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Pre-Model - PME1A - Principles - Practices of Accounting - Answer Key - (27-11-2021)
Pre-Model - PME1A - Principles - Practices of Accounting - Answer Key - (27-11-2021)
KS Academy
Working notes should form part of the respective answers. Wherever necessary, suitable assumptions
may be made and disclosed by way of a note.
1. (a) State with reasons, whether the following statements are True or False:
(6X2=12 Marks)
(i) Bank reconciliation statement is prepared to arrive at the bank balance.
(ii) Reducing balance method of depreciation is followed to have a uniform charge for
depreciation and repairs and maintenance together.
(iii) Partners can share profits or losses in their capital ratio, when there is no agreement.
(iv) The problem of red-ink interest arises when the due date of a transaction falls after the
closing date of account current.
(v) The rationale behind the opening of a suspense account is to tally the trial balance.
(vi) Amount paid to Management company for consultancy to reduce the working expenses is
capital expenditure if the reduced working expenses will generate long term benefits to the
entity.
Answers:
(i) False - Bank reconciliation statement is prepared to reconcile and explain the causes of
differences between bank balance as per cash book and the same as per bank statement as on
a particular date.
(ii) True - In the early periods of useful life of a fixed assets, repairs and maintenance expenses
are relatively low because the asset is new. Whereas in later periods, as the asset become old,
repairs and maintenance expenses increase continuously. Under written down value method,
depreciation charged is high in the initial period and reduces continuously in the later
periods. Thus, depreciation and repair and maintenance expenses become more or less
uniform throughout the useful life of the asset.
(iii) False - According to Partnership Act, in the absence of any agreement to the contrary profits
and losses are to be shared equally among partners.
(iv) True: No interest is allowed when the due date of a bill falls after the date of closing the
account. However, interest from the date of closing to such due date is written in „Red Ink‟
in the appropriate side of account current.
(v) False: The rationale behind the opening of a suspense account is to avoid delay in the
preparation of financial statements.
(vi) True: Amount paid to management company for consultancy to reduce the working expenses
is capital expenditure as this expenditure will generate long-term benefit to the entity.
Board of Studies 1
KS Academy Main - Model (30-11-2021)
(c) The Machinery Account of a Factory showed a balance of ₹ 19,00,000 on 1st January, 2019. Its
accounts were made up on 31st December each year and depreciation is written off at 10% p.a. under
the Diminishing Balance Method.
On 1st June 2019, a new machinery was acquired at a cost of ₹ 2,80,000 and installation charges
incurred in erecting the machine works out to ₹ 8,920 on the same date. On 1st June, 2019 a machine
which had cost ₹ 4,37,400 on 1st January 2017 was sold for ₹ 75,000. Another machine which had cost
₹ 4,37,000 on 1st January, 2018 was scrapped on the same date and it realised nothing.
Write a plant and machinery account for the year 2019, allowing the same rate of depreciation as in
the past calculating depreciation to the nearest multiple of a Rupee.
(4 Marks)
Answer:
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2.(a) Correct the following errors (i) without opening a Suspense Account and (ii) with opening a
Suspense Account:
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(10 Marks)
Answer:
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(b) From the following information (as on 31.3.2020), prepare a bank reconciliation statement after
making necessary adjustments in the cash book:
Particulars Amount(₹)
Bank balances as per the cash book (Dr.) 32,50,000
Cheques deposited, but not yet credited 44,75,000
Cheques issued but not yet presented for payment 35,62,000
Bank charges debited by bank but not recorded in the cash-book 12,500
Dividend directly collected by the bank 1,25,000
Insurance premium paid by bank as per standing instruction not
intimated 15,900
Cash sales wrongly recorded in the Bank column of the cash-book 2,55,000
Customer’s cheque dishonoured by bank, not recorded in the cash-
book 1,30,000
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Wrong credit given by the bank 1,50,000
Also show the bank balance that will appear in the trial balance as on 31.3.2021
(10 Marks)
Answer:
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KS Academy Main - Model (30-11-2021)
3.(a) Mr.A of Assam sent on 18th February, 2004 a consignment of 1000 DVD players to B of Bengal
costing of Rs.100 each. Expenses of Rs.1,500 were met by the consignor. B spent Rs.3,000 for clearance
and selling expenses were Rs.20 per DVD player.
B sold on 15th March, 2004, 600 DVD Players sold @ Rs.160 per DVD Player and again on 20th may,
2004, 300 DVD Players @ Rs.170.
B is entitled to a commission of Rs.25 per DVD Player sold plus 1/4 of the amount by which the
gross sale proceeds less total commission thereon exceeded a sum calculated @ Rs.125 per DVD
Player sold. B sent the amount due to A on 30th June, 2004.
You are requested to show the consignment account and B's account in the books of A.
(10 Marks)
Answer:
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Board of Studies 8
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(b) The receipts and payments account, the income and expenditure account and additional information
of a sports club for the year ended 31st march 2013 were as follows :
Additional information :
The assets and liabilities as on 31st March 2012 include club Ground & Pavillion ₹ 4,40,000 ; Sports
Equipment ₹ 2,50,000 ; Furniture & Fixtures ₹ 40,000 ; Subscription in arrear ₹ 8,000 ; Subscription
received in advance ₹ 2,000 and creditors for printing and stationery ₹ 5,000.
You are required to prepare the Balance sheet of the club as on 31st March 2013.
(10 Marks)
Answer:
Board of Studies 10
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4.(a) A company issued 10,000 shares of ₹10 each at a premium of ₹3 per share in the following manner :
Company received application for 13,000 shares. Company rejected and refunded the amount of
application of 1,000 shares and made pro rata on remaining applications. Mr. R, holder of 500 shares
failed to pay any amount after application money. Company forfeited his shares after making call and
subsequently re-issued 350 shares out of them @ ₹ 8/shares. Give necessary journal entries in the books
of company.
(15 Marks)
Answer:
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(b) Physical verification of stock in a business was done on 14th June, 2020. The value of the stock was
₹96,00,000. The following transactions took place between 14th June to 30th June, 2020:
(i) Out of the goods sent on consignment, goods at cost worth ₹ 4,80,000 were unsold.
(ii) Purchases of ₹ 8,00,000 were made out of which goods worth ₹ 3,20,000 were delivered on 5 th July,
2020.
(iii) Sales were ₹27,20,000, which include goods worth ₹ 6,40,000 sent on approval. Half of these goods
were returned before 30th June, 2020, but no information is available regarding the remaining goods.
(iv) Goods are sold at cost plus 25%. However goods costing ₹ 4,80,000 had been sold for ₹ 2,40,000.
You are required to determine the value of stock on 30th June, 2020.
(5 Marks)
Answer:
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5.(a) The following is the trial balance of Manan as at 31st March 2020:
Particulars Dr. Cr
Manan’s capital account 1,53,380
Stock 1st April, 2019 93,600
Sales 7,79,200
Returns inward 17,200
Purchases 6,43,400
Returns outward 11,600
Carriage inwards 39,200
Rent & taxes 9,400
Salaries & wages 18,600
Sundry debtors 48,000
Sundry creditors 29,600
Bank loan @ 14% p.a. 40,000
Bank interest 2,200
Printing and stationary expenses 28,800
Bank balance 16,000
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Discount earned 8,880
Furniture & fittings 10,000
Discount allowed 3,600
General expenses 22,900
Insurance 2,600
Postage & telegram expenses 4,660
Cash balance 760
Travelling expenses 1,740
Drawings 60,000
Total 10,22,660 10,22,660
(1) Included amongst the debtors is ₹ 6,000 due from Rahul and included among the creditors ₹ 2,000
due to him.
(2) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry debtors.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Personal purchases of Manan amounting to ₹ 1,200 had been recorded in the purchases day book.
(5) Interest on bank loan shall be provided for the whole year.
(6) A quarter of the amount of printing and stationary expenses is to be carried forward to the next year.
(7) Credit purchase invoice amounting to ₹ 800 had been omitted from the books.
(8) Stock on 31st March 2020 was ₹ 1,57,200.
Prepare (i) Trading & profit and loss account for the year ended 31.3.2020 and
(ii) Balance sheet as on 31st March, 2020.
(15 Marks)
Answer:
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(b) Mr.Green and Mr. Red had the following mutual dealings and desire to settle their account on the
average due date :
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You are asked to ascertain the average due date (28 days in Feb).
(5 Marks)
Answer:
6.(a) The Balance Sheet of a Partnership Firm M/s AB & Co consisted of two partners A and B who were
sharing Profits and Losses in the ratio of 5 : 3 respectively. The position as on 31-03-2018 was as follows:
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Prepare Revaluation A/c, Capital Accounts of the partners, New profit sharing ratio and Balance
Sheet of the Firm after the admission of C.
(15 Marks)
Answer:
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6.(b) Anil draws a bill for ₹9,000 on Sanjay on 5th April, 2019 for 3 months, which Sanjay returns it to
Anil after accepting the same. Anil gets it discounted with the bank for ₹ 8,820 on 8th April, 2019 and
remits one-third amount to Sanjay. On the due date Anil fails to remit the amount due to Sanjay, but he
accepts a bill for ₹12,600 for three months, which Sanjay discounts it for ₹ 12,330 and remits ₹ 2,220 to
Anil. Before the maturity of the renewed bill Anil becomes insolvent and only 50% was realized from his
estate on 15th October, 2019.
Pass necessary Journal entries for the above transactions in the books of Anil.
(5 Marks)
Answer:
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