1

SOLUTIONS TO

INSTANT PAPER

COMMERCE PAPER – II

MAY 2008
PART – A
(Marks: 50)
SECTION – A

Answer any two of the following questions in not exceeding 40

lines each :
2 x 10 = 20

1. What is Transport ? What are the functions of it ?

Ans.
Meanig of Transport
Transport means conveyance of goods and materials from one place to another.
Broadly, speaking transport includes occupations involved in the operation of road, rail,
canal, sea and air transport. In a limited sense it means the services of various modes of
transport.
Functions of Transport
The following are the major functions of transport.
1. Transport develops and expands the market : The primary function of transport is
to enable the physical distribution f goods at global level. The distribution of goods
must take place easily, economically and speedily.
2. It helps specialization and mass production : Specialisation and mass production
of goods in the international market owe their growth to a great deal to transport. In
the absence of world wide network of transport, people would have been forced to
confine consumption to goods produced by themselves or to goods locally available.
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3. Transport increases the mobility of labour and capital : Transport facilities the
mobility of people from place to place throughout the Globe. The settlement of
Telugu people in other parts of India, and abroad, like USA, Singapore, Africa and
some of the countries are but a few examples in point. Transport also helps in the
similar flow of capital and technical know how. The steel plants of India are good
examples of such flow. It, thus, opens up vast opportunities for gainful employment of
labour and capital.
4. Transport aids economic growth : Fast economic growth is possible mainly due to
transport. As an agency for the movement of money, materials, and technical know
how, transport is playing a remarkable role in the growth of all industries. If
agriculture and industry are developing o commercial and scientific lines, the credit
for this progress goes to a great deal to the development of transport.
5. Transport helps price stability : Transport imparts place and time utilities to goods.
It helps to reduce variations in prices of goods not only between regions of a country
but also a considerable extent, between nations.

2. What are the powers of District Forum ?

District Forum:
A consumer Disputes Redressal Forum to be known as the District Forum, is the
forum established by the State Government in each District by notification. The State
Government may establish, if it deems fit, more than one District Forum in a district.
Jurisdiction : The District Forum is vested with necessary powers to redress
consumers’ grievances with respect to unfair trade practices, defective goods and services,
where the value of which and the compensation, if any, claimed does not exceed Rs.20
lakhs.

Powers of District Forum :

1. Powers of a Civil Court : For the purpose of settlement of the consumer disputes under
the Act, the District Forum has been vested with the same powers as are vested in a
Civil Court under the code of Civil Procedure, 1908 (5 of 1908) while trying a suit in
respect of the following matters, namely :
i. the summoning and enforcing attendance of any defendant or witness and examining
the witness on oath.
ii. The discovery and production of any document or other material object productable
as evidence.
iii. The reception of evidence on affidavits.
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iv. The requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or from any other relevant sources.
v. Issuing of any commission for the examination of any witness and
vi. Any other matter which may be prescribed.

2. Search and seizure of any Premises : In addition to the above, the Forum has the
power to require any person to furnish such books, accounts, documents or
commodities, as may be required for the purpose of examining them. The Forum can
also exercise the power of entry, seize and search of any premises.
3. Issue of Orders : Where the District Forum is satisfied that the goods complained
against suffer from any of the defects specified in the complaint or the allegations
contained in the complaint against the services are proved, it shall issue an order to the
opposite party (or seller) directing him to do one or more of the following things, namely.
i. to remove the defects pointed out from the goods;
ii. to replace the goods with similar new goods;
iii. to return the price and charges paid by the complainant;
iv. to pay compensation to the consumer for any loss or injury suffered;
v. to remove the defects in goods or the deficiencies in the services;
vi. to discontinue the unfair trade practice or the restrictive trade practice or not to
repeat it;
vii. not to offer hazardous goods for sale; and
viii. to withdraw the hazardous goods from being offered for sale;
ix. to cease manufacture of hazardous goods and to desist from offering services
which are hazardous in nature;
x. to pay such sum as may be determined if it is of the opinion that loss or injury has
been suffered by a large number of consumers who are not identifiable conveniently
(the amount so payable shall not be less than 5% of the value of defective goods
sold or services provided)
xi. to issue corrective advertisement to neutralise the effect of misleading
advertisement at the cost of the opposite party responsible for issuing such
misleading advertisement; and
xii. to provide for adequate costs to parties.
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3. Discuss the functions of Stock Exchange ?

Ans:
Stock Exchange – Definition :
Garg K. L.: An association of persons engaged in the buying and selling of
stocks, bonds and shares for the public on commission and guided by certain rules and
usages.
Securities contracts (Regulation) Act 1956: Any body of individuals
whether incorporated or not, constituted for the purpose of assisting, regulating, or
controlling the business of buying, selling or dealing in securities.
Functions of Stock Exchange:
Stock exchange, being a part of capital market, performs two functions viz., primary
functions and subsidiary functions.
A. Primary Functions:
The following are the basic functions of a stock exchange.
1. Provision of ready market for securities: The stock exchange provides a ready
market for securities. The investors can easily buy and sell securities on the floor
of the stock exchange. The prices at which the securities have been traded are
regularly given in the electronic and print media for the benefit of investors.
2. Determination of security prices: The stock exchange helps in determining the
prices of various listed securities. The buying of securities regularly leads to the
determination of prices of securities. The exchange helps in the provision of
prices of securities through print and electronic media.
3. Mobilisation Surplus Savings: Stock exchange is a channel for mobilising
capital. It helps in the mobilisation of small savings from various parts of the
country. By directing the flow of capital into worthwhile projects, it helps faster
economic development of the country. It provides mobility capital and facilitate
sound investment.
4. Provision of Liquidity for securities: In a stock exchange buying and selling
securities takes place regularly and systematically. Hence, an investor can
encash his securities at any time.
5. Protection of investors: A stock exchange functions strictly according to rules
and regulations. These rules and regulations provide a check on over trading in
securities. They prevent the manipulation of prices. Thus, a stock exchange
serves as a caretaker of investor ‘s money.
6. Encourages speculative dealings: Most of dealings are in the form of forward
contracts. In stock exchanges all facilities for a future contract are provided. The
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terms of contract, payment and other conditions will be certified by the exchange.
This encourages speculation.
7. Barometer of economy: A stock exchange serves as a reliable barometer of a
country’s economic situation. It reflects the changes taking place in the economy.
It is a symbol of the development of an economy.

B. Subsidiary Functions:
In addition to the above primary function, stock exchange performs the
following subsidiary functions.

1. Safety of Investment: Securities in the stock exchanges are listed after

complete security. It prevents the trading of false and duplicate securities. It also
facilitates in the immediate and easy transfer of securities.

2. Provision of information about listed companies: The organised stock

exchange collects information about the companies listed with it and publish the
information in the form of “Official Year Book”. This proves very useful to the
investors in making investment decisions.

3. Publication of statistics: Stock exchanges publish regularly correct reports

regarding securities trade. They provide free information from such reports to
investors.

SECTION – B
Answer any Four of the following questions in not exceeding 20
lines each
4 x 5 = 20
4. Explain any five principles of Insurance.
Ans.:
Insurance – Definition :
According to Justice Tindal, :”Insurance is a contract in which a sum of money is paid by
the assured in consideration of insurers incurring the risk of paying a large sum upon
a given contingency.”
According to Schultz and Bradwill, “Insurance in its technical sense is a social device
which employs the use of pooling technique to eliminate uncertainty.”
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Thus, Insurance is a device by which loss due to some uncertain event is spread
over a large number of people who voluntarily join against such an event.
Principles of Insurance :
A Contract of insurance is a mercantile contract. All the principles applicable to
mercantile contracts are applicable to contracts of insurance also. Further, there are some
special principles applicable to contracts of insurance. They are :

Principles of Insurance

1. Principle of utmost good faith

2. Principle of Indemnity
3. Principle of Insurable interest

Principles of Insurance 4. Principle of cause proximal

5. Principle of mitigation of loss
6. Principle of contribution
7. Principle of subrogation

1. Principle of Utmost Good Faith : A contract of Insurance is a contract of Uberrimae

fidei i.e. a contract which requires utmost good faith on both the Insurer and the
Insured. The Insured at the time of entering into a contract must disclose all the
material facts knowing to him about the subject matter of the contract. failure to
disclose the truth at the time of entering into contract will render the contract
viodable.
2. Principle of Indemnity : All contracts of Insurance except life and personal accident
and sickness insurance are contracts of indemnity. This means that, the insurer will
pay only the actual loss suffered by the Insured, i.e., the insurer will not pay the
assured amount but only the actual loss suffered by the assured.
3. Principle of Insurable Interest : The insured must have insurable interest or actual
interest in the subject matter of the Contract of Insurance. He must have such
interest that he would have benefit from its existence, or loss from its destruction.
Insurable interest is necessary for a valid contract of insurance. Insurable interest
must be a pecuniary interest. Insurable interest is not to be presumed from the
existence of mere relationship. Therefore, the pecuniary interest must be proved.
Only a person who has insurable interest in the life of insured can effect the
contract of life insurance. The following have the insurable interest.
i. A child has an insurable interest in the life of his father.
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ii. A person has unlimited insurable interest in his own life.

iii. A husband has an insurable interest in the life of his wife.
iv. A wife has it in the life of her husband.
v. A creditor has an insurable interest, to the extent of his debt, in the life of his
debtor.
vi. A partner in business has an insurable interest in the life or lives of his co-partner
or co-partners.
vii. A company has an insurable interest in the life of a senior officer whose death
may seriously affect the profits of the business of that company.
4. Principle of Proximate Cause : Cause Proxima means the nearest cause. An
insured person can recover the loss only when it is caused by any of the risk insured
against. Causes of loss may be of two kinds.
a. Insured Perils;
b. Excepted or Uninsured Perils.
Insurer, in no case, is liable to compensate for the damages arising out of
excepted perils. An insured may recover damages if the cause has been immediate
or proximate to the loss. For example, a cargo of wheat by a ship was insured
against sea hazards. Rats made a hole in the ship, resulting in entry of the sea water
in the ship which damaged the wheat. The insurance company was held liable for
payment because the proximate cause of loss was sea water.
5. Principle of Mitigation of Loss : According to this principle, an insured must take all
reasonable care to reduce the loss. The insured according to this principle must act as
if the property was not insured. This principle aims at making sure that the insured
person behaves like a prudent person and is not careless. For example, when a
warehouse catches fire, it is the duty of insured to do all that he would have done if
the goods wee not insured. Thus, this principle aims at making sure that the insured
behaves as a prudent person and does not become careless after taking a policy to
cover any risk.
6. Principle of Contribution : The principle of contribution will apply when one and the
same property is insured with more than one insurer. It seeks to divide the amount of
loss among different insurers. However, this does not apply to life insurance.
Thus, when any loss has taken place, the insured person can recover the full
amount of loss from any of the insurers who have covered the risk. Thereafter, the
insurer can recover form co-insurers the amount which each of them have agreed to
pay in the event of loss of the same subject-manner.
7. Principle of Subrogation : When the loss is caused to the Insured by a third party,
the insurer after making good such loss to the insured, will have the right against such
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third party. In other words, after paying compensation to the insured, the insurer will
have all the right relating to the subject matter transferred to him. This is called
principle of subrogation. For example, if the cargo is damaged by the action of a third
party, the insurer after making good the loss to the Insured, can use such third party
who was responsible for the danger to the cargo.

5. What are the favourable effects of Advertisement ?

Ans.
1. Stimulates purchasing power : Advertising creates demand which stimulates
production employment and income. This enables the customers to raise their
purchasing power and improve their living standards.
2. Acceptance by the public : It is through advertising that all the new products
can be commercialized and introduced to the public. Advertising facilitates the
people to accept new ideas and new products in the market.
3. Select Right products : Information given through advertisement facilitates the
consumers to exercise their choice to select a right product. Consumer decides
what to buy, when to buy and where to buy a product, without much loss of time.
4. Reduction of prices : Advertising forces the demand to increase, it results in
large scale production and distribution derive certain economies which will
reduce the cost per unit to the producer. Reduction in cost leads to
corresponding reduction in prices.
5. Educating consumer : Advertising has educative value. This will be of great
help to the consumer to adopt new ways of life.
6. Quality in products : Advertising increases competition among producers. With
a view to get big share in the market everyone tries to produce good quality
products. So consumers get products of standard quality at fair prices.

6. What are the differences between Customs Duties and Excise duties.
Ans:
Customs Duty : These are the duties on imports and exports. They provide twenty six per
cent of the total tax revenue of the Union Government. Most of the duties are now
advalorem. In certain cases, additional specific duties are also provided.

Excise Duty : Excise means a tax or duty on goods produced within the country, either in
the process of their manufacture or before their sales to consumers. The central excise
duties have been an important and growing source of revenue to the government, as more
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than thirty five per cent of the total revenue comes from this source. However, excise
revenue from items such as motor spirit, cement, tyres, steel etc., is continuously increasing.
The revenue from sugar, tobacco, textiles and matches present a fluctuating trend in our
country. This is due to yearly fluctuations in the production of those commodities.

Differences between Customs Duty and Excise Duty

Even though Customs duty and excise duty are indirect taxes, there are certain
differences between thee two.
Basis of Difference Customs Duty
1. Types of goods It is imposed by the
Government on the imports and
exports of goods
2. Objective The main objective of
imposition of import duty is
discourage imports, so as to
encourage home industries
3. Government The import duty will be levied
by the Central Government
4. Collection Point The import duty will be
collected at the ports
5. Payment The importer can pay customs
duty whenever he taken the
goods
Excise Duty
It is abid by the Government
on the goods produced within
the country
The main objective of this
duty is of collect revenue and
discourage the production of
harmful commodities
Both the Central and State
Government are having right
to impose excise duties
The excise duty will be
collected at the factory where
the goods are manufactured
The Excise Duties is to be
paid at specific time intervals
as per the Act

7. What is the difference between Speculation and Gambling ?

Ans:
Speculation :
Speculation is defined as intelligent and rational forecasting of future trend of prices on
the basis of concrete information and knowledge It involves any business activity relatig to
the forecasting of price movements and expenditure of capital with a view to making profit
prompted by expectation of rise or fall in prices in the near future.

Gambling :
Gambling is unethical, illegal and wihtout foresight and knowledge. Gambling is based
on blind chance and not on knowledge.
Differences between Speculating and Gambling
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1. Speculation is based on knowledge and foresight. On the other hand Gambling

is based on blind chance and not on knowledge.
2. Speculation is a rational activity based on region or logic. Whereas gambling is
irratiional forecasting. It is recognised as reclus or blind speculation.
3. Speculation is recognised as lawful activity. On the other hand the contract of
gambling is void and unenforceable by law.

8. What are the characteristics of an Effective Leader ?

Ans. :
A leader sets or points to a goal, suggests particular ways of reaching those goals
and persuades people to accept the goal and also follow the ways suggested by him. A
successful manager or leader should be clear about the goals or objectives, be able to
communicate with and understand others in the organisation well and also take a decision
which will be acceptable to others and also achieve the goals the organisation or the
industry. He should be able to persuade others and carry them with him.
Characteristics of a Leader :
The following are the characteristics of a leader.
1. Ability to pay analyse and understand a given situation.
2. Ability to understand others.
3. Ability to analyse the possible decisions and courses of action.
4. Ability to weigh the pros and cons of different decisions, and arrive at a decision
5. Ability of communication and understanding the views of others.
6. Ability to take decision which will be acceptable to most others and also to enable
one to reach the goal.
7. A capacity for making others to take interest and motivate them to do their best
and also convince others about the decision taken.

9. What are the advantages of a Computer ?

Ans.:
Advantages of Computers:
Computers are widely used in almost every aspect of present day society. They have
become an indispensable tool of the modern competitive world. In business field
computers are widely used for inventory control, preparation of salary sheets,
maintenance of records. Preparation of financial statements etc. The following are
advantages of computers.
(a) It provides information at a great speed.
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(b) It reduces the monotony of the office staff.

(c) It makes complicated calculations at a great speed.
(d) It saves office labour costs.
(e) It ensures greater accuracy in data processing
(f) It provides indirect financial saving through various types of application e. g.,
inventory control.
(g) It ensures better centralised control.
(h) It provides flexibility of operations as any number of programmes can be prepared
for different business operations.
(i) It improves customer service and company prestige.

SECTION – C
Answer any Fiv`e of the following questions in not :
5 x 2 = 10
10. Re-insurance
Ans.:
Re-insurance is a sub-insurance which the insurer may effect if he thinks that he
has insured a big risk and wants his liability to be shared by other insurers.
11. Branding
Ans.
A brand is defined as a name, term, symbol or a design or combination of them
which is intended to identity the goods of one seller or group of sellers and to
differentiate them from those of its competitors. The primary object of branding is to
introduce product differentiation in the market. Eg., Surf, Sony, Tata, Vimal etc. are some
brand names.
12. Sales promotion
Ans.
Sales promotion refers to all those marketing activities, other than advertising,
personal selling and publicity that stimulate consumer purchasing and dealer
effectiveness.

13. Consumerism
Ans:
Consumerism
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Consumerism is a social force designed to protect consumer interests in the market

place by organising consumer pressures on business. These pressures are brought about
by the consumers, organising themselves as consumer organsiations, to fight against unfair
trade practices that are indulged in by the sellers.

Philip Kotler, defined consumerism as ``social movement seeking to augment the

rights and powers of buyers in relation to sellers’’.

It can be said from the above definitions that consumerism is a growing social force
which makes consumers to be aware of their rights. These rights are protected by
(I) educating the consumers and mobilising them to fight for their rights
(II) exerting pressure on the government to protect the consumer interests by
guaranteeing their legitimate rights, and
(III) making the business more honest and responsible. This process will be
successful only when all the consumers represented by different voluntary non-
government consumers organisations, the government, the regulatory
authorities in the country, the consumer courts, organisations representing
trade, industry and service providers, the law makers and those who are
responsible for the implementation of laws and rules act together.

14. Bonded warehouses

Ans:
The port trust and customs authorities maintain Bonded warehouses. They are
situated near the dock area and are very useful to importers who do not have godown of
their own to store the imported goods. The Bonded warehouses are meant for goods on
which duties has not been paid by the importer. If the importer cannot pay the duty, he
may keep the goods in bonded warehouses.

15. Who is a lame duck ?

Ans.
When a bear finds it difficult to fulfill his commitment he is called struggling
like a lameduck. A bear speculator contacts to sell securities at a later date. On the
appointed them, he is not able to get the securities as the holders are not willing to part
with them. In such situations he feels cornered. Moreover the buyer is not willing to carry
over the transactions.
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16. Motivation
Ans.:
Motivation

Motivating is the work a manager performs to inspire, encourage and impel people to
take required action. According to M.H. Maslow, it is the process of stimulating people to
take desired course of action. In order to motivate employees, managers must provide a
congenial working atmosphere coupled with attractive incentive.

17. Keyboard of a Computer.

Ans.:
It is a primary input device to the computer. The key board has ordinary keys of
standard manual or electronic typewriter. Besides, the computer key board has some
special keys to perform some special function. Each key bears a character or characters
both of numbers, alphabet and other symbols.
. Alphabet keys have both upper case and lower case. Upper case indicates
capital letters and lower case indicates small letters. It is placed in front of the
monitor. The keys act as switches when pressed, a key sends electronic signal to the
central processing unit. The typical computer keyboard many have four arrow keys
used to control the movement of the cursor. The four keys are meant for four
directions in which the cursor moves. Right arrow when pressed moves the cursor to
the right direction. When key having left arrow label is pressed the cursor is moved in
the left direction. Similarly up and down arrow keys.

SECTION – D
Answer the following questions :
1 x 20 = 20
Solution 18 :
JOURNAL ENTRIES
Date Particulars L.F Debit Credit
Rs. Rs.
Goodwill a/c Dr. 2,00,000
To Praveen’s Capital a/c 1,50,000
To Naveen’s Capital a/c 50,000
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(Being goodwill credited to old parties

capital accounts)
Cash a/c Dr. 2,50,000
To Kiran’s capital a/c 2,50,000
(being cash introduced by Kiran as capital)
Building a/c Dr. 40,000
Stock a/c Dr. 15,000
To Revaluation a/c 55,000
(Being appreciation of value of assets)
Revaluation a/c Dr. 45,000
To Machinery a/c 20,000
To Furniture a/c 10,000
To Reserve for doubtful debts a/c 15,000
(Being decrease in the value of assets)
Revaluation a/c Dr. 10,000
To Praveen’s capital a/c 7,500
To Naveen’s capital a/c 2,500
(Being profit on revaluation transferred to
capital accounts of old partners)
General Reserve a/c Dr. 1,00,000
To Praveen’s Capital a/c 75,000
To Naveen’s capital a/c 25,000
(Being General Reserve credited to old
partners capital accounts)

Dr. Revaluation Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Machinery a/c 20,000 By Building a/c 40,000
To Furniture a/c 10,000 By stock a/c 15,000
To Reserve for doubtful debts 15,000
To Praveen’s capital a/c 7,500
To Naveen’s capital a/c 2,500 10,000
55,000 55,000

Dr. Praveen’s Capital Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Balance c/d 5,32,500 By Balance b/d 3,00,000
By General Reserve a/c 75,000
By Revaluation a/c 7,500
By Goodwill a/c 1,50,000
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5,32,500 5,32,500
By Balance b/d 5,32,500

Dr. Naveen’s Capital Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Balance c/d 2,77,500 By Balance b/d 2,00,000
By General Reserve 25,000
By Revaluation a/c 2,500
By Goodwill a/c 50,000
2,77,500 2,77,500
By Balance b/d 2,77,500

Dr. Kiran’s Capital Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Balance c/d 2,50,000 By Cash 2,50,000
2,50,000 2,50,000
By Balance b/d 2,50,000

Dr. Goodwill Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Praveen’s capital a/c 1,50,000 By Balance c/d 2,00,000
To Naveen’s capital a/c 50,000
2,00,000 2,00,000
To Balance b/d 2,00,000

Dr. Cash Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Balance b/d 50,000 By Balance c/d 3,00,000
To Kiran’s capital a/c 2,50,000
3,00,000 3,00,000
To Balance b/d 3,00,000

Balance Sheet of Praveen, Naveen & Kiran as on 1.1.2007

Liabilities Amount Amount Assets Amount Amount
Rs. Rs. Rs. Rs.
Sundry creditors 2,00,000 Cash 3,00,000
Overdraft 2,00,000 Sundry debtors 3,00,000
Capital Accounts Less : R.D. Debts 15,000 2,85,000
Praveen 5,32,500 Stock 1,50,000
Naveen 2,77,500 Add : Appreciation 15,000 1,65,000
Kiran 2,50,000 10,60,000 Buildings 2,00,000
Add : Appreciation 40,000 2,40,000
 16

Furniture 1,00,000
Less : Depreciation 10,000 90,000
Machinery 2,00,000
Less : Depreciation 20,000 1,80,000
Goodwill 2,00,000
14,60,000 14,60,000

SECTION – E
Answer Any one of the following questions.
1 x 10 = 10
Solution 19 :
Ledger Accounts in the Books of Usha Engineering Company
Dr. Nalgonda Consignment Account Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Goods sent on Consignment 60,000 By Yadagiri & Co a/c (Sales) 60,000
a/c
To Cash a/c (expenses) 1,000 By Stock on consignment a/c 12,500
To Yadagiri & Co. a/c (expense) 2,000
To Yadagiri & Co. a/c 3,000
(commission)
To Profit & Loss a/c (profit) 6,500
72,500 72,500

Dr. Yadagiri and Co. Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Nalgonda consignment a/c By Cash a/c (Advance) 20,000
(Sales) 60,000
By Nalgonda consignment a/c 2,000
(expenses)
By Nalgonda consignment a/c 3,000
(Commission)
By Bank a/c 35,000
60,000 60,000

Dr. Good sent on Consignment Account Cr.

Particulars Amount Particulars Amount
Rs. Rs.
To Trading a/c 60,000 By Nalgonda consignment a/c 60,000
60,000 60,000
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Solution 20 :
Income and expenditure account of Hyd. Sports club for the year ended 31.12.06
Dr. Cr.
Expenditure Amount Amount Income Amount Amount
Rs. Rs. Rs. Rs.
To Salaries 4,000 By Subscriptions 13,500
To Depreciation on 200 Less : Previous year 2,100
Grass cutting machine (2005)
To Rent 900 11,400
To Sports Expenses 7,000 Add : Current year 2,000
(2006)
To Office expenses 4,500 13,400
To Depreciation on Less : Next year 500 12,900
sports material (2007)
(2,000 + 3,000 – 2,500) 2,500 By Entrance fees 500
By Sale of grass 400
By Deficit (transferred 5,300
to capital fund)
19,100 19,100

SECTION – F
Answer any Two of the following questions
2 x 5 = 10
21. Explain different kinds of Errors
Ans.
Kinds of Errors :
Errors may be broadly classifed into two categories. They are :
1. Errors of Principle : Errors involving violation of accounting principle are termed
as errors of principle.
2. Clerical Errors : The errors made by the clerical staff while recording transactions
are known as Clerical Errors. These are of the following three types.
(1) Errors of Omission
(2) Errors of Commission and
(3) Compensating Errors
Solution 22 :
Journal entries in the books of Srinivas :
Date Particulars L.F Debit Credit
Rs. Rs.
2005 Madhav Account Dr. 10,000
 18

March 1 To Sales Account 10,000

(Being goods sold on credit)
March 1 Bills receivable a/c Dr. 10,000
To Madhav a/c 10,000
(Being the acceptance received for 3
months)
March 1 Bank a/c Dr. 9,850
Discount a/c Dr. 150
To Bills receivable a/c 10,000
(being the bill discounted with bank at
6%)
June 4 Madhav a/c Dr. 10,000
To Bank 10,000
(being the discounted bill with bank
dishonoured on the due date)

Solution 23 :
Dr. Machinery account Cr.
Date Particulars Amount Date Particulars Amount
Rs. Rs.
1.1.01 To Bank 10,000 31.12.01 By Depreciation 1,000
By Balance c/d 9,000
10,000 10,000
1.1.02 To Balance b/d 9,000 31.12.02 By Depreciation 1,000
31.12.02 By balance c/d 8,000
9,000 9,000
1.1.03 To Balance b/d 8,000 31.12.03 By Depreciation 1,000
31.12.03 By Balance c/d 7,000
8,000 8,000
1.1.04 To Balance b/d 7,000 30.6.04 By Depreciation (Six 500
Months)
3.06.04 By Bank 6,000
3.06.04 By Profit and Loss a/c 500
7,000 7,000

Solution 24 :
Calculation of the Average due date
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Base Date 1st July , 2001

Due date Amount Rs. No. of days from base Product
date to due date
2001
July 1st 200 0 0
August 10th 300 40 12,000
September 11th 400 72 28,800
October 3rd 500 94 47,000
1,400 87,800

Total of Products
Average Due Date  Base Date 
Total of amounts
87,800
 July 1st 
1,400

= July 1st + 63 days

Average Due Date = 2nd September, 2001

SECTION – G
Answer any five of the following questions.
5 x 2 = 10
25. Grace days
Ans.
The period of the bill of exchange starts from the date written on top right hand
corner. Thus, it helps in calculating due date of the bill. Generally the due date of the bill
is calculated by adding to the date of the bill, the period of the bill and also three days of
grace.

26. Red ink interest

Ans.
In case the due date of a bill falls after the date of closing the account, then
no interest is allowed for that. However, interest from the date of closing to such due
date is written in `Red Ink’ in the appropriate side of the `Current Account’’. This interest
is called Red-Ink Interest. This Red Ink Interest is treated as negative interest.

27. Del Credere Commission

Ans.
Commission paid by the consignor to the consignee for bearing the risk of bad
debts arising out of credit sales made by him on behalf of the consignor. Generally the
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del credre commission is to be calculated on the total sales. Unless, otherwise

mentioned that it is to be calculated on credit sales only.

28. Write two differences between Receipt and Payments account and
Income and Expenditure account.
Ans.
The following are the differences between Receipts and Payments Account and
Income and Expenditure Account’.

Point of Difference Receipts and Payments a/c Income and

Expenditure a/c
1. Nature of Account It is real account It is a nominal account
2. Basic structure It is basically summarized cash It is like a profit and loss
book account
3. Object It is prepared to present a It is prepared to
summary of cash transactions ascertain the net results
during an accounting period of all the transactions
during an accounting
period
4. Opening Balance Opening balance represents cash It has no opening
or bank balances (or bank balance.
overdraft) in the beginning of the
accounting period.
5. Items of debit side It is debited with all the sums It is debited with the
received expenses and losses
6. Items of credit side It is credited with all the sums It is credited with the
paid out incomes
7. Closing balance Closing balance represents cash Its closing balance
or bank balance (or bank represents either net
overdraft) at the end of the surplus or net deficit
accounting period
8. Treatment of closing Its closing balance is carried Its closing balance is
balance forward in the same account of transferred to the
the next period Capital fund shown in
the Balance Sheet.
9. Non cash items Non cash items are not shown in Cash and non cash
this account items such as
depreciation, bad debts
etc., are also shown
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10. Periods to which It records the receipts and It records only those
items relate payments whether they relate to incomes, expenses and
previous, current or following losses which relate to
accounting periods. current accounting
period
11. Nature of items It records the receipts and It records the incomes,
recorded payment whether of capital or expenditure and losses
revenue nature. of revenue nature.

Solution – 29 :
Annual Depreciation = Cost of the asset – Scrap value
Estimated life of the asset

= (95,000 + 10,000) – 5,000

10

= 1,00,000
10

Annual Depreciation = Rs.10,000

Solution – 30 :

Total of Products
Average Due Date  Base Date 
Total of amounts
30,000
 March 18th 
2,000

March 18th + 15 days

Average due Date = 2nd April

31. Suspense account

When the Trial Balance does not agree, an effort is made to locate errors and rectify
them. But if the errors cannot be located easily and quickly and, at the same time, if the final
accounts are to be prepared urgently, the difference in the Trial Balance is rectified by
writing it to the lesser side of the Trial Balance under the name of Suspense Account. Such
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a temporarily opened suspense account is to be closed later on when the errors are located
and rectified.

Solution - 32 :
Total Profits = 1
R’s share = 1/5th

1 4
Share of P and Q 1 - 
5 5

4 3 12
P ' sshare   
5 5 25

4 2 8
Q ' sshare   
5 5 25

12 8 5
P, Q and R' s New profit sharing ratio  : :
25 25 25

= 12 :8 : 5