Mock Test Paper - Series II: January,2025

Date of Paper: 31st December, 2024

FOUNDATION COURSE
PAPER – 1: ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
(Time allowed: 3 Hours) (100 Marks)
1. (a) State with reasons whether the following statements are True or False:
i. Depreciation cannot be provided in case of loss, in a financial year.
ii. At the end of the accounting year, all the nominal accounts of the
ledger book are balanced.
iii. Any amount spent for replacement of worn out part of a machine is
capital expenditure.
iv. In case of admission of a new partner in a partnership firm, the
profit/loss on revaluation account is transferred to all partners in
their new profit sharing ratio.
v. The debit notes issued are used to prepare Sales Return Book.
vi. Debentures Suspense Account appears on the liability side of the
Balance Sheet of a Company.
(6 Statements x 2 Marks = 12 Marks)
(b) Explain the objective of “Accounting Standards” in brief. (4 Marks)
(c) One of your clients Mr. Govind asked you to finalize his account for the
year ended 31st March,2024. As a basis for audit, Mr. Govind furnished
you with the following statement:
Dr. Cr.
Govind 's Capital 14,004
Govind 's Drawings 5,076
Leasehold Premises 6,750
Sales 24,750
Due from customers 4,770
Purchases 11,331
Purchase Return 2,376

1
 Loan from Bank 2,304
Trade Expense 6,300
Trade Payable 4,752
Bills Payable 900
Salaries and Wages 5,400
Cash at Bank 2,034
Opening Inventory 2,376
Rent and Rates 4,167
Sales Return 882
49,086 49,086
The closing inventory was ` 5,166. Mr. Govind claims that he has
recorded every transaction correctly as the trial balance is tallied. Check
the accuracy of the above trial balance and give reasons for the errors,
if any. (4 Marks)
(12 + 4 + 4 = 20 Marks)
2. (a) Sunshine Ltd. keeps no stock records but a physical inventory of stock
is made at the end of each quarter and the valuation is taken at cost.
The company’s year ends on 31 st March, 2024 and their accounts have
been prepared to that date. The stock valuation taken on 31 st March,
2024 was however, misleading and you have been advised to value the
closing stocks as on 31st March, 2024 with the stock figure as on 31st
December, 2023 and some other information is available to you:
(i) The cost of stock on 31 st December, 2023 as shown by the
inventory sheet was ` 80,000.
(ii) On 31st December, stock sheet showed the following
discrepancies:
(a) A page total of ` 5,000 had been carried to summary sheet as
` 6,000.
(b) The total of a page had been undercast by ` 200.
(iii) Invoice of purchases entered in the Purchase Book during the
quarter from January to March, 2024 totalled ` 70,000. Out of this
` 3,000 related to goods received prior to 31 st December, 2023.
Invoices entered in April 2024 relating to goods received in March,
2024 totalled ` 4,000.
(iv) Sales invoiced to customers totalled ` 90,000 from January to
March, 2024. Of this ` 5,000 related to goods dispatched before
31st December, 2023. Goods dispatched to customers before
31st March, 2024 but invoiced in April, 2024 totalled ` 4,000.
(v) During the final quarter, credit notes at invoiced value of ` 1,000
had been issued to customers in respect of goods returned during
2
 that period. The gross margin earned by the company is 25% of
cost.
You are required to prepare a statement showing the amount of stock at
cost as on 31st March, 2024. (10 Marks)
(b) Prepare a Bank Reconciliation statement for Ramesh Traders as on 31st
March,2024.
The cash book of Ramesh Traders shows a debit balance of ` 8,24,400
at bank as on 31st March,2024, but you find that it does not agree with
the balance as per Pass Book. After checking you find the following:
1. On 12th March, 2024 the payment side of the Cash Book was under
cast by ` 24,000/-
2. A cheque of ` 1,70,000 issued on 20th March, 2024 was not taken
in the bank column.
3. On 22nd March, 2024 the debit balance of ` 37,000 as on the
previous day, was brought forwards as credit balance.
4. Out of the total cheques amounting to ` 84,000 issued in, the last
week of March, 2024, cheques aggregating ` 57,000 were
encashed in March, 2024.
5. Dividends of ` 70,000 collected by the Bank and Fire insurance
premium of ` 40,000 paid by it were not recorded in the cash book.
6. One cheque issued to a creditor of ` 2,58,000 was recorded twice
in the Cash book.
7. A debtor Mr. Sahid has deposited the Cheque for ` 64,000 into the
bank directly in the month of March, 2024 without intimating to
Ramesh Traders and the same cheque was dishonored by the bank
due to insufficient funds in the month of March itself.
8. A cheque from customer for ` 10,000 was deposited in bank on
28th March,2024 but was dishonored and advice received from
bank on 3rd April, 2024.
9. Bank paid credit card bill of ` 5,000 which is not recorded in cash
book.
10. Bank wrongly credited cheque of ` 50,000 of other customer in our
account.
11. Bank credited cheque of ` 4,000 in savings account of proprietor of
Ramesh Traders instead of crediting cheque in current account of
Ramesh Traders.
12. ` 1,000 discount received wrongly entered in bank column in cash
book.

3
 13. Bank debited charges ` 400 on 25th March for which no intimation
received till 31 st March (10 Marks)
(10 +10 = 20 Marks)
3. (a) Summary of Receipts and Payments of Natures Beauty Society for the
year ended 31st March, 2024 are as follows:
Receipts Amount Payments Amount
Subscription Received 5,00,000 Payment for Medicine 3,00,000
Supply
Donation Raised for 1,50,000 Honorarium to Doctors 1,00,000
meeting revenue
expenditure
Interest on Investments 90,000 Salaries 2,80,000
@ 9% p.a.
Charity Show Collection 1,25,000 Sundry Expenses 10,000
Equipment Purchase 1,50,000
Charity Show Expenses 15,000

Additional Information:
Particulars 01.04.2023 31.03.2024
Subscription due 15,000 22,000
Subscription received in advance 12,000 7,000
Stock of medicine 1,00,000 1,50,000
Amount due for medicine supply 90,000 1,30,000
Value of equipment 2,10,000 3,00,000
Value of building 5,00,000 4,80,000
Cash Balance 80,000 90,000
Opening Balance of Capital Fund 18,03,000
You are required to prepare:
(i) Income and Expenditure Account for the year ended 31 st March,
2024.
(ii) Balance Sheet as on 31 st March, 2024. (10 Marks)
(b) A, B and C shared profits and losses in the ratio of 5:3:2. They took out
a Joint Life Policy in 2020 for ` 50,000, a premium of ` 3,000 being paid
annually on 10th June. The surrender value of the policy on 31st
December of various years was as follows:
2020 Nil
2021 ` 900
2022 ` 2,000
2023 ` 3,600

4
 A retired on 15th April, 2024 and the policy was surrendered. You are
required to prepare Joint Life Policy Account from 2020 to 2024
(assuming the Policy Account is maintained at surrendered value basis).
(5 Marks)
(c) Mr. Nikhil gives the following particulars in respect of business carried
on by him:
Particulars Amount (`)
Capital Invested in business 9,00,000
Market rate of interest on investment 8%
Rate of risk return on capital invested in business 3%
Remuneration per annum from alternative
employment of proprietor if he was not engaged in 36,000
business
The business earned profits of ` 2,40,000, ` 2,16,000 and ` 3,00,000 in
the years 2020, 2021 and 2023 respectively but made a loss of ` 36,000
in the year 2022.
Compute the value of Goodwill on the basis of 6 years' purchase of super
profits of the business, calculated on the basis of average profit of last
four years. (5 Marks)
(10 + 5 + 5 = 20 Marks)
4. (a) The Balance Sheet of a Partnership Firm M/s Dutch and Associates
consisted of two partners P and Q who were sharing Profits and Losses
in the ratio of 5 : 3 respectively. The position as on 31st March,2024 was
as follows:
Liabilities ` Assets `
P's Capital 4,10,000 Land & Building 3,80,000
Q's Capital 3,30,000 Plant & Machinery 1,70,000
Profit & Loss A/c 1,12,000 Furniture 1,09,480
Trade Creditors 54,800 Stock 1,45,260
Sundry debtors 60,000
Cash at Bank 42,060
9,06,800 9,06,800
On the above date, R was admitted as a partner on the following terms:
(a) R should get 1/5th of share of profits.
(b) R brought ` 2,40,000 as his capital and ` 32,000 for his share of
Goodwill.
(c) Plant and Machinery would be depreciated by 15% and Land &
Buildings would be appreciated by 40%.

5
 (d) A provision for doubtful debts to be created at 5% on sundry
debtors.
(e) An unrecorded liability of ` 6,000 for repairs to Buildings would be
recorded in the books of accounts.
(f) Immediately after R’s admission, Goodwill brought by him would be
adjusted among old partners. Thereafter, the capital accounts of
old partners would be adjusted through the current accounts of
partners in such a manner that the capital accounts of all the
partners would be in their profit sharing ratio.
Prepare revaluation A/c, capital Accounts of the partners, new profit
sharing ratio and Balance Sheet of the firm after the admission of R.
(10 Marks)
(b) Sameer Distributors are carrying on the retail business of electrical
goods. They keep their books of account under single entry system. The
Balance Sheet as on 31 stMarch, 2023 was as follows:
Liabilities Amount (`) Assets Amount (`)
Capital A/c 18,15,000 Motor Vehicle 3,30,000
Trade Creditors 2,25,600 Furniture 2,20,500
Salary payable 27,000 Stock in trade 5,12,400
Trade Debtors 4,36,200
6% Investments 1,80,000
Cash in hand & at Bank 3,88,500
20,67,600 20,67,600
The summary of Cash and Bank Book for the year ended 31 st March,
2024 was given as below:
Receipts Amount (`) Payments Amount (`)
Cash in hand & at Cash Purchases 28,45,200
Bank on 1st Payment to Trade
April,2023 3,88,500 Creditors 2,26,35,000
Cash Sales 30,67,200 Salaries 12,38,400
Receipts from Rent & taxes 7,54,800
Trade 2,56,56,000 Sundry Expenses 4,15,200
Debtors Drawings 7,20,000
Interest on 10,800 Cash in hand & at
investments Bank on 31st 5,13,900
March,2024
2,91,22,500 2,91,22,500
Additional Information:
(i) Gross Profit ratio of 12.5% on Sales is maintained throughout the
year.

6
 (ii) During the year, discount allowed to Trade debtors was for `
1,87,500 and discount received from Trade Creditors amounted to
` 1,05,000.
(iii) As on 31st March,2024. The closing balances to Trade Debtors and
Trade Creditors were `6,61,500 and ` 3,16,800 respectively.
(iv) On 31st March,2024 an amount of ` 44,400 was outstanding
towards Salary.
(v) Depreciation @ 10% p.a. to be charged on Motor Vehicle and
Furniture.
You are required to prepare Trading and Profit & Loss account for the
year ended 31st March,2024 and Balance Sheet on at that date.
(10 Marks)
(10 + 10 = 20 Marks)
5. (a) M/s. Satya Paul steels were unable to agree the Trial Balance as on
31st March, 2024 and have raised a suspense account for the difference.
Next year the following errors were discovered:
(i) Repairs made during the year were wrongly debited to the building
A/c - ` 37,500.
(ii) The addition of the 'Freight' column in the purchase journal was
short by ` 4,500.
(iii) Goods to the value of ` 3,250 returned by a customer Parth., had
been posted to the debit of Parth and also to sales returns.
(iv) Sundry items of furniture sold for ` 50,000 had been entered in the
sales book, the total of which had been posted to sales account.
(v) A bill of exchange (received from Comfort & Co.) for ` 60,000 had
been returned by the bank as. dishonoured and had been credited
to the bank and debited to bills receivable account.
You are required to pass journal entries to rectify the above mistakes.
(5 Marks)
(b) Mr. Sanjay runs a factory which produces tyres. The following details
were obtained about his manufacturing expenses for the year ended
31st March 2024:
Amount (`)
Opening Work-in – Progress 18,75,000
Closing Work–in Progress 21,45,000
Opening Inventory of Raw material 17,55,000
Closing Inventory of Raw material 14,10,000
Purchases 56,22,000
Purchase Returns 2,85,000

7
 Carriage Inward 8,10,000
Direct Wages 11,91,000
Power & Electricity 5,28,000
Repairs and Maintenance 7,95,000
Depreciation on Factory Shed 4,32,000
Depreciation on Plant & Machinery 4,86,000
Sale of scrap 1,08,000
You are required to prepare Manufacturing Account for the year ended
31st March, 2024. (5 Marks)
(c) The books of Rishab Ltd. showed the following balance on 31st
December, 2024:
60,000 Equity Shares of ` 10 each fully paid; 36,000 12% Redeemable
Preference Shares of ` 10 each fully paid; 4,000 10% Redeemable
Preference Shares of ` 10 each, ` 8 paid up (all shares issued on 1 st
April, 2024).
Undistributed Reserve and Surplus stood as: Profit and Loss Account
` 1,60,000; General Reserve ` 2,40,000; Securities Premium Account
` 30,000 and Capital Reserve ` 42,000.
For redemption, 6,000 equity shares of `10 each are issued at 10%
premium. At the same time,12% Preference shares are redeemed on 1st
January, 2024 at a premium of `2 per share. The whereabouts of the
holders of 200 shares of `10 each fully paid are not known.
A bonus issue of equity share was made at par, two shares being issued
for every five held on that date out of the Capital Redemption Reserve
Account. However, equity shares, issued for redemption are not eligible
for bonus.
Show the necessary Journal Entries to record the transactions. (Ignore
date column) (10 Marks)
(5 + 5 + 10 = 20 Marks)
6. (a) Samuel Limited issued a prospectus inviting applications for 1,20,000
equity shares of ` 10 each at a premium of ` 2 per share payable as
follows:
On Application - ` 3 per share
On Allotment - ` 5 per share (including premium)
On First and Final Call - ` 4 per share
Applications were received for 3,60,000 equity shares. Applications for
80,000 shares were rejected and the money refunded. Shares allotted
to remaining applications as follows:

8
 Category No. of shares Applied No. of shares Allotted
I 1,60,000 80,000
II 1,20,000 40,000
Excess money received with applications was adjusted towards sums
due on allotment and the balance amount returned to the applicants. All
calls were made duly received except the final call by a shareholder
belonging to Category I who has applied for 680 shares. His shares were
forfeited. The forfeited shares were reissued at ` 13 per share fully paid-
up.
Pass necessary journal entries for the above transactions in the books
of Samuel Ltd. Open call in arrears account whenever required.
(15 Marks)
(b) Write short notes on any two of the following:
(i) Bill of exchange and the various parties to it.
(ii) Retirement of bills of exchange.
OR
What are the advantages of Subsidiary Books? (5 Marks)
(15 + 5 = 20 Marks)