NOTE: (i) Attempt FIVE questions in all. Including question No. 5 & 6 which are compulsory. Qs 5 carrries 40 marks. All other questions carry EQUAL marks i.e. 20 marks each.
(ii) Give workings to solution of questions, wherever relevant.

1. Answer the following short questions briefly.
(a) Define Accrual system of accounting
(b) Describe three basic functions of an accounting system
(c) Define worksheet
(d) What do you understand by capital loss? Give an example of capital loss.
(e) Prepare rectifying entry for sales book over cast by Rs. 900
(f) Make an adjusting entry for prepaid rent Rs. 1000
(g) Define budget
(h) What do you understand by adjusting entries? Make three adjusting entries with your own figures.
(i) List down the four types of book keeping errors
(j) Describe bad debts recovered.

2. Differentiate between the following:
(a) Capital expenditure and Revenue expenditure
(b) Single entry system and double entry system of bookkeeping
(c) Receipts & payment account and income & expenditure account
(d) Straight line method and diminishing balance method of depreciation.

3. Best manufacturing purchased molding machine for Rs. 3,00,000 on 1st January 2000. It cost Rs. 6000 on erection of the machine. On 1st July in the same yaer an additional machinery costing Rs. 1,50,000 was acquired. On 1st January 2002, the machine purchased on 1st January 2000 was disposed off at a price of Rs. 75,000. Depreciation was provided for annually on 31st December @ 10% per annum on the cost of the machine. In the year 2002, however, the following changes were introduced:

1. The existing method of depreciation was replaced with written down value method.
2. The rate of depreciation was increased from 10% to 15%

Required: Machine account as it would appear at 31st December each year from year 2000 to 2004.

4. S & Y are partners with profit sharing ratio as 2:1. The position of the firm 31st December 2004 when they decided to dissolve the business was as follows:



The details or realization was as follows:
1. S took over plant & machinery and furniture at book value less 10%
2. Y took over the stock at Rs. 1,75,000
3. Debtors realized Rs. 1,85,000
4. Sundry creditors were settled at a discount of 5%

Required: Prepare necessary journal entries and ledger accounts to close the books of the firm.


5. Following is the Trail Balance of Rizwan & brothers as on December 31, 2004.



Adjustments:

1. Stock on December 31, 2004 was Rs. 1,20,000.
2. Increase bad debts provision on account receivable to 5% and provide discount reserve on account receivable at 2%
3. Depreciate machinery by 10%
4. Goods taken away by the owner for his personal use Rs. 2400.
5. Machinery purchased Rs. 6000 was wrongly included in purchases
6. Unused machinery purchased Rs. 1800 was wrongly included in closing stock.
7. Apprentice fee to be adjusted for four years.

Note: No depreciation should be charged on the machinery purchased during the year and on carriage paid on such machinery.

Required: Trading and Profit & Loss Account for the year ended December 31, 2004 and Balance Sheet after taking into account the above adjustments.


6. Select the most suitable option.
(1) The purchase of machinery on account would
(a) Increase an asset and decrease another asset
(b) Increase an asset and decrease liability
(c) Increase an asset and increase liability
(d) Decrease an asset and increase liability

(2) In general, the accounts in the income statement are known as:
(a) Real account
(b) Contra asset
(c) Nominal account
(d) Unrecorded revenue account

(3) In general terms, financial assets appear in the balance sheet at:
(a) Face value
(b) Current cash value
(c) Cash
(d) Estimated future sales value

(4) A limited Co. sold marketable securities cost Rs. 80,000 for Rs. 92,000 cash. In Co.’s income statement and statement of cash flows respectively, this will appear as:
(a) A Rs. 12,000 gain and Rs. 92,000 cash receive
(b) A Rs. 92,000 gain and Rs. 8,000 cash receive
(c) A Rs. 12,000 gain and Rs. 80,000 cash receive
(d) A Rs. 92,000 sales and Rs. 92,000 cash receive

(5) Which of the following is least important as a measure of short term liquidity?
(a) Debtor ratio
(b) Current ratio
(c) Cash flow from operating activities
(d) Quick ratio

(6) Uzma Ltd. Net income was Rs. 4,00,000 in 2003 and Rs. 1,60,000,in 2004. What percentage increase in net income must achieve in 2005 to off set the decline in profits in 2004?
(a) 60%
(b) 150%
(c) 200%
(d) 70%

(7) Which of the following does not describe accounting?
(a) Language of Business
(b) Is an end rather than a mean to an end
(c) Useful for decision making
(d) Used by business government, nonprofit organizations and individuals.

(8) External uses of financial accounting information include all of the following except:
(a) Investors
(b) Labour unions
(c) Line manager
(d) General public

(9) A fixed budget is:
(a) A budget for single level of activity
(b) A budget which ignored inflation
(c) Used only for fixed cost
(d) An overhead cost budget

(10) Heavy expenditure on advertisement of a new product is a:
(a) Capital expenditure
(b) Revenue expenditure
(c) Deferred revenue expenditure
(d) None of these

(11) Subscriptions received in advance is:
(a) An income
(b) An asset
(c) A liability
(d) A loss

(12) At the time of admission of a new partner, goodwill raised should be written off in:
(a) New profit sharing ratio
(b) Old profit sharing ratio
(c) Sacrificing ratio
(d) Gaining ratio

(13) A and B are partners in the ratio of 2:1. They admit C for ¼ shares who contributes Rs. 3000 for his share of goodwill. The total value of the goodwill of the firm is:
(a) Rs. 3,000
(b) Rs. 9,000
(c) Rs. 12,000
(d) Rs. 15,000

(14) Sales to Mustafa of Rs. 10,000 not recorded in the books would affect:
(a) Sales account
(b) Mustafa account
(c) Sales account and Mustafa Account
(d) None of these

(15) Depreciation is a process of:
(a) Valuation
(b) Allocation
(c) Both a & b
(d) None of these

(16) Loss on sale of an asset should be written off against:
(a) Share premium account
(b) Sales account
(c) Depreciation fund account
(d) None of these

(17) Income and expenditure account reveals
(a) Cash in hand
(b) Surplus or deficiency
(c) Capital account
(d) None of these

(18) Which of the following is true regarding the work sheet.
(a) It is the form, which an accountant uses for his own aid and convenience.
(b) It assists in the orderly preparation of the adjustments and financial statements at the end of the account period.
(c) It can substitute for Journal and ledger
(d) Only a & b are true

(19) The post closing trial balance will:
(a) Contain only income statement accounts
(b) Contain only balance sheet accounts
(c) Contain both income statement and balance sheet accounts
(d) Be prepared before closing entries are posted to the ledger

(20) The cost of goods and services used up in the process of obtaining revenue are called:
(a) Net income
(b) Revenue
(c) Expenses
(d) Liabilities