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Posted By: Kenny Member Level: Gold Posted Date: 22 May 2008
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2004 ICFAI University M.B.A Financial Accounting (MB131) : January 2004 Question paper
Question Paper
Financial Accounting (MB131) : January 2004
Section A : Basic Concepts (30 Marks)
??This section consists of questions with serial number 1 - 30.
??Answer all questions.
??Each question carries one mark.
1. Which of the following represent(s) personal accounts in accounting parlance?
a. Sundry creditors
b. Bank account
c. Outstanding wages
d. Prepaid insurance
e. All of the above.
< Answer >
2. Which of the following methods of valuation of inventory is based on the assumption that costs are
charged against revenue in the order in which they occur?
a. FIFO method
b. LIFO method
c. Weighted average method
d. Moving average method
e. Base stock method.
< Answer >
3. Which of the following is not an item of revenue expenditure?
a. Interest on deposits accepted
b. Annual insurance premium on inventory
c. Customs duty paid in connection with the import of equipment
d. Repairs and maintenance on machinery
e. Expenditure on assets like paper weight and pin cushion.
< Answer >
4. Which of the following errors will cause a mismatch in the trial balance?
a. Errors of complete omission
b. Compensating errors
c. Errors of principle
d. Recording dual aspects of a transaction more than once
e. Errors of partial omission.
< Answer >
5. AB & Co. purchased a machine for Rs.10,00,000 on April 1, 2002. The salvage value of the machine is
Rs.40,000. The useful life of the machine is 8 years. If the firm intends to depreciate the machinery on
straight-line method, the rate of depreciation will be
a. 16%
b. 15%
c. 14%
d. 12.5%
e. 12%.
< Answer >
6. If the purchases day book of a firm is overcast, it will
a. Increase gross profit and reduce net profit
b. Reduce gross profit and increase net profit
c. Reduce gross profit as well as net profit
d. Increase gross profit as well as net profit
e. Reduce gross profit but will not have any impact on net profit.
< Answer >
7. Which of the following is true when a debtor pays his dues?
a. The asset side of the balance sheet will decrease
b. The asset side of the balance sheet will increase
c. The liability side of the balance sheet will increase
d. The liability side of the balance sheet will decrease
< Answer >
e. There is no change in total assets or total liabilities.
8. Withdrawal of goods from stock by the owner of the business for personal use should be recorded by
debiting
a. Drawings account and crediting cash account
b. Drawings account and crediting purchases account
c. Capital account and crediting drawings account
d. Purchases account and crediting drawings account
e. Stock account and crediting capital account.
< Answer >
9. The cost price of a machine is Rs.1,20,000 and the depreciated value of the machine after 3 years will
be Rs.66,000. If the company charges depreciation under straight-line method, the rate of depreciation
will be
a. 25%
b. 20%
c. 18%
d. 15%
e. 12%.
< Answer >
10. Consider the following data pertaining to a firm:
The balance as per pass book is
a. Rs.20,600 (Dr. balance)
b. Rs.18,500 (Dr. balance)
c. Rs.18,500 (Cr. balance)
d. Rs.15,600 (Dr. balance)
e. Rs.20,600 (Cr. balance).
Credit balance as per bank column of cash book Rs.13,500
Bank interest on overdraft appeared only in the pass book Rs.2,100
Cheques deposited but not collected by the bank Rs.5,000
< Answer >
11. Consider the following data pertaining to a company for the year 2002-2003:
The bad debts of the company during the year are
a. Rs.40,000
b. Rs.35,000
c. Rs.30,000
d. Rs.25,000
e. Rs.20,000.
Opening balance of sundry debtors Rs. 45,000
Credit sales Rs.4,25,000
Cash sales Rs. 20,000
Cash collected from debtors Rs.4,00,000
Closing balance of sundry debtors Rs. 50,000
< Answer >
12. The opening stock of a company is Rs.40,000 and the closing stock is Rs.50,000. If the purchases
during the year are Rs.2,00,000 the cost of goods sold will be
a. Rs.2,10,000
b. Rs.2,00,000
c. Rs.1,90,000
d. Rs.1,80,000
e. Rs.1,50,000.
< Answer >
13. The balance as per bank statement of a company is Rs.12,500 (Dr.). The company deposited two
cheques worth Rs.8,500, out of which one cheque for Rs.2,800 was dishonoured which was not entered
in the cash book. The credit balance as per cash book is
a. Rs.21,000
b. Rs.15,300
c. Rs.23,800
d. Rs. 9,700
< Answer >
e. Rs. 4,000.
14. During the year 2002-03, the profit of a business before charging manager’s commission was
Rs.1,89,000. If the manager’s commission is 5% on profit after charging his commission, then the total
amount of commission payable to manager is
a. Rs.10,000
b. Rs. 9,450
c. Rs. 9,000
d. Rs. 8,500
e. Rs. 9,947.
< Answer >
15. Which of the following statements is true?
a. The losses from the sale of capital assets need not be deducted from the revenue to ascertain net
income
b. Going concern concept requires that always non-monetary assets should be valued and recorded at
market value
c. According to consistency concept, the results of one accounting period of a business cannot be
compared with that of in the past
d. In terms of conservatism concept all probable losses must be considered in computation of income
e. The system of recording transactions based on dual concept is double accounting system.
< Answer >
16. Which of the following ratios indicates the short-term liquidity of a business?
a. Inventory turnover ratio
b. Debt-equity ratio
c. Acid test ratio
d. Proprietary ratio
e. Net profit ratio.
< Answer >
17. Which of the following should be deducted in the Balance Sheet of a company from the share capital to
find out paid-up capital?
a. Calls-in-advance
b. Calls-in-arrears
c. Share forfeiture
d. Discount on issue of shares
e. Share premium.
< Answer >
18. Which of the following statements is false?
a. The forfeited shares should not be issued at a premium
b. At the time of forfeiture of shares, share premium should not be debited with the amount of
premium already received
c. Shares can be issued at a discount only after one year from the commencement of business
d. Share premium cannot be utilized to redeem preference shares
e. The loss on re-issue of shares cannot be more than the gain on forfeiture of those shares.
< Answer >
19. Which of the following accounting treatments is/are true in respect of accrued commission appearing
on the debit side of a trial balance?
a. It is shown on the debit side of the profit and loss account
b. It is shown on the credit side of the profit and loss account
c. It is shown on the liabilities side of the balance sheet
d. It is shown on the assets side of the balance sheet
e. Both (b) and (d) above.
< Answer >
20. The maximum amount beyond which a company is not allowed to raise funds by issue of shares is
a. Issued capital
b. Reserve capital
c. Nominal capital
d. Subscribed capital
e. Paid-up capital.
< Answer >
21. The discount allowed on re-issue of forfeited shares is debited to
< Answer >
a. Discount on re-issue of shares account
b. Profit and loss account
c. Share premium account
d. Discount on issue of shares account
e. Forfeited shares account.
22. The interest on calls in advance is paid for the period from the
a. Date of receipt of application money to the date of appropriation
b. Date of receipt of allotment money to the date of appropriation
c. Date of receipt of advance to the date of appropriation
d. Date of appropriation to the date of dividend payment
e. Date of appropriation to the date of receipt of final call.
< Answer >
23. Which of the following items should not appear under the head ‘unsecured loans’ in the Balance Sheet
of a company?
a. Sinking funds
b. Loans and advances from subsidiaries
c. Short term loans and advances from banks
d. Loans and advances from others
e. Fixed deposits.
< Answer >
24. Share premium cannot be used to
a. Issue bonus shares
b. Redeem preference shares
c. Write-off preliminary expenses
d. Write-off discount on issue of shares
e. Provide for premium payable on redemption of debentures.
< Answer >
25. Rishi Ltd. issued 1,50,000 shares of Rs.100 each at a discount of 10%. Rama, to whom 300 shares were
allotted failed to pay the final call of Rs.30 per share and hence, all his shares were forfeited. At the time
of forfeiture, the amount transferred to share forfeiture account was
a. Rs. 9,000
b. Rs.18,000
c. Rs.21,000
d. Rs.27,000
e. Rs.30,000.
< Answer >
26. Suma Ltd. announced a rights issue of four shares of Rs.100 each at a premium of 160% for every five
shares held by the existing shareholders. The market value of the share at the time of rights issue is
Rs.440. The value of right is
a. Rs.124
b. Rs.352
c. Rs. 80
d. Rs.110
e. Rs.180.
< Answer >
27. Which of the following statements is true?
a. A company will be deemed to be a holding company of another if, it holds more than 50
percent of both equity and preference share capital
b. The financial year of the holding company and its subsidiary company must end on the same date
c. The share capital of the subsidiary company does not appear in the Consolidated Balance Sheet
d. The inter company owing will be shown in the Consolidated Balance Sheet
e. Minority shareholders of the subsidiary are entitled to proportionate share in capital profits only.
< Answer >
28. On December 01, 2002 H Ltd. acquired 60% shares in S Ltd. The balance of profit and loss account of
S Ltd. on April 01, 2002 and March 31, 2003 was Rs.90,000 and Rs.1,50,000, respectively. The profit is
earned evenly throughout the year. The share of capital profit of
H Ltd. in the profits of the subsidiary as on March 31, 2003 is
a. Rs. 36,000
b. Rs. 60,000
c. Rs. 72,000
< Answer >
d. Rs. 78,000
e. Rs.1,30,000.
29. On April 01, 2002, Sura Chemicals Ltd. issued 10,000, 18% Debentures of Rs.100 each. The company
reserves the right to redeem its debentures in any year by purchase in open market. Interest on
debentures is payable on September 30, and March 31, every year.
??On July 1, 2002, the company purchased 2,000 of its own 18% debentures at Rs.98 cuminterest.
??The company cancelled its own 2,000 debentures on March 31, 2003.
The profit on cancellation of debentures transferred to Capital reserve is
a. Rs. 4,000
b. Rs. 9,000
c. Rs.36,000
d. Rs.13,000
e. Rs.27,000.
< Answer >
30. Consider the following profits pertaining to a company for the last 3 years:
The weighted average profit of the company for the purpose of valuation of goodwill is
a. Rs.4,50,000
b. Rs.4,35,000
c. Rs.4,10,000
d. Rs.3,85,000
e. Rs.3,50,000.
Year Profit (Rs.)
2000-01 Rs.3,30,000
2001-02 Rs.4,20,000
2002-03 Rs.4,80,000
< Answer >
END OF SECTION A
Section B : Problems (50 Marks)
??This section consists of questions with serial number 1 – 5.
??Answer all questions.
??Marks are indicated against each question.
??Detailed workings should form part of your answer.
??Do not spend more than 110 - 120 minutes on Section B.
1. The following is the balance sheet of Majestic Ltd. as on March 31, 2003.
Additional Information:
i. Profit for the year includes Rs.10,000 income from investments. The market value of the assets is as
follows:
ii. Normal return on capital employed in this type of business is 10%.
iii. Adjustment of depreciation is not required for valuation of goodwill.
iv. Income tax rate @ 50%.
You are required to calculate the value of goodwill on the basis of 3 years purchase of super profits of the
company.
(10 marks) < Answer >
2. M/s. Sneha Associates imported a composite machine on October 01, 2000 for US$ 3,200 (equivalent Indian
Rupees 1,60,000), paid customs duty and freight amounting to Rs.80,000 and incurred erection charges of
Rs.60,000. Another local machine costing Rs.1,00,000 was purchased on April 01, 2001.
On October 01, 2002, one third of the imported machine got out of order and was sold for
Rs.34,800. On the same day, another machine was purchased to replace the same for Rs.50,000. The company
depreciates machinery at the rate of 20% p.a. on the straight-line method.
You are required to show the Machinery Account for the years 2000-2001; 2001-2002; and 2002-2003.
(9 marks) < Answer >
3. The following is the trial balance of Maithrei Ltd. as on March 31, 2003. The company was registered with a
nominal capital of 1,00,000 equity shares of Rs.10 each. Out of which 60,000 shares were issued and called up and
were fully paid-up.
Trial Balance as on March 31, 2003
Liabilities Rs. Assets Rs.
40,000 equity shares of Rs.10
each
issue price Rs.13 each
4,00,000 Goodwill 40,000
Securities Premium 1,20,000 Land & building 2,00,000
Profit & Loss a/c. Plant & Machinery 2,90,000
Balance as on 01.4.2002 40,000 Investments 1,00,000
Profit for the year
before providing for taxes
1,60,000 2,00,000 Stock 85,000
Sundry creditors 80,000 Sundry debtors 95,000
Provision for taxation 40,000 Cash & Bank 30,000
8,40,000 8,40,000
Land & building Rs.2,60,000
Plant & Machinery Rs.3,50,000
Investments Rs.1,50,000
Stock Rs. 80,000
Sundry debtors Rs. 90,000
Particulars Dr.(Rs.) Cr.(Rs.)
Additional Information:
i. Closing stock as on March 31, 2003 was Rs.42,500.
ii. One fourth of the amount of advertisement expenses is to be carried forward to the next year.
iii. Depreciation is to be provided as follows:
Furniture & fittings – 10%
Plant & machinery – 20%
Building – 10%
iv. Salaries outstanding as on March 31, 2003 were Rs.12,450.
v. Create a provision for bad and doubtful debts at 5% on debtors.
vi. Sundry debtors include an amount of Rs.5,000 due from Mr.Amar and Sundry creditors include Rs.3,000
due to Mr.Amar.
Considering the above information and the trial balance, you are required to prepare:
a. Trading and Profit & loss account of Maithrei Ltd. for the year ended March 31, 2003.
b. Balance Sheet of Maithrei Ltd. as at March 31, 2003.
(8 + 6 = 14 marks) < Answer >
4. The accountant of Jay Ltd. has reconciled the trial balance for the financial year 2002-03 by putting the difference
in a suspense account and has prepared Trading and Profit and loss account and Balance Sheet for the period.
Subsequent scrutiny of the books disclosed the following errors:
i. A credit purchase of goods from Mr. Rohan for Rs.21,000 has been debited to his account.
ii. Goods purchased from Mr. Kanithkar amounting to Rs.12,000 were entered in the purchases day book, but
were omitted to be entered in the name of Mr. Kanithkar in the creditors ledger.
iii. Office furniture purchased for Rs.21,000 has been passed through the purchases account.
iv. Repairs to office car of Rs.8,500 were debited to the office car account.
Paid-up Share Capital of Rs.10 each 6,00,000
Stock as on April 01, 2002 40,000
Sales returns and Sales 80,000 9,60,000
Purchases and Purchases returns 6,64,000 84,000
Carriage inward 27,800
Rent & taxes 12,000
Sundry creditors 1,16,000
Sundry debtors 2,40,000
Bank loan (interest at the rate of 12% per annum) 40,000
Interest on bank loan 4,000
Advertisement Expenses 24,000
Bad debts 2,000
Income from Investments 4,000
Cash at bank 21,000
Discount (allowed and received) 4,050 2,800
Investments (10%) 40,000
Furniture & Fittings 45,000
Audit fees 5,400
Insurance premium 2,400
Travelling expenses 2,200
Cash in hand 5,400
Salaries 1,37,550
Wages 50,000
Building 2,50,000
Plant & Machinery 1,50,000
18,06,800 18,06,800
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