CA FOUNDATION

ACCOUNTING
Test Paper -2 (Solution)
Time: 3 Hrs Marks: 100
Note : Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Answer. 1
(a) (6 x 2 = 12 Marks)
(i) False: The financial statements are normally prepared on the assumption that an enterprise is
a going concern and will continue in operation for the foreseeable future.
(ii) True: Under Periodic inventory system actual physical count of inventory is taken of all the
inventory on hand at a particular date.
(iii) True: According to the principle of conservatism provision is maintained for the losses to be
incurred in future. Discount on creditors is an income so provision in not maintained.
(iv) False: If the errors are detected after preparing trial balance, then all the errors are not
rectified through suspense account. There may be errors of principle , compensating errors,
errors of complete omission which can be rectified without opening a suspense account.
(v) True: All the receipts and payments whether of revenue or capital nature are included in
Receipt and Payment account.
(vi) False: A fixed charge is a mortgage on specific assets. A floating charge generally covers all the
assets of the company including future one.

(b) The distinction between Provision and Contingent Liability is as follows: (4 Marks)

Provision Contingent liability

(1) Provision is a present liability of A Contingent liability is a possible

uncertain amount, which can be obligation that may or may not crystallise
measured reliably by using a substantial depending on the occurrence or non-
degree of estimation. occurrence of one or more uncertain future
events.

(2) A provision meets the recognition A contingent liability fails to meet the same.
criteria.

(3) Provision is recognised when (a) an Contingent liability includes present

enterprise has a present obligation obligations that do not meet the
arising from past events; an outflow of recognition criteria because either it is not
resources embodying economic benefits probable that settlement of those
is probable, and (b) a reliable estimate obligations will require outflow of
can be made of the amount of the economic benefits, or the amount cannot be
obligation. reliably estimated.

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 (4) If the management estimates that it is If the management estimates, that it is less
probable that the settlement of an likely that any economic benefit will
obligation will result in outflow of outflow the firm to settle the obligation, it
economic benefits, it recognises a discloses the obligation as a contingent
provision in the balance sheet. liability.

(c) In the books of A (4 Marks)

Machinery A/c
Date Particulars Amount (Rs.) Date Particulars Amount(Rs.)
01.04.2019 To Bank 1,50,000 31.03.2020 By Depreciation 30,000
(1,30,000+20,000) 31.03.2020 By Balance c/d 1,20,000
1,50,000 1,50,000
01.04.2020 To Balance b/d 1,20,000 31.03.2021 By Depreciation By 30,000
31.03.2021 Balance c/d 90,000
1,20,000 1,20,000
90,000 01.10.2021 By Bank A/c 1,00,000
01.04.2021 To Balance b/d To
50,000 01.10.2021 By Depreciation By 6,750
01.10.2021 Bank
16,750 31.03.2022 Depreciation By 1,875
01.10.2021 To Profit on Sale
31.03.2022 Balance c/d 48,125
1,56,750
1,56,750

Alternative: Calculation of Book Value of Machines

Machine 1 Machine 2
(in Rs.) (in Rs.)
Date of Purchase 01.04.2019 01.10.2021
Original Cost 1,50,000
Depreciation for (2019-20) (SLM) (30,000)
WDV on 31.03.2020 1,20,000
Depreciation for (2020-21) (SLM) (30,000)
WDV on 31.03.2021 90,000
Depreciation for (2021-22) (WDV) (6,750)
WDV (original cost of Machine 2) on 1.10.2021 83,250 50,000
Sale Proceeds (1,00,000)
Profit on Sale 16,750
Depreciation for 2021-22 (WDV @ 15%) (3 months) - (1,875)
WDV on 31.03.2022 - 48,125

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Answer. 2
(a) Bank Reconciliation Statement of Mr. Karan as on 31st Dec., 2021
Particulars Details Amount
Rs. Rs.
Balance as per the Cash Book 2,60,400
Add: Wrong Casting in Cash book as on 15th December, 10,000
2021
Mistake in bringing forward Rs. 8,460 debit balance 16,920
as credit balance on 20th Dec., 2021
Cheques issued but not presented:
Issued 12,370
Encashed 9,360 3,010
Dividends directly collected by bank but not yet entered 35,000
in the Cash Book
Cheque recorded twice in the Cash Book 1,75,000
Bill for Collection credited in Bank not entered in Cash Book 53,000 2,92,930
5,53,330
Less: Cheques issued but not entered in the Bank column 1,18,000
Fire Insurance Premium paid by the bank directly not yet 7,900
recorded in the Cash Book
Discount allowed wrongly entered in Cash Book 1,800 (1,27,700)
Balance as per the Pass Book 4,25,630

Note: The above answer has been given considering that the books are not closed on 31st December,
2021. Alternatively, If the books are to be closed on 31st December, then adjusted cash book
will be prepared as given below:

Adjusted Cash Book

Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Balance b/d 2,60,400 By cheques not entered 1,18,000
To wrong casting 10,000 By Fire Insurance Premium 7,900
To error for wrong posting 16,920 By discount wrongly entered 1,800
To dividends collected by bank 35,000 By balance c/d 3,69,620
To cheques recorded twice 1,75,000
4,97,320 4,97,320

Bank Reconciliation Statement

Particulars Rs.
Balance as per the Cash Book (corrected) 3,69,620
Add: Cheques issued but not yet presented 3,010
Bill for collection credited by Bank 53,000
Balance as per the Pass Book 4,25,630

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(b) In the books of Hare Rama & Sons Journal

Particulars L.F. Dr. Cr.

Rs. Rs.
(i) Repairs A/c Dr. 1,850
To Building A/c 1,850
(Correction of wrong debit to building A/c for repairs made)

(ii) Shyam Lal A/c Dr. 3,000

To Bad Debts Recovered A/c 3,000
(Correction of wrong credit to Personal A/c in respect of recovery
of previously written off bad debts)
(iii) Furniture A/c Dr. 20,000
To Purchases A/c 20,000
(Correction of wrong debit to Purchases A/c for furniture
purchased)
(iv) Purchases A/c Dr. 8,000
To Ram Singh A/c 8,000
(Purchases of goods from Ram Singh remained
unrecorded)
(v) Drawings A/c Dr. 15,000
To Audit Fees A/c 15,000
(Correction of wrong debit to Audit Fees A/c for college
fees of proprietor’s son)
(vi) Pinki Rani A/c Dr. 4,500
To Meet Kumar A/c 4,500
(Correction of wrong credit to Pinki Rani. instead of Meet
Kumar.)
(vii) Returns Inwards / Sales Return A/c Dr. 6,200
To Customer/Debtors A/c 6,200
(Entry of goods returned by customer and taken in
inventory omitted from records)
(viii) Furniture A/c Dr. 1,500
To Wages A/c 1,500
(Wages paid to workmen for office furniture wrongly
charged to wages a/c now rectified)
(ix) Salaries A/c Dr. 12,000
To Clerk’s (Personal) A/c 12,000
(Correction of wrong debit to Clerk’s personal A/c for
salaries paid)
(x) Purchases A/c Dr. 20,000
Sales A/c Dr. 20,000
To Raghav A/c 40,000
(Correction of wrong entry in the sales Book for
purchases of goods from Raghav)

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Answer. 3
(a) In the books of T
Journal Entries

Date Particulars Debit Credit Amount

Amount Rs.
2022 Rs.
1-Apr Bills receivable A/c Dr. 1,80,000
To J’s A/c 1,80,000
(Being acceptance received from J for mutual accommodation)

1-Apr Bank A/c Discount A/c Dr. 1,72,800

To Bills receivable A/c Dr. 7,200
(Being bill discounted with bank) 1,80,000

1-Apr J’s A/c Dr. 60,000

To Bank A/c 57,600
To Discount A/c (Being Rs. 2,400
57,600 sent to J)
4-Jul J’s A/c Dr. 2,52,000
To Bills payable A/c (Being 2,52,000
Acceptance given)
4-Jul Bank A/c Dr. 40,440
1,20,000+40,440
Discount A/c [ × 11,340] Dr. 7,560
2,40,660

To J’s A/c 48,000

(Being proceeds of second bill received from J)
7-Oct Bills payable A/c Dr. 2,52,000
To J’s A/c 2,52,000
(Being bill dishonoured due to insolvency)
7-Oct J’s A/c (1,20,000+48,000) Dr. 1,68,000
To Bank A/c 84,000
To Deficiency A/c * 84,000
(Being insolvent, only 50% amount paid to J)

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 In the books of J
Journal Entries

Date Particulars Debit Credit

2022 Amount Rs. Amount Rs.

1-Apr T A/c Dr. 1,80,000

To Bills Payable A/c 1,80,000
(Being bill of exchange accepted and send to Mr. T)
1-Apr Bank A/c Dr. 57,600
Discount Charges A/c Dr. 2,400
To T A/c 60,000
(Being the amount received from T on account of the bill
receivable)
Bills Receivable A/c Dr.
4-Jul 2,52,000
To T A/c
(Being the bills accepted by T) 2,52,000
Bank A/c Dr.
4-Jul 2,40,660
Discount Charges A/c Dr.
11,340
To Bills Receivable A/c
(Being T’s acceptance discounted with bank) 2,52,000
Bills Payable A/c Dr.
4-Jul Bank A/c 1,80,000
(Being the amount met on the due date) 1,80,000
T A/c Dr.
To Bank A/c
4-Jul 48,000
To Discount A/c
40,440
(Being the amount received and discount debited to T account)
1,20,000+40,440 7,560
[ × 11,340] = 7,560
2,40,660
T A/c Dr.
To Bank A/c
(Being T’s acceptance dishonoured due to T’s
7-Oct bankruptcy) 2,52,000
Bank A/c Dr. 2,52,000
Bad Debts A/c* Dr.
To T A/c
(Being the amount received from T and the balance
7- Octl 84,000
being written off as bad debts)
84,000
1,68,000

(b) Ex- right value of the shares = (Cum-right value of the existing shares + Rights shares
× Issue Price) /(Existing Number of shares + No. of
right shares )
= (Rs. 240×2 shares + Rs. 120 × 1 share)/ (2+1) shares
= Rs. 600/3 shares =Rs. 200 per share.
Value of right = Cum-right value of the share–Ex-right value of the share
= Rs. 240 – Rs. 200 = Rs. 40 per share
Hence , any one desirous of having a confirmed allotment of one share from the company at Rs. 120
will have to pay Rs. 80 (2 shares × Rs. 40) to an existing shareholder holding 2 shares and willing to
renounce his right of buying one share in favour of that person.

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Answer. 4
(a) In the books of X, Y and Z
Revaluation Account
Particulars Rs. Particulars Rs.
To Plant 5,000 By Building 45,000
To Bad Debts 2,400 By Salary Payable 800
To Provision for Doubtful Debts 1,800
To Stock 600
To Furniture 3,500
To Bills receivable 500
To Profit on revaluation
X 12,800
Y 19,200
45,800 45,800

Partners’ Capital A/c’s

Particulars X Y Z Particulars X Y Z
To X and Y - - 24,000 By Balance b/d 60,000 1,40,000 -
(Goodwill adjustment)

To Balance c/d 98,400 1,97,600 76,000 By Bank - - 1,00,000

By Z 9,600 14,400 -
By General 16,000 24,000 -
Reserve
By Revaluation 12,800 19,200 -

98,400 1,97,600 1,00,000 98,400 1,97,600 1,00,000

Balance Sheet as on 1st April, 2022 (after admission)

Liabilities Rs. Assets Rs.

Capital Accounts: Building 1,05,000
X 98,400 Plant 40,000
Y 1,97,600 Furniture 20,000
Z 76,000 Debtors* 34,200
Creditors 42,600 Bills Receivable 12,000
Bills Payable 15,400 Stock 42,000
Salary Payable 1,200 Bank 1,78,000
4,31,200 4,31,200

* Debtors: (38,400 – 2,400 – 1,800) = Rs. 34,200

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(b) The Young Boys Club
Receipts and Payments Account for the year ended 31st December, 2022
Receipts Rs. Payments Rs.
To Balance b/d (balancing 1,580 By Salaries (WN-2) 3,900
figure)
To Subscriptions (WN-1) 8,270 By General Expenses 1500
To Entrance Fees 250 150 1,650
Add: Paid for 2023
To Contribution for annual dinner 1,000 By Audit fee (2021) 200

To Annual sport meet receipt 750 1,000

By Secy. Honorarium
450
By Stationery & Printing 1,500
By Annual Dinner
Expenses 150
By Interest & Bank
1,400
Charges
By Sports Equipment (WN
-3)
By Balance c/d 1,600
11,850 11,850
1,600
To Balance b/d

Working Note 1
Subscription A/c

To Subscription O/s 2021 700 By Balance b/d (b/f) 8,270

To Subscription in Advance 2022 By Subscription O/s 2022 750
To Income & Expenditure a/c 370 By Subscription in Advance 2021 550
8,500
Total 9,570 Total 9,570
Working Note 2
Salaries A/c

To Bank (b/f) 3,900 By Income & Expenditure a/c By 3,750

To Salaries O/s 2022 450 Salaries O/s 2021 600
4,350 4,350

Working Note 3
Sports Equipment A/c

To Balance b/d 2,600 By Depreciation By 400

To Cash / Bank (b/f) 1,400 Balance c/d 3,600
Total 4,000 Total 4,000

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 Balance Sheet of Young Boys Club as on December 31, 2022
Liabilities Rs. Rs. Assets Rs. Rs.
Subscription received in 370 Freehold Ground 20,000
advance
Audit Fee Outstanding 250 Sport Equipment:
Salaries Outstanding 450 As per last Balance Sheet 2,600

Bank Loan 5,000 Additions 1,400

Capital Fund: 4,000
Balance as per previous Less: Depreciation (400) 3,600
Balance Sheet 18,530 Subscription Outstanding 750
Add: Surplus for 2022 1,500 Insurance Prepaid 150
20,030 Cash in hand 1,600
26,100 26,100

Balance Sheet of Young Boys Club as on 31st December, 2021

Liabilities Rs. Assets Rs.

Subscriptions received in advance 550 Freehold Ground 20,000
Salaries outstanding 600 Sports Equipment 2,600
Audit fees unpaid 200 Subscriptions Outstanding 700
Bank Loan 5,000 Cash in hand 1,580
Capital Fund (balancing figure) 18,530
24,880 24,880

Answer. 5
(a) M/s Raj Agencies
Dr. Cash Book Cr.
Date Particulars L.F. Discount Cash Bank Date Particulars L.F. Discount Cash Bank
Rs. Rs. Rs. Rs. Rs. Rs.
2022 2022
Mar 1 To Balance 30,000 1,20,000 Mar 2 By Bank C 10,000
b/d
Mar 2 To Cash C 10,000 Mar 5 By Furniture 15,000
Mar 12 To Mohan 200 9,800 Mar 8 By Goods / Purchase 5,000

Mar 14 To Sales 50,000 Mar 16 By Lata 500 14,500

Mar 19 To Cash C 5,000 Mar 19 By Bank C 5,000
Mar 24 To Gupta 200 14,300 Mar 23 By Drawings 6,000
Mar 26 To Cash C 14,300 Mar 26 By Bank C 14,300
Mar 28 To Bank C 20,000 Mar 28 By Cash C 20,000
Mar 30 By Rent 8,000
Mar 31 By Balance c/d 89,800 85,800
400 1,24,100 1,49,300 500 1,24,100 1,49,300

(b) (i) Capitalization Method:

Total Capitalised Value of the firm
𝐴𝑣𝑎𝑟𝑎𝑔𝑒 𝑃𝑟𝑜𝑓𝑖𝑡 100
= 𝑁𝑜𝑟𝑚𝑎𝑙 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛 × 100 = 𝑅𝑠. 6,50,000 × 20
= 𝑅𝑠. 32,50,000

Goodwill = Total Capitalised Value of Business – Capital Employed

= Rs. 32,50,000 – Rs. 26,00,000 [i.e., Rs. 14,00,000 (R) + Rs. 12,00,000 (S)]
Goodwill = Rs. 6,50,000

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 (ii) Super Profit Method:
Normal Profit = Capital Employed x Normal rate of return i.e. Rs. 26,00,000 x 20/100
= Rs. 5,20,000
Average Profit = Rs. 6,50,000
Super Profit = Average profit – Normal Profit
= Rs. 6,50,000 – Rs. 5,20,000 = Rs. 1,30,000
Goodwill = Super Profit x Number of years’ purchase
= Rs. 1,30,000 x 6 = Rs. 7,80,000
(c) Balance Sheet of S as on 31st March, 2022

Liabilities Rs. Assets Rs.

Capital 22,00,000 Cash at Bank 5,50,000
Add: Net Profit (WN.1) 6,50,000 Trade receivables 12,61,000
(WN. 2)
28,50,000 Vehicles (WN. 3) 2,70,000
Add: Introduction of capital 3,00,000 Furniture & Fixtures 5,85,000
(WN. 4)
31,50,000 Inventories 6,50,000
Outstanding commission 35,000 Prepaid expenses 15,000
Trade payables 1,46,000
33,31,000 33,31,000
Working Note 1
Profit and Loss Account (Revised)
Particulars Rs. Particulars Rs.
To Outstanding Commission 35,000 By Balance b/d 6,70,000
To Net profit 6,50,000 By Prepaid expenses 15,000
6,85,000 6,85,000
Working Note 2
Trade Receivables
Particulars Rs. Particulars Rs.
To Balance b/d 13,00,000 By Provision for Doubtful Debts By 39,000
Balance c/d (b/f) 12,61,000
13,00,000 13,00,000
Working Note 3
Vehicles A/c
Particulars Rs. Particulars Rs.
To Balance b/d To Bank 2,75,000 By Depreciation 55,000
a/c 50,000 By Balance c/d (b/f) 2,70,000
3,25,000 3,25,000
Working Note 4
Furniture & Fixtures A/c
Particulars Rs. Particulars Rs.
To Balance b/d 6,50,000 By Depreciation 65,000
By Balance c/d (b/f) 5,85,000
6,50,000 6,50,000

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Answer. 6
(a) In the books of PQR. Ltd.
Journal
Entry Particulars Rs. Rs.
no.
1 Bank A/c Dr 6,00,000
To Equity Share Application A/c 6,00,000
(Being application money on 2,00,000 shares @
Rs. 3 per share received)
2 Equity Share Application A/c Dr 6,00,000
To Equity Share Capital A/c 6,00,000
(Being transfer of application money to Equity Share Capital on
2,00,000 shares @ Rs. 3 per share as per Director’s Resolution no…
dated…)
3 Equity Share Allotment A/c To Dr 10,00,000
Equity Share Capital A/c To 6,00,000
Securities Premium A/c 4,00,000
(Being amount due from shareholders in respect of
allotment on 2,00,000 shares @ ` 5 per share
including premium ` 2 per share as per Director’s
Resolution no……dated……)
4 Bank A/c Dr 9,75,000
To Equity Share Allotment A/c 9,75,000
(Being amount received against allotment on
1,95,000 shares @ ` 5 per share including
premium @ ` 2 per share)
OR
Bank A/c Dr 9,75,000
Calls in Arrears A/c Dr 25,000
To Equity Share Allotment A/c 10,00,000
(Being amount received against allotment on
2,00,000 share @ ` 5 per share including
premium @ ` 2 per share, Mr. J holding 5,000
shares failed to pay allotment money)
5 Equity Share Call A/c Dr 8,00,000
To Equity Share Capital A/c 8,00,00
(Being amount due from shareholders in respect of
call on 2,00,000 shares @ ` 4 per share as per
Director’s resolution no…...dated…….)
6 Bank A/c Dr 7,40,000
To Equity Share Call A/c 7,40,000
(Being amount received against the call on
1,85,000 shares @ ` 4 per share)

OR
Bank A/c
Calls in Arrears A/c 7,40,000
To Equity Share Call A/c Dr 60,000 8,00,000
(Being amount received against the call on Dr
1,85,000 shares @ ` 4 per share, J holding 5,000
shares and K holding 10,000 shares failed to pay call
money)

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 7 Equity Share Capital A/c (15,000 x Rs. 10) Dr 1,50,000
Securities Premium A/c (5000 x Rs. 2) Dr 10,000
To Equity Share Allotment A/c (5000 x Rs. 5) To 25,000
Equity Share Call A/c (15,000 x Rs. 4) 60,000
To Forfeited Shares A/c 75,000
(Being forfeiture of 15,000 equity shares for non- payment
of allotment and call money on 5,000 shares and for
non-payment of call money on 10,000 shares as per
Board’s Resolution No…..dated ….)
Dr
OR
Dr 1,50,000
Equity Share Capital A/c (15,000 x Rs. 10)
Securities Premium A/c (5000 x Rs. 2) 10,000
85,000
To Calls in Arrears A/c (Rs. 25,000 + Rs. 60,000)
75,000
To Forfeited Shares A/c
(Being forfeiture of 15,000 equity shares for non- payment
of allotment and call money on 5,000 shares and for
non-payment of call money on 10,000 shares as per
Board’s Resolution No…...dated…….)
8 Bank A/c Dr 90,000
Forfeited Shares A/c 10,000
To Equity Share Capital A/c 1,00,000
(Being re-issue of 10,000 shares @ Rs. 9 each as
per Board’s Resolution No……dated........... )
9 Forfeited Shares A/c Dr 35,000
To Capital Reserve A/c 35,000
(Being profit on re-issue transferred to Capital
Reserve)

Balance Sheet of PQR as at……

Particulars Notes No. Rs.

EQUITY AND LIABILITIES
Shareholders’ funds
Share Capital 1 19,80,000
Reserves and Surplus 2 4,25,000
Total 24,05,000
ASSETS
Current assets
Cash and Cash Equivalents 3 24,05,000
Total 24,05,000

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 Notes to accounts
Rs. Rs.
1. Share Capital Equity share capital
Issued share capital
2,00,000 Equity shares of Rs. 10 each Subscribed, called up
and paid up share capital 20,00,000
1,95,000 Equity shares of Rs. 10 each
Add: Forfeited shares Reserves and 19,50,000
Surplus Securities Premium Capital 30,000 19,80,000
2.
Reserve
3,90,000
Cash and Cash Equivalents
35,000 4,25,000
Amount received on Share Application Amount Received on
3. Share Allotment Amount Received on Share Call
6,00,000
Amount Received on Re-issue of Shares
9,75,000
7,40,000
90,000 24,05,000

Working Note:
(1) Calculation of Amount to be Transferred to Capital Reserve
Amount forfeited per share of J Rs. 3 Amount forfeited per Rs. 6
share of K
Less: Loss on re-issue per share (Rs. 1) Less: Loss on re-issue (Rs. 1)
per share
Surplus Rs. 2 Rs. 5
Surplus
Transferred to Capital Reserve: J’s
Rs. 10,000
share
(5,000 x Rs. 2)
K’s Share (5,000 x Rs. 5)
Total Rs. 25,000
Rs. 35,000
(2) Balance of Security Premium
Total Premium amount receivable on allotment = 4,00,000
Less: Amount reversed on forfeiture = (10,000)
Balance remaining = 3,90,000
(b) Cost of Property, Plant and Equipment comprise of any cost directly attributable to bring the asset to
the location and condition necessary for it to be capable of operating in a manner intended by the
enterprise.
Examples of directly attributable costs are:
(a) cost of employee benefits arising directly from acquisition or construction of an item of
property, plant and equipment.
(b) cost of site preparation
(c) initial delivery and handling costs
(d) installation and assembly costs
(e) cost of testing whether the asset is functioning properly, after deducting the net proceeds from
selling the items produced while testing (such as samples produced while testing)
(f) professional fees e.g., engineers hired for helping in installation of a machine
(g) transportation cost
(h) trial run expenses
Thus, all the expenses which are necessary for asset to bring it in condition and location for desired
use will become part of cost of the asset.

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