CHAPTER-1: INTRODUCTION TO ACCOUNTING

1. What is the objective of financial statements?

Ans: The objective of financial statements is to provide information the financial position, performance and changes
in financial position of an entity that is useful to a wide range of users in making economic decision.

2. Mention the users of financial statements.

Ans: The users of financial statement as per BFRS framework are as follows:
1. Investors
2. Employees
3. Lenders
4. Suppliers and others creditors
5. Customers
6. Governments and their agencies
7. Public.

3. Why it is easier to get financial information for internal user and harder for external user?
Ans: It is easier to get financial information for internal user because the internal users can just go along to the
accounts department and ask the staff there to prepare whatever accounting statements he /she needs.
But it is harder to get financial information for external users because they can not get the internal accounts
related information smoothly.

4. Point out the information needs of following users?

a) Stewardship functioning
b) Management performance analysis
c) Ability to pay debt
d) Assessing tax liability and determine tax policy
e) Efficient allocation of resources
f) Contribution to local economy, using local supplier, environmental effect

Ans: The information needs of following users are pointed out:

Stewardship functioning Managers/ directors

Management performance analysis Shareholders
Ability to pay debt Suppliers
Assessing tax liability and determine tax policy NBR
Efficient allocation of resources Government agencies
Contribution to local economy, using local supplier, environmental effect Public

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 5. Mention financial reporting framework in Bangladesh.
Ans: The financial reporting frameworks in Bangladesh are as under:
 Legislation;
 Accounting concept;
 Accounting standard;
 Accounting practice;
 True and fare view/ fair representation.

6. What qualitative characteristic are appropriate for each of the below cases?
a) undue delay in financial reporting
b) incomplete information or redundant information in the financial statement
c) error free, neutral information presented in the financial statement , prudence and economic substance used
d) information provided in the financial statements on a consistence basis
Ans:
a) Relevance;
b) Understandability;
c) Reliability;
d) Comparability.

7. Give 50 examples of CAPEX and 20 for REVEX?

Ans: Examples of CAPEX (capital expenditure) are given below:
1. Invoice price of machine purchase
2. Freight charge of machine purchase
3. Purchase of building by a real estate company
4. Fees for inspection of the machine by engineer
5. Repair and maintenance of the machine with an enhance capacity
6. Spare parts with enhance capacity
7. Import duty charged on imported machine
8. Add additional 128MB ram for office computer
9. Purchase of property
10. Solicitor fees in connection with the purchase of property
11. Cost of new machine
12. Custom duty charged on machinery
13. The carriage cost of transporting the new machinery from the suppliers factory to the premises of the
purchasing it
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 Examples for REVEX (Revenue expenditure) are given below:

1. Depreciation of the machine

2. Royalty expenses

3. Repair maintenance of the machine within an existing capacity

4. Dividend

5. Any administrative and selling & distribution expenses

6. Loss on sale of fixed assets

7. Purchase of new computer after replacing old machine within existing capacity

8. Wages of the machinery operator

8. Identifying CAPEX and REVEX

a) purchase of an application software for the company
b) purchase a second hand machine with reduced price
c) wages for operating the newly purchased machine
d) advertisement bill given for 5 years at time
e) gain on sale of fixed assets
Ans:
a) CAPEX
b) CAPEX
c) REVEX
d) CAPEX
e) Not CAPEX or REVEX

9. Mention responsibility of directors/management in preparing f/s

Ans: The management / directors of an enterprise have the primary responsibility for preparation and presentation of the f/s of
the enterprise. Management is also interested in the information contained in the financial statements even though it has
access to additional management and financial information that helps it carry out its Planning, decision-making and control
of responsibilities. Management has the ability to determine the form and content of such additional information in order to
meet its own needs. Nevertheless, published financial statements are based on the information used by management about
the financial position, performance and changes in financial position of the enterprise.

10. Define faithful representation

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 Ans: Faithful presentation means that financial statements are required to give a true and fair view or presented
fairly in all material respect the financial result of the entity.

CHAPTER-2: THE ACCOUNTING EQUATION

11. what are BAS term of following account heads:

a) Fixed assets
b) Stock
c) Debtor
d) Creditor
a) Profit & loss account
Ans: BAS term of the following account heads are as under:
Non-BAS Term BAS Term
Fixed assets Non-current asset
Stock Inventory
Debtor Receivable
Creditor Payable
Profit & loss account Income statement

12. Suppose, list price in an invoice of sales was tk. 500 (VAT inclusive, at standard rate), trade discount
@10%, cash discount @ 5% (2/10, n/30), customer paid the amount on 21 st day. Determine the
invoice value. Determine GP ratio NP ratio and Administrative cost to sale if COGS was tk. 300 and
Admin cost was tk. 80.
Ans:
List price 500
Less: VAT @10 %( 500X15/115) 65
435
Less: trade discount @10 % 44
Net sales 391
Less: COGS 300
Gross profit 91
Less: admin cost 80
Net profit 11

GP ratio=GP/ Net sales =91/391 =23.27%

NP ratio=NP/ Net sales=11/391 =2.81%

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 CHAPTER-3: RECORDING FINANCIAL TRANSATIONS

13. Mention the name of all source documents.

Ans: purchase invoice, sales invoice, credit notes, pay slips, debit notes, credit notes and cash vouchers.

14. What are the main books of original entries

Ans: sales day book, purchase day book, cash book, petty cash book, the payroll and the journal.

15. State system note for credit sales process indicating basic documents required in each stage
Ans:

Sales order
Receive sales order
(Received from
from customer
customer)

Prepare goods and delivery

Delivery notes
Note: deliver to customer

Prepare sales invoice

And send to customer Sales invoice

SOURCE DOCUMENT

FOR ACCOUNTING SYSTEM

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 16. State system note for credit purchase process indicating basic documents required in each stage

Receive purchase invoice from

supplier, and match to GRN
Send purchase order to Receive goods with
SOURCE DOCUMENT FOR
supplier supplier’s delivery note:
prepare goods received ACCOUNTING SYSTEM
note (GRN)
Purchase invoice
Purchase Goods
(Received from
order received note
customer)

17. State system note for purchase of fixed assets in credit indicating basic documents required in each
stage

Ans: System note for purchase of fixed assets in credit indicating basic documents required in each stage are given
below:

1. Purchase
2. Raising of purchase 3. Receipts of goods/ service
Requisition
order

4. Processing of 5. Transaction recording

purchase invoice/ bill process

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 18. What are basis inclusion of Goods Received Notes (GRN)
Ans:
i. Purchase order no
ii. Suppliers/ vendors name
iii. Supplier’s challan/ delivery note no
iv. Date of receipt
v. Description of goods
vi. Item code
vii. Quantity received.

19. What information are needed to draft invoice, credit notes, delivery challan and GRN
Ans:
In case of invoice:
 Invoice number
 Name and address of seller and purchaser
 Sale date
 Product/ service description
 Quantity and unit price of what has been sold
 Details of trade or bulk discount, if any
 Total invoice amount including VAT details
 The date by which payment is due and other term of sales
 Tear off remittance advice for the customer to send to the business along with payment.

In case of credit notes:

 Credit note number
 Name and address of seller and purchaser
 Sale date
 Product/ service description
 Quantity and unit price of what has been sold
 Details of trade or bulk discount, if any
 Total invoice amount including VAT details
 The date by which payment is due and other term of sales
 Tear off remittance advice for the customer to send to the business along with payment.
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 In case of delivery challan:
 The goods and service delivered
 The quantity is delivered
 The date of the delivery
 Delivery address

20. Mention the names of 6 main books of original entries

Ans: sales day book, purchase day book, cash book, petty cash book, the payroll and the journal.

21. Draft a sales day book, purchase day book, cash book, petty cash book, payroll book (assignment)
Ans:

Sales day book:

Sales day book (Analyzed)

Invoice /
Totals VAT Boots Shoes
Date credit Customer
(Tk.) (Tk.) (Tk.) (Tk.)
note no.

2010 1250 Rajan & Co 104.81 15.61 50 39.20

March 24
1251 Motiur & Co 86.48 12.88 73.60 -
GN 003 Imam & Co (31.49) (4.69) - (26.80)
1252 MAQ & Co 1264.77 188.37 800.30 276.10
1424.57 212.17 923.90 288.50

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 Purchase day book

Purchase Day Book

Invoice
Purchase Expense
Date /credit suppliers Total (Tk.) VAT (Tk.)
(Tk.) (Tk.)
note no.

2010 14192 Cook 314.90 46.90 268 -

March 20
CN 048 Butler (29.61) (4.41) (25.20) -
14193 Telcom 116.56 17.36 - 99.20
14194 Show 100.11 14.91 85.20 -
501.96 74.76 328 99.20

Petty cash Book:

Petty cash Book
Receipts Payments VAT Milk Postage Travel Others
Date Narrative
(Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.) (Tk.)
250 2010 Balance
March b/d
25
Milk bill 25 25
Postage 5 5
stamp
Taxi fare 10 10
Flowers 15 15

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 Balance 195
c/d
250 Total 250 0 25 5 10 15

Cash Book
Cash Book (Receipts)
Total Receiv
Cash sales Others
Date Narrative receipts VAT (Tk.) ables
(Tk.) (Tk.)
(Tk.) (Tk.)

2010 Balance b/d 900

March 24
Cash sales 94 14 80
Receivable : XYZ 380 380
Receivable : PQS 420 420

Receivables : MAQ 140 140

Loan : Imam 1800 1,800
Cash sales 141 21 120
Sale of non-current asset 200 200
4,375 35 1,240 200 2,000

Cash Book (Payments)

Total
VAT Payables Petty cash 0thers
Date Narrative payment
(Tk.) (Tk.) (Tk.) (Tk.)
(Tk.)

2010 Payables:HGF 120 120

March 24 Payable: YGF 310 310

Telephone bill 376 56 320

Service Charge bill 282 42 240

Petty Cash 100 100

Machinery Purchase 1500 1500

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 Total payments 2688 98 430 100 2060
Balance c/d (4,375- 2,688) 1687
4375

Payroll book
Payroll Book
Employer Total
Withholding Pension Net pay Gross pay
Particulars pension payroll cost
tax (Tk.) (Tk.) (Tk.) (Tk.)
(Tk.) (Tk.)
MAQ 550 150 2,300 3,000 200 3,200
OEI 500 135 2,115 2,750 180 2,930
MMR 460 125 1,915 2,500 165 2,665
Total 1,510 410 6,330 8,250 545 8,795

22. Mention the name of 7 source documents

Ans: sales day book, purchase day book, cash book, petty cash book, the payroll and the journal.

23. Draft a invoice mentioning the amount of VAT

Ans:
ABC COMPANY LIMITED

Road-50, Gulshan

Dhaka-1212

Tel : 9145017 Fax:+88-02-9137097 Email:abc_123@yahoo.com

PO No:12453

Purchase Order (PO)/Work Order

M/s.MAQ & co

12/A Dhanmondi, Dhaka, 1209

Reference to your offer/quotation no. 46 dated 02.02.2010 you are requested to supply the following item(s) as per
the specification. Please submit your Invoice/Bill along with delivery Challan to the Accounts Office of the Club for
payment.

SI. Description of Specification Qty. Rate per Unit Total Taka Remarks
Suppliers/Service

1.
Tempered Glass N/A 10 30,000 300,000

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Taka in Word: Two lac and fifty five thousand taka only 255,000
 Prepared by Approved by Countersigned Accepted

Purchase In-Charge Secretary Chief Accountant Signature of Supplier with

seal

24. fill in the blanks:

Source document Books of original entry

Sales invoice Sales day book
Purchase invoice Purchase day book

Debit note Purchase day book

Credit note Sales day book
Cheque remittance advice Cash book

Pay slip Cash book

Petty cash voucher Petty cash

25. Preparing cash book:

As on 1 January 2010, ABC Company had Tk. 900 in the bank as overdraft. During the year 2010 the company had
following receipts and payments. Prepare an analyzed cash book from the above transactions.

Transactions during 2010:

a. Cash sale: receipt of Tk. 94 (including VAT @ 15%);

b. Payment from credit customer XYZ Tk. 380;
c. Cheque received from as a short term loan from PQR Tk. 1800;
d. Cash sale: receipt of Tk 141 (including VAT @ 15%);
e. Cash received for dale of machine Tk 1200 (no VAT);
f. Payment to supplier Tk 120;
g. Payment of telephone bill Tk. 376 (including VAT Tk. 76);
h. Tk. 100 withdrawn from bank for petty cash;
i. Payment of Tk. 1,500 to Otobi for new furniture (no VAT);

Ans:

Cash Book
Cash
Date Narrative Total receipts VAT Receivables Others
sales

Receipts:
2010 Balance B/D 900

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 January 10
Cash sales (a) 94
Receivable :XYZ (b) 380
Loan :Pqr © 1,800
Cash sales (d) 141
Sale of non-current 1,200
assets (e)
Total 4,515

Payments

Date Narrative Total payments VAT Payable wages Others

2010
January 10
Payable (f) 120
Telephone bill (g) 376
Petty cash (h) 100
Furniture purchase (i) 1,500
Total payment 2,096
2,419
Balance C/D

(4515-2096)

Total 4,515

26. State few example for which petty cash book is used
Ans: petty cash book may be used for staff refreshment, postage stamps, taxi fares etc.

27. Difference between imprest system of petty cash book and normal petty cash book

28. Draft a typical petty cash book in imprest system

Ans:
PETTY CASH BOOK
Receipts Payments VAT Milk Postage Travel Others
Date Narrative
(Tk.) (Tk) (Tk) (Tk) (Tk) (Tk) (Tk)

500 2010 Balance b/d

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 2 March
Milk 30 30
Postage 10 10
Travel 150 150
Refreshment 40 40
Van fare 25 25
Balance c/d 245
500 500 30 10 150 65

29. State which books of original entry the following transactions would be entered into:
a. Payment to a supplier a cheque for Tk. 450
b. Send and invoice to customer for Tk. 650
c. Buy envelops for Tk. 12
d. Receive an invoice from a supplier for Tk. 300
e. Pay Tk 500 to customer through online transfer
f. Customer returns goods for tk. 250
g. Return goods to supplier for tk. 504
h. Customer pays you a cheque for tk. 500
Ans: The given transactions would be entered into the following books of original entry:
a. Cash book
b. Sales day book
c. Petty cash book
d. Purchase day book
e. Cash book
f. Sales day book
g. Purchase day book
h. Cash book

30. Draft a dummy payroll sheet/book of your company

Ans: A draft payroll sheet/ book of my company are as under:
Addition 7.5% on Basic Attendance
Payment
Deduction
Code Gross Basic
Name Designation Own Signature
no salary 50% Total Net
Co.PF P.F. G.S.+P.F. Advance Amount Revenue Attend
P.f. salary

Md.
01 Manager 13821 6911 518 518 14339 1037 1000 1000 5 30 12298
Samiullah

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 31. ABC Ltd. Has 10 employees who had gross pay of tk. 140,000 per annum among them in 2009. In that year the
company made net pay payments to employees of tk. 129,200 and paid tk. 20,900 to e\the pension trustees. Its
total payroll cost was tk. 170,400. How much did the company pay to Government treasury in respect of withholding
tax?
32. What transactions are recorded via journal as a book of original entry?
ANS: Non-current asset purchases are usually recorded via the journal as a book of original entry.

CHAPTER-4: LEDGER ACCOUNTING & DOUBLE ENTRY

33. Distinguish nominal ledger and subsidiary ledger

Ans: Distinguish between nominal ledger and subsidiary ledger is mentioned in the following table:

Nominal ledger Subsidiary ledger

1. An accounting record which analyses the 1. It is actually maintained for the backup of
financial records of a business. nominal ledger.
2. Nominal ledger represents the total 2. Subsidiary ledger represents any individuals
balance of a respective A/c head after net or a specific events balance.
off.
3. Amounts of nominal ledger came from 3. Subsidiary ledgers maintained for the
subsidiary ledger. breakup record of each transaction.

34. Define duality concept with example

Ans: Every transaction is recorded twice in the ledger accounts. Double entry book keeping is the method used to
transfer totals from the Books of original entry into the nominal ledger. Central to this process is the idea that
every transaction has two effects, which is the Duality concept. Such as; purchase a car for Tk. 1,000 cash.
This event would be affected in two ways:

 Own a car worth Tk. 1,000

 Cash reduced by Tk. 1,000

35. State the general rule of double entry bookkeeping.

Ans: The basic rule, which must always be observed, is that every financial transaction gives rise to two accounting
entries, one a debit and the other a credit.

A Debit entry will: A Credit entry will:

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  Increase an asset  Decrease an asset
 Increase an expense  Decrease an expense
 Decrease a Liability  Increase a Liability
 Decrease Capital  Increase Capital
 Decrease Income  Increase Income

36. Identify the debit and credit entries in the following transactions (ignore VAT)

a) bought a machine on credit from A, cost tk. 8,000:

Machine a/c----------dr. 8,000

‘A’ a/c----------cr. 8,000

b) bought goods on credit from B, cost tk. 500:

Purchase a/c----------dr. 500

‘B’ a/c----------cr. 500

c) sale goods on credit to C, value tk. 1,200:

‘C’ a/c----------------dr. 1,200

Sales a/c---------cr. 1,200

d) paid D (a credit supplier) tk. 300:

‘D’ a/c--------------dr. 300

Cash a/c-------cr. 300

e) collected tk. 180 from E, a credit customer:

Cash a/c-------------------dr. 180

‘E’ a/c-----------------cr. 180

f) paid net pay tk. 4,000

Net pay a/c----------dr. 4,000

Cash a/c---------cr. 4,000

g) received rent bill of tk. 700 from landlord G

i. No entry needed.

h) paid rent insurance premium tk. 90

Insurance premium a/c--------dr. 90

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 Cash A/c---------------cr. 90

37. Summit Power operates an imprest petty cash system. The imprest amount is Tk. 5000. at the end of the period the
totals of the four analysis columns in the petty cash book were as follows:
Column -1 tk. 23.12

Column -2 tk. 6.74

Column -3 tk. 12.90

Column -4 tk. 28.50

How much cash is required to restore the imprest amount?

Ans: Tk.71.26, This is the total amount of cash that has been used.

38. Give two example of subsidiary ledger.

Ans: Two examples of subsidiary ledger are given below:
 Receivables ledger,
 Payables ledger.

39. Soft Supplies Co. recently purchase from Hard Imports Co. 10 printers originally priced at tk. 200 each. A 10% trade
discount was negotiated together with a 5% cash discount if payment was made within 14 days. Calculate the
following.
a) The total of the trade discount
b) The total of the cash discount

Ans:

a) The total of the trade discount = (10x200) x10%= Tk.200

b) The total of the cash discount = {(10x200) -200} x 5%= Tk. 90

40. Define trade discount and cash discount with two examples

Trade discount: A reduction in the cost of goods, owing to the nature of the trading transaction. It is deducted from
the list price of goods sold, to arrive at a final sales figure.

Example: A customer is quoted a price of tk. 1 per unit for a particular item, but lower price of 95p per unit if the
item is bought in quantities of 100 units of more at a time.

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 Cash discount: A reduction in the amount payable in return for immediate payment in cash, or for payment within
an agreed period.

Example: A supplier charges tk. 1,000 for goods, but offers a discount of 5% if the goods are paid for immediate in
cash.

41. Define the term 2/10, n/30

Ans: The term can be defined as to the purchaser must be paid the purchased amount of the goods within 30 days
but if he paid the amount within 10 days he will get 2% discount in respect of which he purchased.

42. Prepare an income statement from the following items:

Taka

a) purchase at gross cost 120,000

b) trade discount allowed 4,000
c) cash discount received 1,500
d) cash sales 34,000
e) credit sale at invoice price 150,000
f) cash discount allowed 8,000
g) distributaries cost 32,000
h) administrative cost 40,000
i) drawings by proprietor 22,000

Ans:
Income statement

Particulars Taka Taka

Revenue :
Cash sales 34,000
Credit sales 150,000
Total sales 184,000
Less: cost of sales 12 0,000
Gross profit 64,000

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 Other income :discount received 1,500
Expense:
Cash discount allowed 8,000
Credit discount allowed 4,000
Distributaries cost 32,000
Administrative cost 40,000
(84,000)
Net profit / (Loss) (18,500)

43. Explain why VAT is called expenditure tax?

Ans: VAT is an indirect tax on the supply of goods and services. Tax is collected at each transfer point in the chain
from prime producer to final consumer. Because it is included every stages of the goods or services when is
value added.

44. Explain how VAT is collected?

Ans: A final consumer who eventually bears the full VAT. It can be collected in the following manner:
 He or she must collected and pay over VAT at the appropriate rate on the full sales value of the goods sold.
 He or she normally entitled to reclaim VAT paid on his own purchase of goods, expenses and non-current
assets (known as input tax) and so makes a net payment to the govt. equal to the tax on value added by
himself.

45. Explain implication of VAT for registered and non-registered persons

Ans: Non-registered person neither charge VAT on their outputs nor are entitled to reclaim vat on their inputs. They
are in the same position as a final consumer. On the other hand, all outputs of registered person are either taxable
or exempt. Those people carrying on exempt activities cannot charge vat on their outputs and consequently cannot
reclaim vat paid on their inputs.

46. A manufacturing company purchase raw materials at a cost of tk. 1,000 plus VAT at standard rate of
15%. From the raw materials the company makes finished products which it sales to a retail outlet, B
ltd. For tk. 1,600 plus VAT a\@ 15%. B Ltd. Sales the products to customers at a total price of tk. 2,000
plus VAT @15%. How much VAT is paid at each stage in the chain?
Ans:
Cost of raw materials (input VAT)1000@15%=150
Value added at finished product level 600@ 15%= 90
Sales the product to customer (output VAT) 400@ 15%= 60

47. Define the term “irrecoverable VAT” with two examples

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 Ans: Registered persons who also carry on exempted activities may have a residue of input vat which falls directly
on them. In this situation the costs to which this residue applies will be inflated by the irrecoverable VAT.
Examples:
 Persons not registered for VAT will suffer Vat on inputs as a cost.
 Non-deductable inputs will be borne by all traders.
48. ABC Company usually sell goods at tk. 130 each, it gives XYZ Trade discount of tk. 10 so he sells goods
to XYZ for tk. 120. ABC is registered for VAT. How much output VAT should ABC company include on
XYZ’s invoice?
Ans:
Particulars Taka
Sales value 130
Less : Trade discount 10
Goods value 120
VAT (120 @ 15%) 18
Total invoice 138

49. If you are told that an amount includes VAT @ 15% (gross amount), calculate the VAT amount?
Ans:
Let, gross amount is Tk. 100
So, VAT amount will be=100x15/115=Tk.13
50. ABC is preparing financial statements for the year ended 31 December 2009. Included in its balance
sheet as at 31 December 2008 was a balance for VAT due from government of tk. 15,000. ABC’s
summary income statement for the year 31 December 2009 was as follows:
Taka

Revenue (net) (all standard rated) 500,000

Purchase (net) (all standard rated) (120,000)

Gross profit 380,000

Expenses:

Wages & salaries (VAT exempted) (163,000)

Entertainment (Tk. 40 plus irrecoverable VAT Tk. 6) (46,000)

Other (net, all standard rated) (71,000)

Net profit 100,000

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 Payments of tk. 5,000, 15,000 and 20,000 have been made in the year to government and a repayment of tk. 12,000
was received.

a) What is the balance for VAT in the balance sheet as at 31 December 2009 (assume VAT @ 15%)
Ans:
VAT
Taka Taka
Balance b/d 15,000 Output VAT (500000@ 15%) 75,000
Input Tax- purchase (120000@15%) 18,000 Cash received from govt. 12,000
Input Tax other expenses (70000@15%) 10,500
Cash paid to govt.( 5000+15000+20000) 40,000
Balance c/d 3,500
87,000 87,000
Balance b/d 3,500

51. When a credit customer pays an invoice for tk. 115 including VAT @ 15%. What will the credit entry in
the VAT ledger account?
Ans:
Account receivable Dr. Tk.115
Sales Cr. Tk.100
VAT payable Cr. Tk.15
52. Define input VAT and output VAT with example.
Ans:
Input VAT: VAT on purchases is debited to the VAT current account (it is due from Govt.) and credited to
payables as part of the posting from the purchases day book. The remaining debit is to the purchase or other
expense account. Example: VAT paid against import of raw materials.
Output VAT: VAT on sales is debited to receivable as part of the posting from the sales day book and credited
to the VAT current account (it is owed to the Govt.); the remaining credit is to the sales account.
Example: VAT paid in case of sales of goods.

CHAPTER 5: PREPARING BASIC FINANCIAL STATEMENTS

53. What are the components of a complete set of financial statements

Ans: The components of a complete set of financial statements as per BAS 1 (presentation of financial statements)
are as follows:
 Balance sheet;

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  Income statements;
 Statements of changes in equity;
 Cash flow statements;
 Notes to the f/s.
54. What are the basis elements of a financial statements
Ans: The basic elements of financial statements are:
 Assets;
 Liabilities;
 Equity;
 Income;
 Expense.

55. What are the errors do not make a trial balance imbalance?
Ans: The error do not make a trial balance imbalance are as under:
 Omission errors;
 Commission errors;
 Compensating errors;
 Errors of principle.

56. Distinguish between errors that cause trial balance imbalance and those that do not.
Ans:
 Transportation error
 Errors of omission
 Errors of principles
 Errors of commission
 Compensating errors

CHAPTER 6: CONTROL ACCOUNT, ERRORS AND OMISSION

57. The total of the balance in a company’s receivables ledger is tk. 800 more than the debit balance on its
receivables control account. Which one of the following errors could by itself account for the
discrepancy?
a) The sales day book total column has been under cast by tk.800
b) Cash discounts totallling tk. 800 have been omitted form the nominal ledger
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 c) One receivables ledger account with a credit balance of tk. 800 has been treated as a debit balance in the list
of balances
d) The cash receipts book has been under cast by tk. 800

58. “Bank statement is the mirror image of the cash book”-explain

Ans: Cash is an asset (a debit balance) in the business ledger accounts. As far as the bank concerned it owes the
business money. Thus every item recorded as a debit in the business book-a positive bank balance and any receipts
of cash-will be shown as a credit on the bank statement.
When cash is a liability (a credit balance) in the business book, as far as the bank is concerned it is owed money.
Thus every credit entry in the business books-a negative bank balance and any payment of cash-will be shown as a
debit on the bank statement.

59. Mention the 5 common explanations for differences between cash book and bank statement

Ans: There are five common explanations for differences between ash book and bank statement. Which are
given below:

1. Error
2. Bank charges or bank interest
3. Automated payments and Receipts
4. Dishonor cheque
5. Timing differences

60. Explain, in brief, the adjusted cash book

Ans: Payment made into or from the bank account by way of standing order, direct debit or online transfer which
have not yet been entered in the cash book.

o Bank interest and bank charges not yet entered in the cash book.
o Dishonored cheque not yet entered in the cash book.

61. Identity types of error from following transactions

Ans:

Error Type

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 A credit sales of tk. 6,843 has been incorrectly debited in the receivable ledger as tk.
Transposition errors
6,483

A business receives an invoice from a supplier for tk. 250 and the transaction is missed
Errors of omission
from the books

An error is to treat revenue expenditure incorrectly as capital expenditure Errors of principal

Putting a debit entry or a credit entry in the wrong account Errors of commission

Casting error Errors of commission

Admin expenses of tk. 2,822 are entered as tk. 2,282 in the administrative expenses Errors of compensating
ledger account. At the same time, income of tk. 8,931 is shown in te sales account as
tk. 8,391.

CHAPTER 7: ACCOUNTING CONCEPT AND CONVENTIONS:

62. identifying concepts and conventions:

Scenario Concept and

convention

Owner of the business takes goods from inventories for his own personal use Business entity
concept

Application of degree of caution in exercising judgment under conditions of uncertainty Prudence

The directors do not intend to liquidate the entity or to cease trading in the Going concern
foreseeable future

The entity’s financial position financial performance and cash flow are presented fairly Fair presentation
and accounting

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 policies

When computing profit, income earned must be matched against the expenditure Realization
incurred in earning it concept

The presentation and classification of items in the financial statements should stay the Consistency
same from one period to the next concept

Financial statements are produced within a time interval that enables users to make Fair presentation
relevant economic decision. and accounting
policies

63. State few items for which set-off of is allowed?

Ans:
1. An IAS requires/permits it.
2. Gains, losses and related expenses arising from the same/similar transaction are not material.
3. An asset may be offset against a provision or allowance in relation to it, as this is not offsetting.

64. A retailer commences business on 1 January 2009 and buys 20 washing machines, each costing tk.
100. During the year he sells 17 machines at tk. 150 each. How should the remaining machines be
valued at 31 December in the following circumstances?
a) He forced to close down his business at the end of the year and the remaining machines will realize only tk. 60
each in a forced sale.
b) He intends to continue his business into the next year.
Ans:

a. If the business is to be closed down, the remaining three machines must be valued at the amount they will
realize in a forced sale, i.e. 3 x CU60 = CU180.

b. If the business is regarded as a going concern, the machines unsold at 31 December will be valued as an
asset at cost, 3 x CU100 = CU3O0.

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