EDUCATING INDIA

FOUNDATION COURSE
SUBJECT- PRINCIPLES AND PRACTICE OF ACCOUNTING
MOCK TEST-IV

(Time Allowed: 1.5 Hours) (50 marks)

Question No. 1 is compulsory.

Attempt any THREE questions from the remaining FOUR questions.
Wherever necessary, suitable assumptions should be made and disclosed by
way of note forming part of the answer.
Working Notes should form part of the answer.

QUESTIONS

1. (A) State true or false with explanation of the following:

(i) The additional commission to the consignee who agrees to bear the loss
on account of bad debts is called overriding commission.
(ii) In the calculation of average due date, only the due date of first
transaction must be taken as the base date.
(iii) The business of partnership must be carried on by all the partners.
(iv) No entry needs to be passed in the books of the seller, when the
customer rejects the goods (awaiting approval) after the closing of the
books of the seller.
(v) Discount column of cash book records the trade discount.
(5 x 2 =10 MARKS)
(B) Mr. Bansal submitted to you the following trial balance, which he has not
been able to agree. Rewrite the trial balance and prepare trading and profit
and loss account for the year ended 31.3.2021 and a balance sheet as on that
date after giving effect to the under mentioned adjustments:

Particulars Dr. Cr.

Capital - 16,000
Opening stock 17,500 -
Closing stock - 18,790
Drawings 3,305 -
 Returns inward - 550
Carriage inward 1,240 -
Deposit with X - 1,400
Returns outward 840 -
Carriage outward - 725
Rent paid 800 -
Rent outstanding 150 -
Purchases 13,000 -
Sundry debtors 5,000 -
Sundry creditors - 2,200
Furniture 1,500 -
Sales - 29,000
Wages 850 -
Cash 1,370 -
Advertisement __950 _____
46,505 68,665
Adjustments:
1. Write off ` 600 as bad debt and make a provision for doubtful debts at 5%
on balance sundry debtors.
2. Stock valued at ` 2,000 was destroyed by fire on 25th March,2021, but
insurance company admitted a claim for ` 1,500 only and paid the sum in
April,2021.
3. Depreciation to be provided on furniture at 10% per annum. (10 MARKS)

2. (A) M/s. Seven Seas purchased a second-hand machine on 1st April, 2017 for
` 1,60,000. Overhauling and erection charges amounted to ` 40,000. Another
machine was purchased for ` 80,000 on 1st Oct, 2017.
On 1st Oct, 2019, the machine installed on 1st April, 2017 was sold for `
1,00,000. Another machine for `30,000 was purchased and was installed
on 31st December, 2019.Under the existing practice the company provides
depreciation @ 10% p.a. on original cost. However, from 1st April,2020 it
decided to adopt WDV method and to charge depreciation @ 15% p.a. You are
required to prepare Machinery account for the years 2017 to 2021. (6 MARKS)

(B) From the following particulars of M/s Swapnil enterprises, prepare a Bank
reconciliation statement:
(i) Bank overdraft as per Pass Book as on 31st March, 2021 was ` 8,800

(ii) Cheques deposited in Bank for ` 5,800 but only ` 2,000 were cleared till
 31st March.
(iii) Cheques issued were ` 2,500, ` 3,800 and ` 2,000 during the month. The
cheque of ` 5,800 is still with supplier.
(iv) Dividend collected by Bank ` 1,250 was wrongly entered as ` 1,520 in Cash
Book.
(v) Amount transferred from fixed deposit A/c into the current A/c ` 2,000
appeared only in Pass Book
(vi) Interest on overdraft ` 930 was debited by Bank in Pass Book and the
information was received only on 3rd April 2021.
(vii) Direct deposit by M/s Rajesh Trader ` 400 not entered in Cash Book.

(viii) Corporation tax ` 1,200 paid by Bank as per standing instruction appears
in Pass Book only. (4 MARKS)
3. Acme & Co. is a partnership firm with partners Mr. A, Mr. B and Mr. C, sharing
profits and losses in the ratio of 10:6:4. The balance sheet of the firm as at 31
st March, 2021 is as under:

Liabilities Rs. Assets Rs.

Capitals: Land 30,000
Mr. A 2,40,000 Buildings 6,00,000
Mr. B 60,000 Plant and 3,90,000
machinery
Mr. C 90,000 3,90,000 Furniture 1,29,000
Reserves Investments 36,000
(un-appropriated 60,000 Inventories 3,90,000
profit)
Long Term Debt 9,00,000 Trade receivables 4,17,000
Bank Overdraft 1,32,000
Trade payables 5,10,000
19,92,000 19,92,000
It was mutually agreed that Mr. B will retire from partnership and in his place
Mr. F will be admitted as a partner with effect from 1st April, 2021. For this
purpose, the following adjustments are to be made:
(a) Goodwill is to be valued at `3 lakh but the same will not appear as an asset
in the books of the reconstituted firm.
(b) Buildings and plant and machinery are to be depreciated by 5% and 20%
respectively. Investments are to be taken over by the retiring partner at `
45,000. Provision of 20% is to be made on Trade receivables to cover
 doubtful debts.
(c) In the reconstituted firm, the total capital will be ` 6 lakhs which will be
contributed by Mr. A, Mr. B and Mr. C in their new profit sharing ratio,
which is 2:2:1.
(i) The surplus funds, if any, will be used for repaying bank overdraft.
(ii) The amount due to retiring partner shall be transferred to his loan account.
You are required to prepare:
(a) Revaluation account;
(b) Partners capital accounts;
(c) Bank account; and
Balance sheet of the reconstituted firm as on 1st April, 2021. (10 MARKS)

4. (A) On 1.1.2021, Mr. Sam of Kerala consigned to Mr. Alex of Chennai goods for
sale at invoice price. Mr. Alex is entitled to a commission of 5% on sales at
invoice price and 20% of any surplus price realized over and above the invoice
price. Goods costing` 5,00,000 were consigned to Chennai at the invoice price
of ` 7,50,000. The direct expenses of the consignor amounted to ` 50,000. On
31.3.2021, an account sales was received by Mr. Sam from Mr. Alex showing
that he had effected sales of ` 6,00,000 in respect of 4/5th of the quantity of
goods consigned to him. Mr. Alex’s direct expenses were ` 15,000. Mr. Alex
accepted a bill drawn by Mr. Sam for ` 5,00,000 and remitted the balance due
in cash.
You are required to prepare the consignment account and the account of Mr.
Alex in the books of Mr. Sam. (6 MARKS)

(B) Tina and Rita are partners in a firm. Their capitals are: Tina ` 6,00,000 and
Rita Rs.4,00,000. During the year ended 31st March, 2021 the firm earned a
profit of Rs.3,00,000. Assuming that the normal rate of return is 20%, calculate
the value of goodwill on the firm:
(i) By Capitalization Method; and
(ii) By Super Profit Method if the goodwill is valued at 3 years purchase of
Super Profit. (4 MARKS)

5. From the following receipts and payments account of Pune Club, prepare
income and expenditure account for the year ended 31.03.2021 and its
balance sheet as on that date:

Receipts Rs. Payments Rs.

 Cash in hand 4,000 Salary 2,000
Cash at bank 10,000 Repair expenses 500
Donations 5,000 Purchase of furniture 6,000
Subscriptions 12,000 Misc. expenses 500
Entrance fees 1,000 Purchase of investments 6,000
Interest received from 500 Insurance premium 200
bank
Sale of old newspaper 150 Snooker table 8,000
Sale of drama tickets 1,050 Stationary 150
Drama expenses 500
Cash in hand (closing) 2,650
Cash at bank (closing) 7,200
33,700 33,700
The following adjustments are to be made while drawing up the accounts:
1. Subscriptions in arrear for year 2020-21 `900 and subscriptions in advance
for 2021-22 ` 350.
2. Insurance premium outstanding ` 40 and Misc. expenses prepaid `90.
3. 50% of donation is to be capitalized.
4. Entrance fees are to be treated as revenue income.
5. 8% interest has accrued on investment for five months.
6. Snooker table costing ` 30,000 was purchased on 31st March,2020 and
Rs.22,000 were paid for it. (10 MARKS)
OR

(A) The following are the transactions that took place between X and Y during
the period from 1st October, 2020 to 31st March, 2021:

2020 Rs.
Oct.1 Balance due to X by Y 3,000
Oct 18 Goods sold by X to Y 2,500
Nov. 16 Goods sold by Y to X (invoice dated November,26) 4,000
Dec.7 Goods sold by Y to X (invoice dated December, 17) 3,500
2021 Rs.
Jan. 3 Promissory note given by X to Y, at three months 5,000
Feb. 4 Cash paid by X to Y 1,000
Mar. 21 Goods sold by X to Y 4,300
Mar.28 Goods sold by Y to X (invoice dated April, 8) 2,700

Draw up an Account Current up to March 31st, 2021 to be rendered by X to Y,

charging interest at 10% per annum. Interest is to be calculated to the nearest
rupee. (5 MARKS)

(B) The books of accounts of Dime Ltd. for the year ending 31.3.2021 were
closed with a difference in books carried forward. The following errors were
detected subsequently:
(i) Return outward book was under cast by ` 100.

(ii) Rs.1,500 being the total of discount column on the credit side of the cash
book was not posted.
(iii) Rs.6,000 being the cost of purchase of office furniture was debited to
Purchase A/c.
(iv) A credit sale of ` 760 was wrongly posted as ` 670 to the customers’ A/c.
in the sales ledger.
(v) The Sales of ` 10,000 was omitted to be recorded. Pass rectification entries
in the next year. (5 MARKS)