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Test Series: December,2023

MOCK TEST PAPER 2
FOUNDATION COURSE
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) (i) False: The provision for bad debts is debited to Profit and loss Account, in Balance Sheet it is
either shown on liability side or deducted from the head debtors.
(ii) True: Discount column is totalled and transferred to the discount allowed or received account.
(iii) False: They are recorded as sales irrespective of whether the customer might accept or reject
the goods at the end of the period given for the approval.
(iv) True: In case the due date of a bill falls after the date of closing the account, then no interest
is allowed for that. However, interest from the date of closing to such due date is written in
“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red-Ink
interest.
(v) False: Surviving partners may continue to carry on the business in case of partnership.
(vi) False: A share on which only a fixed rate of dividend is paid every year, without any
accompanying additional rights in profits and in the surplus on winding-up, is called 'Non-
participating Preference Shares. Non-participating preference shareholders do not enjoy
voting rights.
(b) Limitations which must be kept in mind while evaluating the Financial Statements are as
follows:
• The factors which may be relevant in assessing the worth of the enterprise don’t find place in
the accounts as they cannot be measured in terms of money.
• Balance Sheet shows the position of the business on the day of its preparation and not on the
future date while the users of the accounts are interested in knowing the position of the
business in the near future and also in long run and not for the past date.
• Accounting ignores changes in some money factors like inflation etc.
• There are occasions when accounting principles conflict with each other.
• Certain accounting estimates depend on the sheer personal judgement of the accountant.
• Different accounting policies for the treatment of same item adds to the probability of
manipulations.
(c) Printing Press
Calculation of the value of Inventory as on 31-3-2023
Receipts Issues Balance
Date Units Rate Amount Units Rate Amount Units Rate Amount
` ` ` ` ` ` ` `
1-1-2023 Balance Nil
1-1-2023 100 300 30,000 100 300 30,000
15-1-2023 50 300 15,000 50 300 15,000

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1-2-2023 200 400 80,000 250 380 95,000

15-2-2023 100 380 38,000 150 380 57,000
20-2-2023 100 380 38,000 50 380 19,000

Therefore, the value of Inventory as on 31-3-2023 = 50 units @ `380 = `19,000

2. (a)

Particulars Dr. (`) Cr. (`)

(i) Bills Receivable A/c Dr. 1,550
Bills Payable A/c Dr. 1,550
To Hament A/c 3,100
(Correction of error by which bill receivable of
` 1,550 was wrongly passed through Bills Payable book)
(ii) Nidhi A/c Dr. 25,000
To Vidhi A/c 25,000
(Correction of error by which sale of ` 25,000 to Nidhi was
wrongly debited to Vidhi’s account)
(iii) Suspense A/c Dr. 270
To P & L Adjustment A/c 270
(Correct of error by which general expenses of ` 360 was
wrongly posted as ` 630)
(iv) P & L Adjustment A/c Dr. 5,000
To Suspense A/c 5,000
(Correction of error by which sales account was overcast
last year)
(v) Suspense A/c Dr. 6,400
To Aman A/c 3,200
To Vimal A/c 3,200
Removal of wrong debit to Vimal and giving credit to
Aman from whom cash was received)
(vi) P & L Adjustment A/c Dr. 2,910
To Mr. Mohan 2,910
(Correction of error by which legal expenses paid to Mr.
Mohan was wrongly debited to her personal account)
(vii) Suspense A/c Dr. 90
To P&L Adjustment A/c 90
(Correction of error by which Purchase A/c was excess
debited by `90/-, i.e.: `1,325 – `1,235)
Suspense A/c
` `
To P & L Adjustment A/c 270 By P & L Adjustment A/c 5,000
To Aman A/c 3,200 By Difference in Trial Balance 1,760
(Balancing figure)

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To Vimal A/c 3,200

To P&L Adjustment A/c 90
6,760 6,760
(b) Bank Reconciliation Statement as on 30 th June 2023
Particulars Amount Amount
(`) (`)
Overdraft as per Pass Book (Dr. Balance) 25,000
Add: Cheques issued but not presented ` (34,000-20,000) 14,000
Cheques deposited into the Bank by Customer but not 400
entered in Cash Book
Bank charges written twice in Cash Book 80 14,480
39,480
Less: Cheques received, recorded in cash Book but not sent to 4,000
the Bank
Cheques sent to the Bank but not collected 6,000
Direct payment made by the bank not recorded in the Cash 600
book
Interest on Overdraft charged by Bank 1,600
Insurance charges not entered in Cash Book 70
Credit side of bank column of Cash Book was undercast
2,000 14,270
Balance as per Cash Book 25,210
3. (a) In the books of Ram
Consignment to Jaipur Account
Particulars ` Particulars `
To Goods sent on 1,87,500 By Goods sent on 37,500
Consignment A/c Consignment A/c (loading)
To Cash A/c 15,000 By Abnormal Loss 16,500
To Shiv (Expenses) 12,000 By Shiv (Sales) 1,50,000
To Shiv (Commission) 16,406 By Inventories on Consignment 30,375
A/c
To Inventories Reserve A/c 5,625 By General Profit & Loss A/c 2,156
2,36,531 2,36,531
Working Notes:
1. Calculation of value of goods sent on consignment:
Abnormal Loss at Invoice price = ` 18,750
Abnormal Loss as a percentage of total consignment = 10%
Hence the value of goods sent on consignment = ` 18,750 X 100/ 10 = ` 1,87,500
Loading of goods sent on consignment = ` 1,87,500 X 25/125 = ` 37,500

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2. Calculation of abnormal loss (10%):

Abnormal Loss at Invoice price = ` 18,750.
Abnormal Loss at cost = ` 18,750 X 100/125 = ` 15,000
Add: Proportionate expenses of Ram (10 % of ` 15,000) =` 1,500
` 16,500
3. Calculation of closing Inventories (15%):
Ram’s Basic Invoice price of consignment= ` 1,87,500
Ram’s expenses on consignment = ` 15,000
` 2,02,500
Value of closing Inventories = 15% of ` 2,02,500 = ` 30,375
Loading in closing Inventories = ` 37,500 x 15/100 = ` 5,625
Where ` 28,125 (15% of ` 1,87,500) is the basic invoice price of the goods sent on
consignment remaining unsold.
4. Calculation of commission:
Invoice price of the goods sold = 75% of ` 1,87,500 = ` 1,40,625
Excess of selling price over invoice price = ` 9,375 (1,50,000 - 1,40,625)
Total commission = 10% of ` 1,40,625 + 25% of ` 9,375
= ` 14,062.5 + ` 2,343.75
= ` 16,406
(b) Calculation of Average due date
Taking 6 th January, 2023 as base date
Due date Amount No. of days from the base Product
` date i.e. 6 th Jan. 2023 `
For Bosco’s payments 2023
6th January 60,000 0 0
2nd February 28,000 27 7,56,000
31st March 20,000 84 16,80,000
Total 1,08,000 24,36,000
For Ben’s payment 2023
6th January 66,000 0 0
9th March 24,000 62 14,88,000
20th March 5,000 73 3,65,000
Total 95,000 18,53,000
Excess of Bosco’s products over Ben’s = ` 24,36,000 – ` 18,53,000 = ` 5,83,000
= ` 1,08,000 – ` 95,000 = ` 13,000
Number of days from the base date to the date of settlement is `5,83,000 / `13,000 = 45 days
(approx)
Hence, the date of settlement of the balance amount is 45 days after 6 th January i.e. on
20th February.
On 20th February, 2023, Bosco has to pay Ben ` 13,000 to settle the account.
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(c) In the books of P

Q in Account Current with P
(Interest to 31 st March,2023 @10%p.a.)
Date Due Particulars No. of Amt. Product Date Due Particulars No. of Amt. Product
date days date days till
till 31.3.23
31.3.23
2022 2022 ` ` 2022 2022 ` `
Oct 1, Oct 1, To Balance 182 3,000 5,46,000 Nov Nov 26 By Purchases 125 4,000 5,00,000
b/d 16
Oct Oct 18 To Sales 164 2,500 4,10,000 Dec Dec. By Purchases 104 3,500 3,64,000
18, 7 17
2023 2023 2023 2023
Jan 3 Apr 6 To Bills (6) 5,000 (30,000) Mar Apr 8 By Purchases (8) 2,700 (21,600)
payable 28
Feb 4 Feb 4 To Cash 55 1,000 55,000 Mar Mar 31 By Balance of 1,81,600
31 product
Mar 21 Mar. 21 To Sales 10 4,300 43,000 By Balance c/d 5,650
Mar 31 Mar 31 To Interest 50
-
15,850 10,24,00 15,850 10,24,000
0

1, 81,600 x 10 x 1
Interest for the period = = ` 50 (approx.)
100 x 365
4 (a) Revaluation Account
Particulars ` Particulars `
To Stock 1,500 By Land & Building 25,000
To Partners: By Provision for doubtful debt 2,000
(Revaluation Profit)
Inder 8,500
Anil 8,500
Pawan 8,500
27,000 27,000

Partners’ Capital Accounts

Particulars Inder Anil Pawan Particulars Inder Anil Pawan
To Pawan 4,375 4,375 - By Bal b/d. 1,00,000 75,000 75,000
To Pawan’s - - 98,125 By General reserve 4,000 4,000 4,000
Executor By Inder & Anil - - 8,750
To Bal. c/d 1,08,125 83,125 By Profit and Loss - - 1,875
Adjustment*
(suspense) A/c
By Revaluation A/c 8,500 8,500 8,500
1,12,500 87,500 98,125 1,12,500 87,500 98,125

*Profit and Loss Adjustment = [(25,000 + 20,000 + 22,500)/3] x 3/12 x 1/3 = 1,875

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Working Note:
Calculation of goodwill and Pawan’s share
Average of last five year’s profits and losses for the year ended on 31st March
31.3.2019 28,750
31.3.2020 35,000
31.3.2021 22,500
31.3.2022 20,000
31.3.2023 25,000
Total 1,31,250
Average profit 26,250
Goodwill at 1 year purchase = ` 26,250 x 1 = ` 26,250
Pawan’s Share of Goodwill = ` 26,250X1/3
= ` 8,750
Which is contributed by Inder and Anil in their gaining Ratio
Inder = ` 8,750X1/2 = ` 4,375
Anil = ` 8,750X1/2 = ` 4,375
(b) Trading and Profit and Loss Account of Mr. Chawla
for the year ended 31 st December, 2022
` ` ` `
To Opening stock 23,400 By Sales 1,94,800
To Purchases 1,60,850 Less: Returns 4,300 1,90,500
Add: Omitted invoice 200 By Closing stock 39,300
1,61,050
Less: Returns 2,900
1,58,150
Less: Drawings 300 1,57,850
To Carriage Inwards 9,800
To Gross profit c/d 38,750
2,29,800 2,29,800
To Rent and taxes 2,350 By Gross profit b/d 38,750
To Salaries and wages 4,650 By Discount 2,220
To Bank interest 550
Add: Due 850 1,400
To Printing and stationary 7,200
Less: Prepaid (1/4) 1,800 5,400
To Discount allowed 900
To General expenses 5,725
To Insurance 650
To Postage
1,165
expenses
To Travelling expenses 435

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To Provision for bad debts 575

[W.N.]
To Provision for discount
219
on debtors [W.N.]
To Depreciation on
250
furniture & fittings
To Net profit 17,251
40,970 40,970
Working Note:
Provision for bad & doubtful debts:
@ 5% on ` 11,500 575
Provision for discount:
2% on ` 10,925 (11,500 -575) 219

5. (a) Subscription for the year ended 31.3.2023

`
Subscription received during the year 22,50,000
Less: Subscription receivable on 1.4.2022 67,500
Less: Subscription received in advance on 31.3.2023 31,500 (99,000)
2 1,51,000
Add: Subscription receivable on 31.3.2023 99,000
Add: Subscription received in advance on 1.4.2022 54,000 1,53,000
Amount of Subscription appearing in Income & Expenditure
23,04,000
Account
Sports material consumed during the year end 31.3.2023
`
Payment for Sports material 13,50,000
Less: Amounts due for sports material on 1.4.2022 (4,05,000)
9,45,000
Add: Amounts due for sports material on 31.3.2023 5,85,000
Purchase of sports material 15,30,000
Sports material consumed:
Stock of sports material on 1.4.2022 4,50,000
Add: Purchase of sports material during the year 15,30,000
1 9,80,000
Less: Stock of sports material on 31.3.2023 (6,75,000)
Amount of Sports Material appearing in Income & Expenditure Account 13,05,000

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Balance Sheet of M/s Freelancer Club For the year ended 31 st March, 2023(An extract)
Liabilities ` Assets `
Unearned Subscription 31,500 Subscription receivable 99,000
Amount due for sports material 5,85,000 Stock of sports material 6,75,000
(b) Journal Proper in the Books of M/s. Shrikant Traders
Date Particulars Amount Amount
2023 ` `
Mar. 31 Returns outward A/c Dr. 72,000
To Purchases A/c 72,000
(Being the transfer of returns to purchases account)
Sales A/c Dr. 1,00,000
To Returns Inward A/c 1,00,000
(Being the transfer of returns to sales account)
. Sales A/c Dr. 10,00,000
To Trading A/c 10,00,000
(Being the transfer of balance of sales account to
trading account)
Trading A/c Dr. 7,80,000
To Opening Inventory A/c 1,00,000
To Purchases A/c 6,00,000
To Wages A/c 50,000
To Carriage Inwards A/c 30,000
(Being the transfer of balances of opening
inventory, purchases and wages accounts)
Closing Inventory A/c Dr. 2,00,000
To Trading A/c 2,00,000
(Being the incorporation of value of closing
Inventory)
Trading A/c Dr. 4,20,000
To Gross Profit 4,20,000
(Being the amount of gross profit)
Gross profit Dr. 4,20,000
To Profit and Loss A/c 4,20,000
(Being the transfer of gross profit to Profit and Loss
Account)
(c)
Particulars A B C Total
Profit of
firm
I. Amount already credited:
Share of profit (in the ratio of 26,000 26,000 26,000 78,000
1:1:1) (2021-22,2022-23)

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II. Amount which should have been credited:

C’s Salary (2021-22,2022-23) 10,000
Interest on Capital (2021-22, 5,000 2,500 2,500
2022-23)
Share of Profit 29,000 14,500 14,500 58,000
34,000 17,000 27,000
Net effect (I-II) (8,000) 9,000 (1,000) -
The necessary journal entry will be:
Particulars Debit (`) Credit (`)
B’s Current A/c 9,000
To A’s Current A/c 8,000
To C’s Current A/c 1,000
(Salary to C, Interest on capital charged and profit shared
among partners in the ratio of capital)
6. (a) In the books of Pony and Pal Garments Ltd.
Journal Entries
Particulars L.F. Debit Credit
Amount Amount
(`) (`)
Bank A/c Dr. 20,000
To Equity Share Application A/c 20,000
(Money received on applications for 20,000
shares @ ` 1 per share)
Equity Share Application A/c Dr. 20,000
To Equity Share Capital A/c 20,000
(Transfer of application money on 20,000 shares
to share capital)
Equity Share Allotment A/c Dr. 40,000
To Equity Share Capital A/c 40,000
(Amount due on the allotment of 20,000 shares @
` 2 per share)
Bank A/c Dr. 39,600
To Equity Share Allotment A/c 39,600
(Allotment money received on 19,800 shares)
OR
Bank A/c Dr. 39,600
Calls in arrears A/c Dr. 400
To Equity Share Allotment A/c 40,000
(Allotment Amount received except 200 shares)
Equity Share Capital A/c Dr. 600
To Share Forfeiture A/c 200
To Equity Shares Allotment A/c 400
(200 Shares of Ram forfeited)

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OR
Equity Share Capital A/c Dr. 600
To Shares Forfeiture A/c 200
To Calls in arrears A/c 400
(200 shares forfeited due to non-payment of
allotment money)
Equity Share First Call A/c Dr. 59,400
To Equity Share Capital A/c 59,400
(First call made due on 19,800 shares at ` 3 per
share)
Bank A/c Dr. 58,500
To Equity Share First Call A/c 58,500
(First call money received on 19,500 shares at
` 3 per share)
OR

Bank A/c Dr. 58,500

Calls in arrears A/c Dr. 900
To Equity Share First Call A/c 59,400
(First Call money received except 300 shares)
Equity Share Capital A/c Dr. 1,800
To Share Forfeiture A/c 900
To Equity Share First Call A/c 900
(300 Shares of Shyam forfeited)
OR
Equity Share Capital A/c Dr. 1,800
To Share Forfeiture A/c 900
To Calls in arrears A/c 900
(300 shares forfeited due to non - payment of First
call money)
Equity Share Second and Final Call A/c Dr. 78,000
To Equity Share Capital A/c 78,000
(Second and Final call made due on 19,500
shares at ` 4 per share)
Bank A/c Dr. 77,600
To Equity Share Second and Final Call A/c 77,600
(Second and Final call money received on 19,400
shares at ` 4 per share)
OR
Bank A/c Dr. 77,600
Calls in arrears A/c Dr. 400
To Equity Shares Second and Final call A/c 78,000
(Second and Final call money received except100
shares)
Equity Share Capital A/c Dr. 1,000
To Share Forfeiture A/c 600
To Equity Share Second and Final Call A/c 400
(100 Shares of Mohan forfeited)

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OR
Equity Share Capital A/c Dr. 1,000
To Shares Forfeiture A/c 600
To Calls in arrears A/c 400
(100 shares forfeited due to non-payment of
Second and final call money)
Bank A/c Dr. 5,400
Share Forfeiture A/c Dr. 600
To Equity Share Capital A/c 6,000
(600 shares reissued at ` 9 per share)
Share Forfeiture A/c Dr. 1,100
To Capital Reserve A/c (W.N.1) 1,100
(Profit on re-issue transferred to Capital Reserve)
Working Note-1: Calculation of amount to be transferred to Capital Reserve:
Surplus out of 200 shares of Ram forfeited ` 200
Surplus out of 300 shares of Shyam forfeited ` 900
Surplus out of 100 shares of Mohan forfeited ` 600
` 1,700
Less: Loss on Reissue (6,00)
Net Amount to be transferred to Capital Reserve ` 1,100
(b) (i) Revenue Expenditure.
(ii) Capital Expenditure.
(iii) Revenue Expenditure.
(iv) Revenue Expenditure.
(v) Capital Expenditure.

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