Q1. Analyze the effect of these transactions on accounting equation.

You are supposed to ascertain the com

1. Purchased a piece of equipment on credit, $ 1,00,000.
2. Received a cash payment from a customer for a previously recorded sale on account, $5,000.
3. Recorded depreciation expense on a fixed asset, $10,000.
4. Sold goods to a customer on credit, $2,00,000.
5. Borrowed money from a bank, $5,00,000.

Solution:
1. Assets (Equipment) increase, Liabilities (Accounts Payable) increase. The equation remains bal
2. Assets (Cash) increase, Assets (Accounts Receivable) decrease. The equation remains balanced
3. Equity decreases (due to the expense depreciation), Assets decreases (due to depreciation charg
4. Assets (Accounts Receivable) increase, Equity (Revenue) increases. The equation remains bala
5. Assets (Cash) increase, Liabilities (Loans Payable) increase. The equation remains balanced.

My students might follow this format

Assets Rs Liabilities Rs
1 Increase in equipment 100,000 Increase in Creditors 100000
2 Inc in cash 5000
Dec in Accs receivable -5000
3 Dec in asset 10000 Dec in equity 10000
(due to increase in depn)
4 Inc in Accs receivable 200,000 Inc in equity 200,000
(due to increase in revenue)
5 Inc in cash 500,000 Inc in loans 500,000
osed to ascertain the components of the equation (Asset, Liability, Capital) to be affected by the transaction, find out the effect (I

ount, $5,000.

The equation remains balanced.

quation remains balanced.
due to depreciation charge). The equation remains balanced.
he equation remains balanced.
tion remains balanced.

1X5=5
saction, find out the effect (Increase or Decrease) on each of them, and show the effect on appropriate side of the equation and en
e side of the equation and ensure that the equation holds true (Total Assets = Total Liabilities).
Q2. Journalize the following transactions in the books of Mr. X.
1. Purchased furniture of Rs. 40,000 in cash.
2. Purchased goods from Mohan in cash Rs. 30,000.
3. Sold goods costing 10,000 to Y on credit for 12,000.
4. Withdrawal of goods Rs. 30000 for personal use (on cost).
5. Loan of Rs. 10000 paid with interest of Rs. 500.

Solution:
1 Furniture A/c 40000
To Cash A/c
(Purchased furniture of Rs. 40,000 in cash)

2 Purchases A/c 30000

To Cash A/c
(Purchased goods from Mohan in cash Rs. 30,000)

3 Y A/c 12000
To Sales A/c
(Sold goods costing 10,000 to Y on credit for 12,000)

4 Drawings A/c 30000

To Purchase A/c
(Withdrawal of goods Rs. 30000 for personal use (on cost))

5 Loan A/c 10000

Interest on Loan A/c 500
To Cash A/c
(Loan of Rs. 10000 paid with interest of Rs. 500)
 1X5=5

40000

30000

12000

30000

10500
A multinational corporation spends ₹200,000 on refurbishing the office lobby but also incurs an add
a) Explain the materiality principle.
b) Briefly explain the impact of both these transactions on the financial statements stating how ma

a)The materiality principle suggests that only items significant enough to impact the decision-makin
b) This question explores the concept of materiality by comparing the relative size of the expenses
It expenses the ₹1,000 as an expense in the period they are incurred since the amount is small.
 by but also incurs an additional expense of ₹1,000 for buying office staplers and paper weights.

ements stating how materiality principle has been applied here.

mpact the decision-making of financial statement users need to be reported separately.

tive size of the expenses . The company would capitalize the ₹200,000 refurbishment as a long-term asset sin
he amount is small.
er weights.

t as a long-term asset since the refurbishing adds long term value to the company.
Particulars Debit
Cash in bank 20000
Purchase of raw material 220000
Sales from operations
Sales Return 6000
Purchase Return
Carriage (Transportation Cost) on purchases 6500
Fuel and power 15500
Raw Material (1-4-2022) 36000
Bad debts 3700
Debtors 82000
Creditors
Equity Capital
Investments 20000
Interest on Investments
Loan from Bank @ 18% p.a.
Repairs & Maintenance 1520
Insurance 10600
Plant & Machinery 180000
Wages and Salaries 18000
Bills payable
Stationery 2000
Total 621820

Information:
1) Write off Rs.2000 Crores as Bad debts and provision for Doubtful debts is to be maintained at 5% on deb
2) A loan from the Bank was taken on August 1, 2023. No interest has been paid so far.
3) Included in Insurance is an insurance premium of Rs.1200 Crores paid for one year ending June 30 th, 202
4) The owners used the entire stationery for their own purposes.
5) Closing stock was valued at Rs. 50000 Crores
 Credit

350000

7500

30000
217000

2000
10000

5320

621820

l debts is to be maintained at 5% on debtors.

as been paid so far.
paid for one year ending June 30 th, 2024.
 Solution:
Statement of Income and Expenditure for the year ending 31st March 2022-23
Particulars
By Sales 350000
Less: Return inward 6000

By closing stock

By Interest on Investments

Total Income

To raw material 1-4-2011 36000

To purchases 220000
Less: Return Outwards 7500

To Carriage on Purchases
To Fuel and Power
To Wages and Salaries
To Repairs & Maintenance
To Insurance 10600
Less: Prepaid Insurance 300

To Bad debts 3700

Add: Further bad debts 2000
Add: New provision for doubtful debts 4000

To Outstanding Interest
To Net Profit

Statement of Sources and Application of funds as on March 2023

Sources
Equity Capital 217000 217000
Add: Net profit 84900 84780

Less: Drawings 2000 2000

(stationery used)
Bank Loan 10000 10000
Add: Outstanding interest 1200 1200
Bills payable
Creditors

Assets
Investments
Plant and Machinery
Debtors 82000 82000
Less: Bad debts (2000) 2000
80000
Less: Provision for
bad debts 4000 4000
Closing stock
Prepaid Insurance
Cash at bank
 Amount

344000
50000

2000

396000

248500
6500
15500
18000
1520

10300

9700

1200
84780
396000

Amount (Rs.)

299780
 11200
5320
30000
346300

20000
180000

76000

50000
300
20000

346300
Q1. Analyze the effect of these transactions on accounting equation. You are supposed to ascertain the components o
1. Purchased a new truck for cash, $1,00,000.
2. Paid a property tax bill, $1,000.
3. Received interest income from a bank deposit, $2,300.
4. Withdrew cash for personal use, $10,000.
5. Repaid loan $50,000.

Solution:
1. Assets (Truck) increase, Assets (Cash) decrease. The equation remains balanced.
2. Equity (Expenses of Property Tax) decrease, Assets (Cash) decrease. The equation remains balanced.
3. Assets (Cash) increase, Capital (Revenue of Interest Income) increases. The equation remains balanced.
4. Asset (Cash) decreases, Capital (drawings) decreases. The equation remains balanced.
5. Assets (cash) decreases, Liability (Loan) decreases. The equation remains balanced.

Assets Rs Liabilities Rs
Increase in truck 100,000
Dec in cash -100,000
Dec in cash -1000 dec in equity(due to tax payment) -1000
inc in cash 2300 inc in equity(due to increase in interest) 2300
Dec in cash -10000 dec in equity(inc in drawings) -10000
dec in cash -50000 dec in loan 50000
rtain the components of the equation (Asset, Liability, Capital) to be affected by the transaction, find out the effect (Increase or D

n remains balanced.
ion remains balanced.

1X5=5
out the effect (Increase or Decrease) on each of them, and show the effect on appropriate side of the equation and ensure that th
equation and ensure that the equation holds true (Total Assets = Total Liabilities).
Q2. Journalize the following transactions in the books of Mr. X.
1. Paid salary Rs. 20,000.
2. Loss by fire Rs. 13,000 (Cost price).
3. Purchased computer for cash Rs.70,000.
4. Selling goods to Shyam in cash 40000 (cost is only 35000).
5. Returned goods costing 23,000 to supplier Y.

Solution 2:
S. No.
1

5
Particulars Dr. Amount (Rs.) Cr. Amount (Rs.)
Salary A/c Dr. 20000
To Cash A/c 20000
(Paid salary Rs. 20,000)

Loss by Fire A/c Dr. 13000

To Purchase A/c 13000
(Loss by fire Rs. 13,000 (Cost price))

Computer A/c Dr. 70000

To Cash A/c 70000
(Purchased computer for cash Rs.70,000)

Cash A/c Dr. 40000

To Sales A/c 40000
(Selling goods to Shyam in cash 40000 (cost is only 35000))

Y A/c Dr. 23000

To Purchase Returns A/c 23000
(Returned goods costing 23,000 to supplier Y)
1X5=5
A hospital promises to provide a series of medical treatments to a patient and receives a payment of ₹200,000 upfront. The tr
a) Explain the revenue recognition principle.
b) How should the hospital apply the revenue recognition principle to account for this payment?
(Marks:2+3)

a) We recognize the revenue from sale of goods or provision of services when such goods are delivered or the servi
b) The principle dictates that revenue should be recognized as services are performed, not when payment is receive

a) 2 marks
b) 3 marks
nt of ₹200,000 upfront. The treatments are scheduled to occur over the next three months.

oods are delivered or the services are rendered to customers(transfer of property in goods), not when cash is received.
, not when payment is received. The hospital should recognize the revenue for the treatments progressively over the three-month period
over the three-month period as the services are provided. For example, if treatments are evenly distributed, the hospital should recogniz
d, the hospital should recognize ₹66,667 of revenue each month (₹200,000 divided by 3 months). This approach ensures that revenue is m
ach ensures that revenue is matched with the period in which the services are delivered.
Particulars Rs.
Capital a/c
Drawings 19,800
Plant and Machinery 247,500
Purchases 165,000
Returns Outwards
Salaries 19,800
Office Furniture 11,550
Discount 1,980
Sundry Debtors 43,890
10% Loan to Krishna 66,000
Cash at bank 47,850
Sales
Opening Stock 57,750
Wages 52,800
Sundry Creditors
Insurance 4,950
Gas and Fuel 4,455
Bad Debts 990
Office Rent 10,065
Freight 14,850
Provision for Doubtful Debts
Interest on Loan to Krishna
769230

1. Closing Stock was valued at Rs. 108900.

2. A new machine was installed during the year costing
Rs. 23100 but it was not recorded in the books as no
payment was made for it.
3. The balance of the interest on Krishna’s loan is due

4. Further bad debts of Rs 990 should be written off

5. Maintain a provision of 5% on sundry debtors for

doubtful debts
6. Wages include Rs 1,650 paid for the month of April
2023
Rs
343,200

1,650

347,160

74,250

1320
1,650
769230
 Statement of Income and Expneditute
Sales
Interest
Add:Accrued int

Expenses
Raw Material Consumed
Opening Stock
Add: Purchases
Less: Returns
Less:Closing Stock

Wages
Less:prepaid wages

Gas and Fuel

Frieght
Salaries
Insurances
Office Rent
Discount Allowed
Provision
Add:Bad Debts
Less:Old Provision
Net Profit
Total

Statement of Sources and Application of Funds

Sources
Share Capital
Less:Drawings
Add:NP

Bills Payabale
Sundry Creditors (Cred+machine on credit)

Application
Plant & Mach.
Add: New Machine (inst+ages)
Office Furniture
Closing Stock
Debtors
Less:Prov (5%)
Loan to Krishna
Add: Interest Acc
Prepaid Wages
Cash at Hand
Cash at bank
ement of Income and Expneditute
347160
1650
4950 6600
353760

112200
57750
165000
1650
108900

52800
1650 51150

4455
14850
19800
4950
10065
1980
2145
1980
1320 2805
131505
353760

nt of Sources and Application of Funds

343,200
19,800
131505 454,905

97,350 97,350
552,255

247,500
23,100 270,600
11550
108900
42,900
2145 40,755
66,000
4950 70,950
1650
43890
3960
552,255