ACCOUNTING Past Paper 2nd year 2014 (Private) Karachi Board

SECTION “A” (MULTIPLE CHOICE QUESTIONS)

1. Choose the correct answer for each from the given options:

(i) The value of non-current assets declines gradually because of:
* Depreciation
* Realization
* Inflation
* none of these

(ii) In non-profit organization, excess of income over its expenses is called:
* Surplus
* Deficit
* Donation
* none of these

(iii) Persons entered into partnership business are called:
* Friends
* Shareholders
* Partners
* Promoters

(iv) A machine costing Rs.30,000, depreciated for 2 years @5% under diminishing balance method, will have accumulated depreciation.
* Rs 2925
* Rs.2935
* Rs.2915
* Rs.2820

(v) Capital at end + drawings – Profit = :
* Average capital
* Ending capital
* Beginning capital
* none of these

(vi) By nature a debenture is a/an:
* Asset
* Liability
* Capital
* Expense

(vii) If assets valuing Rs.58,999 are sold for Rs.58,900 then there will be a:
* loss of Rs.100
* Gain of Rs.100
* Loss of Rs.99
* Gain of Rs.99

(viii) Stock dividend to be distributed is:
* Asset
* Liability
* Shareholder equity
* none of these

(ix) Depreciable Cost + salvage value is equal to:
* Book value
* Cost
* Market value
* Scrape value

(x) Profit paid to the shareholders is called:
* Interest
* Dividend
* Gross profit
* Net profit

(xi) Debenture holders of a company are its:
* Creditor
* Customers
* Suppliers
* owner

(xii) Company declares dividend:
* Capital
* Expense
* Retained earning
* Cash

(xiii) Under declining balance method, depreciation is calculated on: * Market value
* Depreciable value
* Book value
* Salvage value

(xiv) Gain on liquidation will be credited to:
* Income summary A/c.
* Cash account
* Partners capital A/c.
* none of these.

(xv) This is not recorded in the books of accounts:
* Sales discount
* Purchase discount
* Trade discount
* Sales tax

(xvi) A Public Ltd. Company is formed by its:
* Board of Directors
* Promoters
* Auditors
* Underwriters

(xvii) The alternate term used for book value is:
* Salvage value
* Residual value
* Depreciable value
* Written down value

(xviii) The balance sheet of a Joint Stock Company does not contain the balance of the account of:
* Retained Earning
* Cash
* Ordinary Share capital
* Income Summary

(xix) If the remaining partners purchase capital of retiring partner, the total capital for the firm after his retirement:
* Increases
* Remain constant
* Decreases
* Fluctuates

(xx) Salvage value is not taken into account while computing depreciation under this method:
* Straight line
* Diminishing Balance
* Units of Output
* Working Hours.

SECTION ‘B’ (SHORT – ANSWER QUESTIONS)

NOTE: Attempt any Five questions.

2. ACCOUNTING FOR NON-PROFIT CONCERNS:
Following are the Receipts and payments account of Karachi Cricket Club for the year ended December 31,2013.

ACCOUNTING FOR NON PROFIT CONCERNS

ADDITIONAL INFORMATIONON DEC.31, 2013:
(i) Prepaid salaries Rs.20,000.
(ii) Accrued utilities Rs.5,000.
(iii) Depreciation on equipment@ 10%.
(iv) Accrued membership fees Rs.10,000.

(v) Unearned rent Rs.12,000.

REQUIRED: Prepare Income and Expenditure account for the year ended Dec. 31, 2013.

SOLUTION:

ACCOUNTING FOR NON PROFIT CONCERNS

3. DIVISION OF PROFIT AND LOSS:
Adnan, Usman and Kashan are partners with capital balances of Rs.2,00,000, Rs.3,00,000 and Rs.3,50,000 respectively.
Capitals are fixed and separate current accounts are maintained. The partnership agreement provided as under:
Annual salary of Rs.72,000 and Rs.48,000 to Usman and Kashan respectively. Commission to Adnan Rs.50,000. Remaining balance to be distributed in the ratio of their capitals. Net loss for the year ended on Dec. 31, 2013 was Rs.1,20,000.
REQUIRED: (a) Prepare Income Distribution Summary.
(b) Record entries in the General Journal for the distribution of Net Loss.

SOLUTION:

DIVISION OF PROFIT AND LOSS

4. PARTNERSHIP – RETIREMENT:
Umar, Mahmood and Afaq were equal partners with capital balances of Rs.60,000, Rs.80,000 and Rs.30,000 respectively. Umar retires from the partnership and remaining partners continue the business. Before retirement of Umar, assets were revalued and gain of Rs.30,000 was transferred. to partners capital accounts.

REQUIRED:
(a) Prepare journal entries to record revaluation of assets.
(b) Record retirement of Umar if he paid Rs.90,000 cash from firms resources (use bonus method).

SOLUTION:

COMPANY - RETAINED EARNING

COMPUTATION OF BONUS

Umer Capital                                              70,000
Less: Umer is to be paid                            90,000
Bonus to Umer                                           20,000

5. PARTNERSHIP – ADMISSION:
Salma and Saima are partners sharing profits and losses equally. Their capital balances are Rs.6,00,000 and Rs.4,00,000 respectively. They agreed to admit Fatima as a new partner.

REQUIRED: Give General Journal entries to record admission of Fatima for each of the following cases and prepare balance sheet for case 2 only.

CASE 1: Fatima purchases 1/3 interest of Salma for Rs.300,000 & % interest of Saima for Rs.350,000.
CASE 2: Fatima invest Rs.2,00,000 for 1/5 Interest, Old partners do not change their capital.

SOLUTION:
Case 1:
COMPUTATION
Fatima purchase 1/3 interest of Salma = 600,000 x 1/3 = 200,000
Fatima purchase 1/2 interest of Saima = 400,000 x 1/2 = 200,000
——————————-

PARTNERSHIP ADMISSION

5. PARTNERSHIP – LIQUIDATION:
The balance sheet of Faraz and Fawad on September 1, 2013 was as follows:

PARTNERSHIP LIQUIDATION

On the same date, they decided to liquidate their business. Other Assets were sold for Rs.2,00,000 Liabilities were paid off and available cash was distributed between the partners. They share profit and losses in the ratio of 3 : 2.

REQUIRED:
(a) Prepare liquidation summary.
(b) prepare necessary journal entries to record the liquidation of partnership.

SOLUTION:

PARTNERSHIP LIQUIDATION

7. ISSUANCE OF SHARES:
USA Ltd. Was incorporated with authorized capital of Rs.50,00,000 divided into 5,00,000 Ordinary shares of 10 each. During January, the following events took place.
Jan.01. Company offered 1,00,000 ordinary shares for subscription @ Rs.14.
Jan.14. The bank informed that applications for 1,65,000 shares have been received.
Jan.26. Company finalized the allotment # and advised bank to refund the excess money.
Jan.31. Company issued 1,000 shares at par to purchase machine.

REQUIRED: Prepare General Journal entries.

SOLUTION:

ISSUANCE OF SHARES

8. APPROPRIATION OF RETAINED EARNINGS:
On June 30, 2013 the Retained Earning account in the books of Shining Star Ltd. Showed a credit balance of Rs.3,00,000. The Expense and Revenue Summary account of the Company showed a credit balance of Rs.6,50,000, which was transferred to Retained Earning account. At the end of financial year the Board of Directors decided to:
(i) declare a cash dividend of Rs.1,50,000.
(ii) declare stock dividend Rs.2,00,000.
(iii) establish reserves for building extension Rs.1,00,000 and sinking fund Rs.50,000.

REQUIRED:
(i) Prepare Journal entries to record the above information.
(ii) Prepare a statement of Retained earnings for Shining Star Ltd. for the year ended June 30, 2013.

SOLUTION:

APPROPRIATION OF RETAINED EARNINGS

SHINING STAR LIMITED,
RETAINED EARNING STATEMENT.

Balance on July 1, 2012.                                                 3,00,000
Add: Net Income                                                              6,50,000
Total Retained Earning Balance                                      9,50,000
Less: Cash dividend payable          1,50,000
Stock dividend payable                   2,00,000
Reserve for Building extension       1,00,000
Reserve for Sinking fund                   50,000                  5,00,000
Retained Earning bal. on June 30,2013                         4,50,000

SECTION C (DETAILED -ANSWER QUESTION)

NOTE: Attempt any two part question.

9.(a) SINGLE ENTRY:
Mr. Suleman, a general merchant, maintains his accounting record on single entry basis. He supplied the following information for the year 2013.

SINGLE ENTRY

ADDITIONAL INFORMATION:
Unpaid commission Rs.5,600 Additional investment during the year Rs.45,000 Depreciation on office equipment 10% Prepaid Rent Rs.2,000.
REQUIRED: (i) Compute capital at end & capital at start.
(ii) Prepare statement of profit for ihe year ended 31.12.13.
(iii) Prepare statement of affair as on Dec. 31, 2013.

SOLUTION:

FARHAN QAZI
CAPITAL AT START AND END.

ASSETS                      Jan 1, 2013                Dec 31, 2013
Cash                               30,000                         39,000
Accounts receivable         6,000                         24,000
Merchandise Inventory   18,000                         27,000
Office Equipment            15,000                         36,000
Total Assets                    69,000                      1,26,000

Less: Liabilities
Account Payable               9,000                        12,000
Capitals                           60,000                     1,14,000

Mr. SULEMAN,
STATEMENT OF PROFIT & LOSS A/C,
For the period ended December 31, 2013.

Capital at end                                                           1,14,000
Less: Capital at start                60,000
Additional investment              45,000                      1,05,000
Gross Profit                                                                   9,000
Less: Operating Expenses
Commission expense             5,600
Depreciation expense            3,600 
Total Operating Expenses                                            9,200                                                                                                    (200)
Add: Other Incomes
Prepaid Rent                                                                 2,000 
NET INCOME                                                                1800 

Mr. SULEMAN,
STATEMENT OF PROFIT & LOSS A/C,
For the period ended December 31, 2013.

CURRENT ASSETS
Cash                                                                            39,000
Account Receivable                                                     24,000
Merchandise Inventory                                                27,000
Prepaid Rent                                                                  2,000
FIXED ASSETS
Office Equipment                            36,000
Less: Allowance for depreciation      3,600                   32,400           
TOTAL ASSETS                                                          1,24,400

                                           EQUITIES
CURRENT LIABILITIES
Account Payable                                                     12,000
Commission Payable                                                5,600
PROPRITORSHIP
Capital at start                         60,000
Add: Additional Investment     45,000
Add: Net Income                       1,800
Net Capital                                                              1,06,800 
TOTAL EQUITIES                                                   1,24,400

(b) DEPRECIATION:
Marhaba Co. purchased a machine on March 1, 2011 at a list price of Rs.300,000 subject to trade discount of 2% under the terms of payment 2/10, n/45. The Co. paid within discount period.

Following additional costs were incurred on the Machine.

Transportation in Rs.5,000 Insurance in transit Rs.7,000 Installation and testing charges Rs.10,000 3 years fire insurance policy Rs.8,000. During installation, an adjacent machine was damaged and repair cost paid was Rs.7,000.

Salvage value of machine was. estimated Rs.10,120 and useful life was estimated 10 years. The Co. follows calendar year as accounting period.

REQUIRED: (i) Compute cost of machine.
(ii) Compute depreciation expense for the first 3 years under straight line method.
(iii) Prepare. general journal entries for 2011 including adjusting and closing entries.

SOLUTION:

TOTAL COST

List price                                                                   3,00,000
Less: Trade Discount (300,000 x 2%)                           6,000
Less: Cash Discount (294,000 x 2%)                       2,94,000
Invoice Cost                                                                   5,880
Add: Other Expenses:                                               2,88,120
Transportation charges             5,000
Insurance in Transit                   7,000
Installation & Testing               10,000
Total Other Expenses                                               22,000   
Total Cost                                                                3,10,120  

COMPUTATION FOR DEPRECIATION
BY STRAIGHT LINE METHOD.

Depreciation = Cost – Salvage Value
                                   Life

Depreciation =    3,10,120 – 10,120
10
Depreciation =          3,00,000  = 30,000
10

 

Depreciation 31.12.2011 (30,000 x 10/12) 25,000
Depreciation 31.12.2012                            30,000
Depreciation 31.12.2012                            30,000
————————-
DEPRECIATION

(c) DEPRECIATION:
On Sept. 30, 2011, Co. purchased an equipment costing Rs.7,00,000. The life equipment estimated for 10 years with no salvage value. Company’s accounting period ends on Dec. 31 each years. Company uses diminishing balance method @10%

REQUIRED:
(i) Compute depreciation from 2011 to 2013.
(ii) Prepare adjusting entries on Dec. 31, 2011, 2012 & 2013.
(iii) Prepare Allow. for Depreciation A/c. from 2011 to 2013.
(iv) Prepare partial balance sheet on Dec. 31, 2013.

SOLUTION:

DEPRECIATION

Posted on December 31, 2015 in 2nd Year 2014 Karachi Board Past Papers

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