SECTION “A” (MULTIPLE CHOICE QUESTIONS)

1. Choose the correct answer for each from the given options:
(i) Accumulated depreciation is called:
* Reserve
* Surplus
* Contra Asset
* Expense

(ii) Land is annually depreciated at the rate of:
* 10%
* 15%
* 20%
* none of these

(iii) When partnership is dissolved, the final task is:
* Payment of liabilities
* Payment to partners
* Payment of expenses
* Payment to employees

(iv) All fixed assets are depreciated except:
* Building
* land
* Equipment’s
* vehicles

(v) General reserves is/are classified as:
* Asset
* Expense
* liabilities
* Shareholder’s equity

(vi) This is intangible asset:
* land
* Goodwill
* equipments
* Building

(vii) Reserve accounts are part of:
* Shareholder equity a/c.
* Assets account
* liability account
* Expense account

(viii) Debenture holders are:
* Debtors of the Co.
* Owners of the company
* Creditors of the Co.
* Promoters of the Co.

(ix) In non-trading concerns, statement of affairs is used to mean the same as:
* P/L a/c
* Bank a/c
* Balance sheet
* Trial Bal.

(x) Capital at end – Capital at start = :
* Net Income
* Unadjusted Income/loss
* Sales
* Commission income

(xi) Revaluation loss of assets will be debited to:
* liability account
* Asset account
* Partners capital account
* Cash account

(xii) The written agreement between partners is termed as:
* Registration of firm
* Article of Association
* Partnership deed
* Partnership Dissolution

(xiii) When net income is transferred to retained earnings account, this account is debited: .
* Retained Earning account
* Share premium
* Reserve for plant extension
* Expense and revenue summary account

(xiv) The excess amount on issue of share price, over the per value is called:
* Discount
* Retained Earning
* Liability
* Share Premium

(xv) If assets are sold at more than book value, realization account will be:
* Credited
* Debited
* not recorded
* none of these

(xvi) The term Debentures means:
* Short term loan
* Long term loan
* Capital
* none of these

(xvii) Under diminishing balance method the amount of annual depreciation expense:
* Gradually decreases
* gradually increases
* remains constant
* does not change

(xviii) If closing capital is Rs.10,000, Additional investment Rs.6,000, Drawings Rs.3,600 and Profit during the year is Rs.2,600 then the amount of capital at start was
* Rs.1,700
* Rs.3,000
* Rs.3,700
* Rs.5,000

(xix) Cost of machine includes:
* 3 year fire insurance
* Insurance in transit
* trade discount
* Repair cost of damages during installation

(xx) Owners of a limited company are known as:
* auditor
* Directors
* Share holders
* Bond holders

SECTION ‘B’ (SHORT-ANSWER QUESTIONS)

Note: Attempt any five questions from this section.

2. ACCOUNTING FOR NON-PROFIT CONCERNS:
The following are the receipts and payments account of Waqas Welfare Society for the, ear ended Dec.31, 2012.

Additional Information on Dec. 31, 2012.
(i) Subscription received in advance Rs.5,000.
(ii) Accrued subscriptions Rs.7,000.
(iii) Rent unearned RS.10,000.
(iv) Prepaid utilities Rs.5,000.
(v) Depreciation on equipment Rs.2,000.
REQUIRED: Prepare Income & Expenditure account.

SOLUTION:

3. SINGLE ENTRY:
Mr. Asif maintains his record under Single entry system. On April 1, 2012 he started his business with cash investment of Rs.7,00,000. His position on Dec. 31, 2012 was as follows:
Cash Rs.200,000; Account Receivable Rs.120,000; Furniture Rs.300,000 and Merchandise inventory Rs.480,000; Shop Rs:500,000; Account payable Rs.150,000.
Additional Information on Dec. 31, 2012.
(i) Mr. Asif sold a plot costing Rs.200,000 for Rs.500,000 Cash and invested into business.
(ii) He paid utility bills Rs.5,000 P.M. for his residence.
(iii) Salary prepaid Rs.10,000 and accrued Rs.20,000.
(iv) Depreciation on furniture @ 10% per annum.
(v) Bad debt expense was estimated at 3% of Accounts Receivable.
REQUIRED: Prepare profit and loss statement for the period ended Dec. 31, 2012.

SOLUTIONS:

4. DIVISION OF PROFIT AND LOSS:
Hamza, Qasim and Raza are partners with fixed capitals of Rs.150,000, Rs.160,000 and Rs.170,000 respectively. According to agreements they are entitled as follows:
(i) Commission to Hamza Rs.50,000 per annum.
(ii) Salary allowed to Qasim Rs.7,000 per month.
(iii) Interest on capital to be charged at 10% per annum to each partner.
(iv) Balance of profit or loss to be distributed equally.
(v) Net income for the year ended on Dec. 31, 2012 is Rs.135,000.

REQUIRED:
(i) Prepare income distribution summary.
(ii) Record the necessary Journal entries of the final distribution of profit or loss.
SOLUTION:

SCHEDULE OF DISTRIBUTION OF NET INCOME,
FOR THE PERIOD ENDED ———–.

                                          Hamza       Qasim           Raza     Total
Net Income                                                                           135,000
Capital Balances                150,000    160,000      170,000  480,000
Commission to Hamza         50,000                                        50,000
Salary to Qasim                                 84,000                          84,000
10% interest on Cap.           15,000    16,000         17,000     48,000
Bal. divided equally              (15,667)  (15,667)      (15,666)  (47,000)
Total                                     49,333      84,333        1,334    135,000

5. PARTNESHIP – ADMISSION:
Mr. Museb, Ukasha and Khuzaima are partners having capital of Rs.450,000, Rs.375,OOOand Rs.275,000 respecively. They share profit and loss in the ratio of 3:2:1. On Jan. 1, 2012 they decided to admit Mr Khubaib as a partner.

REQUIRED:
Record the admission of Khubaib under the following conditions separately.
Case A: Mr. Khubaib invested cash Rs.250,000 for 1/6th interest in the business ( use goodwill method)
Case B: Mr. Khubaib purchased 1/3rd capital of Museb by paying him cash Rs.250,000.

SOLUTION:

6. PARTNERSHIP – DISSOLUTION:
saad, Maaz and Bilal are partners sharing profit and losses in the ratio of their capitals. On July 1, 2012 the firm position is as under:
Cash Rs.30,000; Other assets Rs.720,000; Account payable Rs.150,000; Saad capital Rs.300,000; Maaz capital Rs.150,000 and Bilal capital RS.150,000. On this date they decided to dissolve the partnership. Other assets were ‘sold for Rs.800,000 and accounts payable were paid in full.

REQUIRED: Record General Journal entries related to dissolution and final settlement among the partners.

SOLUTION:

7. ISSUE OF SHARES & DEBENTURE:
Consider the following cases of Iqbal Corporation separately:
(i) Issued 1500.shares of Rs.10 each at Rs.15 each for the purchase of land.
(ii) Issued 1000 shares of Rs.10 each at par for cash.
(iii) Purchased a machine for Rs.72,000 & issued sufficient number of shares (Market price of share Rs.12)
(iv) Issued 1000, 8% debenture of Rs.100 at par redeemable at Rs.105.
(v) Issued 2000, 9% debentures of Rs.100 at Rs.90 for cash.

REQUIRED:
Record the above transactions in General Journal.

SOLUTION:

8. COMPANY – RETAINED EARNING:
Ubaid Co. Ltd. has the following share holder’s equity as shown in Balance sheet as on Dec 31,2012

Following decisions were made and executed:
(i) Declaration of cash dividend @ 10%.
(ii) Building extension reserve increased by Rs.1,00,000.
(iii) Reserve for contingencies increased up to Rs.1,00,000.
(iv) Bank paid cash dividend warrants.

REQUIRED:
Record the above transactions in General Journal.

SOLUTION:

SECTION C (DETAILED-ANSWER QUESTION)

Note: Attempt any Two part questions.
9. DEPRECIATION:
(a) On Sep. 30, 2008 Muneb Co. Ltd. purchased a machine for Rs.2,50,000 with 5% Trade discount. The following expenditure were also incurred on machine:
(i) Installation charges Rs.20,000.
(ii) Freight in Rs.7,500
(iii) Insurance in transit Rs.10,000.
(iv) 2 years fire insurance Rs.50,000.
Its useful life is 10 years and residual value estimated at Rs.75,000.The Company’s accounting year ends on Dec. 31 each year.

REQUIRED:
(i) Calculate the cost of machine.
(ii) Record purchase of machine.
(iii) Calculate the amount of depreciation on Dec. 31, 2008 and 2009 using straight line method.

SOLUTION:

COMPUTATION OF COST OF MACHINE

List Price                                                                      2,50,000
Less: 5% Trade Discount                                                12,500
Net Cash Price                                                             2,37,500
Add: Other Expenses
Installation cost                           20,000
Freight                                           7,500
Insurance in transit                      10,000
Total Other Expenses                                                      37,500
Total Cost of Machine                                                   2,75,000

COMPUTATION OF DEPRECIATION,
BY STRAIGHT LINE METHOD

Cost                                                                                     2,75,000
Less: Salvage value                                                               75,000
Depreciable cost                                                                  2,00,000
Life                                                                                       10 years
Yearly depreciation (2,00,000 ÷ 10)                                     20,000
Depreciation 31.12. 2008 (20,000 x 3/12)                              5,000
Depreciation 31.12. 2009                                                      20,000

9.(b) Zaid. Asim purchased a machine on July 1, 2007 at a price of Rs.4,00,000. Its scrap value is estimated at 15% of cost price. The life is estimated to be 5 years, in units 17,000 and in hours 34,000. The company’s year ends on Dec. 31, each year.

REQUIRED:
(i) Compute depreciation per year, per unit and per hour.
(ii) prepare adjusting entries on Dec. 31, 2007 and 2008 under working hours method. Assuming that the machine has operated 1000 hours in 2007 and 2200 hours in 2008.

SOLUTION:

COMPUTATION OF DEPRECIATION,
BY STRAIGHT LINE METHOD.

YearIy depreciation = Cost – Salvage value
Life
YearIy depreciation =  4,00,000 – 60,000
5
YearIy depreciation = 3,40,000 = 68,000
5

COMPUTATION OF DEPRECIATION,
BY OUTPUT METHOD.

Per unit depreciation = Cost – Salvage value
Life (in units)
Per unit depreciation =  4,00,000 – 60,000
17000
Per unit depreciation =   3,40,000
17000
Per unit depreciation = Rs.20

COMPUTATION OF DEPRECIATION,
BY HOURS METHOD.

Per Hour depreciation  = Cost – Salvage value
Life (in hours)
Per Hour depreciation  = 4,00,000 – 60,000
34000
Per Hour depreciation  =   3,40,000
34000
Per Hour depreciation = Rs.10

Depreciation 31.12.2007 (1000 x 10) 10,000
Depreciation 31.12.2008 (2200 x 10) 22,000

————————————

9.(c) Shakeeb Co. purchased a machine on Jan. 1, ,2006 having a cost of price of Rs.2,40,000. Its residual value is estimated to be Rs.15,000. Company uses diminishing balance method at the rate of 20% per annum. The accounting year ends on Dec. 31, each year.

REQUIRED:
(i) Compute depreciation expense on Dec. 31, 2006, 2007 and 2008.
(ii) Give adjusting entries on Dec. 31, 2007 and 2008.
(iii) Set up allowance for depreciation account for the year
Dec. 31, 2006, 2007 and 2008.

SOLUTION:

COMPUTATION FOR DEPRECIATION
BY DIMINISHING BALANCE METHOD.

Cost (1.1.06)                                                                      2,40,000
Less: Depreciation 31.12.06 (2,40,000 x 20%)                     48,000
Diminished Balance                                                            1,92,000
Less: Depreciation 31.12.07 (1,92,000 x 20%)                      38,400
Diminished Balance                                                             1,53,600
Less: Depreciation 31.12.08 (1,53,600 x 20%) .                     30,720
Diminished Balance                                                              1,22,880