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FUNDAMENTALS
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Question 1 What are the main characteristics of a banks book-keeping system? (5 marks) (IntermediateNov. 1997) Answer Main characteristics of a banks book-keeping system are: (i) Voucher posting: Entries in the personal ledgers are made directly from vouchers instead of being posted from the books of prime entry. (ii) Voucher summary sheets: The vouchers entered into different personal ledgers each day are summarised on summary sheets. The totals of these summary sheets are posted to the control accounts in the general ledger. (iii) Daily trial balance: The general ledger trial balance is extracted and agreed every day. (iv) Continuous checks: All entries in the detailed personal ledgers and summary sheets are checked by persons other than those who have made the entries. This checking is done every day. As a result most clerical mistakes are detected before another day begins. (v) Control accounts: A trial balance of the detailed personal ledgers is prepared periodically, usually every two weeks. It is agreed with general ledger control accounts. (vi) Double voucher system: Two vouchers are prepared for every transaction not involving cash - one debit voucher and another credit voucher.

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Question 2 What are the advantages of maintaining subsidiary books by a tradingmanufacturing organisation? (5 marks) (IntermediateNov. 1997) Answer Advantages of maintaining subsidiary trading/manufacturing organization are: books by a

(i) Division of work: In place of one journal, there are many subsidiary books. The accounting work can be divided amongst a number of people. (ii) Specialisation and efficiency: As a person is handling only one type of work, he acquires full knowledge and becomes efficient in handling the work. Accounting work is done efficiently. (iii) Saving of time: Various accounting processes can be undertaken simultaneously because of the use of a number of books. This results in quicker completion of work. (iv) Availability of information: Since a separate register is kept for each class of transactions, the information relating to each class of transaction is available at one place. Additional information for sales tax, excise, octroi etc., can also be compiled from the appropriate columns in the purchases and sales registers. (v) Facility in checking: When the trial balance does not agree, the location of errors is facilitated by the existence of separate books. Similarly audit of the various books of prime entry can be conducted simultaneously by a team of audit staff. Question 3 Define in one sentence each : (i) Expense, (ii) Equity, (iii) Liability, (iv) Asset and (v) Income (5 Marks) (IntermediateNov. 1997) Answer (i) Expense: It is a cost incurred during an accounting period in order to earn revenue. (ii) Equity: It is the residual interest of the owners of an enterprise in the assets of the enterprise which remain after providing for the liabilities of the enterprise.

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(iii) Liability: It is a present obligation of the factors arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. (iv) Asset: An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. (v) Income: Income is increase in economic benefits during the accounting period in the form of inflows of assets or decrease of liabilities that result in increase in equity other than those relating to fresh contribution from equity participants. (B) Practical Questions: Question 1 A business maintains accounts on self-balancing system for customers and suppliers. You are required to pass journal entries for Control Account purposes in respect of the following transactions for September, 1997 : (10 marks) (IntermediateNov. 1997)

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Answer (a) Bills of exchange for Rs. 3,00,000 drawn on customers against credit sales; (b) Bills of exchange for Rs. 2,50,000 accepted by customers earlier now endorsed to suppliers; (c) An endorsed bill of exchange for Rs. 13,000 dishonoured; noting charges Rs. 150 incurred by holder in due course; endorsement was not sans recourse; (d) An acceptor of a bill of exchange of Rs. 12,000 retires the bill by paying Rs. 11,800. This bill was already endorsed to the supplier. The business contacts and pays the supplier by cheque on the due date. Answer Journal for September, 1997 Debit (Rs.) (Rs.) 1. General ledger control a/c (in customers ledger) Dr. 3,00,000 To Customers ledger control a/c (in general ledger) 3,00,000 (Being self-balancing control A/c entry for bills of exchange drawn on and accepted by customers) 2. Suppliers ledger control a/c (in general ledger) Dr. 2,50,000 2,50,000 To General ledger control a/c (in suppliers ledger) (Being self-balancing control entry for bills of exchange accepted by customers now endorsed to suppliers) 3. Customers ledger control a/c (in general ledger) General ledger control a/c (in suppliers ledger) Dr. Dr. 13,150 13,150 Credit

To General ledger control a/c (in customers ledger) 13,150 To Suppliers ledger control a/c (in general ledger) 13,150 (Being entry to record dishonour of an endorsed bill of exchange, along with noting charges of Rs. 150) 4.(i) General ledger control a/c (in customers ledger) Dr. 12,000

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To Customers ledger control a/c (in general ledger) 12,000 (Being retirement by a customer of an endorsed bill of exchange)

(ii) Suppliers ledger control a/c (in general edger)

Dr.

12,000

To General ledger control a/c (in suppliers ledger) 12,000 (Being payment made to supplier on due date) (iii) Customers ledger control a/c (in general edger)Dr. Dr. To Suppliers ledger control a/c (in general ledger) To General ledger control a/c (in customers ledger) (Being transfer of balance from customers account to suppliers account) Question 2 On 31st March, 1998 Ramji Dayalji P. Ltd., a trading organisation owned inventory costing Rs. 3 lakhs of which inventory valued Rs. 1 lakh was with consignees. It also has in its possession inventory valued at Rs. 10 lakhs belonging to its own principals. During the year ended 31st March, 1999 Ramji Dayalji P. Ltd. : (a) purchased inventory worth Rs. 50 lakhs of which 80% was despatched to its consignees, the transportation cost being 5% of the value of goods sent; (b) received from its principals inventory of Rs. 150 lakhs; (c) sold 90% of own goods received and lying with itself at 20% margin on sales; (d) sold on behalf of principals 95% of goods available at 120% of the value thereof. Ramji Dayalji P. Ltd is entitled to commission at 10% of such sales. The consignees sold at 125% of their per unit landed cost (consignees spending nil) 95% of goods available with them and were entitled to commission at 10% of sales. 12,000 12,000 12,000 12,000 General ledger control a/c (in suppliers ledger)

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You are asked to work out the various figures for recording in the revenue statement of Ramji Dayalji P. Ltd. for the year ended 31st March, 1999. Prepare the revenue statement. (10 marks) (Intermediate May 1999) Answer Revenue Statement of Ramji Dayalji P. Ltd. for the year ended 31st March, 1999 Rs. Sales 64,56,250 Excess of closing inventory over opening inventory Commission income (from consignors) Gross revenues Less : Transportation cost Commission to consignees Net Profit Working Notes : (i) Valuation of inventory as on 31.3.99 Ramji Dayalji Consignees Total P.Ltd. Rs. Rs. Rs. Opening stock 2,00,000 1,00,000 3,00,000 Purchses 10,00,000 40,00,00050,00,000 Transportation cost 2,00,000 2,00,000 12,00,000 43,00,00055,00,000 Cost of goods sold 10,80,000 40,85,00051,65,000 Closing stock 1,20,000 2,15,000 3,35,000 (ii) Sales of goods Ramji Dayalji Consignees P. Ltd. Rs. Rs. Total Rs. 2,00,000 5,10,625 57,10,625 26,04,625 3,35,000 3,00,000 35,000 18,24,000 83,15,250 Purchases50,00,000

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Cost of goods sold Add : Profit margin (25% on cost)

10,80,000 2,70,000 13,50,000 (iii) Commission payable to consignees Sales made by consignees Commission (10% on sales) (iv) Sales for principals

40,85,00051,65,000 10,21,25012,91,250 51,06,25064,56,250 Rs. 51,06,250 5,10,625

Rs. Opening stock belonging to principals 10,00,000 Add : Goods received during the year 1,50,00,000 Total goods available 1,60,00,000 Cost of goods sold (95%) 1,52,00,000 Add : Profit margin (20% on Rs. 1,52,00,000) 30,40,000 Sales 1,82,40,000 Commission (10% on sales) 18,24,000