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Solved by Iftikhar Ali, M.Sc Economics, MCOM Finance Lecturer Statistics, Finance and Accounting
Table of Contents
Principles of Accounting I, Solved Paper 2017 2nd Annual, ICOM I, FBISE, MCQS, Short Questions, Extensive Questions
MCQS
Q 1: Choose the correct answer A / B / C / D by filling the relevant bubble for each question on the OMR Answer Sheet according to the instructions given there. Each part carries one mark.
| 1 | The Prime function of accounting is to: | ||
| A) | Record economic data | B) | Interpreting the data |
| C) | Provide the information basis for action | D) | Classifying and Recording business transactions |
| 2 | Double entry system of book keeping involves: | ||
| A) | One account | B) | Two accounts |
| C) | Three accounts | D) | Four accounts |
| 3 | All events which are related to business are measuredin: | ||
| A) | Quantity | B) | Quality |
| C) | Kilogram | D) | Money |
| 4 | The concept of conservatism takes into account: | ||
| A) | All future profits and all future losses | B) | All future profits but leaves all future losses |
| C) | All future losses but leaves all future profits | D) | All future assetsand liabilities |
| 5 | The right possessed by the owner against the assets, ofthe business is/are called: | ||
| A) | Assets | B) | Liabilities |
| C) | Owner’s equity | D) | Expenses |
| 6 | Sold goods costing Rs. 1500 for Rs. 1750 will increasethe owner’s equity by: | ||
| A) | Rs. 250 | B) | Rs. 1300 |
| C) | Rs. 1600 | D) | Rs. 2000 |
| 7 | Debit increases the account of: | ||
| A) | Assets and liabilities | B) | Assets and Expenses |
| C) | Assets and Revenue | D) | Assets and capital |
| 8 | Motor cycle purchased by the proprietor for his own use should be debited to: | ||
| A) | Motor cycle account | B) | Purchases account |
| C) | Proprietor’s personal account | D) | Drawings account |
| 9 | Dividend received Rs. 1000 from Tahir will be posted to credit side of: | ||
| A) | Tahir’s account | B) | Cash account |
| C) | Dividend account | D) | Capital account |
| 10 | Noting charges are paid in the event of: | ||
| A) | Acceptance of a bill | B) | Dishonour of a bill |
| C) | Endorsement of a bill | D) | Renewal of a bill |
| 11 | Pass book is prepared by the: | ||
| A) | Customer | B) | Bank |
| C) | Drawer | D) | Guarantor |
| 12 | What is used to record Cash, Bank and Discount on debit and credit? | ||
| A) | Double column cash book | B) | Treble column cash book |
| C) | Single column cash book | D) | Petty cash book |
| 13 | Assets which have physical existence, are called: | ||
| A) | Current assets | B) | Wasting assets |
| C) | Tangible fixed assets | D) | Intangible fixed assets |
| 14 | Purchases journal records only: | ||
| A) | Cash sales | B) | Cash purchases |
| C) | Cash and credit purchases | D) | Credit purchases |
| 15 | Cash account is a: | ||
| A) | Personal account | B) | Real account |
| C) | Nominal account | D) | Personal and real account |
| 16 | Capitalized expenditures are shown in: | ||
| A) | Income statement | B) | Trading account |
| C) | Profit and loss account | D) | Balance sheet |
| 17 | The body of work sheet contains: | ||
| A) | Two pairs of money column | B) | Three pairs of money column |
| C) | Four pairs of money column | D) | Five pairs of money column |
| 18 | Interest on drawings is: | ||
| A) | An asset | B) | An expense |
| C) | A revenue | D) | A liability |
| 19 | The excess of credit column over debit column in income statement is called: | ||
| A) | Net loss | B) | Net profit |
| C) | Gross profit | D) | Gross loss |
| 20 | Errors in casting of subsidiary books are called as: | ||
| A) | Error of principle | B) | Error of commission |
| C) | Error of omission | D) | Error of book keeper |
SECTION — B (Marks 30)
Q 2: Attempt any TEN parts. The answer to each part should not exceed 3 to 4 lines.
(i) What is theory of double entry book-keeping?
Answer
Double Entry Book-keeping
It is an Accounting method of recording transactions in which at-least two accounts are used in Debit and Credit aspects. In double entry book-keeping, debit side must be equals to credit side. This method is superior and accurate to single entry book-keeping.
(ii) What is an accounting cycle? Give the different phases of accounting cycle.
Answer
Accounting Cycle
The accounting cycle is a process of identifying, analyzing, and recording the accounting events of a company. Phases of accounting cycle are given below:
- Transactions
- Journal
- Ledger
- Trial Balance
- Financial Statements
(iii) Define Accounting Period Concept.
Answer
Accounting Period Concept
Accounting period is a span of time followed by set of financial statements which starts from transaction and accumulate into financial statements.
(iv) What is meant by accounting equation? State the two basic elements of accounting equation.
Answer
Accounting Equation
Accounting equation is the most fundamental concept of Accounting. According to accounting equation, Assets always equal to the sum of liabilities and owner’s equity:
Assets = Liabilities + Owner’s Equity
(v) Describe the convention of consistency.
Answer
Convention of Consistency
Convention of consistency is an accounting principle in which all transactions should follow same principles over a period of time while make financial statements.
(vi) Why bank reconciliation statement is prepared?
Answer
Bank Reconciliation Statement
Bank reconciliation statements are prepared for the reconciliation of the balances of transactions between cash book and pass book if there are differences present between them.
(vii) What is meant by term ledger?
Answer
Ledger
Ledger is a collections of accounts. All the transaction recorded in journal transfer or posted in the Ledger in which individual accounts are prepared for further balance transfer to trial balance.
(viii) Give any three examples of error of commission.
Answer
Examples of Errors of Commission
- Goods Sold to Ahsan Wrongly debited to Akbar’s A/c
- Salaries paid debited to Wages A/c
- Interest received credited to commission A/c
(ix) Describe quick liabilities.
Answer
Quick Liabilities
Quick or liquid liabilities are those liabilities payable short period of time or within one month such as outstanding expenses, bank overdraft and creditors etc.
(x) What is meant by tenor and maturity?
Answer
Tenor & Maturity
Tenor is length of time after which the bill becomes payable such as 2 months or 3 months etc. whereas maturity is a due date at which the bill is paid or received. Both terms are used in bills of exchange and in other financial transactions.
(xi) Write down the names of six subsidiary books.
Answer
Six Subsidiary Books or Journals
- Purchase Book or Purchase Journal
- Purchases Return Book or Purchases Return Journal
- Sales Journal or Sales Book
- Sales Return Journal or Sales Return Book
- Cash Journal or Cash Book
- Petty Cash Journal or Petty Cash Book
(xii) What is meant by allowance for doubtful debts?
Answer
Allowance for doubtful debts
It is provision or allowance which is maintained for doubt full debts in future are called provision, allowance or uncollectable for doubt full debts.
Section — C Part I Marks 50
Note: Attempt any one question.
Q 3: Enter the following transactions in a three column cash book of M/S Nawaz Traders for the month of June 2016…..
Q 3: Enter the following transactions in a three column cash book of M/S Nawaz Traders for the month of June 2016.
June 1 Cash in hand Rs. 35,000 bank balance Rs. 30,000.
June 2 Purchased furniture of Karim Rs. 20,000 and Paid in cash Rs. 5,000 and Rs. 15,000 by cheque.
June 4 Goods purchased from Hamid for Rs. 1600 issued cheque for payment
June 5 Received a cheque from Rashid Rs. 10,000 less 5% cash discount
June 6 Sold goods on account to Salman Rs. 2000
June 8 Received a cheque form Salman Rs. 1900 in full settlement of his account Rs. 2000
June 9 Dividend collected by the bank Rs. 1000
June 10 Salaman’s cheque deposited into bank Rs. 1900
June 12 Paid to Fraz by chequeRs. 5000
June 14 Withdrew from bank for business use Rs. 1000
June 15 Our cheque to Mr. Fraz was dishonoured
June 18 Received from Shoaib cash Rs. 5000 and a cheque Rs. 3000 and deposited the cheque into the bank
June 20 Bank debited bank charges Rs. 200
June 22 Received commission Rs. 500
June 25 Purchased goods from Shan Rs. 1500 and Paid cash Rs. 500
June 28 Cheque issued to Shan of Rs. 900 in full settlement of Rs. 1000
June 30 Salaries paid Rs. 2000 and Rent paid by chequeRs. 1500
Solution:
Treble/Triple/Three Column Cash Book
| Date | Particulars | V/No | L.F | Discount | Cash | Bank | Date | Particulars | V/No | L.F | Discount | Cash | Bank |
| 2016 | 2016 | ||||||||||||
| June 1 | Balance b/d | 35,000 | 30,000 | June 2 | Furniture A/c | 5000 | 15,000 | ||||||
| June 5 | Rashid’s A/c | 500 | 9500 | June 4 | Purchases A/c | 1600 | |||||||
| June 8 | Salman’s A/c | 100 | 1900 | June 10 | Bank A/c | C | 1900 | ||||||
| June 9 | Dividend A/c | 1000 | June 12 | Faraz’s A/c | 5000 | ||||||||
| June 10 | Cash A/c | C | 1900 | June 14 | Cash A/c | C | 1000 | ||||||
| June 14 | Bank A/c | C | 1000 | June 20 | Bank Charges A/c | 200 | |||||||
| June 15 | Faraz’s A/c | 5000 | June 25 | Purchases A/c | 500 | ||||||||
| June 18 | Shoaib’s A/c | 5000 | 3000 | June 28 | Shan’s A/c | 100 | 900 | ||||||
| June 22 | Commission’s A/c | 500 | June 30 | Salaries A/c | 2000 | ||||||||
| June 30 | Rent A/c | 1500 | |||||||||||
| Jun 30 | Balance c/d | 50500 | 8700 | ||||||||||
| 600 | 57900 | 35900 | 100 | 57900 | 35900 | ||||||||
Q 4: The following balances were extracted from the books of a trader on 31st December 2016…….Prepare the trading Profit and Loss account for the year ended 31stDecember 2016 and balance sheet as on that after taking the following information into consideration….
Q 4: The following balances were extracted from the books of a trader on 31st December 2016:
| Particulars | (Rs.) | Particulars | (Rs.) |
| Purchases | 449,000 | Sales | 748,000 |
| Opening stock | 92,000 | Bills payable | 1700 |
| Coal and gas | 2000 | Provision for bad debts | 2400 |
| Plant and machinery | 100,000 | Capital | 148,400 |
| Furniture | 48,000 | Interest | 500 |
| Selling expenses | 20,000 | Sundry creditors | 30,000 |
| Insurance | 3000 | ||
| Salaries | 30,000 | ||
| Return inwards | 500 | ||
| Factory rent | 1800 | ||
| Office rent | 7000 | ||
| Sundry Debtors | 117,000 | ||
| Bad debts | 3000 | ||
| Drawings | 3000 | ||
| Cash in hand | 54000 | ||
| Discount | 700 | ||
| Total | 931,000 | Total | 931,000 |
Prepare the trading Profit and Loss account for the year ended 31stDecember 2016 and balance sheet as on that after taking the following information into consideration:
- Stock on 31st December 2016 Rs. 70,000.
- Create Provision on debtors at 5%
- Depreciate plant and machinery at 5% and furniture at 10% p.a.
Solution:
Trader
Trading Profit & Loss Account
As on 31st December 2016
| Details | Rs. | Details | Rs. |
| Opening stock | 92,000 | Sales 748,000 | |
| Purchases | 4,49,000 | Less Returns (500) | 747,500 |
| Coal and gas | 2000 | Closing Stock | 70,000 |
| Factory rent | 1800 | ||
| Gross Profit c/d | 272700 | ||
| 817500 | 817500 | ||
| Depreciation on Plant & Machinery: | Gross Profit b/d | 272700 | |
| (100,000 x 0.05) | 5000 | Interest | 500 |
| Depreciation on Furniture: | |||
| (48,000 x 0.10) | 4800 | ||
| Selling expenses | 20,000 | ||
| Insurance | 3000 | ||
| Salaries | 30,000 | ||
| Bad Debts 3000 | |||
| Add Write Off 0 | |||
| Add New Provision: | |||
| (117,000) x 0.05 5850 | |||
| Less Old Provision (2400) | 6450 | ||
| Office rent | 7000 | ||
| Discount | 700 | ||
| Net Profit transferred to Capital | 196250 | ||
| 273200 | 273200 |
Trader
Balance Sheet
Year ended 31st December 2016
| Assets | Rs. | Liabilities | Rs. |
| Plant & Mach. Less Depreciation | Capital 1,48,400 | ||
| (100,000 – 5000) | 95,000 | Less Drawings (3000) | |
| Furniture Less Depreciation | Add Net Profit 196250 | 341650 | |
| (48000 – 4800) | 43,200 | Sundry creditors | 30,000 |
| Cash in hand | 54000 | Bills payable | 1700 |
| Sundry Debtors 117000 | |||
| Less New Provision (5850) | 111150 | ||
| Closing Stock | 70000 | ||
| 373350 | 373350 |
Part II Marks (10 x 3 = 30)
Note: Attempt any THREE questions.
Q 5: On 1st July 2016 Fraz commence business with cash Rs. 80,000 and machinery Rs. 20,000. July 5 Bought office furniture for cash Rs. 5000……
Q 5: On 1st July 2016 Fraz commence business with cash Rs. 80,000 and machinery Rs. 20,000.
July 5 Bought office furniture for cash Rs. 5000
July 10 Purchased goods from Saleem on cash Rs. 2000 less 10% trade discount
July 15 Sold goods to Rashid and sons Rs. 1000
July 20 Gave away a charity cash Rs. 50 and goods worth Rs. 100
July 31 Drew cash for private expenses Rs. 500
Required: Record above these transactions in the journal post them into ledger and extract a trial balance.
Solution:
(a) Journal
| Date | Particulars | L.F | Dr. | Cr. |
| 1st July, 2016 | Cash A/C | 80,000 | ||
| Machinery A/C | 20,000 | |||
| Capital A/C | 100,000 | |||
| (Cash, Machinery invested as capital) | ||||
| 5th July, 2016 | Office Furniture A/C | 5,000 | ||
| Cash A/C | 5,000 | |||
| (Bought Office furniture for cash) | ||||
| 10th July, 2016 | Purchases A/C | 1800 | ||
| Cash A/C | 1800 | |||
| (Bought goods on cash at trade discount 10%) | ||||
| 15th July, 2016 | Rashid & Sons A/C | 1000 | ||
| Sales A/C | 1000 | |||
| (Goods sold on credit) | ||||
| 20th July, 2016 | Charity A/C | 150 | ||
| Cash A/C | 50 | |||
| Purchases A/C | 100 | |||
| (Charity given in cash & goods) | ||||
| 31st July, 2016 | Drawing A/C | 500 | ||
| Cash A/C | 500 | |||
| (Cash withdrawn for personal use) |
b. Ledgers
- Cash A/C
- Machinery A/C
- Capital A/C
- Office Furniture A/C
- Purchases A/C
- Rashid & Sons A/C
- Sales A/C
- Charity A/C
- Drawing A/C
Cash A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 1st July, 2016 | Capital A/C | 80,000 | 5th July, 2016 | Office Furniture A/C | 5000 |
| 10th July, 2016 | Purchases A/C | 1800 | |||
| 20th July, 2016 | Charity A/C | 50 | |||
| 31st July, 2016 | Drawing A/C | 500 | |||
| 31st July, 2016 | Balance c/d | 72650 | |||
| 80,000 | 80,000 |
Machinery A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 1st Jul, 2016 | Capital A/C | 20,000 | 31st Jul 2016 | Balance c/d | 20,000 |
| 20,000 | 20,000 |
Capital A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 31st Jul, 2016 | Balance c/d | 100,000 | 1st Jul, 2016 | Cash A/C | 80,000 |
| Machinery A/C | 20,000 | ||||
| 100,000 | 100,000 |
Office Furniture A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 5th July, 2016 | Cash A/C | 5,000 | |||
| 31st Jul, 2016 | Balance c/d | 5,000 | |||
| 5,000 | 5,000 |
Purchases A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 10th July, 2016 | Cash A/C | 1800 | 20th July, 2016 | Charity A/C | 100 |
| 31st Jul, 2016 | Balance c/d | 1700 | |||
| 1800 | 1800 |
Rashid & Sons A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 15th July, 2016 | Sales A/C | 1000 | 31st July, 2016 | Balance c/d | 1000 |
| 1000 | 1000 |
Sales A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 31st July, 2016 | Balance c/d | 1000 | 15th July, 2016 | Rashid & Sons A/C | 1000 |
| 1000 | 1000 |
Charity A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 20th July, 2016 | Cash A/C | 50 | |||
| 20th July, 2016 | Purchases A/C | 100 | 31st Jul, 2016 | Balance c/d | 150 |
| 150 | 150 |
Drawing A/C
| Date | Particulars | Amount | Date | Particulars | Amount |
| 31st July, 2016 | Cash A/C | 500 | |||
| 31st July, 2016 | Balance c/d | 500 | |||
| 500 | 500 |
C. Trial Balance
| Accounts Detail | Dr. | Cr. |
| Cash A/C | 72650 | |
| Machinery A/C | 20,000 | |
| Capital A/C | 100,000 | |
| Office Furniture A/C | 5000 | |
| Purchases A/C | 1700 | |
| Rashid & Sons | 1000 | |
| Sales A/C | 1000 | |
| Charity A/C | 150 | |
| Drawing A/C | 500 | |
| Total | 101,000 | 101,000 |
Q 6: Shan sold goods to Asim of Rs. 5,000 on April 1st 2016. On the same date Shan drew a bill on Asim for the same amount at two months, who accept it and return. On 5th April the bill sent to the bank for collection. On the due date the bill was honoured and the bank deducted Rs. 50 as bank charges.
Q 6: Shan sold goods to Asim of Rs. 5,000 on April 1st 2016. On the same date Shan drew a bill on Asim for the same amount at two months, who accept it and return. On 5th April the bill sent to the bank for collection. On the due date the bill was honoured and the bank deducted Rs. 50 as bank charges.
Required: Give journal entries in the books of Shan, Asim and the bank.
Solution:
Shan’s Journal
| Date | Particulars | Dr. | Cr. |
| 2016 | |||
| April 1st | Asim’s A/c | 5000 | |
| Sales A/c | 5000 | ||
| (Goods sold to Asim on credit) | |||
| April 1st | B/R A/c | 5000 | |
| Asim’s A/c | 5000 | ||
| (Acceptance received from Asim) | |||
| April 5th | Bank for Collection A/c | 5000 | |
| B/R A/c | 5000 | ||
| (Bill sent to bank for collection) | |||
| June 4th | Bank A/c | 5000 | |
| Bank for Collection A/c | 5000 | ||
| (Bill received by the bank) | |||
| June 4th | Bank Charges A/c | 50 | |
| Bank A/c | 50 | ||
| (Bank charges paid to bank) | |||
Asim’s Journal
| Date | Particulars | Dr. | Cr. |
| 2016 | |||
| April 1st | Purchases A/c | 5000 | |
| Shan’s A/c | 5000 | ||
| (Goods purchased on Credit from Shan) | |||
| April 1st | Shan’s A/c | 5000 | |
| B/P A/c | 5000 | ||
| (Acceptance given to Shan) | |||
| June 4th | B/P A/c | 5000 | |
| Cash A/c | 5000 | ||
| (Bill paid at maturity) |
Bank’s Journal
| Date | Particulars | Dr. | Cr. |
| No entry was made for receiving bill from shan | |||
| 2016 | |||
| June 4th | Cash A/c | 5000 | |
| Shan’s A/c | 5000 | ||
| (Bill received on behalf of shan) | |||
| June 4th | Shan’s A/c | 50 | |
| Collection Charges A/c | 50 | ||
| (Collection charges taken from shan) | |||
Q 7: From the following particulars ascertain the bank balance as would appear in the bank statement of Mr. A Karim as at 31st December.
Q 7: From the following particulars ascertain the bank balance as would appear in the bank statement of Mr. A Karim as at 31st December.
- The overdraft as per cash book on 31st December was Rs. 6000.
- Interest on overdraft for six months ending 31st December Rs. 200.
- Bank Charges for the above period debited in the bank statement to Rs. 50.
- Cheques issued but not cashed prior to 31st December Rs. 1500
- Cheques paid into bank but not cleared and credited before 31st December were Rs. 2500.
- Interest on investment collected by bank and credited in the bank statement amounted Rs. 1800.
Solution:
Mr. A Karim
Bank Reconciliation Statement
As on 31st December XXXX
| Balance as per Cash Book (Cr.) | Cr.(6000) | |
| Less Interest debited by bank but not entered in cash book | (200) | |
| Less Interest debited by bank but not entered in cash book | (50) | |
| Add cheques issued but not cashed | 1500 | |
| Less Un-cleared cheques | (2500) | |
| Add interest credited by bank but not recorded in cash book. | 1800 | |
| Balance as Per Pass Book (Dr.) | Cr.5450 |
Q 8: State with reason whether the following items are capital or revenue….
Q 8: State with reason whether the following items are capital or revenue:
- Repair of Furniture purchased second hand.
- Preliminary expenses incurred on the flotation of a company.
- Replacement cost of a worn out part of plant.
- Compensation paid to workers in termination of their services.
- A machinery standing in the books at Rs. 3,00,000 were sold for Rs. 2,40,000.
Solution
- Furniture is a fixed asset and has long life. Its first repair cost is considered as capital expenditure because it is necessary for it to take in to working condition.
- Preliminary expenses are incurred before incorporation and these expenses are considered as deferred revenue expenditures because after incorporation, company generate revenue for long time.
- Replacement cost of a worn out part of plant is revenue expense because it is necessary to routine repair expense and it affects the revenue.
- Compensation paid to workers is capital expenditure because due to this company’s profits may increase in the long run.
- Machinery sold on loss is a capital loss because it is related or incurred in selling fixed asset.
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