NOTE: Attempt FOUR questions in all. Including question No. 5 & 6 which are compulsory. Qs 5 carries 40 marks. All other questions carry EQUAL marks i.e. 20 marks each.

1. Explain concept of depreciation. Spell out its implication on Profit and Loss Account and Balance Sheet. Identify four ways of depreciating fixed assets. Illustrate your answer.

2. Explain ten principles of Accounting and their applications to Investment concerns,

3. The following information relating to Dawood Company in respect of year 2001 is available:
Net sales………………………………………………….. 1,200,000
Cost of goods sold ……………………………..…….. 760,000
Gross profit on sales ……………………………...…. 440,000
Selling general and other expenses ……...…… 350,000
Operating income ………………………………......….. 90,000
Income tax ………………………………………......……. 40,500
Net income……………………………………….......……. 49,000
Dividend paid …………………………………….........….35,000
Net increase in retained earnings ……......…... 14,500

BALANCED SHEET DATA

ASSETS…………………………………………......…………… Rs.
Cash……………………………………………………………………………......…60,00
Accounts receivables…………………………………………………...….300,000
Inventory-at cost (beginning of years Rs. 420.000)……….380,000
Prepaid expenses………………………………………………………....…..30,000
Land, building and equipment…………………………………...…….760,000
Intangible assets……………………………………………………..………100,000
Other fixed assets……………………………………………………...…….70,000
Total ………………………………………………………..1,700,000

CAPITAL AND LIABILITIES

Accounts payable ……..……..……..…...…….120,000
Accrued expenses ……..……..……..…...……. 25,000
Income tax payable……..……..……..…...….. 39,000
Miscellaneous current liabilities ………...... 10,000
Bonds……..……..……..……..……..………...……300,000
Deferred revenues……..……..……..…...….….10,000
Paid up share capital……..……..….......... 700,000
Additional paid-in-capital……..……..….…. 310,000
Retained earnings – appropriated ….…..… 80,000
Retained earnings – inappropriate…....… 105,500
TOTAL…..……..……..……..……..…. 1,700,000

Required: Calculate the following ratios and offer your comments in terms of interpretation:

1. Amount of working capital (compute amount)
2. Current ratio
3. Acid test ratio
4. Days accounts receivable uncollected (use 360 days per year and assume all sales on credit basis)
5. Inventory turnover rate
6. Ratio of shareholders equity to total liabilities.

4. Explain and illustrate the concepts underlying the following:
(a) Flexible Budgeting
(b) Fixed Budgeting
(c) Rolling Budgeting

5. The unadjusted trial balance at the end of the first year of operation is shown below:

PARTICULARS ……….……….……….……DEBIT (Rs.000) ……. CREDIT (Rs.000)
Cash……….……….……….……….……….……...……200……….………………..….X
Accounts receivable ……….……….…….……..1,500……….………….……….X
Prepaid advertising……….……….………...…….400……….………….………….X
Supplies on hand……….……….……….………..3,000……….…………..……….X
Equipment……….……….……….……….….……..9,000…………….……….….…. X
Accounts payable……….……….……….….…….…X……….………….………. 800
Naseer’s capital……….……….……….…….…….…X……….…..……….…… 10,000
Naseer’s drawing……….……….……….…..……3,600……….…..……….………X
Service fees earned……….……….…………..……X……….…………….….. 14,000
Rent expenses and other expenses……….5,500……….…..……….….….X
Wage expenses……….……….……….………….1,000……….…..……….…..….X
TOTAL……….……….……….……….…24,800……….….…….24,800

Further information as at December 31, 2001 is as under:

1. Prepaid advertising covers the months of December 20001 to March 2002.
2. Supplies on hand at December 31 was Rs. 1,300,000
3. Annual depreciation on the equipment is Rs. 1,200,000
4. Service fee earned but not yet filled at December 31, 2001 was Rs. 400,000
5. Rent of Rs. 500,000 for December has not been paid.
6. Accrued wages at December 31, were Rs. 150,000

Required: Prepare final account financial statements including balance sheet.

6. Write correct answers on your Answer Book. Do not reproduce the question.

(1) Maximum number of partners in a partnership firm set up in Pakistan under Partnership Act, 1932 is:
(a) 5
(b) 25
(c) 20
(d) None of these

(2) Preparation of final financial reports is governed in Pakistan under:
(a) No law
(b) Companies Ordinance 1984
(c) None of these

(3) Depreciation is based on:
(a) Economic life of asset
(b) Declared life of asset by supplier
(c) Normal life of asset
(d) None of these

(4) Inventory turnover is calculated as under:
(a) Cost of Goods sold/Closing Inventory
(b) Gross profit/Closing Inventory
(c) Sales/Opening Inventory
(d) None of these

(5) There is a difference between:
(a) Worksheet and Balance Sheet
(b) Worksheet and profit and loss account
(c) Worksheet as combination of results of profits and financial positions
(d) None of these

(6) Deferred Revenue is:
(a) Liability
(b) Asset
(c) None of these

(7) Preparation of annual report of a firm is governed under:
(a) Partnership Act 1932
(b) Under partnership Deed
(c) None of these

(8) Deferred Taxation amount be treated as:
(a) Foot note
(b) An item in the Balance Sheet on asset side
(c) None of these

(9) Return of Equity will be calculated as under:
(a) Operating Profit x 100/Equity
(b) Net profit x 100/Paid up Capital only
(c) None of these

(10) Current maturity of long term loan is:
(a) Current Liability
(b) Long Term Liability
(c) None of these

NOTE: (i) Attempt FIVE questions in all. Including question No. 9 which is compulsory.
(II) Select at least ONE QUESTION from each of the PART A,B,C and D. All questions carry equal marks.


1. Explain ten uses of Cost Accounting in real life. Highlight points giving edge to Cost Accounting over Financial Accounting in respect of above uses.

2. A product passes through two processes. The output of each process is treated as raw material for the next process. The expenditures incurred during a period were as under

PARTICULARS…………..…… PROCESS: A (Rs.) …………PROCESS: B (Rs.)
Raw materials………………………..….. 400,000 …………………….....200,000
Direct labour………………………………...60,000……………………...……40,000
Factory overhead…………………..…..100,000……………………...….100,000
Total management cost……....560,000……………...…. 340,000

10,000 units were issued to the process – A and after processing, the output of each process is as under:

PARTICULARS………OUTPUT/(UNITS) ……NORMAL LOSS/%
Process A ………………..…...… 9,750………………....………2
Process B…………………...…... 9,400……………………....…5
No stock of material or work in process was left at the end

Required: Prepare Process Accounts to show the cost of the finished articles.


3. State and explain Limitations of Audit. Outline an audit program for vouching acquisition of fixed assets in a limited company.

4. Explain duties of an auditor for conducting various types of audits under the Companies Ordinance 1984.


5. Present a lucid review of tax rates governing various types of income tax assesses contained in the First Schedule of the income Tax Ordinance, 1979.

6. The following information available in respect of Mr. “A” for the assessment year 2002 – 2003.

Basic salary……….……….……….……….……….………… 360,000
Arrears of salary……….……….……….……….………….. 50,000
Leave encashment……….……….……….……….………. 25,000
House rent allowance……….……….……….………….. 360,000
Rent received is as under:
- Repairs……….……….……….……….……….……………. 100,000
- Interest on loan for house construction ………. 75,000
- Municipal tax ……….……….……….……….……….….. 15,000
- Insurance premium paid ……….……….…………….. 10,000

Required: Compute taxable income for assessment year 2002 – 2003.


7. Currently business combinations are taking place globally and domestically. State principles governing business combinations as part of negotiation.

8. State comprehensive note on terms and conditions governing long term financing relating to an industrial concern.



9. Write only the correct answer in the Answer Book. Do not reproduce the questions.

(1) Prime cost is calculated as under:
(a) Manufacturing Cost/Cost of Goods Sold
(b) Direct Method plus factory overheads
(c) Direct labour + Direct Material
(d) None of these

(2) Process Cost is very much applicable in:
(a) Construction Industry
(b) Pharmaceutical Industry
(c) Air line company
(d) None of these

(3) The latest computation of variances of manufacturing overheads is in one the following ways:
(a) Two variance approaches
(b) Three variance approaches
(c) Four variance approaches
(d) None of these

(4) Random sampling in auditing means:
(a) Selection through convenience sampling
(b) Selection through scientific sampling approach
(c) None of these

(5) Expenditure incurred in procuring machinery is:
(a) An admissible expenditure for tax purposes
(b) No admissible for tax purposes
(c) None of these

(6) Increase in income constitutes:
(a) Inflows
(b) Outflows
(c) None of these

(7) M & A stands for:
(a) Mergers & Analysis
(b) Mergers & Acquisitions
(c) Mergers & Allocation
(d) None of these

(8) An endowment insurance policy can be taken in respect of:
(a) Fire insurance
(b) Accident insurance
(c) Life insurance
(d) None of these

(9) Audit and special audit are the same:
(a) In Insurance Company
(b) In Banking Company
(c) None of these

(10) Acid test is the same as:
(a) Quick test
(b) Liquid test
(c) None of these

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