SECTION “A” (MULTIPLE CHOICE QUESTIONS)
1. Choose the correct answer for each from the given options:
(i) The term ‘retained earning’ represents:
* accumulated profit
* net profit for the current year
(ii) The account ‘debentures’ is classified as:
* current assets
* shareholder’s equities
(iii) Accumulated depreciation is shown in;
* balance sheet on equities side
* balance sheet under fixed assets
* balance sheet under current assets
* income statement under operating expenses
(iv) Capital is also known as:
* External equities
* internal equities
(v) The alternative term used for scrap value is:
* book value
* salvage value
* written down value
* depreciable value
(vi) Cash dividend is paid by issue of:
* pay order
* Bank drafts
* Dividend warrant
* Bonus shares
(vii) This is shown in the shareholders equity section of balance sheet:
* Unclaimed Dividend
* Cash Dividend Payable
* Share premium
* Preliminary expenses
(viii) Cost minus accumulated depreciation is equal to:
* Depreciable cost
* Annual depreciation
* Book value
* Market value
(ix) Owners of a limited company are known as:
(x) The amount of capital, mentioned in memorandum of association, is called:
* Authorized capital
* Subscribed capital
* Issued capital
* none of these
(xi) The total amount of capital of a company, divided into small units, is/are:
* Net Income
(xii) Under the diminishing balance method, depreciation is calculated on:
* Fixed cost
* Depreciable cost
* Book value
* Scrap value
(xiii) A statement of assets and liabilities, prepared under the single entry system, is called:
* Statement of Retained Earning
* Financial statement
* cash statement
* Statement of affairs
(xiv) Income over expenses, in non profit concern, is known as:
(xv) This is shown as a liability:
* Advance from customer
* Loan to employee
* Accrued rent income
* Unexpired insurance
(xvi) These accounts are involved in profit/loss distribution among the partners applying fixed capital method:
* cash & income summary
* cash & partner’s current accounts
* income summary & partner’s current accounts
* income summary & partner’s capital accounts
(xvii) The account debited, on the disposal of assets by less than their book values, is:
(xviii) Gain on revaluation· or realization is distributed among the partner’s according to:
* partners’ beginning capital ratio
* partners’ ending capital ratio
* partners’ agreed ratio
(xix) Drawing of the partners are:
* Debited to profit & loss account
* Credited to profit & loss accounts
* Debited to capital account
* Credited to capital account
(xx) This is irrelevant item in income summary account of a partnership firm:
* Partners’ current account
* Interest on partners’ capital
* Partner’s capital account
SECTION ‘B’ (SHORT – ANSWER QUESTIONS)
NOTE: Attempt any Four questions.
2. Accounting for Non-Profit Concerns:
The following data related to Commerce Welfare Trust on March 31, 2012:
Cash Rs.20,000, Bank Rs.40,000, land Rs.200,000, Building Rs.300,000, Allowance for depreciation-Building Rs.10,000, Equipment Rs.50,000, Notes Payable Rs.100,000.
The period-end adjustment data were as follows:
(i) Subscription fees receivable Rs.45,000 and received in advance Rs 5,000.
(ii) Prepaid salaries Rs.6,000 and accrued taxes Rs.2,000.
(iii) Estimate depreciation on building Rs.10,000 and on equipment Rs.5,000
REQUIRED: (a)· Determine the amount of Accumulated Fund before adjustments.
(b) Prepare Balance sheet (Income and Expenditure account showed surplus of Rs.29,000 for the period.)
COMPUTATION OF ACCUMULATED FUND ASSETS
Building Net (300,000 – 10,000) 2,90,000
Total Assets 6,00,000
Less: Notes Payable 1,00,000
ACCUMULATED FUND 5,00,000
COMMERCE WELFARE TRUST,
As on March 31, 2012.
Subscription Fee Receivable 45,000
Prepaid Salaries 6,000
Building Net 300,000
Less: Allowance for depreciation 29,000
Less: Allowance for depreciation 5,000 45,000
TOTAL ASSETS 6,36,000
Notes Payable 1,00,000
Unearned Fee 5,000
Accrued Taxes 2,000
Accumulated Fund 500,000
Add: Net Surplus 29,000
Adjusted Accumulated Fund 5,29,000
TOTAL EQUITIES 6,36,000
3. Single Entry
Mr. Ali maintains his records under single entry system. On February 2011, .he started his business with cash Rs.5,00,000. His position on Dec. 31, 2011 was as under:
Cash Rs.72,000, Bank Rs.50,000, Account Receivable Rs.38,000, Furniture Rs.130,000, Merchandise Inventory Rs.210,000, Bank loan Rs.100,000 (July 1, 2011)
Additional information on December 31, 2011:
(i) Mr. Ali withdrew from bank Rs.10,000 for office use and Rs.8,000 per month for personal use.
(ii) Additional Investment Rs.45,000 in business during the year.
(iii) Bank Charged 14% interest per annum + KIBO rate 3% on loan. Interest paid on quarterly basis.
REQUIRED: Prepare Profit and loss statement for the year ended Dec. 31, 2011.
CAPITAL AT END
Accounts Receivable 38,000
Merchandise Inventory 2,10,000
TOTAL ASSETS 5,00,000
Less: Bank Loan 1,00,000
CAPITAL AT END 4,00,000
STATEMENT OF PROFIT & LOSS A/C.
AS ON DEC.31, 2011.
Capital at end 4,00,000
Add: Drawing 8,000
Less: Capital at start 500,000
Additional Investment 45,000 5,45,000
Unadjusted Loss (1,37,000)
Less: Other expenses
Interest expenses (100,000 x 17% x 3/12) 4,250
NET LOSS (1,41,250)
Irfan and Akram are partners with capitals of Rs.2,50,000 & Rs.1,50,000 respectively. Naeem is admitted for 2/5 interest in the partnership. Old partners share profit/Ioss equally.
REQUIRED: Make entries in general journal in each of the following cases:
(a) Naeem purchases interest from Irfan paying sum Rs.150,000.
(b) Naeem invests cash Rs.300,000 in a total capital Rs.700,000.
5. Partnership-Distribution of Net Income:
On April 1, 2010, Amjad and Mansoor started their business as a partnership firm. They agreed to share profits and losses in the ratio of their beginning capital balances. As per agreements, Amjad entitled to salary of Rs.4,000 per month and commission given to Mansoor Rs.28,000 during the year, They also agreed to receive interest on initial capital @ 6% per annum. The net income for the year ended Dec. 31, 2011 was Rs.114,750 before distribution.
The balance on the capital and current accounts at the last balance sheet were:
Capital Rs.200,000 Rs.150,000
Current Account Rs.12,000 Rs.17,000
(i) Prepare Income distribution summary for the period.
(ii) Prepare and complete partner’s current account.
6. Partnership Liquidation:
The partnership of Saad, Usman and Daniyal is in the process of liquidation. After selling assets, paying liabilities and distributing loss on liquidation partners’ capital accounts showed balances as follows:
Saad’s capital credit Rs.127,000, Usman’s capital debit Rs.26,000, Daniyal capital credit Rs.41,000. –
(a) Determine the amount of cash available for distribution.
(b) Give general journal entries to record payment to Saad and Daniyal, assuming that:
(i) Usman is solvent
(ii) Usman is insolvent
COMPUTATION OF CASH AVAILABLE
Saad Capital 1,27,000
Usman Capital (26,000)
Daniyal Capital 41,000
CASH AVAILABLE 1,42,000
A company offered to the public 100,000 ordinary shares at Rs.10 each. The bank informed that applications of Rs.800,000 were received and the remaining shares were issued to underwriters. The company also declared cash dividends of Rs.30,000 to the share holders. The cost of the publication of prospectus and share certificates Rs.24,000 was paid by the company.
REQUIRED: Record the above in general journal.
8. Retained Earnings:
Asghar Flours Mills Ltd. has retains earning balance of Rs.12,40,000 on June 30, 2010 before transfer of net income. The net income for the year was Rs.3,60,000. The following resolutions were passed In Annual general Meeting
(i) To declare cash dividend Rs.36,000.
(ii) To establish reserve for contingencies Rs.126,000.
(iii) To appropriate Rs.40,000 for sinking fund.
(iv) To reserve Rs.200,000 for plant extension & replacement.
(v) To declare stock dividend Rs.18,000.
REQUIRED: Set up Retained Earnings Account.
SECTION C (DETAILED -ANSWER QUESTION)
NOTE: Attempt the following question which is compulsory.
(a) Asma industries acquired a machine by making the following payments:
Net cash price Rs.1,16,000 including 16% sales tax, transportation Rs.5,000, insurance in transit Rs.6,000, fire insurance for the next two years Rs.6,000, installation charges Rs.15,000, charges to repair the damage caused during installation Rs.3,000.
(i) Classify the above payments into capital expenditures and revenue expenditures.
(ii) Give an entry to record acquisition of machine, and another entry to record expenditures by Debiting General Expenses Account.
Net Cash Price (116,000 x 16/116) (116,000-16,000) 1,00,000
Insurance in transit 6,000
Installation charges 15,000
Sales Tax 16,000
Fire Insurance 6,000
Repair Expenses 3,000
(b) A machine was acquired on March 31, 2009 at a cost of Rs.800,000. Its salvage value was estimated at Rs.160,000 and useful life to be 32000 working hours. From 2009 to 2011 machine’s working was as follows:
Year Hours worked
(i) Compute amount of depreciation.
(ii) Set up Allowance for depreciation-Machine account for the years 2009 to 2011.
COMPUTATION OF DEPRECIATION
BY HOURS METHOD.
Less: Salvage Value 1,60,000
Depreciable Cost 6,40,000
Total Hours (Life) 32,000
Per hour rate (6,40,000 + 32,000) 20
Yearly depreciation = Yearly hours x per hour Rate
Depreciation for 2009 (3,200 x 20) 64,000
Depreciation for 2010 (4,800 x 20) 96,000
Depreciation for 2011 (4,000 x 20) 80,000
(c) The balance sheet of Mr. Asim as on Dec. 31, 2008 shows machinery Rs.400,000 and accumulated depreciation machinery Rs.45,000.
(i) Calculate depreciation for the year 2009 and 2010 under diminishing balance method @ 15%.
(ii) Make adjusting entry as on Dec. 31, 2010.
(iii) Make closing entry as on Dec. 31, 2009.
(iv) Prepare partial balance sheet as on Dec. 31, 2010.
COMPUTATION FOR DEPRECIATION
BY DIMINISHING BALANCE METHOD.
Cost (1.10.07) 4,00,000
Less: Accumulated Depreciation 31.12.08 45,000
Diminished Balance 3,55,000
Less: Depreciation 31.12.09 (3,55,000 x 15%) 53,250
Diminished Balance 3,01,750
Less: Depreciation 31.12.10 (3,01,750 x 15%) 45,263
Diminished Balance 2,56,487