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Solved by Iftikhar Ali, M.Sc Economics, MCOM Finance Lecturer Statistics, Finance and Accounting
Principles of Accounting I, Solved Paper 2019 Annual, ICOM I, FBISE, MCQS, Short Questions, Extensive Questions
Table of Contents
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 | Management accounting provides invaluable services to management in performing: | ||
| A) | All management functions | B) | Controlling functions |
| C) | Co-coordinating management functions | D) | Recording of financial data functions |
| 2 | Double entry means: | ||
| A) | Entry in two sets of books | B) | Entry at two dates |
| C) | Entry for two aspects of one transaction | D) | Entry in two sides of account |
| 3 | All those things which are purchased for re-sale purpose are called: | ||
| A) | Assets | B) | Goods |
| C) | Sales | D) | Trade |
| 4 | Modern accounting is based on: | ||
| A) | Cost concept | B) | Matching concept |
| C) | Going concern concept | D) | Dual aspect concept |
| 5 | If sub-standard goods are returned to the seller, it is called: | ||
| A) | Return inwards | B) | Purchases return |
| C) | Return to consumer | D) | Return to agent |
| 6 | Purchased goods on credit and on cash will affect: | ||
| A) | Cash of goods | B) | Cash of creditors |
| C) | Cash, credltors and owner’s equity | D) | Cash, goods and creditors |
| 7 | According to American approach, ‘credit’ should increase in: | ||
| A) | Revenue, Liabilities and Capital | B) | Expenses, Capital and Liabilities |
| C) | Assets, Capital and Liabilities | D) | Assets and Expenses |
| 8 | Which account should be debited to purchase furniture for the domestic use of the owner? | ||
| A) | Purchases account | B) | Drawings account |
| C) | Proprietor’s Personal account | D) | Furniture account |
| 9 | Payment before maturity is called: | ||
| A) | Dishonour of a bill | B) | Endorsement of a bill |
| C) | Retiring of a bill | D) | Discounting of a bill |
| 10 | A motor car lost in fire should be debited to: | ||
| A) | Motor car account | B) | Loss by fire account |
| C) | Purchases account | D) | Drawings account |
| 11 | The amount invested into the business by the owner is called: | ||
| A) | Cash account | B) | Real account |
| C) | Nominal account | D) | Capital account |
| 12 | The document sent to the customer when he returns the goods is called: | ||
| A) | Credit note | B) | Debit note |
| C) | Invoice | D) | Voucher |
| 13 | Wrong allocation of expenses between capital of revenue is an error of: | ||
| A) | Principle | B) | Omission |
| C) | Commission | D) | Compensating |
| 14 | Sales journal records only: | ||
| A) | Cash sales | B) | Cash and credit sales |
| C) | Credit sales | D) | Cash purchases |
| 15 | The cash book is a: | ||
| A) | Special journal | B) | Subsidiary journal |
| C) | General journal | D) | Subsidiary journal and ledger |
| 16 | An expenditure incurred to keep the activities of a concern going is a: | ||
| A) | Revenue expenditure | B) | Capital expenditure |
| C) | Prepaid expenditure | D) | Deferred revenue expenditure |
| 17 | Work sheet provides complete information for preparing: | ||
| A) | Financial statement | B) | Income statement |
| C) | Bank statement | D) | Bank reconciliation statement |
| 18 | Pass Book is prepared by: | ||
| A) | Debtor | B) | Banker |
| C) | Creditor | D) | Customer |
| 19 | Interest on capital is: | ||
| A) | An expense | B) | An income |
| C) | An asset | D) | A liability |
| 20 | If any income omitted to be recorded it will: | ||
| A) | Understate the profit | B) | Overstate the profit |
| C) | Not affect the profit | D) | Not affect the loss |
SECTION — B (Marks 30)
Q 2: Attempt any TEN parts. The answer to each part should not exceed 3 to 4 lines.
(i) Why Journal is called Original Entry Book?
Answer: Every monetary information originally recorded first in Journal. Journal is a book of first entry in which business transaction is recorded in a systematic manner under double entry book keeping in which two aspects are taken, one is debit and other one is credit.
(ii) Name the three main branches of accounting.
Answer:
- Financial Accounting
- Cost Accounting
- Managerial Accounting
(iii) Briefly explain the following:
a. Money measurement concept
b. Cost concept
Answer:
Money Measurement Concept
It is an accounting concept that each and every accounting information must be recorded and measured in terms of money.
Cost Concept
It is an accounting concept that each and every asset in the business must be recorded at its cost.
(iv) Explain the term ‘credit purchases’.
Answer: Credit purchase is simply to purchase something today and to pay in future is called credit purchase. To pay sundry creditors is considered as liability and must be noted in liability side of balance sheet.
(v) What do you mean by Monetary events?
Answer: All events those are related to money or simply event which puts impact on monetary value of the organization or individual is called monetary event.
(vi) Explain the rules of debit and credit for Assets and Owner’s equity.
Answer: When assets increase, they must be debited, when decreased, they must be credited. In contrast, owner’s equity or capital must be credited when they increase and debited when decrease.
(vii) Why ledger is called the king of all books of accounts?
Answer: Ledger is considered as the king of all books of accounts because all journal entries are posted from journal to ledger accounts. It contains classified records of all transactions. Its balances are key to prepare trial balances and all financial statements.
(viii) Define Promissory note.
Answer: It is written instrument that contains unconditional undertaking signed by the maker to pay a certain sum of amount to, or according to the order to a person or to bearer of an instrument.
(ix) Explain pay in slip.
Answer: Pay-in-slip is a printed slip that is used by the commercial banks and provided to depositors to fill detail of amount, depositor and account information at the time of deposit money in the banks.
(x) Define the term ‘capital’.
Answer: Capital is considered as fund to start a business that is invested or provided by the owner or stakeholders of the business.
(xi) Which type of mistakes can be considered as trial balance?
Answer:
- Errors of omission
- Errors of commission
- Errors of principle
- Compensating errors
(xii) What do you mean by revenue expenditure?
Answer: Revenue expenditure is a type of expenditure that is normal in nature and its impact is exhausted within one year.
Section — C Part I Marks 50
Note: Attempt any one question.
Q 3: From the under mentioned information write up the cash book of Asif Trading Co. for the month of December 2018……
Q 3: From the under mentioned information write up the cash book of Asif Trading Co. for the month of December 2018:
December 1 Cash in hand Rs. 2000 and balance overdraft with bank Rs. 1500
December 2 Cash sales Rs. 500, banked cash Rs. 200
December 3 Paid Habib and Co. by cheque Rs. 1500
December 5 Received Abdul Rahim’s cheque Rs. 850 and paid it into bank
December 6 Bought goods from Shahid on cash Rs. 500
December 8 Drew from bank for personal use Rs. 500
December 10 Cash sales Rs. 600 and credit sales Rs. 1000 to Aftab
December 12 Received cheque from Aftab Rs. 950, discount Rs. 50 and paid this cheque into bank
December 15 Sent a cheque to Jones for Rs. 190 and discount received Rs. 10.
December 18 Received cash from Rahim Rs. 250 in full settlement of Rs. 260
December22 Type writer purchased for cash Rs. 700
December 25 Paid for advertising in cash Rs. 200
December 26 Drew cash from bank for office use Rs. 1000
December 28 Bank commission paid Rs. 150
December 31 Office rent paid for the month Rs. 1000
Solution:
Asif Trading Company
Month ended December 2018
Trebel Column Cash Book
| Date | Particulars | V/No | L.F | Discount Allowed | Cash | Bank | Date | Particulars | V/No | L.F | Discount Allowed | Cash | Bank |
| 2018 | 2018 | ||||||||||||
| 1st Dec | Balance b/d | 2000 | 1st Dec | Balance b/d | 1500 | ||||||||
| 2nd Dec | Sales A/C | 300 | 200 | 3rd Dec | Habib and Co. | 1500 | |||||||
| 5th Dec | Abdul Raheem’s A/C | 850 | 6th Dec | Purchases A/C | 500 | ||||||||
| 10th Dec | Sales A/C | 600 | 8th Dec | Drawing A/C | 500 | ||||||||
| 12th Dec | Aftab’s A/C | 50 | 950 | 15th Dec | Jones A/C | 10 | 190 | ||||||
| 18th Dec | Rahim’s A/C | 10 | 250 | 22nd Dec | Type Writer A/C | 700 | |||||||
| 26th Dec | Bank A/C | C | 1000 | 25th Dec | Advertising A/C | 200 | |||||||
| 26th Dec | Cash A/C | C | 1000 | ||||||||||
| 28th Dec | Commission A/C | 150 | |||||||||||
| 31st Dec | Office Rent A/C | 1000 | |||||||||||
| 31st Dec | Balance c/d | 2840 | 31st Dec | Balance c/d | 1750 | ||||||||
| 60 | 4150 | 4840 | 10 | 4150 | 4840 | ||||||||
Q 4: From the following Trial balance of Salman Trading Co. prepare Trading and Profit and loss account and a balance sheet as on 31st December 2015…..
Q 4: From the following Trial balance of Salman Trading Co. prepare Trading and Profit and loss account and a balance sheet as on 31st December 2015:
| Details | Rs. | Details | Rs. |
| Opening stock | 12000 | Sundy creditors | 8000 |
| Wages | 6575 | Sales | 98,000 |
| Sundry debtors | 30,000 | Bank loan | 1775 |
| Salaries | 4,000 | Provision for bad debts | 225 |
| Carriage out wards | 25 | Capital | 50,000 |
| Purchases | 38,000 | ||
| Trade expenses | 750 | ||
| Cash in hand | 6,250 | ||
| Plant and Machinery | 35,000 | ||
| Free hold premises | 24,000 | ||
| Printing and stationary | 400 | ||
| Bad debts | 500 | ||
| Advertisement | 500 | ||
| Total | 1,58,000 | Total | 1,58,000 |
Adjustments:
- Closing stock valued Rs. 15000
- Wages payable Rs. 500
- Make a provision of 2% on debtors
- Allow interest on Capita! @5%
Solution:
Salman Trading Co.
Trading Profit & Loss Account
As on 31st December 2015
| Details | Rs. | Details | Rs. |
| Opening stock | 12000 | Sales | 98,000 |
| Wages 6575 | Closing Stock | 15000 | |
| Add Outstanding 500 | 7075 | ||
| Purchases | 38,000 | ||
| Gross Profit c/d | 55925 | ||
| 113000 | 113000 | ||
| Salaries | 4,000 | Gross Profit b/d | 55925 |
| Carriage out wards | 25 | ||
| Trade expenses | 750 | ||
| Printing and stationary | 400 | ||
| Advertisement | 500 | ||
| Bad Debts 500 | |||
| Add Write Off 0 | |||
| Add New Provision: | |||
| (30,000 x 0.02) 600 | |||
| Less Old Provision (225) | 875 | ||
| Interest on Capital (50,000 x 0.05) | 2500 | ||
| Net Profit transferred to Capital | 46875 | ||
| 55925 | 55925 | ||
Salman Trading Co.
Balance Sheet
Year ended 31st December 2015
| Assets | Rs. | Liabilities | Rs. |
| Plant and Machinery | 35,000 | Capital 50,000 | |
| Free hold premises | 24,000 | Less Drawings (0) | |
| Sundry Debtors 30,000 | Add Net Profit 46875 | 96875 | |
| Less Write Off (0) | Bank loan | 1775 | |
| Less New Provision (600) | 29400 | Sundy creditors | 8000 |
| Closing Stock | 15000 | Outstanding Wages | 500 |
| Cash in hand | 6,250 | Interest on Capital Outstanding | 2500 |
| 109650 | 109650 | ||
Part II Marks (10 x 3 = 30)
Note: Attempt any THREE questions.
Q 5: X sold goods to Y on 1st March 2017 of Rs. 10,000 and X drew a bill on Y for Rs. 10,000 who accepted it and returned it to X. When the bill was about to mature…..
Q 5: X sold goods to Y on 1st March 2017 of Rs. 10,000 and X drew a bill on Y for Rs. 10,000 who accepted it and returned it to X. When the bill was about to mature, Y expressed his inability to meet it and requested X to renew it, which X agreed to but added Rs. 50 to the new bill for interest.
Pass the journal entries in the books of both the parties, when the bill is renewed.
Solution:
X’s Journal
| Date | Detail | L.F | Dr. | Cr. |
| 2017 | ||||
| Mar.1 | Y’s A/c | 10,000 | ||
| Sales A/c | 10,000 | |||
| (Goods Sold to Y on credit) | ||||
| Mar.1 | B/R A/c | 10,000 | ||
| Y’s A/c | 10,000 | |||
| (Acceptance received from Y) | ||||
| Apr. 4 | Y’s A/c | 10,000 | ||
| B/R A/c | 10,000 | |||
| (Old bill cancelled) | ||||
| Apr.4 | Y’s A/c | 50 | ||
| Interest A/c | 50 | |||
| (Amount of interest due from Y) | ||||
| Apr.4 | B/R A/c | 10050 | ||
| Y’s A/c | 10050 | |||
| (Acceptance received for the new bill from Y) |
Y’s Journal
| Date | Detail | L.F | Dr. | Cr. |
| 2017 | ||||
| Mar.1 | Purchases A/c | 10,000 | ||
| X’s A/c | 10,000 | |||
| (Goods purchased from X on credit) | ||||
| Mar.1 | X’s A/c | 10,000 | ||
| B/P A/c | 10,000 | |||
| (Acceptance Given to X) | ||||
| Apr.4 | B/P A/c | 10,000 | ||
| X’s A/c | 10,000 | |||
| (Old bill cancelled) | ||||
| Apr.4 | Interest A/c | 50 | ||
| X’s A/c | 50 | |||
| (Amount of interest due) | ||||
| Apr.4 | X’s A/c | 10050 | ||
| B/P A/c | 10050 | |||
| (Acceptance given for the new bill) |
Note: Due date was not given in the question so one month is assumed including three days of grace.
Q 6: From the following particulars ascertain the bank balance as per the cash book of Mubashar and Co. As on 31st March 2016….
Q 6: From the following particulars ascertain the bank balance as per the cash book of Mubashar and Co. As on 31st March 2016.
a. Bank balance as per the pass book on 31st March 2016 was Rs. 80,000.
b. Cheques paid into bank on 26th march but not collected prior to 31st March 2016 amount to Rs. 20,000/-.
c. Interest on investment of Rs. 2,000 was credited in the pass book but not recorded in the cash book till 31st March 2016.
d. A customer paid into the bank Rs. 15,000 directly as appeared in the passbook but not in the cashbook.
e. Dividend money of Rs. 8,000 on the shares held by Mubashar and Co. was received directly by the bank on 29th March 2016 but the intimation was sent to them on 5th April 2016.
Solution:
Mubashar& Co.
Bank Reconciliation Statement
As on 31st March 2016
| Balance as per Pass Book (Cr.) | 80,000 | |
| Add Uncollected Cheques. | 20,000 | |
| Less: | ||
| Interest Credited by bank but not recorded in Cash Book | 2000 | |
| Customer directly paid into bank not recorded in Cash Book | 15,000 | |
| Dividend credited by bank but not intimated or recorded in Cash Book | 8000 | (25,000) |
| Balance as Per Cash Book (Dr.) | 75,000 | |
Q 7: State with reasons whether the following expenditures should be capital or revenue…..
Q 7: State with reasons whether the following expenditures should be capital or revenue.
- Cost of air conditioning of the office of the general manager.
- Wages paid to workers for installation of machinery.
- Legal expenses incurred in an income tax appeal.
- Amount realised from sale of old furniture.
- Repair and renewal of machinery.
Solution:
- Capital Expenditure: Air Conditioner has long life impact and its cost is treated as fixed cost so it is considered as capital expenditure.
- Capital Expenditure: Installation charges of machinery are treated as capital expenditure because it has direct relation to the cost of machinery.
- Revenue Expenditure: Legal expenses incurred in an income tax appeal is a routine expenditure so it is treated as revenue expenditure.
- Capital Receipt: Amount of sale of old furniture is considered as capital receipt because at the time of purchase of furniture its cost was considered as capital expenditure.
- Revenue Expenditure: Repair and renewal of machinery is considered as revenue receipt because it is normal expense to keep machinery in working condition.
Q 8: Rectify the following errors by passing necessary journal entries.
Q 8: Rectify the following errors by passing necessary journal entries.
- Legal expenses Rs. 2,000 paid to lawyer have been wrongly debited to his personal account
- Wages paid Rs. 1,500 wrongly debited to salary account.
- Trade expenses of Rs. 180 posted in the ledger as Rs. 810.
- A sale of Rs. 2,000 to X was wrongly debited to the account of Y.
- Sale book was overcast by Rs. 2,500.
Solution:
| Date | Detail | L.F | Dr. | Cr. |
| (a) | Legal Expenses A/c | 2,000 | ||
| Lawyer’s Personal A/c | 2,000 | |||
| (being the lawyer’s personal account is wrongly debited, now rectified) | ||||
| (b) | Wages A/c | 1500 | ||
| Salary A/c | 1500 | |||
| (being the salary account is wrongly debited, now rectified) | ||||
| (c) | Suspense A/c | 630 | ||
| Trade Expenses A/c | 630 | |||
| (Being trade expenses overstated, now rectified) | ||||
| (d) | X’s A/c | 2000 | ||
| Y’s A/c | 2000 | |||
| (being the Y’s account wrongly debited, now rectified) | ||||
| (e) | Sales A/c | 2500 | ||
| Suspense A/c | 2500 | |||
| (Being sales account overstated, now rectified) | ||||
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