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FA - Excercises & Answers PDF
FA - Excercises & Answers PDF
FA - Excercises & Answers PDF
– Semester I
Tutorial Prepared by
Sanjeewa Guruge
B.Sc. Accountancy (Special) - 1st Class (USJ)
M.Sc. Investments (UK)
Master of Financial Economics (UOC)
FCA, FCMA
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Financial Accounting – Exercises & Answers
Exercise: 01
The below information given for an organization
Exercise: 02
You are required to show the impact of the above transactions on the accounting equation.
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Exercise: 03
You are required to show the impact of the above transactions on the accounting equation.
Exercise: 04
The below transactions given of an organization
1. Owner invests Rs 200,000 for the business.
2. Bought a Motor vehicle Rs 5,000
3. Bought goods for sale on credit Rs90,000
4. Bought a bank loan Rs 20,000
5. Selling goods worth Rs 40,000 for Rs 55,000 on credit.
6. Drawing Rs 2,000.
7. Owner settled for a business creditor Rs 75,000.
8. Owner collected money from a business debtor R s 10,000.
9. Bought goods for Rs 200,000 on credit. Sold it to Rs 300,000.
10. Sales return from the debtors Rs 60,000 (cost is 40,000)
11. Received from the debtors Rs 100,000. Discount given Rs 10,000
12. Bad debts Rs 10,000
13. Provision for doubtful debts Rs 5,000
14. Payment for the creditors Rs 70,000. Discount received Rs 10,000
15. Purchase return to creditors Rs 20,000
16. Bought stationary Rs 50,000
17. Used stationary Rs 30,000
18. Received an electricity bill of Rs 8,000
19. Paid insurance 25,000 and prepaid insurance includes Rs 10,000
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20. Received investment income Rs 70,000 &Received in advance includes Rs 20,000
21. Motor vehicle deprecation Rs 10,000
22. Bank loan repayment Rs15,000
23. Paid bank interest Rs 10,000
24. Stock damaged Rs. 4,000
You are required to show the impact of the above transactions on the accounting equation.
Exercise: 05
A Sole Trade running a small business has raised the following questions on his financial
statements:-
1) The cost of inventories as at 31/03/2006 was Rs. 150,000/=, and the net realizable value
of same was Rs. 140,000/= when finalizing the yearend accounts, which value should be
taken as Closing Inventories?
2) I (the sole trader) have taken Rs. 10,000/= worth of inventory for my personal use. How
should it be brought to account?
3) Rent paid during the year ended 31/03/2006 was Rs. 70,000/=. Monthly rent payable is
Rs. 5,000. The final accounts reflected a rent expenditure of Rs. 60,000/=. What is the
reasons difference?
4) The business has received cash as Rent in advance for the year 2007 in the year 2006.
Should it be taken as revenue in the year 2006?
5) A loss of Inventory by fire amounting to Rs. 50,000/= was written off in the Profit & Loss
Account, but not in the Trading Account. Is it correct?
You are required to write the answers to these question stating the relevant Accounting
Principle / Concept.
Exercise: 06
A sole trader operating a small business of buying and selling, raised the following questions on
his financial statements.
(1) Telephone bills paid during the year were Rs.10,000 why was an amount of Rs.12,000
included in the Profit and Loss account for telephone bills
(2) Why the value of his house not included in his business accounts?
(3) He has purchased a lorry several years ago. Now in his accounts it is shown at a value of
Rs.10. Why?,
(4) Closing stock is valued at lower of its cost or market value? Why?
(5) A customer has placed an order, during the year. Why is it not treated as a sale of that
year?
You are required to answer these questions, stating the relevant Accounting principle /
Concept.
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Exercise - 07
Asha's books of account showed electricity prepaid balance of Rs. 1,230 as at 01/04/2011. A
total payment made during the year ended 31/03/2012 on account of electricity was Rs.
18,320. March 2012 electricity bill outstanding as at 31/03/2012 was Rs. 1,110. Compute the
amount to be charged as electricity expenses in the income statement of Asha for the year
ended 31/03/2012.
Exercise - 08
The following information was extracted from the books of Kapila Traders for the year ended
31st March 2012.
(i) Overpayment of Rent as at 1st April 2011 was Rs. 36,000
(ii) Rs. 162,000 had been paid as rent during the financial year 2011/2012
(iii) Rent up to 31st December 2011 was Rs. 108,000 Monthly rent has been increased by Rs.
3,000 thereafter
(iv) Accrued Rates and taxes at the beginning was Rs. 3,200
(v) Rates per quarter was Rs. 1,600
(vi) Rates paid during the financial year was Rs. 8.000
You are required to prepare for the financial year 2011 / 2012.
(1) Rent Account and
(2) Rates & taxes Account
Exercise - 09
Compute the amount to be charged to the income statement as Rent and rates for the year
from the following details:
Rent prepaid at the beginning of the year Rs. 6,000
Rates accrued at the beginning of the year Rs. 1,200
Total Rent & Rates paid during the year Rs. 90,000
Rent accrued at the end of the year Rs. 7,000
Rates accrued at the end of the year Rs. 1,400
An advance of Rs. 240,000 was paid on the same day. According to the agreement, Rs. 6,000
was to be paid as rent each month, and the balance was to be set-off against the advance.
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Exercise - 10
The financial year of Latha & Co. is from 01st of January to 31st December. On 01/06/20x5 they
purchased a machine of which the cost & the residual value are Rs. 200,000 and Rs.20,000
respectively. It is intended to be used for 3 years. Calculate the depreciation charges for the
year ending 31/l2/20x5 and 31/12/20x6.
Exercise - 11
Asanka has the following vehicles in her business.
Vehicle No Date of purchases Cost (Rs.) Dep. Rate
300 – 5212 30/06/2000 250,000 20%
252 – 1422 30/09/2004 650,000 20%
GA 9248 31/03/2005 900,000 20%
GB 3921 30/09/2005 800,000 20%
Calculate the depreciation charge for the year ended 31/ 12/ 2005.
Exercise - 12
Cost of a vehicle is Rs. 250,000 and the residual value is Rs. 50,000. It's estimated to be used for
4 years. Calculate the depreciation rate.
Exercise - 13
The cost of an asset is Rs. 100,000 and it is expected to be used for 5 years at the end of the
years it has a value of Rs. 32,768.
Exercise – 14
Asanka Co. purchased a Motor vehicle on 01/01/20x5 for Rs. 500,000. The company's policy is
to depreciate motor vehicles on 20% per annum on cost. Prepare the following accounts for
the years ending as at 31/12 / 20x5 and 31/12/ 20x6
Exercise - 15
Buhari purchased a machine which costs Rs. 300,000 and has a residual value of Rs. 72,030
after four years. Calculate its depreciation for the 1st three years.
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Answers
Exercise: 01
Non-current assets
Non-current/fixed assets are those held for the long-term use in the business, without the
intention of selling in the normal course of business. Generally they have a low liquidity as it is
difficult to convert them into cash immediately without incurring a substantial loss.
Current assets
These are assets held for a period usually less than one accounting year. It is held either
for sale, or to be converted to cash. The liquidity is high.
Non-current liabilities
Non-current liabilities are liabilities not expected to be repaid in the next 12 months. An
example of this could be a three year loan, the first 12 months repayments would be
considered current liabilities while the final two years being more than 12 months into the
future would be a non-current liability.
Current liabilities
Current liabilities are considered liabilities of the business that are to be settled in cash within
the accounting year.
Equity/Capital
Equity is the residual interest in the assets of the enterprise after deducting all its liabilities
(owners’ investment and reserves). In general, share capital, reserves, retained earnings can
be found for capital.
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Exercise: 02
Note:
When a company purchased stocks (for sale), there is increase in assets (current assets – inventories).
However, the double entry for that transaction is passed as follows.
Purchases A/C Dr
Cash/Creditors A/C Cr
Therefore, the impact on the accounting equation can be considered as a decrease in equity (due to the
increase in expenses which makes negative impact on equity) and decrease in assets (when purchased by
paying cash) or increase in liabilities (when purchased on credit terms).
However, it is also possible to state that assets (inventories) increased due to purchases and cash
decrease/creditors increase.
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Exercise: 03
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Exercise: 04
2. Rs. 10,000 should be accounted as “drawings” and should be deducted from the capital
balance when preparing the financial statements.
According to the “Business entity concept”, financial accounting is based on the principle
that the transactions and balances of a business entity should be accounted separately
from its owners. Therefore, the business entity is considered to be distinct from its owners
for the purpose of accounting. Accordingly, any personal expenses incurred by owners of a
business will not appear in the income statement of the entity. Similarly, if any personal
expenses of owners are paid out of assets of the entity, it would be considered to be
drawings for the purpose of accounting much in the same way as cash drawings.
3. Only the rent expense applicable for the financial year (Rs. 60,000) should be taken to the
income statement as “rent expenses” and the balance amount paid for the next financial
year should be taken to the statement of financial position as “prepaid rent” under the
current assets.
Financial statements are prepared under the “Accruals concept” of accounting which
requires that income and expense must be recognized in the accounting periods to which
they relate rather than on cash basis.
4. Rent received for the year 2007 should not be taken as revenue in the year 2006, and it
should be considered as a current liability, “Rent received in advance” in the year 2006.
As per the “Accruals concept”, income must be recorded in the accounting period in which
it is earned. Therefore, prepaid income (income received in advance) must not be shown as
income in the accounting period in which it is received but instead it must be presented as
income in the subsequent accounting periods in which the services or obligations in respect
of the prepaid income have been performed.
5. Trading account shows the gross profit for the period which is the difference between
“sales” and “cost of sales”. Cost of sales should include only the cost incurred to generate
sales for the period and “inventory loss” is not an expense incurred to generate sales for
the period. Therefore, inventory loss should be included under the “other expenses” in the
income statement.
According to the “Matching concept”, only those expenses incurred to generate the
income should be recognized in the financial statements.
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Exercise: 06
1. Income statement is prepared according to the “Accrual concept” and according to that
income and expenses relevant for the period should be identified irrespective of the cash
received or not.
Accordingly, income is recognized when it is “earned” and expenditure is identified when it
is “incurred”, whether the relevant amount has been received/ paid or not.
2. According to the “Business entity concept”, the transactions and balances of a business
entity are to be accounted separately from its owners. The business entity is therefore
considered to be distinct from its owners for the purpose of accounting.
Therefore, any personal assets, liabilities, income earned and expenses incurred by owners
of a business will not appear in the financial statements of the entity.
3. Financial statements show the net book value of non-current assets (in the statement of
financial position). Therefore, when an asset reaches to its end of the useful life, net book
value reaches zero, since the amount of the accumulated depreciation reaches the cost of
the asset.
According to the “Matching concept”, non-current assets should be depreciated over the
useful life of the asset. Depreciation results in a systematic charge of the cost of a fixed
asset to the income statement over several accounting periods spanning the asset's useful
life during which it is expected to generate economic benefits for the entity. Depreciation
ensures that the cost of fixed assets is not charged to the income statement at once but is
'matched' against economic benefits (revenue or cost savings) earned from the asset's use
over several accounting periods.
4. As per the “Prudence concept”, inventory is recorded at the lower of cost or net realizable
value (NRV) rather than the expected selling price. This ensures profit on the sale of
inventory is only realized when the actual sale takes place.
Prudence requires that accountants should exercise a degree of caution in the adoption of
policies and significant estimates such that the assets and income of the entity are not
overstated whereas liability and expenses are not under stated.
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07
Exercise: 21
08
Exercise: 22
B/C/D 8,400
152,400 152,400
B/C/F 8,400
Exercise: 10
= (200,000 – 20,000)/3
= 60,000
Depreciation charges for the Y/E 31/12/2005 = 60,000 x (7/12) For 7 months
= 35,000
Depreciation charges for the Y/E 31/12/2005 = 60,000 For the full year
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Exercise: 27
Working 1
* At the beginning of the financial year 2005, this asset has been depreciated for 4 and half years. Therefore, it
should be depreciated only for the remaining useful life of this asset, which is 6 months.
Working 2
3 months 1 year
* At the beginning of the financial year 2005, this asset has been depreciated only for 3 months. Therefore, it
should be depreciated for the full year in 2005.
Working 3
9 months
31/03/04 31/12/05
* This asset will be used only for 9 months of the financial year 2005, and therefore, it should be depreciated only
for 9 months.
Working 4
3 months
30/09/04 31/12/05
* This asset will be used only for 3 months of the financial year 2005, and therefore, it should be depreciated only
for 3 months.
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Exercise: 12
= (250,000 – 50,000)/4
= 50,000
= 25%
Exercise: 13
= {1 – (5√32,768/100,000) } x 100
= 20%
Exercise: 14
= {1 – (4√72,030/300,000) } x 100
= 30%
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Annual depreciation charge = (Cost – Accumulated depreciation) x Rate of depreciation
Depreciation charges
1st year = (300,000 – 0) x 30%
= 90,000
15
Exercise: 29
B/C/D 500,000
500,000 500,000
B/C/F 500,000
B/C/D 500,000
500,000 500,000
B/C/F 500,000
Sanjeewa Guruge
M.Sc. Investments (UK), B.Sc. Accountancy - 1st Class (USJ), MFE, FCA, FCMA
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