Fundamental of Accounting

Biyani's Think Tank
Concept based notes
Fundamentals of Accounting
[BCA]
Anubhav Lamba
B.Com., M.Com., ACS, LLB
Revised By : Ms. Shaziya Naz
Lecturer
Deptt. of Commerce
Biyani Girls College, Jaipur
Biyanis Think Tank
Published by :
Think Tanks
Biyani Group of Colleges
Concept & Copyright :
Biyani Shikshan Samiti

Sector-3, Vidhyadhar Nagar,
Jaipur-302 023 (Rajasthan)
Ph : 0141-2338371, 2338591-95 Fax : 0141-2338007
E-mail : acad@biyanicolleges.org
Website :www.gurukpo.com; www.biyanicolleges.org
ISBN : 978-93-81254-57-8
Edition : 2011
Price:
While every effort is taken to avoid errors or omissions in this Publication, any
mistake or omission that may have crept in is not intentional. It may be taken note of
that neither the publisher nor the author will be responsible for any damage or loss of
any kind arising to anyone in any manner on account of such errors and omissions.
Leaser Type Setting by :

Biyani College Printing Department
Preface
am glad to present this book, especially designed to serve the needs of
the students. The book has been written keeping in mind the general weakness
in understanding the fundamental concepts of the topics. The book is selfexplanatory and adopts the Teach Yourself style. It is based on questionanswer pattern. The language of book is quite easy and understandable based
on scientific approach.
Any further improvement in the contents of the book by making corrections,
omission and inclusion is keen to be achieved based on suggestions from the
readers for which the author shall be obliged.
I acknowledge special thanks to Mr. Rajeev Biyani, Chairman & Dr. Sanjay
Biyani, Director (Acad.) Biyani Group of Colleges, who are the backbones and
main concept provider and also have been constant source of motivation
throughout this Endeavour. They played an active role in coordinating the various
stages of this Endeavour and spearheaded the publishing work.
I look forward to receiving valuable suggestions from professors of various
educational institutions, other faculty members and students for improvement of
the quality of the book. The reader may feel free to send in their comments and
suggestions to the under mentioned address.
Author
Biyanis Think Tank
Content
S. No.
Name of Topic
1.
Accounting : An Introduction
2.
Journal and Ledger
3.
Subsidiary Books
4.
Trial Balance
5.
Bill of Exchange
6.
Depreciation, Provision and Reserve
7.
Rectification of Errors
8.
Final Accounts
9.
Sectional and Self Balancing Ledgers
10.
Preparation of Accounts from Incomplete Records
11.
Accounts of Non-Profit Organizations
12.
Unsolved Five Years Papers
13.
Multiple Choice Question
14.
Key terms
Chapter-1
Accounting : An Introduction
Very Short: Question-Answer
Q.1.
Ans.
What is meant by Accounting? Give two objectives of Accounting.

According to the American Institute of Certified Public Accountants (AICPA) in
their Accounting Terminology Bulletin No. 1, Accounting is the art of recording,
classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial character and
interpreting the results thereof.
Two objectives of Accounting are:
(i)
To keep systematic records: Its main objective is to keep complete
record of business transactions. It avoids the possibility of omission and
fraud.
(ii)
To calculate profit or loss: Accounting helps to ascertain the net profit
earned or loss suffered on account of business transactions during a
particular period. To ascertain profit or loss at the end of each accounting
period Trading and Profits & Loss of the business is prepared.
Q.2.
Ans.
What do you mean by Accounting Concepts?

Accounting Concepts provide a base for accounting process every enterprise has
to consider basic concepts at the time of preparing its financial statements.
According to Kohler concept as, A series of assumptions constituting the
supposed basis of a system of thought or an organized field of an endeavour.
Q.3.
Ans.
What is separate entity concept?

According to this concept, the business and businessman are two separate and
distinct entities. Business is treated as a unit separate and distinct from its owners,
managers and others. Therefore, proprietor is treated as a creditor of the business
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to the extent of capital invested by him in the business. It is applicable to all forms
of business organizations, i.e., sole proprietorship, partnership or a company.
Q.4.
Ans.
What do you understand by going concern concept?

According to this concept it is assumed that the business will continue to exist for
a long period in the future. According to this concept we record fixed assets at
their original cost and full cost of the asset would not be treated an expense in the
year of its purchase itself.
Q.5.
Ans.
What do you understand by convention of consistency?

According to this convention accounting principles and methods should remain
consistent from one year to another. The rationale for this concept is that changes
in accounting treatment would make the Profit & Loss and Balance Sheet
unreliable for end users. For example there are several methods of providing
depreciation on fixed assets i.e. fixed installment method, diminishing balance
method etc., But it is expected that the business entity should be consistent to
follow accounting method.
Q.6.
Ans.
Explain Accounting Equation.

Accounting equation is also termed as balance sheet equation. It signified that the
assets of a business are always equal to the total of capital and liabilities.
It can be represented as:
Assets = Liabilities + Capital
Capital = Assets + Liabilities
Short: Question-Answer
Q.1.
Ans.
Give advantages of Accounting.

Advantages of accounting are:
(i)
Provides Complete and Systematic Record: In business there are so
many transactions therefore it is not possible to remember all transactions.
Accounting keeps a systematic record of all the business transactions and
summarized into financial statements.
(ii)
Information Regarding Financial Position: Accounting provides
information about the financial position of the business by preparing a
balance sheet at the end of each accounting period.
(iii)
(iv)
Q.2.
Ans.
Helpful in Assessment of Tax Liability: Accounting helps in

maintaining proper records. With the help of these records a firm can
assessed income tax of sales tax. Such records are trusted by income tax
and sales tax authorities.
Information Regarding Profit or Loss: Profit & Loss Account is
prepared at the end of each accounting period to know the net profit
earned or net loss suffered at the end of each accounting period.
Give limitations of Accounting.

Limitations of Accounting are:
(i)
Possibilities of Manipulation: Accounts can be manipulated, so that the
financial statements may disclose a more favourable position then the
actual position for example closing stock may be overvalued in accounts.
(ii)
It includes only Economic Activities: Non-monetary transactions are not
recorded in accounts. Transactions which can not be expressed in money
cannot find place in accounts. Qualitative aspects of business units like
management labour relations, efficiency of management etc. are wholly
omitted from the books of accounts.
(iii) Price Level Changes not Considered: Fixed assets are recorded in
accounts at their original cost. Sometimes assets remain undervalued
particularly land and building. Effect of price level changes is not
considered at the time of preparing accounts.
(iv)
Influenced by Personal Judgments: An accountant has to use his
personal judgment in respect of many items. For example, it is very
difficult to predict the useful life of an asset.
(v)
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Chapter-2
Journal and Ledger
Q.1.
Ans.
What is Journal?
A Journal is a book of original entry in which transactions are recorded in the
order in which they occur i.e., in chronological order.
It is a basic book of original entry in which transactions are analyzed before they
are posted in the ledger.
Q.2.
Ans.
Give four advantages of Journal.

Advantages of Journal:
(i)
As transactions in journal are entered as and when they take place, the
possibility of omission of a transaction in the books of accounts is
minimized.
(ii)
Journal provides a chronological record of all transactions.
(iii) Along with the entry in the journal, a complete explanation is written so
that it is possible to understand the entry properly later.
(iv)
Journal facilitates cross checking of ledger accounts in cae a trial balance
does not agree.
Q.3.
Ans.
Give two limitations of Journal.

Limitations of Journal:
(i)
When the number of transactions is large, it is not possible to record all
the transactions in journal. Therefore, the usual practice is to have separate
journals or books for different classes of transactions.
(ii)
Cash transactions are generally recorded in a separate book called Cash
Book. Thus cash transactions need not be recorded in Journal.
What is Double Entry System of Book-Keeping?
According to William Pickles, The Double Entry System seeks to record every
transaction in money or moneys worth in its double aspect-The receipt of a
benefit by one account and the surrender of a like benefit by another account, the
former entry being to the debit of the account receiving and the latter to the credit
of that account surrendering.
Q.4.
Ans.
Q.5.
Ans.
Give two advantages of Ledger.

Advantages of Ledger:
(i)
It is difficult to prepare the final accounts in the absence of a ledger as it
provides necessary information regarding various accounts.
(ii)
All the transactions related to an account are collected at one place, which
will provide a complete information of all the transactions related to a
particular account.
Q.6.
Ans.
Differentiate between Journal and Ledger.

(i)
Journal is the book of original entry while a ledger is the book of
secondary entry because all transactions are recorded first in the journal
and then posted to the ledger.
(ii)
The process of recording transactions in a journal is termed Journalizing
while the process of recording transactions in a ledger is called a posting.
Q.7. Distinguish between Cash Discount and Trade Discount.

Ans. Difference between Cash Discount and Trade Discount are:
Basic of
Cash Discount
Trade Discount
Difference
1. Meaning
Cash discount is allowed when
Trade discount is allowed at the time
payment is received and cash
of sale to the customers at a fixed
discount is received when
percentage on the marked price.
payment is made.
The purpose is to encourage
The purpose is to increase sales and to
2. Purpose
prompt payment from
enable retailers to sell the goods to
customers.
their customers at list price.
3. Recording
It is recorded in the books of
It is not recorded in the books of
in the books
accounts.
accounts.
4. Deduction
This discount is not deducted
It is deducted from the invoice.
from Invoice
from the invoice.
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Chapter-3
Subsidiary Books
Q.1.
Define subsidiary books and give names of subsidiary books.
Ans.
Subsidiary book is meant for recording all the transactions of a similar nature.
They are also known as special journals.
It may be defined as books where the transactions are entered first and then ledger
accounts are prepared on their basis.
Journal is divided into a number of subsidiary books. These are:
(i)
Cash Book
(ii)
Purchase Book
(ii)
Sales Book
(iii)
Purchase Return Book
(iv)
Sales Return Book
(iv)
Bills Receivable Book
(v)
Bills Payable Book
(vi)
Journal Proper
Q.2.
Why Cash Book is called a book of original entry?
Ans.
The number of cash transactions in a firm is generally larger, therefore, it

becomes inconvenient to record all cash transactions in the journal. Since all cash
transactions are recorded for the first time in the cash book, it is therefore called a
book of original entry. Only cash transactions are recorded in the cash book.
Q.3.
Ans.
Give four advantages of Petty Cash Book.

(i)
It saves the time of chief cashier.
(ii)
Maintenance of petty cash book does not require any specialized
knowledge of accounting.
(iii) It provides control over small payments.
(iv)
It minimizes the chances of fraud.
Q.4.
Ans.
What is a purchase book?

It is a subsidiary book which records transactions of credit purchases of goods.
Cash purchases are not recorded in the purchases book since they are recorded in
the cash book.
Q.5.
What is a sales book?
11
Ans.
It is a subsidiary book which records transactions of credit sales of goods. Cash

sales will be recorded in the cash book and not in the sales book. Sale of assets is
not recorded in the sales books.
Q.6.
Ans.
Define purchase return book.

Purchase return or return outward book is maintained to record the goods or
materials returned to the suppliers that have been purchased on credit. When the
goods are returned, a debit note is prepared and is sent to the supplier with the
returned goods.
Q.7.
Ans.
What is a credit note?

When the goods are received back, a credit note is prepared in duplicate and the
original copy of the same is sent to the party from whom goods were received. A
credit note contains details relating to the name of the customer, details of the
goods received back and the amount of return.
Q.1.
Ans.
State the four advantages of sub-dividing a Journal.

Advantages of sub-dividing a Journal are:
(i)
Division of Work: There are eight subsidiary books, in place of one
journal, accounting work can be divided among a number of persons.
Different persons do the accounting work in different books, therefore, the
work will be completed in a very short time.
(ii)
Time Saving: Various accounting processes can be undertaken
simultaneously because of the use of number of books. This leads to the
work being completed quickly.
(iii) Increase in Efficiency: Work of a particular book is handled by a
particular person, therefore he acquires full knowledge of it and becomes
efficient in handling it.
(iv)
Flexible: Maintenance of all the eight books is not necessary for every
business firm. Any business firm can increase or decrease the number of
books according to the needs of the business.
Q.2.
Ans.
Explain the meaning of Imprest System of Petty Cash Book.

Under this system, a definite sum of money is given to the petty cashier at the
beginning of a period. The petty cashier goes on paying all petty expenses like
expenses on telegram, newspaper, taxi fare etc. Out of this amount and records
them in the petty cash book maintained by him. At the end of the certain period,
the petty casher submits the account to the chief cashier who, after having
examined the petty cash book, reimburses the amount actually spent by the petty
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cashier. Thus, petty cashier will again have the fixed amount at the beginning of
the new period. Such a system is known as the Imprest System of Petty Cash.
Q.3.
Ans.
What is Journal Proper?

In journal proper only those transactions are recorded which cannot be recorded in
any other subsidiary book. For example, if fixed asset is purchased on credit, it
can neither be recorded in cash book nor in purchase book, it will be recorded in
the journal proper.
Following types of transactions are recorded in journal proper:
(i)
Opening Entry
(ii)
Closing Entries
(iii) Adjustment Entries
(iv)
Transfer Entries
(v)
Rectifying Entries
(vi)
Entries for dishonour of bills (not discounted with the bank)
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Chapter-4
Trial Balance
Q.1.
What is Trial Balance?
Ans.
It is a statement of accounts which appears in the ledger showing either the

balances or the total amounts of debit and credit items. It can be prepared on any
date. It is neither a part of double entry system, nor does it appear in the actual
books of accounts. It is only a working paper.
Q.2.
Give four objectives of Trial Balance.
Ans.
(i)
To ascertain the arithmetical accuracy of the ledger accounts.
(ii)
To help in locating errors.
(iii)
To provide help for the preparation of Final Accounts.
(iv)
To obtain a summary of the ledger accounts.
Q.3.
Give the name of errors which does not affect the Trial Balance.
Ans.
(i)
Errors of Omission.
(ii)
Errors of Commission.
(v)
Compensating Errors.
(vi)
Errors of Principle.
Q.4.
What do you mean by errors of Omission?
Ans.
If transaction is completely or partially omitted from being recorded in the books

of account, constitutes an error of omission. For example, Goods for Rs. 5000.00
have been purchased from Mohan on credit and the transaction was omitted to be
recorded in the books.
Q.5.
Define errors of Commission.
Ans.
Errors which arise due to wrong recording, wring carrying forward, wrong
balancing, wrong posting etc. are known as errors of commission. Errors od
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commission does not affect Trial Balance because the same amount (though
wrong) will be posted in both the accounts affected by the transaction.
Q.6.
What do you mean by compensatory error?
Ans.
If the effect of one error is nullified by the effect of some other error, such errors
are called compensating errors. For example: Reenas Account was debited with
Rs. 30 instead of Rs. 300 while Anjus Account was debited with Rs. 300 instead
of Rs. 30. These two mistakes will neutralize the effect of each other.
Q.7.
What do you mean by errors of principle?
Ans.
When a transaction is recorded in violation of accounting principles, it is known

as an error of principle. For example, purchase of plant and machinery is treated
as an ordinary purchase and is thus debited to purchase account instead of plant
and machinery.
Q.1.
Explain any three major differences between Trial Balance and Balance
Sheet.
Ans.
Three major differences between Trial Balance and Balance Sheet:
Basis of Difference
Trial Balance
Balance Sheet
(i) Object
It is prepared to check the

arithmetical accuracy of the
books of accounts.
It is prepared to know the true

financial position of the firm.
(ii) Period
It is prepared whenever
needed.
Normally, it is prepared at the

end of the accounting period.
(iii) Types of Accounts
It includes all types of

accounts, whether personal,
real and nominal accounts.
It includes only personal and

real accounts.
Q.2.
Define the two methods of preparing Trial Balance.
Ans.
The two methods are:

(i)
Balance Method: It is the commonly used method of preparing a Trial

Balance. It shows the balances of all the accounts in the ledger. Under this
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method, accounts showing debit balances in the ledger are put on the debit
side of the Trial Balance and the accounts showing credit balances are put
on its credit side.
(ii)
Total Method: It shows the total amounts of the debit and credit sides in
each ledger account. Under this method, trial balance can be prepared
immediately after the completion of posting to the ledger. It considers all
accounts of the ledger.
Q.3.
What is suspense account? When and why it is prepared?
Ans.
In-spite of the best efforts if the both sides of trial balance do not tally, then the
amount of difference of both side s put to a specific account which is known as
suspense account. If the debit side of the Trial Balance exceeds the credit side, the
difference will be put on the credit side of the suspense account and vice-versa.
When all the errors have been located and rectified, the suspense account will
automatically stand closed. If suspense account shows a credit balance then it will
be shown on the Assets side of the Balance Sheet and in the case of credit balance
then it will be shown on the Liabilities side of the Balance Sheet.
It is prepared to avoid the delay in the preparation of final accounts.
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Chapter-5
Bill of Exchange
Q.1.
What is bill of exchange?
Ans.
According to Indian Negotiable Instrument Act, 1881, A bill of exchange is an

instrument in writing, an unconditional order signed by the maker directing to pay
a certain sum of money only to or to the order of a certain person or to the bearer
of the instrument.
Q.2.
Ans.
Give four characteristics of Bills of Exchanges.

(i)
It is unconditional order.
(ii)
It must be in writing.
(iii) The amount of bill of exchange must be definite.
(iv)
It must be signed by the drawer of the bill.
Q.3.
What are the parties to a bill of exchange?
Ans.
(i)
Drawer: He is the creditor who is entitled to receive money from
acceptor. He draws the bill and is known as drawer.
(ii)
Drawee: He is the debtor on whom the bill is drawn. He accepts to pay the
amount by writing the word Accepted on the bill and then signs it.
(vii)
Payee: The drawer or the payee may be the same person. The party to
whom the amount has to be paid is known as the payee.
Q.4.
What is a promissory note?
Ans.
According to Section 4 of the Negotiable Instruments Act, 1881, A promissory

note is an instrument in writing (not being a bank note or a currency note)
containing an unconditional undertaking signed by the maker to pay a certain sum
of money only to or to the order of a certain person or to the bearer of the
instrument.
Q.5.
Give the four features of a promissory note.
Ans.
Q.6.
17
(i)
It must be in writing.
(ii)
The amount to be paid must be definite.
(iii)
The maker must also be a definite person.
(iv)
It must be properly stamped.
Differentiate between Bills of Exchange and Promissory Note.
Ans.
Basis of Difference
Bill of Exchange
Promissory Note
(i) Parties
It has three parties the

It has two parties the maker
drawer, the drawee and the
and the payee.
payee.
(ii) Payee
Drawer can be the payee of Maker cannot be the payee

the bill.
of it.
Q.7.
What are days of grace?
Ans.
It is a practice to add three extra days to the period of the bill. These extra days
are called days of grace. For example, If a bill is drawn on 1st June, 2006 and is
payable 1 month after date, its maturity date will be 4th July, 2006.
Q.8.
Define Discounting of bill.
Ans.
Discounting means encashing the bill before the date of its maturity o borrowing
from the bank on the security of the bill. The bank charges an amount as interest
for discounting the bill.
Q.9.
Define Endorsement of a Bill.
Ans.
The holder of a bill receivable can endorse the bill to another person by putting
his signature at the back of the bill. Endorsement means signing the bill of
exchange for the purpose of transferring it to another. Instruments payable to the
bearer can be negotiated or endorsed by mere delivery.
Q.10. Define dishonour of a bill.

Ans.
When the acceptor of the bill refuses to pay the amount of the bill on the date of
maturity or becomes insolvent, it is called dishonour of the bill. In such a case, the
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holder of the bill can recover the amount from any of the previous endorsers or
the drawer.
Q.1.
Distinguish between an accommodation bill and a trade bill.
Ans.
Major difference between accommodation bills and trade bill are:
Basis of Difference
Trade Bill
Accommodation Bill
(i) Object
These bills are drawn against

trade transactions of sale and
purchase.
These bills are drawn for

financial assistance.
(ii) Consideration
There is a definite
consideration for which the
bill is accepted.
The acceptor may not receive

consideration for his
acceptance.
(iii) Recovery
If these bills are dishonoured, It may not be easy to maintain

the amount may be recovered a suit for recovery of the
easily through the court.
amount.
(iv) Proceeds
When these bills are

discounted, the proceeds
remain with the holder.
When these bills are

discounted, the proceeds may
be shared by the two parties in
pre-determined ratio.
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Chapter-6
Depreciation,
Provision and Reserve
Q.1.
What is Depreciation?
Ans.
According to R.N. Carter, Depreciation is the gradual and permanent decrease in

the value of an asset from any cause.
It is a continuing process because the book value is reduced either due to use or
with the passage of time.
Q.2.
Give two characteristics of depreciation.
Ans.
(i)
Depreciation is a reduction in the book value of fixed assets.
(ii)
term
The term depreciation is used only in respect of tangible fixed assets. The
is not used for wasting assets such as mines.
Q.3.
Give two causes of depreciation.
Ans.
(i)
Constant use of asset leads to its wear and tear and thus fall in value.
(ii)
Due to new inventions and improved techniques the old assets become
obsolete and may have to be discarded even if they can be put to use
physically.
Q.4.
Name the various methods of providing depreciation.
Ans.
(i)
Straight line method.
(ii)
Written down value method.
(iii)
Annuity method.
(iv)
Depreciation fund method.
(v)
Insurance policy method.
(vi)
Revaluation method.
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(vii)
Depletion method.
(viii) Machine hour rate method.
Q.5.
What is residual or scrap value of an asset?
Ans.
Scrap value is an estimated sale value of the asset at the end of its economic life
to the firm. It is also known as break-up value.
Q.6.
Distinguish between Fixed Installment Method and Reducing Balance

Method.
Ans.
Distinguish between Fixed Installment Method and Reducing Balance Method

are:
Written Down Value
Method
The amount of depreciation
decreases year after year.
Basis of Difference
Straight Line Method
(i) Amount of Depreciation
Equal amount of
depreciation is charged
every year.
(ii) Basis of calculation of

deprecation
Depreciation is calculated
on the original cost of a
fixed asset.
Depreciation is calculated
on the diminishing balance
or written down value of a
fixed asset.
(iii) Zero Balance
The book value of the asset

can be reduced to zero.
The book value of the asset

can never be reduced to
zero.
Q.1.
State any four needs of providing depreciation. s
Ans.
Needs of providing depreciation are:

(i)
For ascertaining the true profit or loss: The true profit can be ascertained
only when, depreciation have been debited to the profit and loss account.
(ii)
To show a true and fair view of the financial position: If the depreciation
is not charged, the assets will be shown in the balance sheet at an amount
which is in excess of their true values.
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(iii)
To provide funds for replacement of assets: Depreciation though debited

to profit and loss account, is not paid in cash like other expenses. Hence,
the amount debited in the profit and loss account are retained in the
business and it is used for the replacement of fixed assets when its life is
over.
(iv)
Compliance of legal provisions: It is necessary to charge depreciation to

comply with the provisions of the Companies Act and the Income Tax
Act.
Q.2.
Give two advantages and disadvantages of straight line method.
Ans.
Advantages of straight line method are:

(i)
It is a simple method of calculating depreciation.
(ii)
Under this method, the book value of an asset can be reduced to net scrap
value or zero value, which is not possible under other methods.
Disadvantages of straight line method are:

(i)
Under this method, it is quite difficult to assess the true scrap value of the
asset after a long period, say 15 or 20 years from the date of its
installation.
(ii)
There is no arrangement of interest on capital invested in assets in this

method.
Q.3.
Distinguish between Provisions and Reserves.
Ans.
Distinguish between Provisions and Reserves are:
Basis of
Difference
Provision
Reserve
(i) Meaning
It is created to meet a known It is created to meet an unknown

liability.
liability.
(ii) Investment
It is not invested outside the It may be invested outside the

business.
business.
(iii) Distribution
It cannot be distributed as It can be distributed as dividends

divided among shareholders.
among shareholders.
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(iv) Charge
It is debited to the profit and It is debited to the profit and loss

loss account.
appropriation account.
Q.4.
Define Revenue Reserves.
Ans.
Revenue reserves are created out of revenue profits which are available for
distribution as dividend. The main object of creation of revenue reserve is to
strengthen the financial position and meeting the unforeseen contingencies or
some specific purpose.
It is of two types:
(i)
General Reserve.
(ii)
Specific Reserve.
(i)
General Reserve: It is the amount set aside out of profits for no specific
purpose.
It is created for meeting unforeseen losses. It is voluntary for, a business
enterprise to maintain general reserve.
(ii)
Specific Reserve: It is created for a specific purpose and can be utilized

only for that purpose. For example, Dividend Equalization Reserve,
Reserve for Replacement of Asset.
Q.5.
Define Capital Reserve.
Ans.
Capital reserves are created out of capital profits and are normally not available
for distribution as cash dividend. Business enterprise earns normal profits as well
as capital profits from many sources. Reserves created out of such capital profits
are known as capital reserves. Examples of capital reserves are:
(i)
Profit on the revaluation of fixed assets and liabilities.
(ii)
Profit on sale of fixed assets.
(iii)
Profit on redemption of debentures.
(iv)
Profit from the reissue of forfeited shares.
(v)
Profit prior to incorporation.
(vi)
Premiums received on issue of shares or debentures.
Generally these reserves cannot be utilized for distribution of dividends to

shareholders. However, some capital reserves can be utilized to distribute
23
dividends subject to fulfillment of certain conditions laid down by Companies

Act.
Q.6.
Define Secret Reserves. How it is created?
Ans.
A secret reserve is one, the amount of which is not disclosed in the balance sheet.
It is also called a Hidden Reserve. Such reserves are created by showing the
assets at a lower amount and liabilities at a higher amount. When secret reserve
exist, the actual position of the firm may be much better or worse than what is
disclosed by the balance sheet. Secret reserves are allowed in concerns like
banking companies, insurance companies, public utility companies etc.
The methods of creating secrete reserve are:
(i)
Under valuation of closing stock.
(ii)
Showing a contingent liability as an actual liability.
(iii)
Creation of excessive provision for bad debts.
(iv)
Charging excessive depreciation.
(v)
Charging capital expenditure to the profit and loss account.
(vi)
Inclusion of fictitious assets.
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Chapter-7
Rectification of Errors
Q.1.
Ans.
What is meant by rectifying entry?

When an error is rectified by passing a journal entry, one account being debited
and the other account being credited, it is called a rectifying entry. An error can
be corrected by passing a suitable journal entry, called rectifying entry. The
procedure of rectification is different at every stage therefore before passing a
rectifying entry it should be noticed that at which stage errors are being rectified.
Q.2.
Ans.
State any four points related to the need of rectification of errors.

(i)
To maintain reliability and authenticity of accounts.
(ii)
To find out correct profit or loss and financial position.
(iii) To prevent fraud in business.
(iv)
To make a correct entry of transaction on the both sides according to
double entry system.
Q.3.
Ans.
What are the stages of rectification of errors?

There are three stages of rectification of errors:
(i)
Rectification of errors before preparing Trial Balance.
(ii)
Rectification of errors after preparing Trial Balance but before preparing
Final Accounts.
(iii) Rectification of errors after preparing Final Accounts.
25
Chapter-8
Final Accounts
Q.1.
What do you mean by Final Accounts?
Ans.
Final Accounts are those accounts which provide information about the
profitability and the financial position of a business. The term Final Account
includes at least two statements which are:
(i) Balance Sheet
(ii) Trading and Profit & Loss A/c
Q.2.
What is a Trading Account?
Ans.
Trading account shows the result of buying and selling of goods and services of
an accounting period. It is prepared for calculating the gross profit or gross loss
arising or incurred as a result of the trading activities of a business.
According to J.R. Batlidoi, The Trading Account shows the results of buying and
selling of goods. In preparing this account, the general establishment charges are
ignored and only the transactions in goods are included.
Q.3.
What is a Profit and Loss Accounts?
Ans.
Profit and Loss Account reveals the net profit or net loss of an undertaking of a
certain period. A business man has to incur a number of expenses which are not
taken to trading account. Hence, a business man is more interested in knowing the
net profit earned or net loss incurred during the year.
Q.4.
What is a Balance Sheet?
Ans.
Balance sheet is not an account. It is a statement of assets and liabilities of an

enterprise on a certain fixed date. It is prepared on a particular date and not for a
particular period. It is prepared after the preparation of trading and profit and loss
account.
Q.5.
Distinguish between gross profit and net profit.
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Ans.
Gross profit is the excess of selling price of the goods over the cost of goods sold
while net profit means the excess of all revenue over all expenses and losses of a
business enterprise.
Q.6.
Distinguish between Trial Balance and Balance Sheet.
Ans.
Trial Balance is prepared for testing the arithmetical accuracy of ledger accounts,
it is not a part of final accounts while balance sheet is a statement prepared for
presentation of financial position of a business, it is an important part of final
accounts.
Q.7.
In which order the assets and liabilities are shown in balance sheet?
Ans.
Balance sheet may be prepared in two orders:

(i) Liquidity order
(i)
(ii) Permanency order
Order of Liquidity: According to this method, an assets which is most

easily convertible into cash such as cash in hand is written first and then
will follow those assets which are comparatively less easily convertible, so
that the least liquid assets such as goodwill, is shown last.
In the same way, those liabilities which are to be paid at the earliest will
be written first.
(ii)
Order of permanency: According to this method, assets which are most

difficult to be converted into cash such as Goodwill are written first and
the assets which are most liquid such s cash in hand are written first.
In the same way liabilities which are to be paid last will be written first.
Q.8.
Why is closing stock valued at lower of cost or relisable value?
Ans.
It is based on the principle of prudence (or conservation) according to which all

anticipated losses should be taken into account, but all unrealized gains should be
ignored.
Q.1.
What is the difference between accrued income and unearned income?

Explain.
Ans.
27
Accrued income means income which has accrued in the current year in the
business or it has been earned but not receive till the end of the accounting year.
In other words, the income which is earned at the time of preparing final accounts
but not received is known as accrued income.
Unearned income means the income concerned with the next financial year is
received in the current financial year. In the other words, the income which is not
earned while preparing the final accounts but received in advance is known as
unearned income.
Example
(i)
A loan of Rs. 20000.00 has been given 15% p.a. and interest is payable
monthly, if interest for two month, i.e. Rs. 500, has been received by the
business, then this income will be termed as an accrued income since
interest has become due it has not yet been received by the business.
(ii)
Ram has given his building on 1st January 2008 @ Rs. 200000 p.a. and
received Rs. 20000 in advance on that date. The accounts are closed on
31st March 2008. in this transaction the rent of three months (1st Jan. to
31st March) is the income of current year and remaining nine months rent
Rs. 150000 is unearned income.
Q.2.
What do you mean by fictitious assets? Explain with example.
Ans.
These are the assets which cannot be realized in cash or no further benefit can be
derived from these assets. Such assets include debit balance of Profit and loss A/c
and the expenditure not yet written off such as advertisement expenses,
preliminary expenses etc. since these items have debit balance so these are shown
in assets side of balance sheet for the purpose of transferring them to the profit
and loss account gradually over a period of time.
Q.3.
Write notes on the following

(i) Deferred Revenue Expenditure
(ii) Tangible and Intangible Assets
Ans.
(i)
Deferred Revenue Expenditure: There are certain expenditures which

are revenue in nature but the benefit of which is likely to be derived over a
number of years, such expenditures are termed as Deferred Revenue
Expenditure. The benefit of such an expenditure generally lasts between 3
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to 7 years. The whole of such expenditure is not debited to the Profit and
Loss A/c of the current year but spread over the year for which the benefit
is likely to last. Thus, only a part of such expenditure is taken to Profit and
Loss account every year and the unwritten off portion is allowed to stand
on the assets side of the Balance Sheet.
(ii)
Tangible and Intangible Assets: Assets which have a physical existence

or which can be seen and felt like plant and machinery, furniture, stock,
cash etc. are tangible assets. Assets which do not have any physical
existence such as goodwill, patents, trade mark etc. are intangible assets.
29
Chapter-9
Sectional and
Self Balancing Ledgers
Q.1.
What do you mean by Sectional Balancing System?
Ans.
Sectional balancing system is the self balancing of a section of the group of

ledgers in which only general ledger is made self-balancing and not the other two
ledgers. In this system only one trial-balance can be prepared in general ledger.
For this purpose two personal accounts are opened in the general ledger:
(i) Total Debtors Accounts
(ii) Total Creditors Accounts
These two accounts are prepared with the help of primary books of accounts.
Q.2.
What do you mean by Self Balancing System?
Ans.
The system in which Sales Ledger (Debtors Ledger) and Creditors Ledger
(Purchases Ledger) are made balanced together with General ledger is called Self
Balancing System. Thus, self balancing system of ledgers is a system in which
one ledger is sub-divided into three ledgers and are maintained in such a way that
from each ledger a separate trial balance can be prepared independently without
help of other ledgers.
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Q.3.
Differentiate between sectional balancing and self-balancing.
Ans.
Differentiate between sectional balancing and self-balancing are:
Basis of Difference
Sectional Balancing
System
Self Balancing System
1. Number of
Accounts
Total debtors account and

total creditors account in
General Ledger are opened
in General ledger in
addition to the accounts
generally prepared.
In General Ledger two adjustment

accounts viz. Sales ledger
adjustment account and purchases
ledger adjustment account are
prepared and one adjustment
account is prepared in each of
sales ledger and purchases ledger.
2. Rectification of
Error and Adjustment
entries
Entries for rectifying the In this system, entries for

error is made according to rectifying
the
effects
on
adjustment accounts are also made
general principles
in addition to the general
rectification.
Q.4.
What is contra balance?
Ans.
The balances of debtors accounts in sales ledger are debit balances and the
balances of creditors in purchases ledger are credit balances. But in some cases
the customers balances may be in credit and like wise bought ledger may have
some debit balances then these are called contra balances. Debtors account may
show credit balance because of advance payments or overpayments or goods
returned by them after full settlement. Likewise due to excess payment to
creditors or due to goods returned after settlement, some of the creditors accounts
may show debit balances.
31
Chapter-10
Preparation of Accounts
from Incomplete Records
Q.1.
What is meant by Incomplete Records? Give its two features.
Ans.
Accounting records which are not prepared in accordance with the principles of
double entry are known as incomplete records.
According to Kohler, A system of book-keeping in which, as a rule, only records
of cash and of personal accounts are maintained; it is always incomplete double
entry system, varying with circumstances.
Features are:
(i)
Maintenances of Personal Accounts only.
(ii)
Lack of uniformity.
Q.2.
How do you determine the profit/loss of a business who maintain their books
on single entry system?
Ans.
In the case of incomplete records double entry of al transaction is not made so it is

not possible to find out profit or loss accurately from these records. However,
profits are ascertained by comparing the capital at the end and capital at the
beginning of the accounting period. If the capital at the end of an accounting
period is more than that at the beginning (with the necessary adjustments), the
difference is treated as profit. If, on the other hand, the capital at the end is less
than that of beginning, the difference is treated as a loss.
As such, in order to ascertain profit it is necessary to calculate the capital at the
beginning of the year and also at the end of the year.
Q.3.
State difference between Incomplete Records and Double Entry System.
Ans.
(i)
In double entry system all accounts-personal, real and nominal are

maintained under it while in incomplete records only personal accounts
and a cash book are maintained under it.
(ii)
In double entry system both aspects of every transaction are recorded in it

while in incomplete records both the aspects of very few transactions are
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recorded. For some other transactions one aspect and yet for others no
aspect at all is recorded.
(iii)
the
Books maintained under double entry system are accepted as evidence in

court of law while books maintained under incomplete records are not
accepted as evidence in the court of law.
Q.4.
Write three defects of incomplete records.
Ans.
(i)
Preparation of Trial Balance not possible: It does not record both the
aspects of a transaction. As such, a trial balance cannot be prepared to
check the arithmetical accuracy of the books of accounts.
(ii)
Incomplete and Unscientific System: The system is incomplete and

unscientific due to the fact that both the aspects, debit and credit of a
transaction are not recorded.
(iii)
Internal check is not possible: Because of lack of double entry

principles, internal checking is not possible and hence there are always the
chances of errors and frauds. Also, it becomes very difficult to detect
them.
33
Chapter-11
Accounts of
Non-Profit Organizations
Q.1.
What do you mean by Not for Profit Organizations?
Ans.
Not for Profit Organizations are organizations which are formed not to earn
profits but to render services to its members and to the public. Such organizations
include clubs, hospitals, educational institutions, charitable institutions, religious
institutions etc. Main source of income of such organizations is membership
subscriptions, donations and grants etc.
Q.2.
State the main characteristics of Non-Profit Organizations.
Ans.
The main characteristics of non-profit organizations are:

(i)
The main objective of non-profit organizations is to serve the society.
They are working for the benefit of the society as a whole.
(ii)
These organizations are usually managed by a managing or executive

committee elected by its members.
(iii)
Non-profit organizations are formed for some idealistic purposes such as

religious, charitable or providing education etc.
(iv)
These organizations collect donations and contribution from the members

and outsiders to meet the cost of the project undertaken and also to meet
the operating cost.
Q.3.
State the main characteristics of Receipts and Payments Account.
Ans.
Main characteristics of Receipts and Payments Accounts are:

(i)
It is a real account and summarizes all cash transactions of non-profit

organizations.
(ii)
It starts with the opening balance of cash in hand and cash at bank. Cash in
hand always shows a debit balance.
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(iii) No distinction of capital and revenue is made, while recording

transactions.
(iv)
the
This account does not reveal whether the current incomes are in excess of
current expenditure or vice versa.
Q.4.
Distinguish between Receipts and Payments Account and Cash Book.
Ans.
Distinguish between Receipts and Payments Account and Cash Book are:
Basis of
Difference
(i) Basis
Receipts and Payments

Cash Book
Account
It is prepared on the basis of cash It is prepared on the basis of each
book.
cash receipt and cash payment.
(ii) Nature
It is a real account showing a Cash book is a book of original

summary of all cash transactions. entry.
(iii) Usage
It is prepared by commercial
It is prepared by not for profit
entities and can also be prepared by
organizations.
non-profit entities.
(iv) Date
Transactions under this are not Transactions are written date wise
written date wise.
in the cash book.
Q.5.
Explain the main features of Income and Expenditure Account.
Ans.
Main features of Income and Expenditure Account are:
Q.6.
Ans.
(i)
It is a nominal account an summarizes all expenditures and incomes of a

not for profit organization.
(ii)
No opening and closing balance of cash and bank are recorded in it.
(iii)
Based on accrual concept, all items of revenues and expenditures related

to the current year are matched and recorded in this account.
(iv)
It is debited with expenses and losses.
(v)
It is credited with the income.
Give any four points of difference between Receipts and Payments Account
and an Income and Expenditure Account.
Basis of Distinction
(i) Nature
Receipts and Payments

Account
It is a summary of the cash
book
35
Income and Expenditure

Account
It is like a profit and loss account
of a profit seeking entity.
(ii) Purpose
The basic purpose of this

account is to show all
The purpose of this account is to
receipts and cash payments in
find out the surplus or deficit of
summarized form and to
the organization.
obtain the closing cash and
bank balance.
(iii) Base
This account is based on cash

basis of accounting.
This account is based on accrual

basis of accounting.
(iv) Capital and

Revenue items
It records receipts and

payments of both capital and
revenue items.
It records income and expenditure

of only revenue items.
Q.7.
Explain the concept of Life Membership Fees.
Ans.
In order to become the member of an organization for the whole of the life, some
members pay the fee in lump-sum, i.e., Once in their life time. The members who
pay lump-sum amount become life time members and are not required to pay any
more amount as subscriptions. Total life membership received during an
accounting year shall be shown on the receipts side of the receipts and payments
account. This receipt is non-recurring in nature, so it should be treated as capital
receipts and shown on the liabilities side of the balance sheet.
Q.8.
Explain the term donation.
Ans.
It may be classified as specific donation and general donation:

(i)
Specific Donation: When donation is received for some specific purposes,

such as donation for buildings, computers or donation for providing a
swimming pool or for any other purpose, it is capitalized and is shown on
the liability side of the balance sheet.
(ii)
General Donation: It can be of two types:

(a) General Donation of Big Amount: It is non-recurring in nature
therefore it is shown on the liability side of the balance sheet.
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(b) General Donation of Small Amount: It is treated as revenue receipts

and shown on the credit side of the income and expenditure account.
37
Unsolved Paper 2011

FUNDAMENTALS OF ACCOUNTING
Time Allowed : 3 Hours
Max. Marks : 100
Attempt the five questions in all. Question Nos. 1 and 2 are compulsory.
Part-I
Q.1
Answer the following questions in up to 50 words only. (2 marks each):

(i)
Give name of any four accounting concepts ?
(ii)
Pass journal entry for goods sold to Ankur in cash for Rs. 10,000
(iii)
What do you mean by scrap value of fixed assets ?
(iv)
Give three examples of intangible assets.
(v)
Give journal entry for discounting a bill from bank
(vi)
What do you mean by short sales ?
(vii)
Whether total debtors account is part of double entry system ?
(viii)
What is Preference Share ?
(ix)
What entry will be passed for the overcast of the purchase book by
Rs. 2,000 ?
What is the nature of goodwill as an asset ?
(x)
Q.2
2x10
Answer all five questions in up to 100 words only (4 marks each):
5x4
(i) Develop the accounting equation from the following information :
(a)
(b)
(c)
(ii)
(iii)
Rs.
Hari started business with cash
25,000
Goods purchased on credit from Mohan
10,000
Goods costing Rs. 1500 sold to Mukesh on credit
1,800
Paid to Sohan by cheque Rs. 2000. Journalise this transaction and
post it into the ledger.
What is meant by dishonor of bill ?
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Biyanis Think Tank
(iv)
What are the advantage to the managers from preparation of

Departmental Profit and Loss Account ?
What do you mean by Redemption by Annual Drawings?
(v)
Part-II
Attempt any three questions. Each question carries 20 marks.
3.
The Trial balance of Shri Laluram, as on 31st March, 2009 is given ahead. You are
required to prepare the final accounts after giving effect to the adjustments:
Sundry Creditors
Sundry Debtors
Capital Accounts
Drawings
Insurance
General Expenses
Salaries
Patents
Machinery
Land
Building
Opening Stock
Carriage inward
Carriage outward
Fuel and Power
Wages
Returns outwards
Return inwards
Sales
Purchase
Cash at Bank
Cash in Hand
Total
Debit (Rs.)
1,45,000
52,450
6,000
30,000
1,50,000
75.000
2,00,000
1,00,000
3,00,000
57,600
20,400
32,000
47,300
1.04,800
6,800
4,06,750
26,300
5,400
Credit (Rs.)
63,000
7,10,000
5,000
9,87,000
-
17,65,800
17,65,800
The following adjustments are to be made:
(i)
Stock on 31st March, 2009 was valued at Rs. 68,000
(ii)
A Provision for Bad and Doubtful Debt is to be created to be
extent of 5 percent on Sundry Debtors.
(iii)
(iv)
(v)
(vi)
39
Depreciate Machinery by 10% . Patents by 20%

Wages include a sum of Rs. 20,000 spent on the erection of a cycle
shed for employees and customers.
Salaries for the month of March, 2009, amounting to Rs. 15,000
were unpaid.
Insurance includes a premium of Rs. 1,700 on a policy, expiring
on 30th September, 2009.
4.
Describe the concept of goodwill and explain the various methods of its
evaluation.
5.
On 1st May, 2009, a fire occurred in the premises of Harish. He had a

consequential loss policy of Rs. 60,000. Indemnity period was four months. The
Profit and Loss Account for 2008 appeared as follows :
Trading and Profit & Loss A/c
(for the year ended 31st Dec, 2008)
Rs.
Rs.
To Opening stock
50,000
By Sales
4,75,000
To Purchases
3,00,000
By closing stock
25,000
To Manufacturing Expenses
33,500
To Gross Profit
1,16,500
C/d
---------------------5,00,000
---------------------By Gross Profit b/d
1,16,500
To variable selling expenses
42,250
To Fixed expenses
36,250
To Net Profit
35,000
----------------------1,16,500
1,16,500
----------------------The sales for the first four months of the year 2009 were found 20% higher than
the sales of the year 2008 for the same period. Other particulars of sales were as
follows. Ascertain the amount of claim. All the fixed expenses are insured.
Rs.
(i)
Sales from Ist May, 2008 to 20th April, 2009
5,00,000
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(ii)
(iii)
Q.6
Sales from Ist May, 2008 to 31st August, 2008

Sales during the indemnity period
1,50.000
20,000
What is the reducing balance method of charging depreciation? How is it different

from fixed installment method?
Q.7
Ravi Limited was registered with an authorized capital of Rs. One crore divided
into 1,00,000 shares of Rs. 100 each. The company issued 50,000 shares to the
public @ Rs.105 per share payable as follows Rs-. 20 on application, Rs.35
(including premium) on allotment, Rs. 30 on first call and Rs. 20 on second call.
The shares were subscribed to allotment in the following way :
(i)
(ii)
Applicants of 20,000 shares were refused allotment and their

application money was refunded.
The remaining applicants were allotted shares in the company
prorate.
A holder of 100 shares failed to pay the allotment money and
money due on subsequent calls. Another holder of 200 shares
failed to pay the moneys due on share first call and second call.
Give journal entries in the books of the company and prepare cash
book relating to the above transaction. Also prepare statement
showing calls in arrears.
41
Unsolved Paper 2010

Max. Marks : 100
Part-I
Q.1
Answer the following questions in up to 50 words only. (2 marks each) :
2x10
(i)
Give any three objective of accounting.
(ii)
Purchased goods from Vijay & Sons Good of Rs.10,000 for shop and
goods of Rs.4,000 for personal use. Give compound journal entry.
(iii) Give example of two errors which do not affect the agreement of Trial
Balance.
(iv) Give any two merits of fixed installment methods.
(v)
In an entry for rectification of error sales return account was debited and
suspense account was credited by Rs.100 what will be its effect on gross
profits?
(vi) Name adjustment accounts which are opened under self balancing system.
(vii) During the year, opening balance of debtors, Rs.26,000 cash received from
debtors Rs. 70,000 discount allowed off Rs. 5,000 and closing balance of
debtors Rs. 50,000 find out the amount of credit sales for the year.
(viii) In the beginning of the year 2008-09 the subscription was outstanding in the
income and expenditure account for the year 2008-09 amount of
subscription is shown Rs.40,000 in the year 2008-09 what amount of
subscription in receipts and payments account will be shown?
1. Rs. 38,000
2. Rs. 40,000
3. Rs. 22,000
4. Rs,.50,000
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(ix) B ltd. 2,000 equity shares of Rs.100 each at Rs.120 to redeem, 20,000 10%
preference shares of Rs.10 each on which Rs.8 has been called up. Pass
necessary journal entries for redemption.
(x)
Under what handing will you who the follow items?

1. Unclaimed handing
2. Share forceited account
3. Loose tools
4. Preliminary expenses
Q.2
Answer all five questions in up to 100 words only (4 marks each):

(i)
5x4
Jouralise the following transactions in the book of Ankit :

Rs.
(a) Purchased goods
50,000
(b) Sold goods
20,000
(c)
Paid rent
(d) Purchased furniture

(ii)
2,000
5,000
"The cash book is both a principal book and subsidiary book of accounting
books. Elucidate.
(iii) Describe the main provision of security and debenture redemption reserve.
(iv) Give four examples of capital profit.
(v)
What do you mean by average clause. Explain with example.
43
Part-II
Q.3
Vikas draws a bill. For Rs. 12,000 and Vishal Accepts the same for mutual
accommodation of both of them to the extent of 2/3 and 1/3 Vikas discounts the
same for Rs.11,280 and remits 1/3 of the proceeds to Vikas. Before the due date
Vishal another bill of Rs. 16,800 on Vikas order to provide funds to meet the first
bill. The second bill is discounted for Rs.16,320 with the help of which the first
bill is met and Rs. 2,880 remitted to Vikas. Before the due date of the second bill
Vikas become insolvent and Vishal received a dividend of 50 paise in the rupee in
full satisfaction.
Pass the necessary journal entries in the books of Vikas and Vishal and prepare
Vikas account in Vishal's ledger.
Q.4
From the following balance and information received from the books of Mr. Bal
on 31 March, 2010 you are required to prepare the final accounts.
Dr.
Capital
Plant and Machinery
Depreciation on plant and machinery
Repairs to plant
Wages
Salary
Income Tax
Cash in Hand
Land and Building
Depreciation on Building
Purchase less returns and sales
Bank overdraft
Accrued Income
Salaries outstanding
Bills receivable and bills payable
Provision for Bad Debts
Bad Debts
Cr.
50,000
18,000
2,000
1,600
28,000
4,000
500
2,000
74,500
2500
1,23,500
2,49,000
3,800
1,500
10,000
1,000
2,000
3,000
6,000
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Discount on purchases
Debtors and creditors
Stock on 01.04.09
4,000
35,000
23,300
37,000____________
3,41,100
3,41,100
1. Stock on 31st March 2010 was Rs. 30,000

2. Write off Rs.3,000 debts and maintain a provision of 5% on debtors.
3. Goods costing Rs.5,000 was sent to a customer on sale or return basis on 1st
March, 2010. This was recorded as actual sales. The rate of gross profit was 16th of sales.
4. Rs.1200 paid as rent of the office were debited to land lord account and were
included in the list of debtors.
Q.5
Ganesh auto let, was registered on Ist March, 2009 will an authorized capital of
Rs.2 croree in equity shares of Rs.100 each invited applications for 1,00,000
equity shares of Rs.100 each at a premium of Rs. 10 per share payable as follows:
On application on 5th April Rs. 30 per share; on allotment on 20th April Rs. 40
per share; on first call on 30th Sep. Rs.per share; on second and final call on 31st
Dec. Rs. 20 per share, application for 1,40,000 shares with a payment of Rs.30 per
share as application money were received. The Directors allotted an follows:
(i)
To allot. In full to the applicants for 90,000 shares.
(ii)
To refuse allotment to the applicants for 30,000 shares
(iii) To allot the remaining shares prorate to the application for 20,000 shares.
(iv) To utilize the surplus in payment of allotment if any Mr. Ram to whom 400
equity shares were allotted on prorate basis failed to pay the amount due on
allotment and on calls. His shares were forfeited. All the shares of Mr.Ram
were reissued to Mr. Shyam at Rs.110 per share. Show the journal and cash
book entries in the book of the company.
Q.6
The Balance Sheets of P Ltd. disclosed the following information on 31st March,
2002:
Balance Sheet
Liabilities
Rs.
Assets
Rs.
45
Equity Shares of Rs. 10 each
2,50,000
Building plant and
1,20,000
Reserve and Surplus
1,00,000
Machinery
2,30,000
Profit and Loss A/c
Furniture
(including Rs.1,00,000) for
Stock
current year's profit after tax)
1,25,000
Provision for tax (for Current
Debtors
20,000
1,25,000
2,50,000
Less: Provision for bad
year's Profit)
1,00,000
debts
Creditors
1,75,000
Cash at Bank
10,000
Preliminary expenses
7,50,000
2,40,000
10,000
5,000
7,50,000
The following information are also supplied:

(i)
Market value of Buildings, plant furniture and debtors are Rs.2,00,000
Rs.2,40,000 Rs.15,000 and Rs.2,35,000 respectively.
(ii)
Other companies doing the same business show a profit 10% on market
value of share.
(iii)
Profit before tax for the last 3 year have shown an increase Rs.35,000
annually.
(iv)
Good will may be valued at 2 years purchase of super profit (on the basis of
simple average) calculates the average capital employed.
Q.7
What is meant by department accounts? Discuss various problems arising during

the preparation of department accounts.
46
Biyanis Think Tank
Unsolved Paper 2009

Max. Marks : 100
Part-I
Q.1
2x10
(i)
Define accounting.
(ii)
Define journal
(iii)
What is the need of ledger?
(iv)
Sold goods worth Rs.10,000 to Ram at 20% cash discount, he paid only
50% of the bill amount, pass journal entry.
(v)
What is dual aspect in book keeping?
(vi)
What is single side error?
(vii)
Define share.
(viii) Define debenture.
Q.2
(ix)
What is single entry?
(x)
What is rat good will?
Answer all five questions in up to 100 words only (4 marks each) :
5x4
(i)
What do you mean by matching concept?
(ii)
" If a trail balance tallies, it can be concluded that there are no errors in the
books of account" explain
(iii)
"Depreciation is a process of allocation not a valuation" comment.
(iv)
Distinguish between provision and reserves.
(v)
Explain the concept of super profit and valuation of goodwill.
47
Part-II
Q.3
Prepare a trail balance of Mr. Sushant from the following balances as on

31.03.2008
Rs.
Rs.
Purchases
5,75,000
Sales
Closing
stock
1,45,000
Cash
Capital A/c
5,77,000
Income Tax
Refund
Rs.
8,30,000
4,200 Bank
24,000
200 Drawings
8,000
23,000 Commission
on sales
70,000
Salaries
64,000
Postage
Insurance
16,000
Prepaid
Insurance
3,000 Advertisement
Furniture
44,000
Stationary used
5,000 Stationary in
hand
1,000
Motor Car
90,000
Depreciation on
motor car
6,000 Bad debts
4,000
Dis. Given
10,000
Provision or bad
debts
2,000 Wages
Gen. Exp./
62,000
Provision for
preparing
2,000 Debtors
Creditors
80,000
Carriage inward
5,000
Accrued interest
on deposit
Outstanding
wages
20,000 Carriages
Outwards
4,000
34,000
40,000
2,00,000
44,000
48
Q.4
Biyanis Think Tank
A company purchased on 01.01.2004 a second hand plant for Rs.30,000 and

immediately spent Rs.20,000 in overhauling. On 01.07.04 additional machinery
costing Rs.25,000 was purchased. On 01.07.06 the first plant became obsolete and
was sold for Rs.10,000 pm this date a new plant was purchased at a cost of
Rs.60,000
Depreciation was provided annually on 31 Dec. at the rate of 10% p.a. on
original cost. In 2007 however, the company changed this method of providing
deprecation and adopted and method of writing off 15% on diminishing value.
Prepare plant A/c from 2004 to 2008.
Q.5
What do you understand by forfeiture of share? Can forfeited shares be reissued?

Give journal entry also.
Q.6
X Company has it branch at Agra. Goods are invoiced to t his branch at 20%
profit on invoice price. From the following details prepare branch A/c in the
books of head office:
Rs,
Goods sent of branch at invoice price
Wages paid by H.O.
Rent paid by HO
Sundry expenses paid by HO
Cash sales
Cash received from debtors
Credit sales
Discount allowed to Customers
Goods spoiled
Goods returned by Customers
Q.7
38,000
1520
1800
200
24,800
10,000
11,200
400
100
200
Give journal entries for the forfeiture and reissue of forfeited shares in the
following cases.
(a)
X ltd. Forfeited 100 shares of Rs.10 each fully called up, held by Mr. A
for non-payment of allotment money of Rs.3 per share and final call of
49
Rs.4 per share. These shares were reissued @ Rs.9 per share as fully paid
up.
(b)
X ltd. Forfeited 50 shares of Rs.10 each Rs.7 called up on which a

shareholders had paid application and allotment money @ Rs.5 per share.
Out of these 50 shares, 30 shares were reissued as fully paid up @ Rs. 8
per share.
(c)
X Ltd. Forfeited 100 shares of Rs.10 each (Rs. 6 called up) issued at a
discount of 10% on which the shareholder had paid Rs. 2 per share. All the
shares were reissued as fully paid up @ Rs. 8 per share.
50
Biyanis Think Tank
Unsolved Paper 2008

Max. Marks : 100
Attempt the five questions in all. Question Nos. 1and 2 are compulsory.
Part-I
Q.1
2x10
(i)
Give name of any four accounting concepts.
(ii)
Goods purchased from Sapna on credit of Rs.3,000 posted into sales book.
Give it s rectification entry.
(iii)
Where is the depletion unit method of depreciation applicable?
(iv)
What journal entry is to be made if bad debts preciously written off are
subsequently recovered?
(v)
Name the different orders in which assets and liabilities in a balance sheet
can be presented sheet can be presented..
(vi)
Name any two adjustments for which reverse entry is made at the
beginning of the next year.
(vii) A fire broke out in the godown of a trader on 15th Sep. 2007. Whole of the
stock was burnt except stock amounting to Rs.24,800 The stock was
insured for Rs.1,00,000 The closing stock in the godown of the trader on
15th September, 2007 was estimated at Rs.1,88,000. Calculate the amount
of insurance claim.
(viii) An income and expenditure account of a club show surplus of Rs.1,000. In
this account to adjustment has been made for advance salary Rs.400 and
un-accrued income Rs.300. find out the correct balance of account after
adjustments.
(ix)
How the total of a B/R book will be posted into the ledger?
(x)
Q.2
51
Give two examples of contra entry?
5x4
(i)
Give name of adjustment accounts opened under self balancing system.
(ii)
Opening capital of a trader was Rs.60,000 and at the end of the year the
capital is Rs.75,000 if the estimated profit of the year is Rs.18,000 find out
the amount of drawing for the year.
(iii) A company forfeited 1000 shares of Rs.10 each Rs. 8 called up, for nonpayment of first call @ Rs.3 per share. Pass journal entry for forfeiture of
shares.
(iv) When is the weighted average of actual profit calculated for the purpose of
valuation of goodwill?
(v)
The fair value of equity shares of Rs. 113.50 and yield value is Rs.120
find out the intrinsic value of share and net assets, if 50,000 find out the
intrinsic value of share and net assets, if 50,000 equity shares of Rs.10
each issued by the company.
52
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Part II
Q.3
Shri Keshav commenced business as a cloth merchant on Ist April, 2006 with a
capital of Rs.40,000 On the same day he purchased furniture for Rs.8000. From
the following particulars obtained from his books, which do not confirm to strict
double entry principles, you are required to prepare statements like, trading and P
& L account for the year ended 31st March 2007 and a balance sheet as on that
date:
Rs.
Sales (Including cash sales Rs. 20,000)
50,000
Purchase (Including cash purchases Rs.12,000)
40,000
Shri Keshav's drawings
2,000
Staff salaries
4,800
Bad Debts written off
400
Trade Expenses
1,600
Shir Keshav has used cloth worth Rs.1200 for private purpose and paid Rs.2,000
to his son which is not recorded and any where, on 31st March, 2007, his debtors
were worth Rs.14,000 and creditors Rs.8000 stock in trade on that data was worth
Rs.16,000 domestic milk supplier's bill for the month of march, 2007 is still due
for Rs.600.
Q.4
Q.5
"While preparing department trading and P & L account the apportionment of

indirect expenses is necessary" Discuss such expenses and the basis on which that
apportionment is made,
What is consequential loss policy? What factors do influence the ascertainment of
claim under this policy?
Q.6
53
Calculate the value of good will by:

(i)
3 Years purchases of actual average profits
(ii)
10 Years purchases of super profit, and
(iii)
Captalization of super profits
From the following information:

(i)
Average capital employed Rs.4,00,000
(ii)
Net trading profit of past four years; Rs.68,000, Rs. 75,000 Rs.80,000 and
Rs.92,000
(iii)
Normal rate to return in similar type of business is 15%
(iv)
Net profits of last two years include the income from non trade investment
Rs.3,000
(v)
The fair remuneration of owner for his service Rs.15,000 per annum.
54
Biyanis Think Tank
Unsolved Paper- 2007

Max. Marks : 100
Part-I
Q.1
2x10
(i)
What is business entity concept?
(ii)
Mention five examples of contingent liabilities.
(iii)
What do you mean by super profit?
(iv)
Differentiate between sectional balancing and self balancing.
(v)
What do you mean by accommodation bills?
(vi)
Differentiate between accounting concepts and conventions?
(vii)
Name of distinct subsidiary books.
(viii)
What do you mean by conditional issue of debentures?
(ix)
Mention the journal entry for branch fixed assets for which account is
maintained by head office.
(x)
Q.2
What do you mean by accounting for non-profit organization?

(i)
5x4
Mention the distinct causes for differences between the branch account
and Head Office Account. Also mention the adjustment entries for the
reconciliation of these differences.
(ii)
Mention the distinct for purchasing of own debentures as investment by a

company with accounting entries.
(iii)
What do you mean by indirect expenses? How are these expenses

apportioned in various departments?
(iv)
55
Mention the various steps for computing consequential loss if there are
additional working expenses and savings in expenses.
(v)
Can a new company issue its shares at discount? If not, why?
Part II
Q.3
From the following particulars, ascertain the amount of claim under a loss of
profit policy. Assume a 10% upward trend in the business.
(i)
Indemnity period 6 months and policy value Rs.60,000
(ii)
Date of fire 1.4.2006 interruption up to 1.8.2006
(iii)
Sales for 2005 Rs.2,40,000 net profit for 2005 Rs.26,000
(iv)
Standing charges for 2005 insured Rs.34,000
(v)
Sales from 01.04.2005 to 31.03.06 Rs.3,20,000 from 01.04.06 to 31.08.06

Rs.30,000 and from 01.04.05 to 01.08.05 Rs.1,00,000.
Q.4
A company offer 1,000 equity shares of Rs.100 each to me public. The amount
was payable as follows:
(i)
Rs. 50 on application (including Rs.10 premium)
(ii)
Rs. 30 on allotment and
(iii)
Rs. 30 on cell
Application were received for 3,000 shares, application for 1000 shares were not
allotted any share and their application money was refunded. Pre data allotment
was made to the rest applicants.
56
Biyanis Think Tank
X to whom 100 shares were allotted did not pay any money except that with his
application. The issue was completed and rest of the application paid their amount
when due.
Shares of Mr. X were forfeited are reissued to Y at Rs50 each as fully paid up.
Give journal entries, bank account in the books of company and show these items
in the balance sheet of company.
Q.5
Explain the provision of the companies Act, 1956 with regard to redemption of
redeemable preference shares.
Q.6
"Goodwill is the present value of anticipated super profits" Explain suitable

examples.
Q.7
M Ltd. have three department. The purchase and sales data for the year ended 31st
March 2007, are given below:
Deptt. A
Purchase (at Rs. 10,00,000)
Deptt. C
1,000
2000
2400
120
80
152
1020
1920
2496
200
225
250
Opening Stock (Units)

Sales (Units)
Deptt. B
Selling price per unit
Prepare department trading account for the year ended 31st March, 2007 assuming
that the rate of gross profit is the same in each case.
57
Unsolved Paper- 2006

Max. Marks : 100
Part-I
Q.1
(i)
What is business entity concept?
(ii)
Differentiate between journal and ledger.
(iii)
What is the basic difference between provision and reserves?
(iv)
Name the various methods of providing depreciation.
(v)
What do you mean by compensatory error?
(vi)
Why adjustments are to be made in final accounts?
2x10
(vii) What is average clause?

(viii) Differentiate between gross profit and net profit.
Q.2
(ix)
What do you mean by redemption of shares and debentures/
(x)
What is intrinsic value of share?
5x4
(i)
Explain generally accepted accounting principles (GAAP).
(ii)
What is suspense account? When and why it is prepared?
(iii)
What is consequential loss policy? What factor do influence the

ascertainment of claim under this policy?
(iv)
How do you determine the profit/ loss of a business who maintain their
books on single entry system?
58
Biyanis Think Tank
(v)
How do you value the good will of a business firm? Explain.
Part II
Attempt any there questions. Each question carries 20 marks.
Q.3
Explain the requirement of schedule VI of the Companies Act, 1956 is respect of

disclosure of the following items in the balance sheet.
(i)
Current Assets
(ii)
Current Liabilities
(b)
Explain the procedure of issuing shares and debentures to be adopted by a

company. Also give necessary accounting entries for issue of shares and
debentures.
Q.4
The following trial balance is extracted from the books of a merchant on 31

March, 2005
Particulars
Dr.Rs.
Furniture and fittings
640
Motor vehicles
6250
Buildings
7500
Capital Accounts
Bad Debts
12500
125
Provision for Bad Debts
200
Sundry Debtors and Creditors
3800
Stock on April, 1 2004
3460
Purchase and sales
5475
Bank Overdraft
Sale and Purchases, Returns
Cr.Rs.
2500
15450
2850
200
125
59
Adverting
450
Interest (On Bank overdraft)
118
Commission
375
Cash
650
Taxes and Insurance
1250
General Expenses
782
Salaries
3300
34000
34,000
34,000
The following adjustment are to be made:

(i)
Stock in hand on 31st March, 2005 was Rs. 3250.
(ii)
Depreciated buildings at the rate of 5% furniture and fittings @ 10% and

motor vehicles @ 20%
(iii) Rs. 85 is due for interest on bank overdraft.

(iv) Salaries Rs. 300 and Taxes Rs. 120 are outstanding.
(v)
Insurance amounting to Rs. 100 is prepaid.
(vi)
One third of the commission received in respect of work to de done next

year.
(vii) Write off a further sum of Rs. 100 as bad debt and provision for bad debts
to be made equal to 10 percent on sundry debtors.
Prepare a trading and profit and loss account for the year ending 31st
March,2005 and balance sheet as on the date.
Q.5
From the following details relating to half year ending 30th sep. 2004 prepare total
debtors A/c and total creditors A/c in General ledger:
Trade debtors balance on 01.04.04
42880
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Biyanis Think Tank
Trade creditors balance on 01.04.04
77520
Credit sales
82768
Credit purchases
45424
Receipts from debtors
80480
Paid to creditors
65280
Discount received
1600
Discount allowed
1500
B/R received
8000
Acceptances to suppliers
6800
Bad debts written off
360
B/R dishonored
800
Cash refunds to customers
100
Cash purchases
5000
Charges to customers (Not included in
800
sales)
Transfer from purchase ledger to sales
2500
ledger
Transfer from sales ledger to purchase
800
ledger
B/R endorsed to creditors
300
Q.6
61
Sachin and company purchased on 1st April, 2000 a second hand machine for Rs.
90000 and immediately spent Rs.60000 on the its overhauling. On Ist Oct. 2000
additional machinery at a cost of Rs.75000 was purchased. On Ist Oct. 2002
machine purchased on 1st April, 2000 become obsolete and was sold for
Rs.30000. On that data new machinery was purchased at a cost of Rs.18000,
depreciation was provided annually on 31st March, at 10% per annum on the
original cost of the asset. In 2003-04 however the company changed this method
of providing depreciation and adopted the method of writing off
15% on the
diminishing value. Show the machinery account as it would appear in the book
of the company for the years 2000-01 to 2004-05.
Q.7
From the following particulars of Gaurav Club, prepare Income and expenditure
account for the year ended 31st March, 2005 and Balance sheet on the date:
Balance sheet
As on 31st March, 2004
Liabilities
Capital Fund
Rs.
47000
Assets
Rs.
Cash at Bank
5000
Furniture
20000
Building
10000
Investment
11500
Outstanding
47000
Subscription
470000
470000
Receipts and payment account for the year ended 31st March, 2005 :
Particularly
Rs.
Particularly
Rs.
To Balance b/d
5000
By Rent
11500
To Subscription
35000
By Salary
22000
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Biyanis Think Tank
To donation
15000
By Games Material
9500
To interest on
1000
By Balance c/d
16000
Investment
To Furniture sold
3000
(01.04.2004 Book
value)
59000
59000
Other information:
(i) Salary outstanding for one month.
(ii) Interest accrued on investment Rs. 1500
(iii) Subscription received includes Rs.500 for last year and Rs.5000 is
outstanding for current year.
(iv) Charge depreciation @ 10% on furniture
(v) The stock of sports material on 31.03.95 was Rs.2000.
63
Multiple Choice Question

Q.1 In incomplete records the correct formula to calculate profit is
(a) Net Profit = Opening capital + Additional capital introduced during the year+
Drawings closing capital
(b) Net Profit = Closing Capital + Drawings + Additional Capital introduced opening
capital
(c) Net Profit = Closing Capital - Drawings + Additional Capital introduced opening
capital
(d) Net Profit = Closing Capital + Drawings + Additional Capital introduced
opening capital
Q.2 The initial capital can be ascertained by preparing :
(a) Capital a/c
(b) Opening statement of affairs
(c) Balance Sheet
(d) None of the above
Q.3 Debtors at the beginning of the year were Rs. 1,00,000 an at the end of the year
Rs.1,60,000.Cash received during the year from debtors Rs. 2,00,000.Amount of credit
sales will be
(a) Rs. 1,40,000
(b) Rs.2, 60,000
(c) Rs.4,20,000
Q.4 Under sectional balancing system the ledger which is usually made self balancing is:
(a) Sales Ledger
(b) Purchase Ledger
(c) General Ledger
Q.5 In every ledger separate trial balance can be prepared in
(a) Sectional balancing System
(b) Self balancing system
(c) single entry system
(d) Double entry system
Q.6 Provision for bad and doubtful debt is opened in :
(a) Debtors ledger
(b) creditors ledger
(c) General ledger
Q.6 Sales account is opened in
(a) Sale ledger
(b) Purchase Ledger
(c) General ledger
Q.7 There is no need for self balancing for
(a) discount allowed
(b) amount received from bills receivable
(c) Dishonor of bills receivable
(d) Renewal of bills payable
Q.8 No self balancing ledger is required for provision for bad debts because
64
(a) It is provision
(c) None of the above
Biyanis Think Tank
(b) It does not affect two ledger

(d) Both (A) & (B)
Q.9 General adjustment account is opened in :

(a) Sales ledger
(b) Purchase Ledger
(c) General Ledger
(d) Both (A) & (B)
Q.10 Provision for discount on debtors account will be entered in :
(a) sales ledger
(b) Bought ledger a/c
(c) Debtors ledger adjustment a/c
Q.11 In sectional and self balancing ledger ,goodwill account is opened in:
(a) General ledger
(b) Debtors ledger
(c) Creditors ledger
Q.12 in the sectional balancing system ,drawings account is maintained in which ledger :
(a) General ledger
(b) Debtors ledger
(c) Creditors ledger
Q13 Out of which is direct expenses is :
(a) Salaries and wages
(b) Carriage inward
(b) Carriage outward
(d) Rent of office
Q.14 Which one of it is not indirect expenses:
(a) Custom Duty
(b) Salaries
(c) Advertisements
(d) Carriage outwards
Q.15 Balance of trading account discloses :
(a) Net profit
(b) Gross profit
(c) Gross profit or loss
(d) Net profit or loss
Q.16 Sales tax collected is shown ;
(a) In debit side of trading account
(c) In credit side of P&L a/c
(b) In debit side of P&L a/c

(d) On the liability side of the balance sheet
Q.17 Current asset is not out of following

(a) Cash at bank
(b) Bills receivable
(c) Stores in hand
(d) Machines
Q.18 Added in opening balance of capital :
(a) Net profit
(b) Net Loss
(c) drawings
(d) Gross Profit
65
Q.19 Out of the following is a trade liability :

(a) Drawings
(b) Bank overdraft
(c) Bills receivable
(d) Investment
Q.20Balance of p&l account is transferred to
(a) trading a/c
(b) Capital a/c
(c) Balance sheet
(d) Trail Balance
Q.21 What is trading account:
(a) Personal a/c
(c) Nominal a/c
(b) Real a/c

Q.22 Balance of personal account are shown :

(a) Only in trading account
(b) Only in P & L a/c
(c) Only in balance sheet
(d) Both (A) & (B)
Q.23 Balance sheet is prepared :
(a) to check the accuracy of books
(c) to know the financial position
(b) to find out capital

(d) to know the net profit
Q.24 From income statement it is find out ;

(a) What is gross profit
(b) What is net profit
(c) What is financial position
(d) All of the above
Q.25 Trading and P&L account discloses profit or loss of business;
(a) On a particular date
(b) For a given period
(c) both of the above
Q.26 Balance sheet discloses financial position of business:
(a) for a particular period
(b) on a particular date
(c) both of the above
Q.27 If balance sheet is prepared in order of performance then the first item of asset side
will be:
(a) Land and Building
(b) Plant and Machinery
(c) Vehicles
(d) Goodwill
Q.29 Goodwill is :
(a) Wasting asset
(c) Fictitious asset
(b) Current asset

(d) Intangible asset
Q.30 If balance sheet is prepared in order of liquidity then the first item of asset side will
be:
66
(a) Cash in hand

(c) Sundry Debtors
Biyanis Think Tank
(b) Stock
(d) Bills receivable
Q.31 Which one is not a intangible asset:

(a) Goodwill
(b) Patents
(c) Trade mark
(d) Stock of goods
Q.32 Which one is not a Current asset;
(a) bills receivable
(b) Closing stock
(c) Furniture
(d) Sundry Debtors
Q.33 What is bank overdraft :
(a) Personal a/c
(c) Nominal a/c
(b) Real a/c

Q.34 Accounting principles are generally based on

(a) Objectivity
(b) Subjectivity
(c) convenience
Q.35 Revenue is generally recognised as being earned at a point of time(a) sales is effect
(b) cash is received
(c) production is completed
(d) All of the above
Q.36 The system of recording transaction based on dual aspect is called :
(a) Double Account system
(b) Double entry system
(c) Cash system
(d) Single entry system
Q.37 According to convention of conservatism ,stock-in-trade is valued at
(a) Cost price
(b) Market price
(c) Cost price or market price which ever is less (d) Cost price or market price which
ever is more.
Q.38 According to going concern concept a business is veiwed as having ;
(a) a limited life
(b) going to be liquidated
(c) an indefinite life
(d) none of the above
Q.39 The account which is debited by the cost of goods taken by the proprietor is
(a) Purchase account
(b) capital account
(c) Sales account
(d) Drawings account
Q.40 Classification of accounts is made in :
(a) Journal
(b) Subsidiary Books
(c) Ledger
67
Q.41 Prepaid insurance is :

(a) Personal account
(c) Nominal account
(b) Real account

Q.42 Outstanding expenses is a :

(a) Personal account
(c) Nominal account
(b) Real account

Q.43 Which of the following account is not a real account ;

(a) Building account
(b) drawings account
(c) Closing account
(d) Goodwill account
Q.44 Which of the following account is not a personal account:
(a) Capital account
(b) Bank account
(c) cash account
(d) Outstanding rent account
Q.45 Posting means
(a) Preparation of trail balance by the balances of accounts in ledger :
(b) recording of business transactions in journal
(c) Taking up the balances of accounts from balance sheet for next year
(d) recording transactions from primary books to ledger accounts
Q.46 Cash account shows :
(a) debit balances
(c) debit or credit balance
(b) Credit balance

Q.47 Capital account :

(a) Real account
(c) Nominal account
(b) Personal account

Q.48 Cash discount is given to :

(a) to encourage buyers to buy goods in large quantity.
(b) to encourage buyers to make payments at early stage
(c) to complete with other businessman .
(d) Both (A) & (B)
Q.49 the main object of preparing trial balance is :
(a) to check arithmetical accuracy of accounts
(b) to check complete accuracy of accounting book
(c) to know the profit
(d) to know the financial position.
Q.50 It is prepared with the help of trial balance
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(a) Only trading account

(c) Only balance sheet
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(b) Only P&L account

(d) Final accounts
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Key Terms
Accounting : Accounting is an art of recording ,classifying ,and summarizing in a
significant manner and in terms of money ,transactions and events which are ,in part or at
least of financial character and interpreting the results thereof .
Capital : It refers to the amount invested by the proprietor in a business enterprise .It is
the amount with the help of which goods and assets are purchased in the business .capital
Is also known as Ownerss Equity and Net worth .
Liability : It refers to the amount which the firms owns to the outsiders .For example if a
firm purchase goods on credit from A ,the amount owing to A is liability.Liability may be
classified into two parts :
Long term Liability : These refers to those liabilities which fall due for payments in a
relatively long period normally more than one year .for example Long term loan and
debentures etc.
Current Liability : Current liability refers to those liability which are to be paid in near
future normally within one year.For example Bank overdraft, Bills payble , Creditors etc.
Assets : Anything which is in the possession or is the property of a business enterprise
including the amount due to it from others ,is called assets.In other words, anything
which will enable a business a business enterprise to get cash or benefit in future is an
asset.Assets may be classified in the following categories .
Fixed Assets : It refers to those assets which are held for continued use in the business
for the purpose of producing goods and services and are not meant for resale.
Current Assets : It refers to those assets which are either in cash or easily converted into
cash within one financial year. For example cash , bank , Debtors etc.
Fictitious Assets : Assets of no real value but included in the balance sheet for legal or
technical reasons for example preliminary expenses ,deferred revenue expenses etc.
Tangible assets : It refers to those assets which can be seen or touched are called
tangible assets. In other words which have a physical existence such as land, building ,
plant etc.
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Intangible Assets : It refers to those assets which cannot be seen or touched and which
have no physical existence for example goodwill, patents , trademark etc.
Revenue : The monetary receipt of a recurring nature from any source is known as
revenue.
Expenses : The monetary measure of inputs or resource consumed is called expenses.and
profit is the difference between revenue and expenses.
Debtors : It represents those persons or firms to whom goods have been sold on credit
and have not paid for the goods sold to them.
Creditors : when goods are purchased on credit by the firm, the person to whom money
is owing by the firm is called a creditors.
Drawing : The withdrawal of cash or goods by the owner for his personal use is called
drawings .
Working capital : The funds which are available to an nterprise for conducting its day to
day operations is known as working capital.This represented by the excess of current
assets and current liability.
Bill of Exchange : A bill of exchange is an unconditional order which id written by the
seller on purchase on which written acceptance of purchaser is obtained in which the
purchaser is ordered to make payment to the seller himself or any other person directed
by the seller or bearer of the bill after a certain period.
Depreciation : Depreciation is the gradual and permanent decrease in the value of fixed
assets.
Purchases : The term purchases is used only for the purchase of goods in which the
business deals. In case of manufacturing unit goods means acquiring of raw material for
the purpose of conversion into finished product and then sales.
Sales : The term sales is used only for the sales of those goods which are purchased for
resale purposes .This term sales is never used for the sale of assets.
Goods : All those things which a business concern purchases for resale are called goods.
Cash Discount : An allowance made to encourage prompt payment or before the expiry
of the period allowed for credit.
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Trade Discount : A deduction from the gross or catalogue price allowed to traders who
buy to sell again.
Journal : Journal is a chronological record of business transaction .It is a book of original
entry. Small businessmen used to record the transactions only in journal .
Ledger Folio : The page number of ledger accounts on which posting of entry in made is
recorded in this column.
Trial Balance : Trial Balance is a list of debit and credit balances which is prepared to
check the arithmetical accuracy of ledger and which is also helpful in preparing final
accounts.
Promissory Note : According to sec 4 of the Negotiable instrument act,1881.A
promissory note is an instrument in writing containing an unconditional undertaking,
signed by maker , to pay a certain sum of money only to or to the order of a certain
person.
Provisions and Reserve : Acc to companies act 1956 Provisions usually means any
amount written off or retained by the way of providing depreciation , renewals or
diminution in the value of assets or retained by the way of providing for any known
liability of which the amount cannot be determined with substantial accuracy.
Reserve mean amounts set aside out of profits and other
surpluses to meet future uncertainties. Acc to William Pickles Reserve means the
amount set aside out of profits and other surpluses which are not earmarked in any way to
meet any particular liability ,known to exist on the date of the balance sheet
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Fundamental of Accounting

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Fundamental of Accounting

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Concept & Copyright :

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am glad to present this book, especially designed to serve the needs of

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Journal and Ledger

Depreciation, Provision and Reserve

Sectional and Self Balancing Ledgers

Preparation of Accounts from Incomplete Records

Accounts of Non-Profit Organizations

Unsolved Five Years Papers

Multiple Choice Question

What is meant by Accounting? Give two objectives of Accounting.

What do you mean by Accounting Concepts?

What is separate entity concept?

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What do you understand by going concern concept?

What do you understand by convention of consistency?

Explain Accounting Equation.

Give advantages of Accounting.

Helpful in Assessment of Tax Liability: Accounting helps in

Give limitations of Accounting.

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Give four advantages of Journal.

Give two limitations of Journal.

Give two advantages of Ledger.

Differentiate between Journal and Ledger.

Q.7. Distinguish between Cash Discount and Trade Discount.

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Define subsidiary books and give names of subsidiary books.

Purchase Return Book

Sales Return Book

Bills Receivable Book

Bills Payable Book

Why Cash Book is called a book of original entry?

The number of cash transactions in a firm is generally larger, therefore, it

Give four advantages of Petty Cash Book.

What is a purchase book?

What is a sales book?

It is a subsidiary book which records transactions of credit sales of goods. Cash

Define purchase return book.

What is a credit note?

State the four advantages of sub-dividing a Journal.

Explain the meaning of Imprest System of Petty Cash Book.

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What is Journal Proper?

What is Trial Balance?

It is a statement of accounts which appears in the ledger showing either the

Give four objectives of Trial Balance.

To ascertain the arithmetical accuracy of the ledger accounts.

To help in locating errors.

To provide help for the preparation of Final Accounts.

To obtain a summary of the ledger accounts.

What do you mean by errors of Omission?

If transaction is completely or partially omitted from being recorded in the books

Define errors of Commission.

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What do you mean by compensatory error?

What do you mean by errors of principle?

When a transaction is recorded in violation of accounting principles, it is known

Three major differences between Trial Balance and Balance Sheet: