payments Account for the year ended 31-03-2024
Receipts ` Payments `
To balance b/d By Salaries 30,000
By Purchase of sports
Cash and bank 55,000 5,000
goods
To Subscription
1,22,500 ` (12,500 - 7,500)
received (W.N.1)
To Sale of investments By Purchase of
35,000 5,000
(W.N.2) machinery
To Interest received on
7,000 ` (10,000-5,000)
investment
To Sale of furniture 4,000 By Sports expenses 25,000
By Rent paid 11,000
` (12,000 -1,000)
By Miscellaneous
2,500
expenses
By Balance c/d
Cash and bank 1,45,000
2,23,500 2,23,500
Income and Expenditure account for the year ended 31-03-2024
Expenditure ` ` Income ` `
To Salaries 30,000 By Subscription 1,50,000
Add: Outstanding for 9,000 By Interest on
2024 Investment
39,000 Received 7,000

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Less: Outstanding for (7,500) 31,500 Accrued 1,750 8,750

2023 (W.N.5)
To Sports expenses 25,000
To Rent 12,000
To Miscellaneous exp. 2,500
To Loss on sale of 3,000
furniture (W.N.3)
To Depreciation
(W.N.4)
Furniture 700
Machinery 750
Sports goods 1,125 2,575
To Surplus 82,175
1,58,750 1,58,750

Working Notes:
1. Calculation of Subscription received during the year 2023-24
`
Subscription due for 2023-24 1,50,000
Add: Outstanding of 2023 70,000
Less: Outstanding of 2024 (1,00,000)
Add: Subscription of 2024 received in advance 15,000
Less: Subscription of 2023 received in advance (12,500)
1,22,500
2. Calculation of Sale price and profit on sale of investment
Face value of investment sold: ` 87,500 × 50% = ` 43,750
Sales price: ` 43,750 × 80% = ` 35,000
Cost price of investment sold: ` 70,000 × 50% = ` 35,000
Profit/loss on sale of investment: ` 35,000 - ` 35,000 = NIL
3. Loss on sale of furniture
`
Value of furniture as on 01-04-2023 14,000
Value of furniture as on 31-03-2024 7,000
Value of furniture sold at the beginning of the year 7,000
Less: Sales price of furniture (4,000)
Loss on sale of furniture 3,000
4. Depreciation
Furniture - `7,000 × 10% = 700
Machinery - `5,000 × 15% = 750
Sports goods - `7,500 × 15% = 1,125

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5. Interest accrued on investment

`
Face value of investment on 01-04-2023 87,500
Interest @ 10% 8,750
Less: Interest received during the year (7,000)
Interest accrued during the year 1,750
Note: It is assumed that the sale of investment has taken place at the
end of the year.
6. (a)
Entry Particulars L.F. Debit Credit
No. Amount Amount
(`) (`)
Bank A/c Dr. 40,000
1 To Equity Share Application A/c 40,000
(Money received on applications for
20,000 shares @ ` 2 per share)
Equity Share Application A/c Dr. 40,000
2 To Equity Share Capital A/c 40,000
(Transfer of application money on 20,000
shares to share capital)
Equity Share Allotment A/c Dr. 80,000
3 To Equity Share Capital A/c 60,000
To Securities Premium A/c 20,000
(Amount due on the allotment of 20,000
shares @ ` 3 per share and Securities
Premium @ `1 per share)
Bank A/c Dr. 80,000
4 To Equity Share Allotment A/c 80,000
(Allotment money received)
Equity Share First Call A/c Dr. 40,000
5 To Equity Share Capital A/c 40,000
(Being first call made due on 20,000
shares at ` 2 per share)

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Bank A/c Dr. 46,000

6 To Equity Share First Call A/c 40,000
To Calls in Advance A/c 6,000
(Being first call money received along with
calls in advance on 2,000 shares at ` 3 per
share)
Equity Share Final Call A/c Dr. 60,000
7 To Equity Share Capital A/c 60,000
(Being final call made due on 20,000
shares at ` 3 each)
Bank A/c Dr. 53,100
Calls in Advance A/c Dr. 6,000
8 Calls in Arrears A/c Dr. 900
To Equity Share Final Call A/c 60,000
(Being final call received for 17,700
shares, calls in advance for 2,000 shares
and calls in arrears on 300 shares
adjusted)
Interest on Calls in Advance A/c Dr. 240
9 To Shareholders A/c 240
(Being interest made due on calls in
advance of `6,000 at the rate of 12% p.a.)
Shareholders A/c Dr. 240
10 To Bank A/c 240
(Being payment of interest made to
shareholder)
Shareholders A/c Dr. 15
11 To Interest on Calls in Arrears A/c 15
(Being interest on calls in arrears made
due at the rate of 10%)
Bank A/c Dr. 615
12 To Calls in Arrears A/c 600
To Shareholders A/c 15
(Being money received from shareholder
having 200 shares for calls in arrears and
interest thereupon)
13 Shareholders A/c Dr. 10
To Interest on Calls in Arrears A/c 10
(Being interest on calls in arrears made
due at the rate of 10%)

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14 Bank A/c Dr. 310

To Calls in Arrears A/c 300
To Shareholders A/c 10
(Being money received from shareholder
having 100 share for calls in arrears and
interest thereupon)
Calculation of Interest on Calls in Advance & Calls in Arrears:
Interest on Calls in Advance = ` 6,000 x 12% x 4 / 12 = ` 240
Interest on Calls in Arrears ` 600 x 10% x 3 / 12 = ` 15
Interest on Calls in Arrears ` 300 x 10% x 4 / 12 = ` 10
Table F of The Companies Act,2013 prescribes 10% and 12% p.a. as
the maximum rates respectively for calls in arrears and calls in advance.
Accordingly these rates have been considered while passing the above
entries,
(b) (i) A bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person
to pay a certain sum of money to or to the order of certain person
or to the bearer of the instrument. When such an order is accepted
by the drawee on the face of the order itself, it becomes a valid bill
of exchange.
There are three parties to a bill of exchange:
(i) The drawer, who draws the bill, that is, the creditor to whom
the money is owing;
(ii) The drawee, the person to whom the bill is addressed or on
whom it is drawn and who accepts the bill that is, the debtor;
and
(iii) The payee, the person who is to receive the payment. The
drawer in many cases is also the payee.
(ii) Retirement of bills of exchange: Sometimes, the acceptor of a
bill of exchange has spare funds much before the maturity date of
the bill of exchange accepted by him. He may, therefore, desire to
pay the bill before the due date. In such a circumstance, the
acceptor shall ask the payee or the holder of the bill to accept cash
before the maturity date. If the payee agrees, the acceptor may be
allowed a rebate or discount on such early payment. This rebate
is generally the interest at an agreed rate for the period between
the date of payment and date of maturity. The
interest/rebate/discount becomes the income of the acceptor and
expense of the payee. It is a consideration for premature payment.
When a bill is paid before due date, it is said to be retired under
rebate.
OR
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The basic considerations in distinction between capital and revenue

expenditures are:
(i) Nature of business: For a trader dealing in furniture, purchase of
furniture is revenue expenditure but for any other trade, the
purchase of furniture should be treated as capital expenditure and
shown in the balance sheet as asset.
(ii) Recurring nature of expenditure: If the frequency of an expense is
quite often in an accounting year then it is said to be an expenditure
of revenue nature while non-recurring expenditure is infrequent in
nature and do not occur often in an accounting year.
(iii) Purpose of expenses: Expenses for repairs of machine may be
incurred in course of normal maintenance of the asset. Such
expenses are revenue in nature. On the other hand, expenditure
incurred for major repair of the asset so as to increase its
productive capacity is capital in nature.
(iv) Materiality of the amount involved: Relative proportion of the
amount involved is another important consideration in distinction
between revenue and capital.

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