2nd Sem | Accountancy | Solved Papers | 2013-2014

Q.1. Journalise the following transaction:

2014
April1	Rama started business with cash  ₹2,00,000/-, Goods  ₹50,000/- and Motorcar  ₹2,50,000/-
April2	Deposited into bank  ₹50,000/-
April5	Received  a  cheque  of   ₹10,000/-  from  Vivek  and  deposited  to bank.
April8	Sold goods worth  ₹30,000/- to Vivek on 10% Trade discount term.
April11	Goods purchased from Rahim  ₹70,000/-
April18	Received from Vivek in full settlement of his account  ₹25,000/-
April 20	Paid to Rahim in full settlement  ₹69,500/-
April 28	Loan given to Ramesh by cheque  ₹50,000/-
April 29	Purchased computer from HCL computer  ₹45,000/-
April 30	Received a cheque of  ₹5,000/- from Sita and paid to Gita.

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OR Explain in brief the Double Entry System of Book Keeping with suitable examples. (10)

The Double Entry System of Book Keeping is a method used in accounting to record financial transactions. It is based on the principle that every transaction has two sides, a debit, and a credit, which must be recorded in two separate accounts.

 For Example: If a business purchases supply for ₹500, the Double Entry System would record the transaction as follows:

• Debit Supplies account: ₹500
• Credit Cash account: ₹500

In this case, the Supplies account is debited because the business has increased its inventory, while the Cash account is credited because the business has paid for the supplies.

Similarly, if a business sells goods for ₹1,000, the Double Entry System would record the transaction as follows:

• Debit Cash account: ₹1,000
• Credit Sales account: ₹1,000

In this case, the Cash account is debited because the business has received payment for the goods, while the Sales account is credited because the business has made a sale.

The Double Entry System ensures that the accounting equation (Assets = Liabilities + Equity) is always balanced. This is because every transaction affects two accounts, and the total debits must always equal the total credits.

Overall, the Double Entry System of Book Keeping provides a structured and accurate way to record financial transactions and ensure the integrity of a company’s financial statements.

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Q.2. Prepare the Ledger Account of Mahesh and balance it.

2014

May  1 Opening balance  ₹5,000/- (Debit).

May  2 Mahesh purchased goods from us  ₹2,000/-

May 3 Received cash  ₹1,800/- from Mahesh and discount allowed Rs.200/-

May  5 Goods sold to Mahesh  ₹5,000/-

May  8 Purchased old typewriter from Mahesh for  ₹1,000/-

May 10 Received  ₹8,800/- from Mahesh in full settlement of his account.

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OR Differentiate between Ledger and Journal. Give one ledger account, as an example. (10)

BASIS FOR COMPARISON	JOURNAL	LEDGER
Meaning	It is a book where all financial transactions are initially recorded in chronological order.	It is a book where all transactions recorded in the journal are classified and posted to individual accounts.
Function	It records all the transactions of a business in a systematic and chronological order.	It summarizes the information provided in the journal by posting transactions to individual accounts.
Format	Transactions are recorded in a narrative format, usually with the date, accounts affected, amounts, and a brief description.	Transactions are recorded in a tabular format, with individual accounts having separate pages to record transactions.
Duration	Transactions are recorded as they occur, in the order in which they happen.	Transactions are recorded after they have been entered into the journal.
Process	The process of recording transactions in a Journal is known as Journalizing.	The process of transferring entries from the journal to the ledger is known as Posting.
Purpose	It serves as a primary source of data entry for recording all financial transactions of a business.	It is used to keep a record of all financial transactions in one place and is a basis for preparing financial statements.

 

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Q.3. Enter the following transactions in the three-column cash book: (15)

Year	Particulars	Amount in  ₹
2014
March 1	Opening cash balance	10,000/-
	and bank overdraft balance	5,000/-
March 3	Cash Sales	4,000/-
March 6	Purchased goods	2,000/-
March 8	Paid by cheque to Kamlesh	3,000/-
March 9	Salary paid to Anil by cheque	9,500/-
March 10	Paid to Ram	9,800/-
	and discount allowed by him	200/-
March 15	Deposited to bank	5,000/-
March 18	Received a cheque from Prakash	3,000/-
March 19	Paid rent	2,300/-
March 20	Deposited the cheque received from Prakash to bank. on 18th March
March 21	Withdraw cash  ₹3,000/- from the bank for personal use and  ₹5,000/- for official purposes.
March 23	Received from Gupta  ₹1,680/- and discount allowed 20/-
March 25	Received a cheque of  ₹3,000/- from Ravi and endorsed to Hari.

Q.4. Define Bank Reconciliation Statement and list the cause of the difference in the cash book and pass book balances. (10)

Bank Reconciliation Statement (BRS) is a statement that reconciles the differences between the balances of a company’s cash book and its bank statement. It is a process that ensures that the records of the company’s transactions with the bank are accurate, complete, and consistent. The BRS is used to identify and explain any discrepancies between the cash book and the bank statement balances. It also helps to identify any errors or omissions in the records of the company.

There are several reasons why the balances in the cash book and the bank statement may differ. The following are the ten most common causes of differences in the cash book and passbook balances:

1. Outstanding cheques: Cheques that have been issued by the company but have not yet been presented to the bank for payment. These cheques will still appear as a deduction in the cash book balance but will not be reflected in the bank statement until they have been presented for payment.
2. Unpresented cheques: Cheques that have been received by the company but have not yet been deposited in the bank. These cheques will still appear as a credit in the cash book balance but will not be reflected in the bank statement until they have been deposited.
3. Bank charges: Bank charges such as transaction fees, account maintenance fees, and other charges levied by the bank may not have been recorded in the cash book.
4. Interest earned: Interest earned on the bank account may not have been recorded in the cash book.
5. Direct debits: Direct debits authorized by the company may not have been recorded in the cash book.
6. Bank errors: Errors made by the bank in recording transactions can result in differences between the cash book and the bank statement balances.
7. Company errors: Errors made by the company in recording transactions can also result in differences between the cash book and the bank statement balances.
8. Deposits in transit: Deposits made by the company that have not yet been credited to the bank account may not have been recorded in the bank statement.
9. Withdrawals in transit: Withdrawals made by the company that have not yet been debited from the bank account may not have been recorded in the bank statement.
10. Fraud: Fraudulent activity such as check kiting, embezzlement or forgery can cause differences in the cash book and passbook balances.

In conclusion, a bank reconciliation statement is an essential tool for companies to ensure the accuracy of their financial records. By identifying and explaining any discrepancies between the cash book and the bank statement balances, the company can correct errors and prevent fraud. Understanding the causes of differences in the cash book and passbook balances can help companies improve their accounting practices and maintain accurate financial records.

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OR Write short notes on (any four): (4x 2 ½ =10)

(a) Capital expenditure

Capital expenditure refers to the funds that a company spends on acquiring or improving long-term assets such as land, buildings, equipment, and machinery. These assets are essential to the operations of the business and are expected to provide benefits to the company for more than one accounting period.

Examples of capital expenditures include the purchase of new equipment, the construction of a new building, or the acquisition of land for a new facility.

(b) Cash Discount

A cash discount is a reduction in the price of a product or service offered to a customer who pays for it in cash or by a cash equivalent within a specified period. It is a way for businesses to incentivize customers to pay their bills early and improve their cash flow. Cash discounts are typically expressed as a percentage of the total invoice amount, with the discount amount being deducted from the total amount due if paid within the specified period. For example, a business might offer a 2% discount if a customer pays their bill within 10 days of the invoice date. Cash discounts can be an effective way for businesses to manage their cash flow and reduce the risk of bad debt.

(c) Fundamental accounting equation

The fundamental accounting equation is the cornerstone of double-entry accounting and is expressed as Assets = Liabilities + Equity. This equation states that a company’s assets are always equal to the sum of its liabilities and equity. Assets represent the resources that a company owns, liabilities represent the obligations that a company owes to its creditors, and equity represents the residual interest of the owners in the company’s assets after deducting its liabilities. The fundamental accounting equation is used to ensure that a company’s financial statements are accurate and balanced and that its books are kept in accordance with generally accepted accounting principles (GAAP). By using this equation, accountants can ensure that a company’s financial records are complete and accurate and that all transactions are properly recorded.

(d) Compound entry

A compound entry is a type of accounting entry that involves more than one account. It is used to record complex transactions that affect multiple accounts simultaneously. Compound entries are typically used in situations where a single transaction affects more than two accounts, or when multiple transactions occur at the same time

An example of a compound journal entry is a payroll entry, where there is a debit to salaries expense, another debit to payroll taxes expense, and credits to cash and a variety of deduction accounts.

(e) Petty cash book

A petty cash book is a ledger used to track small and regular cash expenditures that are too small to justify writing a check or processing an electronic payment. It is a convenient way for businesses to manage small cash expenses such as office supplies, postage, or employee meals. Petty cash books typically contain a fixed amount of cash, which is periodically replenished as needed. Entries in the petty cash book are made as cash is disbursed, with the date, amount, and purpose of the expenditure recorded. At the end of the month or another specified time period, the petty cash book is reconciled with the actual cash on hand, and any discrepancies are noted

(f) Opening entry

The opening entry is the first journal entry made in the accounting records at the beginning of a new accounting period. This entry is used to record the beginning balances of the accounts on the balance sheet and to bring forward the balances of the previous period’s temporary accounts. The opening entry typically consists of two parts:

(1) the debit entry to record the beginning balances of the balance sheet accounts, and

(2) the credit entry to record the balances of the temporary accounts.

The opening entry sets the stage for the entire accounting period and ensures that the balances of the accounts are accurate and up-to-date.

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Q.5.   Explain in one or two lines (any five):(5×2=10)

(a) Contra entry

A contra entry is a transaction that involves both a debit and a credit entry that offset each other.

(b) Debit Note

A debit note is a document issued by a buyer to a seller that indicates the amount to be debited to the seller’s account.

(c)  Deferred Revenue

Deferred revenue refers to revenue that has been received in advance but has not yet been earned.

(d) Goodwill

Goodwill is an intangible asset that represents the value of a company’s reputation, customer base, and other non-tangible assets.

(e) Marshaling

Marshaling is the process of reorganizing a company’s assets and liabilities to satisfy legal or regulatory requirements.

(f) Business entity concept

The business entity concept is the principle that a business should be treated as a separate entity from its owners.

(g) Crossed Cheque

A crossed cheque is a cheque that has been marked with two parallel lines, which signifies that it can only be deposited directly into a bank account and not cashed.

(h) Intangible Asset

 An intangible asset is an asset that has no physical form but has value, such as a company’s brand or intellectual property

(i) Contingent Liability

A contingent liability is a potential liability that may or may not occur, depending on the outcome of a future event.

(j) Double entry system of bookkeeping

The double-entry system of bookkeeping is a method of accounting that requires every transaction to have both a debit and a credit entry to ensure that the accounting equation remains in balance.

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Q.6. A. Differentiate between Capital Expenditure and Revenue Expenditure. (5+10=15)

The occurence of expenditure during the course of business is very natural. Generally, expenditure is incurred to increase the efficiency of business and further returns. These are braodly classified into two categories, i.e. capital expenditure and revenue expenditure. Capital Expenditure is an expense made to acquire an asset or improve the capacity of the asset. Conversely, revenue expenditure implies the routine expenditure, that is incurred in the day to day business activities.

The most important difference between capital expenditure and revenue expenditure is that the former is aimed at improving overall earning capacity of the concern, whereas the latter tries to maintain the earning capacity.

Here is the comparison chart to help you clear this question or help you in writing this answer if asked for 10 marks.

BASIS FOR COMPARISON	CAPITAL EXPENDITURE	REVENUE EXPENDITURE
Definition	Capital expenditure refers to the expenses incurred on acquiring or improving a long-term asset that provides future economic benefits.	Revenue expenditure refers to the expenses incurred on the day-to-day operations of a business
Purpose	The purpose of capital expenditure is to increase the earning capacity of the business	Revenue expenditure is to maintain the current earning capacity of the business
Duration	Capital expenditure has a long-term impact on the business	Revenue expenditure has a short-term impact on the business
Nature of Expense	Capital expenditure is typically a one-time investment	Revenue expenditure is recurring in nature.
Funding	Capital expenditure is usually funded through long-term sources of finance, such as loans or equity	Revenue expenditure is funded through short-term sources, such as working capital.
Accounting Treatment	Capital expenditure is recorded as an asset on the balance sheet and is gradually depreciated over its useful life	Revenue expenditure is recorded as an expense on the income statement in the period in which it is incurred.
Effect on Profitability	Capital expenditure may reduce profitability in the short term but is expected to increase profitability in the long term	Revenue expenditure reduces profitability in the short term and has no impact on long-term profitability
Materiality	Capital expenditures are typically larger in size and greater impact on business	Revenue Expenditure are smaller and have lesser impact on business

B. State whether the following items are Capital, Revenue, or Deferred Revenue Expenditure:

(i) Purchase of stationery of  ₹5,000/-.  Revenue Expenditure

(ii) Purchase of motor car of  ₹2,50,000/-. Capital Expenditure

(iii) Payment of salary  ₹15,000/-. Revenue Expenditure

(iv) Spent  ₹5,00,000/- towards advertisement. Deferred Revenue Expenditure

(v) Payment of  ₹10,000/- towards installation of a new machine. Capital Expenditure

(vi) Paid  ₹2,00,000/- towards repair and painting of building. Capital Expenditure

(vii) Commission and brokerage paid for issue of shares Rs.50,000/- Deferred Revenue Expenditure

(viii) Legal expenses  ₹1,00,000/- incurred at the time of purchase of an asset. Capital Expenditure

(ix) Paid  ₹5,000/- towards office expenses. Revenue Expenditure

(x) Paid  ₹3,000/- towards conveyance charges. Revenue Expenditure

Q.7. Prepare a Trial Balance from the following:(10)

Particulars	Amount in  ₹
Capital	2,70,000/-
Interest allowed	11,880/-
Drawing	27,000/-
Octroi duty	21,600/-
Sales return	16,200/-
Purchase return	5,400/-
Commission received	2,700/-
Discount allowed	1,620/-
Loan	43,200/-
Repair & maintenance	59,400/-
Sales	7,02,000/-
Purchase	4,32,000/-
Cash	54,000/-
Bank overdraft	27,000/-
Creditors	32,400/-
Debtors	54,000/-
Furniture	27,000/-
Building	2,16,000/-
Machinery	1,62,000/-

 

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Q.8. Prepare a Trading, Profit & Loss Account and a Balance Sheet from the following.

Particulars	Dr. Amount in  ₹	Cr. Amount in  ₹
Opening Stock	20,000/-
Raw materials	80,000/-
Carriage inwards	2,000/-
Commission received		5,000/-
Rent received		15,000/-
Wages	12,000/-
Salaries	18,000/-
Power and fuel	15,000/-
Purchase return		5,000/-
Land and building	2,50,000/-
Furniture and fixture	75,000/-
Creditors		34,000/-
Bills payable		20,000/-
Long term loan		2,00,000/-
Capital		2,80,000/-
Administrative expenses	12,000/-
Repair and maintenance expenses	15,000/-
Marketing expenses	35,000/-
Cash in hand	5,000/-
Cash at bank	50,000/-
Debtors	20,000/-
Sales		2,50,000/-
Plant and machinery	2,00,000/-
Total :	8,09,000/-	8,09,000/-

Trial Balance and adjustment: (5+5+10=20)

Adjustments:

• Closing stock is valued at  ₹30,000/-.

• Depreciate Land and Building @5%, Plant and Machinery @20% and Furniture and Fixture @10%.

• Wages outstanding is  ₹2,000/-

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