2005 ICFAI University M.B.A Financial Accounting (MB131): July 2005 Question paper
Question Paper
Financial Accounting (MB131): July 2005
•?Answer all questions.
•?Marks are indicated against each question.
1. The retirement of the chairman of a company, even though has far reaching consequences on the health
of the company, is not accounted for in the books of account in recognition of
(a) Conservatism concept (b) Business entity concept
(c) Money measurement concept (d) Going concern concept (e) Materiality concept.
(1 mark)
< Answer >
2. Which of the following statements is prepared as of a particular date?
(a) Profit and loss account (b) Balance sheet
(c) Cash flow statement (d) Income and expenditure statement
(e) Profit and loss appropriation account.
(1 mark)
< Answer >
3. The fixed assets are recorded at their cost, in recognition of
(a) Matching concept (b) Money measurement concept
(c) Cost concept (d) Accrual concept (e) Materiality concept.
(1 mark)
< Answer >
4. If the sales day book of a business is undercast, it will
(a) Decrease gross profit but will not have any impact on net profit
(b) Decrease gross profit as well as net profit
(c) Decrease gross profit and increase net profit
(d) Increase gross profit as well as net profit
(e) Increase gross profit but will not have any impact on net profit.
(1 mark)
< Answer >
5. Which of the following accounts is closed at the end of the financial year?
(a) Salaries account (b) Plant and machinery account
(c) Debentures account (d) Sundry debtors account (e) Investments account.
(1 mark)
< Answer >
6. Which of the following is a liability of a firm?
(a) Debit balance of discount column of cashbook
(b) Credit balance of bank passbook
(c) Debit balance of bank column of cashbook
(d) Debit balance of cash column of cashbook
(e) Credit balance of bank column of cashbook.
(1 mark)
< Answer >
7. Consider the following information of Hyder Ltd. of Hyderabad for the year 2004-2005:
Credit purchases during the year Rs. 9,25,000
Payment made to creditors during the year Rs.10,00,000
Closing balance of sundry creditors account Rs. 40,000
< Answer >
Discount received Rs. 10,000
The opening balance of sundry creditors account was
(a) Rs.25,000 (b) Rs.45,000 (c) Rs.75,000
(d) Rs.2,05,000 (e) Rs.1,25,000.
(1 mark)
8. Consider the following data pertaining to RSV & Co. for the year 2004-2005:
Opening stock Rs.1,00,000
Closing stock Rs. 90,000
Opening stock and closing stock includes stock of stationery, amounting to Rs.4,000 and Rs.3,000
respectively. General expenses include payment for stationery of Rs.36,000. Credit purchases of
stationery for Rs.9,000 recorded as ordinary purchases. Stationery of Rs.5,000 is consumed by the
proprietor.
The amount of stationery consumed to be charged to Profit and Loss account of RSV & Co. for the year
ending March 31, 2005 is
(a) Rs.46,000 (b) Rs.41,000 (c) Rs.47,000 (d) Rs.23,000 (e) Rs.39,000.
(2 marks)
< Answer >
9. A credit sale of goods to Shivendra should be debited to
(a) Sales account (b) Goods account
(c) Shivendra’s account (d) Purchases account (e) Cash account.
(1 mark)
< Answer >
10. Consider the Balance Sheet of Net Services Ltd. as on March 31, 2005:
Liabilities Rs. Assets Rs.
Share capital 1,00,000 Cash at bank 42,000
Profit and Loss account 19,000 Sundry debtors 90,000
Sundry creditors 25,000 Closing stock 10,000
Prepaid Rent 2,000
Total 1,44,000 Total 1,44,000
Following is the summary of transactions that occurred during the month of April 2005:
Rs.
•?Collections from debtors 88,000
•?Payments to creditors 24,000
•?Purchase of inventory on credit 80,000
•?Sale of inventory on credit (cost Rs.70,000) 85,000
•?Recognition of rent expenses in the month of April 2005 1,000
•?Salaries paid by cheque in the month of April 2005 8,000
The company has the practice of routing transactions through bank account.
Considering the above Balance Sheet and the additional information, the cash at bank as on April 30,
2005 was
(a) Rs.97,000 (b) Rs.1,02,000 (c) Rs.98,000 (d) Rs.90,000 (e) Rs.1,06,000.
(2 marks)
< Answer >
11. Which of the following errors causes a mismatch in trial balance?
(a) Omission of an entry in the journal
(b) Recording of wrong amount in the journal
(c) Recording of wrong account in the journal
< Answer >
(d) Posting of wrong amount in the ledger in one account concerned
(e) Posting of correct amount to the correct side of wrong account.
(1 mark)
12. Consider the following data pertaining to Lairs Ltd. for the month of June 2005:
Purchases Issues Balance
Date Quantity
(Kg.)
Rate
(Rs.)
Quantity
(Kg.)
Quantity
(Kg.)
Rate
(Rs.)
01-06-2005 500 22.80
02-06-2005 400 24
10-06-2005 600 25
25-06-2005 1,000
If the company uses weighted average method for inventory valuation, the value of inventory as on June
30, 2005 is
(a) Rs.11,967 (b) Rs.12,000 (c) Rs.12,500 (d) Rs.11,400 (e) Rs.36,000.
(2 marks)
< Answer >
13. The following is the trial balance of Mythili Ltd. as on March 31, 2005:
Particulars Debit (Rs.) Particulars Credit (Rs.)
Land & building 3,65,000 Equity share capital
(Face value Rs.10 each)
5,00,000
Plant & machinery 6,72,000 Sundry creditors 1,50,000
Furniture & fixtures 2,85,000 Sales 16,15,000
Sundry debtors 1,80,000 Purchases returns 49,000
Purchases 6,72,000
Bank overdraft
(Rate of Interest-13% per annum) 3,00,000
Sales returns 22,000 Discount received 21,000
Opening stock
(as on April 01, 2004) 48,000 Reserves & Surplus 3,12,000
Bad debts 19,000 12% Debentures 2,80,000
Salaries and wages 5,10,000
Interest on bank overdraft 30,000
Advertisement 1,20,000
Annual fire insurance
premium (with effect from
May 01, 2004)
18,000
Investments (8% p.a.) 2,00,000
Discount allowed 12,000
General expenses 54,000
Cash at bank 20,000
Total 32,27,000 Total 32,27,000
The company has furnished the following additional information:
< Answer >
??Closing stock as on March 31, 2005 was Rs.50,000.
??Depreciation is to be provided on plant & machinery at the rate of 20% per annum and on furniture
and fixtures at the rate of 12% per annum.
??A provision for discount on debtors is to be made at the rate of 5% on sundry debtors.
??Goods worth Rs.5,000 are distributed as samples.
Considering the above trial balance and the additional information, the net profit of the company for the
year ended March 31, 2005 was
(a) Rs.58,900 (b) Rs.27,300 (c) Rs.37,300 (d) Rs.41,300 (e) Rs.49,900.
(3 marks)
14. On April 01, 2004, Sneha Limited showed a balance of Rs.5,600 to the credit of Provision for bad and
doubtful debts. On March 31, 2005, the Sundry Debtors showed a balance of Rs.2,50,400. Out of the
total debtors, the status of the following debtors is as follows:
Sinha Rs.3,800 - identified as bad debt and is to be written off
Gupta Rs.9,000 - expected to realize only 80%
Patel Rs.8,000 - expected to realize only 60%
Iyer Rs.5,500 - filed insolvency petition and the recovery chances are remote.
All other debts as on the date of finalisation of accounts are estimated to be good. The company
maintains a suitable provision for doubtful debts. The amount debited to the profit and loss account in
respect of provision for bad and doubtful debts for the year ended March 31, 2005 was
(a) Rs.14,300 (b) Rs.8,700 (c) Rs.15,700 (d) Rs.10,500 (e) Rs.4,900.
(2 marks)
< Answer >
15. The capital account of Mr. Ganesh showed a balance of Rs.2,50,000 on April 01, 2004. During the year
2004-05, Mr. Ganesh brought in fresh capital of Rs.50,000 and withdrew Rs.10,000 by way of cash. He
also took goods worth Rs.5,000 for personal use. If capital account of Mr. Ganesh showed a balance of
Rs.3,10,000 on March 31, 2005, the profit for the year was
(a)Rs.30,000 (b) Rs.35,000 (c) Rs.40,000 (d) Rs.25,000 (e) Rs.27,000.
(1 mark)
< Answer >
16. Current liabilities are such obligations which are to be satisfied within a period of
(a) Three months (b) Six months (c) One year
(d) Two years (e) Three years.
(1 mark)
< Answer >
17. Consider the following data pertaining to AB Ltd.:
Particulars Rs.
Cost of the machinery purchased on April 01, 2004 6,60,000
Installation charges 40,000
Market value as on March 31, 2005 8,00,000
While finalizing the annual accounts, if the company values the machinery at Rs.8,00,000, which of the
following concepts is violated by the company?
(a) Cost (b) Matching (c) Realisation
(d) Periodicity (e) Business Entity.
(1 mark)
< Answer >
18. Which of the following statement is false?
(a) Capital Reserve arises out of capital profits
(b) Revenue Reserves are available for distribution as profit
(c) Specific Reserve is created out of capital profit
(d) General Reserves are not created for any specific purpose
(e) Credit balance in Profit & Loss Account is a Revenue Reserve.
< Answer >
(1 mark)
19. Which of the following is not a contingent liability?
(a) Claims against the company not acknowledged as debts
(b) Arrears of fixed cumulative dividends
(c) Prolonged illness of Chairman
(d) Liability on account of bills discounted
(e) Uncalled liability on shares partly paid.
(1 mark)
< Answer >
20. Consider the following data pertaining to Wren Ltd. for the year 2004-2005:
Particulars Rs.
Provision for doubtful debts as on April 01, 2004 4,000
Sundry debtors as on March 31, 2005 1,50,000
Bad debts to be written off 10,000
If a provision equal to 5% is to be created on the sundry debtors, the charge against profit and loss
account for the year ended March 31, 2005 is
(a) Rs.3,500 (b) Rs.7,000 (c) Rs.11,000 (d) Rs.13,000 (e) Rs.17,500.
(1 mark)
< Answer >
21. The opening inventory is
(a) Net purchases minus closing inventory
(b) Net purchases minus the cost of goods sold
(c) Total goods available for sale minus net purchases
(d) Total goods available for sale minus the cost of goods sold
(e) Total goods available for sale minus closing inventory.
(1 mark)
< Answer >
22. Consider the following data with regard to plant and equipment pertaining to Mittal Ltd.:
Cost of the plant (Rs.) 5,00,000
Installation charges (Rs.) 30,000
Estimated useful life (years) 8
Scrap value (Rs.) 50,000
If the firm follows the straight line method of depreciation, the rate of depreciation is
(a) 5.25% (b) 6.00% (c) 9.50% (d) 10.10% (e)
11.32%.
(2 marks)
< Answer >
23. Which of the following is a capital expenditure?
(a) Salaries (b) Purchase of computer for office use
(c) Salaries to computer staff (d) Depreciation on computer
(e) Royalty paid.
(1 mark)
< Answer >
24. The profits of Karunya Ltd. for the past 5 years are as under:
Year Rs.
2000-2001 75,000
2001-2002 3,00,000
2002-2003 3,46,500
2003-2004 4,53,000
< Answer >
2004-2005 7,42,500
The company noticed the following errors, while computing the weighted average profits for the
purpose of valuation of goodwill:
•?The profit for the year 2004-2005 includes profit of Rs.22,500 on sale of plant.
•?The depreciation charged for the year 2004-05 was excess by Rs.3,000.
The weighted average profit of the company to be considered for valuation of goodwill is
(a) Rs.4,76,100 (b) Rs.4,82,600 (c) Rs.3,83,400
(d) Rs.5,00,100 (e) Rs.4,74,100.
(2 marks)
25. When purchase consideration is greater than Net Asset Value, it is to be adjusted against
(a) Capital Reserve (b) Goodwill (c) Profit & Loss Account
(d) Preliminary Expenses (e) Promoters’ funds.
(1 mark)
< Answer >
26. The Balance Sheet of Snigdha Ltd. as on March 31, 2005 is as under:
Liabilities Rs. Assets Rs.
Share capital: Land and building 4,00,000
Equity shares of Rs.100 each 5,00,000 Plant and machinery 3,00,000
12% Preference shares of Rs.10 each
(issued at a discount of 10%)
3,00,000 Furniture and fixtures 2,50,000
Reserves and surplus: Investments 2,25,000
General reserve 1,50,000 Sundry debtors 1,00,000
Profit and loss account 2,50,000 Inventories 1,50,000
18% Debentures 2,00,000 Cash 50,000
Sundry creditors 50,000
Bank overdraft 25,000
14,75,000 14,75,000
The 12% preference shares are redeemable at a premium of 10% during the month of April 2005. The
company wishes to maintain the cash balance at Rs.25,000. For the purpose of redemption of preference
shares, it proposed to sell the investments for Rs.2,00,000. The company proposes to issue sufficient
number of equity shares of Rs.100 each at a premium of 5% to raise required cash resources. The
number of equity shares to be issued is
(a) 1,500 (b) 1,000 (c) 685 (d) 2,000 (e) 750.
(2 marks)
< Answer >
27. Great Tyres Ltd. issued 80,000 shares of Rs.10 each at a premium of 25% payable Rs.2 on application,
Rs.4.50 (including premium) on allotment and the balance on call. Applications were received for
1,92,800 shares and allotment was made as under:
•?Applicants for 50,800 shares were allotted 30,480 shares pro-rata.
•?Applicants for 96,000 shares were allotted 28,400 shares pro-rata.
•?Applicants for 46,000 shares were allotted 21,120 shares pro-rata.
The surplus money, if any, would be refunded only after utilizing the excess received on application
towards the payment of allotment dues. The amount refunded to the applicants is
(a) Rs.Nil (b) Rs.7,400 (c) Rs.1,92,800
(d) Rs.1,34,400 (e) Rs.2,25,600.
(2 marks)
< Answer >
28. Consider the following information pertaining to M/s.Rainbow Ltd. as on March 31,2005: < Answer >
Liabilities Rs. Assets Rs.
Share capital 5,00,000 Land and building 3,60,000
(5,000 shares Rs .100 each) Plant and machinery 2,70,000
Reserves and surplus 4,60,600 Furniture 1,75,000
Sundry creditors 50,000 Inventories 90,000
Short term loan 80,000 Sundry debtors 60,000
Loans and advances 75,000
Cash on hand 10,000
Cash at bank 35,000
Preliminary expenses 15,600
10,90,600 10,90,600
The assets are to be revalued as under for the purpose of valuation of shares:
•?Plant and machinery is to be revalued downwards by 10%.
•?Furniture is to be valued at Rs.1,80,000.
•?Provision of 5% is to be provided for doubtful debts.
The value of share of M/s.Rainbow Ltd. is
(a) Rs.220 (b) Rs.197 (c) Rs.184 (d) Rs.223 (e)
Rs.192.
(2 marks)
29. The authorized share capital of Growth Ltd. is 10,00,000 shares of Rs.10 each. The company is
planning to raise funds by making rights issue of equity shares to finance its expansion. The
Issued/Called-up/Paid-up share capital of the company is 5,00,000 shares of Rs.10 each. The value of
its share is Rs.42. The company offers to its shareholders the right to buy 2 shares at Rs.11 each for
every 5 shares held by them.
The share capital outstanding after the rights issue is
(a) Rs.70,00,000 (b) Rs.1,34,00,000 (c) Rs.50,00,000
(d) Rs.72,00,000 (e) Rs.1,00,00,000.
(2 marks)
< Answer >
30. The share capital of Jade Ltd. consists of 2,000 equity shares of Rs.10 each, Rs.5 paid -up and 500 6%
cumulative preference shares of Rs.10 each fully paid. It is proposed that the Wye Ltd. shall purchase
the whole of the capital of Jade Ltd.
The Balance Sheet of Jade Ltd. shows assets (exclusive of goodwill) Rs.30,000, outside liabilities
Rs.8,000, profit and loss account credit Rs.7,000 and paid-up capital Rs.15,000.
The assets and liabilities are accepted at Balance Sheet figures and there are no arrears of preference
dividend.
The value of equity share in Jade Ltd. is
(a) Rs.11.00 (b) Rs .8.50 (c) Rs.5.00
(d) Rs.10.00 (e) Rs.12.50.
(2 marks)
< Answer >
31. Tantrum Ltd. invited applications for 5,000 shares of Rs.10 each at a premium of Rs.2 per share payable
as follows:
On application – Rs.5 (including premium)
On allotment – Rs.4
On final call – Rs.3
Allotment was made on pro rata basis to the applicants of 6,000 shares. Mr. Beejay to whom 60 shares
were allotted, failed to pay allotment money and call money. Mr. Raj, the holder of 100 shares, failed to
pay call money. All these shares were forfeited after proper notice.
On forfeiture, the amount debited to share capital account and share premium account respectively is
(a) Rs.1,600; Rs.320 (b) Rs.1,400; Rs.nil
(c) Rs.1,600; Rs.nil (d) Rs.1,120; Rs.320
< Answer >
(e) Rs.1,400; Rs.320.
(2 marks)
32. Lotus Ltd. has issued 10% Debentures at a discount of 10% redeemable at a premium of 10% after five
years. Which of the following statements is true with regard to the debentures?
(a) 10% of the outstanding amount is redeemed every year
(b) The debentures are issued at a premium of 10%
(c) The debentures are issued at a discount of 30%
(d) 10% of the outstanding amount shall not be redeemed
(e) The debentures carry interest rate of 10%.
(1 mark)
< Answer >
33. Which of the following is false?
(a) A company can issue convertible debentures
(b) A company can issue debentures with voting rights
(c) A company can buy its own shares
(d) A company can buy its own debentures
(e) There are legal restrictions on use of premium collected on issue of shares.
(1 mark)
< Answer >
34. On October 1, 2004, Sun Ltd. acquired 13,500 shares of Rs.10 each out of 18,000 equity shares of
Moon Ltd. at a price of Rs.2,02,500.
Moon Ltd. declared a dividend of 10% on its share capital for the year 2003-2004.
Sun Ltd. received this dividend in October 2004 and credited to its profit and loss account.
If the share of Sun Ltd. in capital profits and revenue profits, is Rs.76,500 and Rs.54,000 respectively, the
cost of control shown in the Consolidated Balance Sheet is
(a) Rs.2,02,500 (Goodwill) (b) Rs.2,25,000 (Goodwill)
(c) Rs.22,500 (Capital reserve) (d) Rs.60,000 (Capital reserve)
(e) Rs.28,000 (Goodwill).
(2 marks)
< Answer >
35. Capital profits are the
(a) Profits earned by the subsidiary company up to the date of acquisition of shares by the holding
company
(b) Post-acquisition profits of the subsidiary company
(c) Post-acquisition profits of the holding company
(d) Pre-acquisition profits of the holding company
(e) Profits earned by the subsidiary company by unusual transactions.
(1 mark)
< Answer >
36. A proposed dividend becomes a current liability from the
(a) Date of record (b) Date of payment
(c) Date of declaration (d) Date of distribution
(e)Date of proposal by the Board of Directors.
( 1 mark)
< Answer >
37. Which of the following factors is used as multiplier of super profits in valuation of goodwill of a
business?
(a) Average capital employed in the business
(b) Simple profits (c) Number of years’ purchase
(d) Normal rate of return (e) Normal profits.
< Answer >
(1 mark)
38. Diana Ltd. has issued 10% 10,000 Preference Shares of Rs.100 each fully paid up and 1,30,000 equity
shares of Rs.10 each fully paid up which are issued at a premium of Rs.20. The profit for the year 2004-
05 is Rs.10,84,000 and the balance brought forward from the previous year, amounted to Rs.1,52,800.
•?The company wanted to provide Rs.4,38,000 for taxation of the previous year, before making any
appropriations.
•?The company declared an equity dividend of 10% and it has decided that an amount equal to 10%
of equity dividend shall be set aside for bonus to staff.
The total amount debited to Profit and Loss Appropriation Account on account of the above decisions is
(a) Rs.2,30,000 (b) Rs.1,43,000 (c) Rs.6,81,000
(d) Rs.5,81,000 (e) Rs.5,68,000.
(2 marks)
< Answer >
39. The amount shown under the head Reserves & Surplus of a company at the beginning of the accounting
year was Rs.10,00,000. During the year, the company made a profit of Rs.2,50,000 and appropriations
were made as follows:
Rs.
Dividend declared 50,000
Transfer to General Reserve 1,00,000
The amount shown under Reserves & Surplus at the end of the year is
(a) Rs.11,00,000 (b) Rs.12,00,000 (c) Rs.12,50,000
(d) Rs.10,50,000 (e) Rs.11,50,000.
(2 marks)
< Answer >
40. Consider the following Balance Sheet of Mugdha Ltd.:
Balance Sheet of Mugdha Ltd. as on March 31, 2005
Liabilities Rs. Assets Rs.
Share Capital 70,000 Fixed Assets 1,59,300
Reserves & Surplus 31,300 Current Assets:
Long term Loans 1,43,020 Sundry debtors 85,000
Current Liabilities: Inventories 65,000
Sundry Creditors 67,000 Cash on hand 12,020 1,62,020
Outstanding salaries 5,000
Bank Temp.-overdraft 5,000 77,000
Total 3,21,320 Total 3,21,320
The quick ratio of Mugdha Ltd. is
(a) 2.10 (b) 1.28 (c) 1.26 (d) 1.10 (e) 1.45.
(2 marks)
< Answer >
41. The opening balance of Profit and Loss Appropriation account of a company is Rs.25,000, net income
for the year is Rs.50,000, and the closing balance of the Profit and Loss Appropriation account is
Rs.55,000. If there were no appropriations other than payment of dividends, the amount paid by the
company in the form of dividends during the year is
(a) Rs.80,000 (b) Rs.30,000 (c) Rs.20,000 (d) Rs.50,000 (e)
Rs.5,000.
(1 mark)
< Answer >
An intangible asset is a
(a) Monetary item without physical substance
< Answer >
(b) Non-monetary asset with physical substance
(c) Monetary asset without physical substance
(d) Monetary asset with physical substance
(e) Non-monetary asset without physical substance.
(1 mark)
43. Consider the following data pertaining to Optimum Ltd.
Sundry assets of the company are Rs.22,50,800 and current liabilities are Rs.93,625.
Average capital employed in the business is Rs.18,00,000.
Rate of interest expected from capital having regard to the risk involved is 10%.
Net trading profits of the company for the past three years were Rs.3,22,800, Rs.2,72,100 and
Rs.3,37,500.
Fair remuneration to the directors for their services is Rs.36,000 per annum.
The value of goodwill on the basis of 3 years’ purchase of super profits calculated on the average of
past three years profits is
(a) Rs.3,92,400 (b) Rs.1,30,800 (c) Rs.2,84,400
(d) Rs.1,66,800 (e) Rs.1,77,247.
(2 marks)
< Answer >
44. Consider the following data pertaining to Sun-Shine Ltd.:
Year Profits (Rs.)
2002-2003 2,56,000
2003-2004 2,69,000
2004-2005 2,82,000
The profit for the year 2004-2005 includes an abnormal income of Rs.6,000. If normal rate of return is
10% on capital employed of Rs.24,00,000, super profits of the company is
(a) Rs.16,000 (b) Rs.24,000 (c) Rs.27,000 (d) Rs.29,000 (e)
Rs.Nil.
(2 marks)
< Answer >
45. AB Ltd. issued 10,000 shares of Rs.10 each at a premium of Rs.2 payable as follows:
Rs.3 on application
Rs.3 on allotment (inclusive of premium of Rs.2)
Rs.3 on first call
Rs.3 on second and final call.
Mr. Don who holds 100 shares, has failed to pay the first call money of Rs.3 per share. The company
has forfeited his entire shares. On forfeiture, the amount credited to shares forfeited account was
(a) Rs.900 (b) Rs.700 (c) Rs.600 (d) Rs.500 (e)
Rs.400.
(2 marks)
< Answer >
46. A company issues a share of Rs.10 each on which Rs.8 is called-up and a shareholder has not paid the
call money of Rs.2. The share is forfeited and the amount lying to the credit of share capital account in
respect of such share is
(a) Rs.10 (b) Rs.8 (c) Rs.6 (d) Rs.4 (e) Rs.Nil.
(1 mark)
< Answer >
47. Krishi Ltd. issued 1,50,000 shares of Rs.100 each at a discount of 10%. Ramya, to whom 300 shares
were allotted failed to pay the final call of Rs.30 per share and hence, all her 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 >
(1 mark)
48. On March 31, 2004, the net worth of Meta Limited was Rs.1,50,000. The net worth of the company as
on March 31, 2005, was Rs.4,00,000. During the year, the company raised Rs.1,00,000 by way of loan.
The company made a profit of Rs.20,000 but distributed Rs.40,000 as dividends, drawing the balance
amount from reserves. The amount of capital raised by the company during the year was
(a) Rs.2,50,000 (b) Rs.2,90,000 (c) Rs.2,70,000
(d) Data insufficient (e) Rs.2,30,000.
(2 marks)
< Answer >
49. On April 01, 2004, Parent Co. acquired 80% of equity shares of Subsidiary Co. when the balance in
profit and loss account of the Subsidiary Co. was Rs.Nil. Consider the following data pertaining to
Parent company and Subsidiary Company as on March 31, 2005:
Parent Co. (Rs.) Subsidiary Co. (Rs.)
Share Capital 20,00,000 5,00,000
Net Profit 5,00,000 1,00,000
Consolidated financial statement will report
(a) Net profit of Rs.6,00,000 (b) Profit of Rs.5,80,000
(c) Share Capital of Rs .25,00,000 (d) Share Capital of Rs.24,00,000
(e) Investments of Rs.4,00,000.
(2 marks)
< Answer >
50. Which of the following is/are a limitation(s) of a Balance Sheet?
I. It does not contain certain assets and liabilities despite its claim to be the statement of all assets
and liabilities.
II. The factors, which have a vital bearing on the earnings of the organization are not disclosed.
III. Personal judgment plays a great part in determining the figures of the balance sheet.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
(1 mark)
< Answer >
51. As on June 30, 2005, the overdraft balance of Mr.Y as per bank passbook is Rs.30,000. The passbook
balance did not agree with the balance as per cashbook. On scrutiny, the following omissions and
commissions were noticed:
•?A cheque for Rs.6,000 issued to Mr.Z has not been presented for payment till date.
•?Mr.M, a tenant, directly deposited into the bank account of Mr.Y an amount of Rs.20,000 towards
rent and the same is not accounted in the cashbook.
•?A cheque for Rs.5,000 deposited in the bank is not yet realized till date.
•?The interest on debentures for this year, directly collected by the bank, amounted to Rs.15,000.
The bank balance as per cashbook is
(a) Debit balance of Rs.26,000 (b) Credit balance of Rs.66,000
(c) Credit balance of Rs.36,000 (d) Debit balance of Rs.71,000
(e) Debit balance of Rs.66,000.
(3 marks)
< Answer >
52. After preparation of the Profit and Loss Account, the following balances are extracted from the books
of Universe Ltd. as on March 31, 2005:
Particulars Rs. Particulars Rs.
Called-up share capital 5,00,000 Plant and machinery 2,20,000
Land and building 4,90,000 Investments 60,000
< Answer >
Secured loans 3,00,000 Calls -in-arrear 30,000
Term loan from Bank 1,00,000 Capital reserve 90,000
Sundry creditors 90,000
Sundry debtors 1,20,000
Profit and loss account
(credit balance) 50,000
Stock 96,000 Outstanding expenses 500
Loans to employees 50,000
Provision for doubtful debts 10,000
Insurance premium paid in
advance 1,200
Interest received in advance 700 Cash 4,000
Bank balance (Debit) 40,000 Preliminary expenses 30,000
The total of the liabilities side of the balance sheet as on March 31, 2005 is
(a) Rs.11,01,200 (b) Rs.11,00,200
(c) Rs.11,31,200 (d) Rs.11,41,200 (e) Rs.11,01,900.
(2 marks)
53. Mugdha Ltd. purchased Rs.10,000 worth of goods on credit from Abuja. The payment was made
through a cheque at a discount of 2%. The entry passed in the books of Mugdha Ltd. to record payment
to Abuja is
(a) Abuja’s account Dr. Rs.10,000
To Bank account Rs. 9,800
To Discount account Rs. 200
(b) Abuja’s account Dr. Rs. 9,800
To Bank account Rs. 9,800
(c) Purchases account Dr. Rs.10,000
To Discount account Rs. 200
To Bank account Rs. 9,800
(d) Abuja’s account Dr. Rs.10,000
To Bank account Rs.10,000
(e) Abuja’s account Dr. Rs.10,000
To Trade discount Rs. 200
To Bank account Rs. 9,800 .
(2 marks)
< Answer >
54. A Payment entry of Rs.350 in cash book as conveyance to Mr.Sharma was wrongly credited to
Sharma’s account
(a) Sharma’s a/c. Dr. Rs.350
To Conveyance a/c. Rs.350
(b) Sharma’s a/c. Dr. Rs.350
To Misc. expenses a/c. Rs.350
(c) Conveyance a/c. Dr. Rs.350
To Sharma’s a/c. Rs.350
(d) Conveyance a/c.Dr. Rs.350
To Cash a/c. Rs.350
(e) Conveyance a/c.Dr. Rs.350
Sharma’s a/c. Dr. Rs.350
To Suspense a/c. Rs.700
(2 marks)
< Answer >
55. Goods have been purchased from S & Co. for Rs.750. But while posting the entry, the credit was given
to R & Co. The total of credit side of the trial balance is Rs.43,570. Assuming that this is the only error,
the total of the debit side of the trial balance before rectification was
(a) Rs.43,570 (b) Rs.44,420 (c) Rs.42,820 (d) Rs.44,320 (e) Rs.42,070.
(1 mark)
< Answer >
56. If a Company believes that some of its debtors may "default", it should act on this by making sure that
sufficient provision is created in the books. This is an example of
(a) Matching concept (b) Money measurement concept
(c) Consistency concept (d) Conservatism concept
(e) Business entity concept.
(1 mark)
< Answer >
57. If the shares are re-issued at a price which is more than the face value of the shares, the excess amount
will be credited to
(a) General Reserve (b) Share premium account
(c) Share forfeiture account (d) Profit & Loss account
(e) Share capital account.
(1 mark)
< Answer >
58. Manish Ltd. maintains its current ratio at 2.5. If the working capital as on March 31, 2005 stood at
Rs.60,000, then the current liabilities as on that date stood at
(a) Rs.24,000 (b) Rs.1,00,000 (c) Rs.40,000
(d) Rs.60,000 (e) Rs.1,50,000.
(1 mark)
< Answer >
59. Liabilities of a business are Rs.15,000 and owner’s equity is Rs.20,000. The business reflects on the
assets side of the balance sheet Rs.2,000 as debit balance of profit and loss account. The total of the
assets side of the Balance Sheet is
(a) Rs.15,000 (b) Rs.35,000 (c) Rs.37,000
(d) Rs.5,000 (e) Rs.33,000.
(1 mark)
< Answer >
60. Damaged inventory should be valued at
(a) Nominal value (b) Market value
(c) Net realizable value (d) Cost price or market price, whichever is lower
(e) Acquisition cost.
(1 mark)
< Answer >
61. Depreciation of assets refers to the process of
(a) Asset valuation for statement of financial position of the firm
(b) Allocating the cost of the asset to periods of its use
(c) Accounting for costs to reflect the change in general price level
(d) Accumulating a fund for the redemption of a liability
(e) Asset valuation based on current replacement cost.
(1 mark)
< Answer >
62. For a car manufacturing company which of the following is not a fixed asset?
(a) Land and Building (b) Machinery (c) Office
furniture
(d) Stock of cars (e) Patents.
(1 mark)
< Answer >
63. Which of the following statements is true in respect of trial balance?
(a) It has statutory importance from the view point of law
(b) It is a statement of assets and liabilities of a business
(c) It reveals the profit or loss of a business during a period
< Answer >
(d) It is a summary of all the balances of real accounts, personal accounts and nominal accounts
(e) It is a real account.
(1 mark)
64. Trading Account of a business ultimately reflects
(a) Net profit / loss (b) Materials consumed (c) Gross sales
(d) Gross profit / loss (e) Gross purchases.
(1 mark)
< Answer >
65. Which of the following factors that contributes to the value of goodwill of a business?
I. Favorable location of the business.
II. Efficient management.
III. High quality of products and services that contribute to increased customer satisfaction.
IV. Superior technology.
(a) Only (I) above (b) Both (II) and (III) above
(c) Both (I) and (IV) above (d) Both (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
66. An inexperienced book-keeper of M/s.Volga & Co. has drawn up the following trial balance of the firm
for the year ended March 31, 2005:
Trial Balance as on March 31, 2005
Particulars Debit (Rs.) Particulars Credit (Rs.)
Provision for doubtful debts 2,000 Capital 45,910
Bank overdraft 16,540 Sundry creditors 16,370
Sundry debtors 29,830 Discount allowed 7,330
Discount received 2,520 General expenses 8,290
Drawings 12,000 Returns inward 3,300
Office furniture 21,550 Cash sales 60,800
Purchases 1,09,230 Credit sales 1,08,020
Rent and rates 3,140
Salaries 25,200
Opening stock 24,180
Provision for depreciation on
office furniture
3,640
Total 2,49,830 Total 2,50,020
Subsequently, another trial balance was drawn and the residual difference was placed to a suspense
account. The amount debited/credited to suspense account was
(a) Rs.190 (debit) (b) Rs.530 (credit)
(c) Rs.11,750 (debit) (d) Rs.4,170 (debit)
(e) Rs.11,750(credit).
(2 marks)
< Answer >
67. Discount on issue of debentures is a
(a) Revenue expenditure to be debited to Profit and Loss account like any other discount allowed
(b) Capital loss to be written off in the year of issue of the debentures
(c) Capital loss to be written off over the tenure of the debentures
(d) Capital loss to be written off over a period of time as decided by the management
(e) Capital loss to be written off over a period of 10 years irrespective of the tenure of the debentures.
(1 mark)
< Answer >
68. Profit on reissue of forfeited shares is transferred to
(a) Forfeited shares account (b) General reserve account
(c) Profit and Loss account (d) Share premium account
(e) Capital reserve account.
(1 mark)
< Answer >
69. A company issued 10,000 common shares of Rs.30 par value for Rs.40 per share. The issue of the
shares would result in a
(a) Credit to share capital account – Rs.4,00,000
(b) Credit to Profit and Loss account – Rs.1,00,000
(c) Credit to Bank account – Rs.4,00,000
(d) Credit to Share premium account – Rs.3,00,000
(e) Debit to Bank account – Rs.4,00,000.
(1 mark)
< Answer >
70. Consider the following data pertaining to Whirl-Wind Ltd. for the month of June 2005:
Particulars As on June 01, 2005 (Rs.) As on June 30, 2005 (Rs.)
Stock 1,60,000 90,000
Sundry creditors 60,000 40,000
The company makes all purchases on credit. During the month of June 2005, the company paid a sum
of Rs.3,70,000 to the suppliers. The goods are sold at 25% above the cost. The sales for the month of
June 2005 were
(a) Rs.4,12,500 (b) Rs.5,25,000 (c) Rs.4,20,000
(d) Rs.4,10,000 (e) Rs.5,12,500.
(2 marks)
< Answer >
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