PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING

Question No. 1 is compulsory.

Attempt any four questions from the remaining five 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.
Question 1
(a) State with reasons, whether the following statements are True or False:
(i) As per concept of conservatism the accountant should provide for all possible losses
but should not anticipate income.
(ii) Expenses in connection with obtaining a license for running the Cinema Hall are
Revenue Expenditure.
(iii) Under or over - casting of a subsidiary book is an example of error of commission.
(iv) If Del-credere commission is paid to consignee, the loss of bad debts is to be borne
by the consignor.
(v) Perpetual debentures are payable at the time of liquidation of the company.
(vi) Overhead is defined as the total cost of direct material, direct wages and direct
expenses. (6 x 2 = 12 Marks)
(b) Briefly explain the following terms:
(i) Materiality
(ii) Conservatism
(iii) Extraordinary item
(iv) Floating Charge (4 x 1 = 12 Marks)
(c) Enter the following transactions in Sales Book of Gurgaon Engineers, Gurgaon for
January 2022:
2022
January
5 Sold to Praneet Electricals 10 pieces of microwaves@ ` 8,500/- each less
trade discount 15%
10 Sold to Ajanta plaza 8 pieces of Mixer grinders@ ` 12,500/- each less
trade discount 10%.

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 2 FOUNDATION EXAMINATION: JUNE, 2023

20 Sold to Naveen traders, 15 pieces of juicers@ ` 5,500/- each less trade

discount 5%
(4 Marks)
Answer
(a) (i) True: Conservatism states that the accountant should not anticipate any future income,
however they should provide for all possible losses.
(ii) False: The Cinema Hall could not be started without license. Expenditure incurred to
obtain the license is pre-operative expense and hence it is to be capitalised. Such
expenses are amortised over a period of time.
(iii) True: If an amount is posted in the wrong account or it is written on the wrong side or
the totals are wrong or a wrong balance is struck, it will be a case of “errors of
commission.” Thus, under or over casting of subsidiary books is an example of error
of commission.
(iv) False: To increase the sale and to encourage the consignee to make credit sales, the
consignor provides an additional commission generally known as del-credere
commission. In case del-credere commission is provided to consignee, bad debts is
no more the loss of the consignor and it is borne by the consignee .
(v) True: Perpetual debentures, also known as irredeemable debentures are not
repayable during the life time of the company.
(vi) False: Overhead is defined as total cost of indirect material, indirect wages and
indirect expenses. Indirect material, wages and expenses cannot be directly linked to
unit produced.
(b) (i) Materiality refers to all relatively important and relevant items, i.e., items the knowledge
of which might influence the decisions of the user of the financial statements are disclosed
in the financial statements.
(ii) Conservatism states that the accountant should not anticipate any future income
however they should provide for all possible losses. When there are many alternative
values of an asset, an accountant should choose the method which leads to the lesser
value.
(iii) Extraordinary items are income or expenses that arise from events or transactions
that are clearly distinct from the ordinary activities of the enterprise and, therefore, are
not expected to recur frequently or regularly.
(iv) Floating charge is a general charge on some or all assets of an enterprise which are
not attached to specific assets and are given as security against a debt.

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3

(c) In the Books of Gurgaon Engineers

Sales Book
Date Particulars Gross Trade Net Price
Amount Discount
(`) (`) (`)
2022
Jan. 5 Praneet Electricals 10 pieces of
Microwaves
@ ` 8,500 each
Less: 15% discount 85,000 12,750 72,250
10 Ajanta Plaza 8 pieces of
Mixer Grinders @ ` 12,500
each,
Less: 10% trade discount 1,00,000 10,000 90,000
20 Naveen Traders 15 pieces of
Juicers @ ` 5,500 each,
Less: 5% trade discount 82,500 4,125 78,375
2,67,500 26,875 2,40,625
Question 2
(a) The following balances appear in the books of Dheeraj Enterprises:
`
Machinery account as on 01.04.2021 12,00,000
Provision for depreciation account as on 01.04.2021 4,65,000
On 1st October, 2021 the Machinery which was purchased on 1st April, 2018 for ` 2,00,000
was sold for ` 1,10,000 and on the same date another Machinery was purchased for
` 4,80,000. The firm has been charging depreciation at 10% p.a. on written down value of
the Machinery every year. Prepare the Machinery account, Provision for Depreciation
account and Machinery disposal account for the year ending 31st March, 2022.
(10 Marks)
(b) From the following information prepare a Bank Reconciliation Statement as on 31st March
2022 for A Ltd.
`
Bank overdraft as per cash book as 31st March, 2022 15,50,750

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 4 FOUNDATION EXAMINATION: JUNE, 2023

1. Cheques deposited on 15 th February, 2022 credited on 5 th April, 12,50,000

2022
2. Interest debited by bank on 31st March, 2022 but not entered in Cash 1,75,500
Book
3. Cheques issued before 31st March, 2022 but not yet presented 7,75,000
4. On 10th March, 2022 bank credited to A Ltd. in error 1,50,000
5. Draft deposited in bank but not credited till 31st March, 2022 12,75,000
6. Bills for collection credited by bank but no advice received by the 9,45,000
company
7. Bank charges charged by bank but not entered in cash book 2,85,000
8. Transport subsidy received from the state government directly by 17,50,000
the bank not advised to the company
(5 Marks)
(c) The Profit and Loss account of Ram showed a net profit of ` 5,75,000 after considering
the closing stock of ` 2,55,000 on 31st March 2022. Subsequently the following information
was obtained from scrutiny of the books.
(i) Purchases for the year included ` 10,500 paid for electrical fittings of the shop.
(ii) Ram gave goods worth of ` 25,000 as free samples for which no entry was made.
(iii) Invoices for goods amounting to ` 1,85,000 have been entered on 29th March 2022
but were not included in the stock.
(iv) Sales amounting to ` 2,05,000 were dispatched on 27th March but were included in
sales of April, 2022.
(v) Goods costing ` 55,000 were sent on sale or return basis in March, 2022 at a margin
of profit of 33½ % on cost. Approval was given in April, 2022 but these were
considered as sales in March, 2022.
Calculate. the value of stock as on 31st March, 2022 and the adjusted net profit for the
year ended on that date. (5 Marks)
Answer
(a) Dr. Machinery Account (at original Cost) Cr.
Date Particulars ` Date Particulars `
01.04.2021 To Balance b/d 12,00,000 01.10.2021 By Disposed 2,00,000
Machinery A/c
01.10.2021 To Bank A/c 4,80,000 31.03.2022 By Balance c/d 14,80,000
16,80,000 16,80,000

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 5

Dr. Provision for Depreciation Account Cr.

Date Particulars ` Date Particulars `
01.10.2021 To Disposed 61,490 01.04.2021 By Balance b/d 4,65,000
Machinery A/c
31.03.2022 To Balance c/d 4,93,720 1.10.2021 By Depreciation 7,290
31.03.2022 By Depreciation 82,920
A/c
5,55,210 5,55,210

Dr. Disposed Machinery Account Cr.

Date Particulars ` Date Particulars `
01.10.2021 To Machinery A/c 2,00,000 01.10.2021 By Provision for
Depreciation 61,490
A/c
By Bank A/c 1,10,000
By Profit and 28,510
Loss A/c
2,00,000 2,00,000

Working Notes:
1. Calculation of Profit/Loss on Sale of Machinery
Particulars `
A. Original Cost 2,00,000
B. Less: Depreciation @ 10% WDV p.a. for 3½ years
Year Cost/WDV Depreciation@10%
1 2,00,000 20,000
2. 1,80,000 18,000
3 1,62,000 16,200
4 1,45,800 7,290 (6 Months) 61,490
C. Book Value as on date of Sale (A – B) 1,38,510
D. Less: Sale proceeds 1,10,000
E. Loss on Sale (C – D) 28,510

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 6 FOUNDATION EXAMINATION: JUNE, 2023

2. WDV of Remaining Machine

Cost of Machinery on 01.04.2021 12,00,000
Less: Cost of machinery sold 2,00,000
10,00,000
Less: Depreciation
Provision for depreciation 4,65,000
Less: Depn. on machinery sold 54,200 4,10,800
WDV of remaining machine 5,89,200
3. Calculation of Depreciation for Current Year on Machines
Particulars `
A. On WDV of Old Machines of ` 5,89,200 for 1 year (10% WDV) 58,920
B. On New Machine of ` 4,80,000 for ½ year 24,000
82,920
C. Depreciation on machinery sold (Rs.1,45,800@10% for 6 7,290
months 90,210
(b) M/s. A Ltd.
Bank Reconciliation Statement as on 31st March, 2022
Particulars Details Amount
` `
Overdraft as per Cash Book 15,50,750
Add: Cheque deposited but not credited 12,50,000
Interest charged by the bank 1,75,500
Draft deposited in bank but not yet credited 12,75,000
Bank Charges not entered in cash book 2,85,000 29,85,500
45,36,250
Less: Cheque issued but not yet presented (7,75,000)
Transport subsidy not yet recorded in the Cash Book (17,50,000)
Bills for collection credited in the bank not yet (9,45,000)
entered in the cash book
Wrong credit by the bank (1,50,000) (36,20,000)
Overdraft as per bank statement 9,16,250

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 7

Alternatively, the above solution can also be done through Adjusted Cash Book.
Cash Book (Bank Column)
Particulars Amount Particulars Amount
` `
To Bill Receivable 9,45,000 By Balance b/d 15,50,750
To Transport subsidy 17,50,000 By Interest debited by Bank 1,75,500
received By Bank Charges 2,85,000
By Balance c/d 6,83,750
26,95,000 26,95,000

M/s. A Ltd.
Bank Reconciliation Statement as on 31st March, 2022
Particulars Details Amount
` `
Balance as per Cash Book 6,83,750
Add : Cheque issued but not yet presented 7,75,000
Wrong credit by the bank 1,50,000 9,25,000
16,08,750
Less: Cheque deposited but not credited (12,50,000)
Draft deposited in bank but not yet credited (12,75,000) (25,25,000)
Overdraft as per bank statement (9,16,250)

(c) Profit and Loss Adjustment Account

Particulars ` Particulars `
To Advertisement (samples) 25,000 By Net profit 5,75,000
To Sales (goods approved in 73,333 By Electric fittings 10,500
April to be taken as April
sales: (55,000 + 18,333)
To Adjusted net profit 9,57,167 By Samples 25,000
By Stock (purchases of 1,85,000
March not included in
stock)
By Sales (goods sold in 2,05,000
March wrongly taken as
April sales)

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 8 FOUNDATION EXAMINATION: JUNE, 2023

By Stock (goods sent on 55,000

approval basis not
included in stock)
10,55,500 10,55,500

Calculation of value of inventory on 31st March, 2022

`
Stock on 31st March, 2022 (given) 2,55,000
Add: Purchases of March, 2022 not included in the stock 1,85,000
Goods lying with customers on approval basis 55,000
Value of inventory as on 31.03.2022 4,95,000
Note: Figures are rounded off to the nearest Rupee.
Question 3
(a) Akbar & Sons of Surat consigned 500 toys to Amar & Sons of Ahmadabad at a cost of
` 800 each. Consignor paid freight ` 8,000 and insurance ` 2,500. During transit, 30 toys
were totally damaged. Amar & Sons took delivery of remaining toys and paid ` 14,100 as
local taxes. Amar & Sons sent a bank draft to Akbar & Sons for ` 80,000 as advance
payment and later sent an account sale showing that 400 toys had been sold at ` 1,500
each. Amar & Sons incurred expenses on godown rent amounting to ` 3,500. Amar & Sons
was entitled to commission of 6%. One of the credit customers could not pay for 10 toys
and nothing was recovered from insurers due to a defect in the policy.
You are required to prepare Consignment Account and* Amar & Sons Account in the books
of Akbar & Sons. (10 Marks)
* It was wrongly printed as “of” in place of “and” in the question paper.
(b) Journalise the following transactions in the books of Karthik:
(i) Karthik accepted a bill of Balu for ` 3,500 discharged by a cash payment of ` 1,500
and a new bill for the balance plus ` 75 for interest.
(ii) Gopal acceptance for ` 4,500 which was endorsed by Karthik to Mohan was
dishonoured. Mohan paid t 50 as noting charges. Bill was withdrawn against cheque.
(iii) Doshi retires a bill for ` 2,500 drawn on him by Karthik for ` 25 discount.
(iv) Karthik's acceptance to Prem for ` 6,500 discharged by Prem. Ashok's acceptance
to Karthik for a similar amount. (5 Marks)
(c) Attempt any ONE of the following two sub-parts i.e. either (i) or (ii):
(i) Seeta and Geeta are two partners in the firm, have drawn the following amounts from
the firm during the year ended 31st March 2023:

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 9

Date Amount Drawn By

01.04.2022 53,000 Seeta
14.09.2022 20,000 Geeta
20.11.2022 35,000 Seeta
16.01.2023 25,000 Seeta
31.03.2023 22,000 Geeta
Interest is charged @12% p.a. on all drawings. Calculate interest chargeable from
each partner by using average due date system.
For calculation of average due date consider 1st April, 2022 as base date and 1 year
= 365 days. (5 Marks)
(ii) Meera Enterprises sold goods on ‘sales or return basis’ to few customers. All such
transactions are booked as actual sales. On 31st March 2022 the trade receivable
balance stood at ` 1,10,000 which included ` 10,000 goods sent on approval against
which no intimation was received during the year. These goods were sent out at 25%
over and above cost price to Mr. Arun.
Mr. Arun sent intimation of acceptance for ` 6,000 goods on 15th April 2022 and
balance goods returned.
Make the adjustment entries and show how these items will appear in the Balance
Sheet on 31st March, 2022. Also show the entries to be made during April, 2022. Value
of closing inventories as on 31 st March, 2022 was ` 70,000. (5 Marks)
Answer
(a) In the books of Akbar & Sons
Dr. Consignment to Amar & Sons Account Cr
Particulars ` Particulars `
To Goods sent on Consignment 4,00,000 By Amar & Sons - sale 6,00,000
A/c (500 x ` 800) Proceeds (400 x `
1,500)
To Bank(expenses) By Abnormal loss Ac 24,630
Freight 8,000 (W.N. 1)
Insurance 2,500 10,500
To Amar & Sons-expenses By Inventories on 59,570
Local taxes 14,100 consignment (W.N. 2)
Godown rent 3,500
Commission (6%) 36,000
Bad debt (10x1,500) 15,000 68,600

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 10 FOUNDATION EXAMINATION: JUNE, 2023

To P&L Account-transfer of profit 2,05,100

6,84,200 6,84,200

Dr. Amar & Sons account

Particulars ` Particulars
To Consignment to Amar 6,00,000 By bank (bank draft as advance) 80,000
& Sons A/c
By consignment to Amar & Sons
Local taxes 14,100
Godown rent 3,500
Commission (6%) 36,000
Bad debt (10 x 1,500) 15,000 68,600
By balance amount remitted 4,51,400
6,00,000 6,00,000
Working Notes:
(1) Computation of the abnormal loss- 30 toys `
a. Cost of 30 toys 30 x 800 24,000
b. Freight charges- 30 toys 8000/500 x 30 480
c. Insurance- 30 toys 2500/500 x 30 150
Abnormal loss 24,630
(2) Computation of the Closing stock- (500-30-400) `
a. Cost of 70 toys 70 x 800 56,000
b. Freight charges- 70 toys 8,000/500 x 70 1,120
c. Insurance- 70 toys 2,500/500 x 70 350
d. Local tax-70 toys 14,100/470 x 70 2,100
Closing stock 59,570
Note: The answer given above is after considering the typo error in the question paper.
Hence, the consignee Account i.e. Amar & Sons Account forms part of the solution.
(b) Books of Karthik
Journal Entries
` `
(i) Bills Payable Account Dr. 3,500

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 11

Interest Account Dr. 75

To Cash A/c 1,500
To Bills Payable Account 2,075
(Bills Payable to Balu discharged by cash payment
of `1,500 and a new bill for ` 2,075 including ` 75
as interest)
(ii) (a) Gopal Account Dr. 4,550
To Mohan Account 4,550
(Gopal’s acceptance for ` 4,500 endorsed to
Mohan dishonoured, ` 50 paid by Mohan as noting
charges)
(b) Mohan Account Dr. 4,550
To Bank Account 4,550
(Payment to Mohan on withdrawal of bill earlier
received from Mr. Gopal)
(iii) Bank Account Dr. 2,475
Discount Account Dr. 25
To Bills Receivable Account 2,500
(Payment received from Doshi against his
acceptance for ` 2,500. Allowed him a discount of
`25)
(iv) Bills Payable Account Dr. 6,500
To Bills Receivable Account 6,500
(Bills Receivable from Ashok endorsed to Prem in
settlement of bills payable issued to him earlier)
(c) (i) Calculation of Interest chargeable from Partners
Taking 1st April,2022 as Base Date
Dates Amount (`) Days from 1st April,2022 Products
(` )
Seeta 1.4.2022 53,000 0 0
20.11.2022 35,000 233 81,55,000
16.1.2023 25,000 290 72,50,000
1,13,000 1,54,05,000

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 12 FOUNDATION EXAMINATION: JUNE, 2023

1,54,05,000
Average Due Date = days from 1st April. i.e. 136 days = 15th Aug,2022
1,13,000
Interest is chargeable for Seeta from 15 th Aug to March 31 i.e. 228 days
` 1,13,000 x 12% x 228/365 = ` 8,470.35* (may be rounded off to Rs.8,470)
Dates (` ) Days from 1st April,2022 Products (` )
Geeta 14.9.2022 20,000 166 33,20,000
31.3.2023 22,000 364 80,08,000
42,000 1,13,28,000
1,13,28,000
Average Due Date = days from 1st April = 270 days.
42,000
= 27th Dec.
Interest is chargeable for Geeta from 27 th December to 31st March i.e. for 94 days.
12 94
` 42,000 x 100 x 365 = ` 1,298
*Alternatively, 137 days can also be taken while calculating interest of Seeta.
In that case, Interest chargeable from Seeta for 227 days i.e. from 16th August to
31st March will be ` 8,433.2.
OR
(ii) In the Books of Meera Enterprises
Journal Entries
Date Particulars L.F. ` `
2022 Sales A/c Dr. 10,000
March 31 To Trade receivables A/c 10,000
(Being the cancellation of original
entry for sale in respect of goods
lying with customers awaiting
approval)
March 31 Inventories with Customers on Dr. 8,000
Sale or Return A/c
To Trading A/c (Note) 8,000
(Being the adjustment for cost of
goods lying with customers
awaiting approval)

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 13

April,30 Trade receivables A/c Dr. 6,000

To Sales A/c 6,000
(Being goods sent to Mr. Arun on
sale or return basis has been
accepted by him)

Balance Sheet of Meera Enterprises as on 31st March, 2022 (Extracts)

Liabilities ` Assets ` `
Trade receivables ( `1,10,000 - ` 1,00,000
10,000)
Inventories-in-trade 70,000
Add: Inventories with customers on 8,000 78,000
Sale or Return
1,78,000
Note:
Cost of goods lying with customers = 100/125 x ` 10,000 = ` 8,000
Question 4
(a) Following is the Receipts and Payments account of Pune Medical Aid Society for the year
ended 31-12-2022.
Receipts and Payments Account for the year ended 31-12-2022
Receipts Amount Payments Amount
` `
To Opening cash in hand 12,000 By Medicine supply 35,000
To Subscription 65,000 By Honorarium to Doctors 15,000
To Donations 25,000 By Salaries 36,000
To Interest on Investment (10%) 10,000 By Sundry expenses. 950
To Charity show collection 16,500 By Purchase of Medical 25,000
equipment
By Charity show expenses 2,750
By Closing Cash in hand 13,800
1,28,500 1,28,500
The following is the additional information provided.

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 14 FOUNDATION EXAMINATION: JUNE, 2023

01-01-2022 31-12-2022
Amount ` Amount `
Subscription due 2,500 3,100
Subscription received in advance 1,800 1,400
Stock of medicine 12,500 17,250
Amount due for medicine supply 12,000 16,500
Value of equipment 21,500 37,200
Value of building 65,000 61,750
You are required to prepare Income and Expenditure account, and Balance sheet as on
31-12-2022. (15 Marks)
(b) X and Y were partners in a firm, sharing profit and losses in the ratio of 3: 2. They admit Z
for 1/6th share in profits and guaranteed that his share of profits will not be less than
50,00,000. Total profits of the firm for the year ended 31st March, 2022 were 1,80,00,000.
Calculate share of profit for each partner when:
(i) Guarantee is given by firm
(ii) Guarantee is given by X* and Y* equally. (5 Marks)
* It was wrongly printed as A and B in the question paper.
Answer
(a) Income and Expenditure Account of Pune Medical Aid Society
for the year ended 31st December, 2022

Expenditure ` Income `
To Medicine consumed 34,750 By Subscription 66,000
To Honorarium to 15,000 By Donation 25,000
doctors
To Salaries 36,000 By Interest on 10,000
investments
To Sundry expenses 950 By Profit on charity
show:
To Depreciation on Show collections 16,500
Equipment 9,300 Less: Show (2,750) 13,750
expenses
Building 3,250 12,550

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 15

To Surplus-excess of
Income over 15,500
Expenditure
1,14,750 1,14,750
Balance Sheet of Pune Medical Aid Society as on 31st December, 2022
Liabilities ` ` Assets ` `
Capital fund: Building 65,000
Opening balance 1,99,700 Less: Depreciation (3,250) 61,750
Add: Surplus 15,500 2,15,200 Equipment 21,500
Subscription 1,400 Add: Purchase 25,000
received in advance
Amount due for 16,500 46,500
medicine supply
Less: Depreciation (9,300) 37,200
Stock of medicine 17,250
Investments 1,00,000
Subscription 3,100
receivable
Cash in hand 13,800
2,33,100 2,33,100

Working Notes:
1.
Subscription for the year ended 31st December, 2022: `
Subscription received during the year 65,000
Less: Subscription receivable on 1.1.2022 2,500
Less: Subscription received in advance on 31.12.2022 1,400 (3,900)
61,100
Add: Subscription receivable on 31.12.2022 3,100
Add: Subscription received in advance on 1.1.2022 1,800 4,900
66,000

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 16 FOUNDATION EXAMINATION: JUNE, 2023

2. Purchase of medicine:
Payment for medicine supply 35,000
Less: Amounts due for medicine supply on 1.1.2022 (12,000)
23,000
Add: Amounts due for medicine supply on 31.12.2022 16,500
39,500
3. Medicine consumed:
Stock of medicine on 1.1.2022 12,500
Add: Purchase of medicine during the year 39,500
52,000
Less: Stock of medicine on 31.12.2022 (17,250)
34,750
4. Depreciation on equipment:
Value of equipment on 1.1.2022 21,500
Add: Purchase of equipment during the year 25,000
46,500
Less: Value of equipment on 31.12.2022 (37,200)
Depreciation on equipment for the year 9,300

Balance Sheet of Pune Aid Society as on 1st January, 2022

Liabilities ` Assets `
Capital fund (balancing figure) 1,99,700 Building 65,000
Subscription received in advance 1,800 Equipment 21,500
Amount due for medicine supply 12,000 Stock of medicine 12,500
Investments 1,00,000
(` 10,000 x 100/10)
Subscription receivable 2,500
Cash in hand 12,000
2,13,500 2,13,500

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 17

(b) (i) If Guarantee is given by firm

Profit and Loss Appropriation Account for the year ending
on 31st March, 2022
Particulars ` Particulars `
To X’s Capital A/c 78,00,000 By Profit and Loss, A/c 1,80,00,000
(3/5 of ` 1,30,00,000) 52,00,000
To Y’s Capital A/c
(2/5 of ` 1,30,00,000)
To Z’s Capital A/c
(1/6 of ` 1,80,00,000 or 50,00,000
` 50,000,000
whichever is more
1,80,00,000 1,80,00,000
(ii) If Guarantee is given by X and Y equally
Profit and Loss Appropriation Account for the year ending
on 31st March, 2022
Particulars ` Particulars `
To X’s Capital A/c By Profit and 1,80,00,000
(3/6 of 90,00,000 Loss, A/c
` 1,80,00,000) (net profits)
Less: Deficiency
borne (10,00,000) 80,00,000
for Z (1/2
of 20,00,000)
To Y’s Capital A/c
(2/6 of 60,00,000
` 1,80,00,000)
Less: Deficiency
borne (10,00,000) 50,00,000
for Z (1/2 of
20,00,000)
To Z’s Capital A/c
(1/6 of 30,00,000
` 1,80,00,000)
Add: Deficiency

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 18 FOUNDATION EXAMINATION: JUNE, 2023

Recovery 10,00,000
from X
Add: Deficiency 50,00,000
Recovery 10,00,000
from Y
1,80,00,000 1,80,00,000
Question 5
A, B and C were trading in partnership sharing profits and losses in the proportion of 4:3:3. The
balances in the books of the firm as on 31st December, 2022 subject to final adjustment were
as under:
Debit Credit
Amount ` Amount `
Capital Accounts
A 2,25,000
B 1,12,500
C 1,35,000
Current Account
A 36,000
B 54,000
C 54,000
Land and Building 1,80,000
Furniture and Fixtures 33,750
Stock 2,81,250
Debtors 45,000
Bank Account 90,000
Profit for the year before charging interest 2,34,000
Creditors 67,500
Total 7,74,000 7,74,000
Goodwill may be recorded separately, instead of through Revaluation Account. C died on 30th
June, 2022. The Partnership deed provided that:
(a) Interest was credited on Capital Account of Partners as @ 12% per annum on the balance
at the beginning of the year.
(b) On the death of partner

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 19

(i) Goodwill was to be valued at three years purchase of average annual profits of three
years up to the death, after deducting interest on capital employed at 10%p.a. and a
fair remuneration for each of the partners.
(ii) Fixed assets were to be valued by an independent valuer and all other assets and
liabilities to be taken at book value, and
(c) Whenever necessary, profit or loss should be apportioned on a time basis. You ascertain
that:
(i) Profit for three years, before charging partners' interest were:
2019 2,52,000
2020 2,83,500
2021 2,70,000
(ii) The independent valuation on the date of death revealed:
Land and Building ` 2,25,000
Furniture and Fixtures ` 22,500
(iii) For valuation of goodwill a fair remuneration for each of the partners would be
` 56,250 per annum and that the capital employed in the business to be taken as
` 5,85,000 throughout.
It was agreed between the partners that:
(1) Goodwill was not be shown as an asset of the firm as on 31st December, 2022.
Therefore, adjustment for goodwill was to be made in Capital Accounts.
(2) The amount due to C's Estate was to remain as loan with the firm carrying interest at
12% p.a.
(3) A and B would share profits equally from the date of death of C.
(4) Depreciation on revised value of assets would be ignored.
You are required to prepare:
(A) Partners' Capital Account and Current Account; and
(B) Balance Sheet of the firm as on 31st December, 2022.
Working should be done correct to the nearest rupee. (20 Marks)
Answer
Partner’s Capital Accounts
Particular A B C Particular A B C
To C’s capital A/c 11,475 22,950 By balance b/d 2,25,000 1,12,500 1,35,000
(goodwill) (W.N. 1)

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 20 FOUNDATION EXAMINATION: JUNE, 2023

To C’s current A/c 9,180 By A & B Capital 34,425

To C’s executor 1,60,245 A/c (goodwill)
A/c (W.N. 1)
To balance c/d 2,13,525 89,550
2,25,000 1,12,500 1,69,425 2,25,000 1,12,500 1,69,425

Partner’s Current Accounts

Particulars A B C Particulars A B C
To balance b/d 36,000 54,000 54,000 By Interest on capital 27,000 13,500 8,100
To balance c/d 83,528 39,787 By Profit & Loss A/c 79,028 70,162 26,595
(W.N. 3)
By Revaluation Profit 13,500 10,125 10,125
(W.N. 4)
By C’s Capital 9,180
1,19,528 93,787 54,000 1,19,528 93,787 54,000

Balance sheet as on 31st December,2022

Liabilities ` Assets `
Capital A/c A 2,13,525 Land & building 1,80,000
B 89,550 Add : revaluation 45,000 2,25,000
Current A/c A 83,528 Fixture & furniture 33,750
B 39,787 Less: revaluation 11,250 22,500
C’s executor A/c 1,60,245 Stock 2,81,250
C’s interest on executors Amount 9,615 Debtors 45,000
Creditors 67,500 Bank 90,000
6,63,750 6,63,750

Working Notes:
1. Calculation of goodwill `
Average profit of last 3 years up to 30.6.2022
2019 (6 months) 1,26,000
2020 2,83,500
2021 2,70,000
2022 (6 months) 1,17,000
7,96,500
Years 3

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 21

Average profit 2,65,500

Less: 10% of capital employed (58,500)
Less: remuneration of partners (56,250 x 3) (1,68,750)
Average adjusted profit 38,250
Goodwill for 3 years 1,14,750
C’s Share of Goodwill (3/10x 1,14,750) 34,425

2. Calculation of gaining ratio

Name of Partner New ratio Old ratio Gaining Ratio

A 1/2 - 4/10 1/10
B 1/2 - 3/10 2/10

A’s capital A/c Dr. 11,475

B’s capital A/c Dr 22,950
To C’s capital A/c 34,425

Profit & Loss Appropriation Account

Particulars 1.4.22 to 1.7.22 to Particulars 1.4.22 to 1.7.22 to

30.6.22 31.12.22 30.6.22 31.12.22
To interest on capital By Net profit 1,17,000 1,17,000
(6 months):
A 2,25,000 x 6% 13,500 13,500
B 1,12,500 x 6% 6,750 6,750
C 1,35,000 x 6% 8,100 -
To Interest on executor
amount
(1,60,245 x 6%) - 9,615
To partners current
A/c:
A 35,460 43,568
B 26,595 43,567
C 26,595 -
1,17,000 1,17,000 1,17,000 1,17,000

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 22 FOUNDATION EXAMINATION: JUNE, 2023

3. Calculation of Revaluation Profit

Revaluation Account
Particulars Amount Particulars Amount
To Furniture and Fixtures 11,250 By Land & building 45,000
To Profit A (4/10) = 13,500 33,750
B (3/10) = 10,125
C (3/10) = 10,125
45,000 45,000
Question 6
(a) BP Limited issued a prospectus inviting applications for 1,20,000 equity shares of ` 10
each at a premium of ` 2 per share payable as follows:
On Application - ` 3 per share
On Allotment - ` 5 per share (including premium)
On First and Final Call - ` 4 per share
Applications were received for 3,60,000 equity shares. Applications for 80,000 shares were
rejected and the money refunded. Shares allotted to remaining applications as follows:
Category No. of shares Applied No. of shares Allotted
I 1,60,000 80,000
II 1,20,000 40,000
Excess money received with applications was adjusted towards sums due on Allotment
and the balance amount returned to the applicants. All calls were made duly received
except the final call by a shareholder belonging to Category I who has applied for 680
shares. His shares were forfeited. The forfeited shares were reissued at ` 13 per share
fully paid-up.
Pass necessary journal entries for the above transactions in the books of BP Ltd, Open
call in arrears account whenever required. (15 Marks)
(b) What are the importance of Journal? (5 Marks)
Answer
(a) Journal of BP Limited
Particulars Dr. (`) Cr. (`)
Bank A/c (Note 1 – Column 3) Dr. 10,80,000
To Equity Share Application A/c 10,80,000

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 PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 23

(Being application money received on 3,60,000 shares @

` 3 per share)
Equity Share Application A/c Dr. 10,80,000
To Equity Share Capital A/c 3,60,000
To Equity Share Allotment A/c (Note 1 Column 5) 4,40,000
To Bank A/c (Note 1 – Column 6) 2,80,000
(Being application money on 2,80,000 shares transferred to
Equity Share Capital Account; on 1,60,000 shares adjusted
with allotment and on 80,000 shares refunded as per Board’s
Resolution No…..dated…)
Equity Share Allotment A/c Dr. 6,00,000
To Equity Share Capital A/c 3,60,000
To Securities Premium a/c 2,40,000
(Being allotment money due on 1,20,000 shares @ ` 5 each
including premium at `4 each as per Board’s Resolution
No….dated….)
Bank A/c (Note 1 – Column 8) Dr. 1,60,000
To Equity Share Allotment A/c 1,60,000
(Being balance allotment money received)
Equity Share First and Final Call A/c Dr. 4,80,000
To Equity Share Capital A/c 4,80,000
(Being final call money due on 1,20,000 shares @ ` 4 per
share as per Board’s Resolution No…..dated….)
Bank A/c Dr. 4,78,640
Calls in Arrears A/c Dr. 1,360
To Equity Share First and Final Call A/c 4,80,000
(Being final call money on 1,19,660 shares @ `4 each
received)
Equity Share Capital A/c Dr. 3,400
To Calls in Arrears A/c 1,360
To Forfeited Shares A/c 2,040
Being forfeiture of 340 equity shares for non- payment of
call money as per Board’s Resolution No…..dated ….)
Bank A/c Dr. 4,420
To Equity Shares Capital A/c 3,400

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 24 FOUNDATION EXAMINATION: JUNE, 2023

To Securities Premium A/c 1,020

Being re-issue of 340 shares @ `13 each as per Board’s
Resolution No…..dated….)
Forfeited Shares A/c Dr 2,040
To Capital Reserve A/c 2,040
(Being profit on re-issue transferred to Capital Reserve)
Working Note:
Calculation for Adjustment and Refund
Category No. of No. of Amount Amount Amount Refund Amount Amount
Shares Shares Received Required adjusted [3 - 4 + 5] due on received
Applied Allotted on on on Allotment on
for Application Application Allotment Allotment
(1) (2) (3) (4) (5) (6) (7) (8)
Rejected 80,000 Nil 2,40,000 Nil Nil 2,40,000 Nil Nil
(i) 1,60,000 80,000 4,80,000 2,40,000 2,40,000 Nil 4,00,000 1,60,000
(ii) 1,20,000 40,000 3,60,000 1,20,000 2,00,000 40,000 2,00,000 Nil
TOTAL 3,60,000 1,20,000 10,80,000 3,60,000 4,40,000 2,80,000 6,00,000 1,60,000

Also,
(i) Amount Received on Application (3) = No. of shares applied for (1) x ` 3
(ii) Amount Required on Application (4) = No. of shares allotted (2) x ` 3
(b) IMPORTANCE OF JOURNAL:
1. Chronological Order: As transactions are recorded on chronological order, one can
get complete information about the business transactions on time basis.
2. Narration: Entries recorded in the journal are supported by a note termed as
narration, which is a precise explanation of the transaction for the proper
understanding of the entry. One can know the correctness of the entry through these
narrations.
3. Basis of Posting: Journal forms the basis for posting the entries in the ledger. This
eases the accountant in their work and reduces the chances of error.

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