PAPER – 1: ACCOUNTING

ANSWERS

1. (a) 1. True - The balance represents the cash physically in existence and
is therefore an asset.
2. False - Finished goods are normally valued at cost or net realizable
value whichever is lower.
3. False - Current year subscription shall be shown in the credit side
of the income and expenditure account and not in the balance
sheet, as it is not a capital item.
4. False - When shares are forfeited, the share capital account is
debited with called up capital of shares forfeited and the share
forfeiture account is credited with amount received on shares
forfeited.
5. True - Discount at the time of retirement of a bill is a gain for the
drawee and loss for the drawer.
6. True - Yes they are types of subsidiary books which is alternate to
the journals.
(b) The practice of accountancy has crossed its usual domain of preparation
of financial statements, interpretation of such statements and audit
thereof. Chartered Accountants are presently taking active role in
company laws and other corporate legislation matters, in taxation laws
matters (both direct and indirect) and in general management problems.
Some of the services rendered by chartered accountants to the society
are briefly mentioned hereunder:
(i) Maintenance of books of accounts;
(ii) Statutory audit;
(iii) Internal Audit;
(iv) Taxation;
(v) Management accounting and consultancy services;
(vi) Financial advice and financial investigations etc.
Other services like secretarial work, share registration work, company
formation receiverships, arbitrations etc.

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 (c) Corrected Trial Balance of Mr. X as on 31st March, 2024
Particulars Dr. Amount ` Cr. Amount `
X’s Capital 4,668
X’s Drawings 1,692
Leasehold premises 2,250
Sales 8,250
Due from customers 1,590
Purchases 3,777
Purchase return 792
Loan from Bank 768
Trade expenses 2,100
Trade Payable 1,584
Bills payable 300
Salaries and Wages 1,800
Cash at Bank 678
Inventory (1.4.2023) 792
Rent and rates 1,389
Sales return 294
16,362 16,362
Reasons:
1. Due from customers is an asset, so its balance will be a debit
balance.
2. Purchases return account always shows a credit balance because
assets goes out.
3. Trade Payable is a liability, so its balance will be a credit balance.
4. Bills payable is a liability, so its balance will be a credit balance.
5. Inventory (opening) represents assets, so it will have a debit
balance.
6. Sales return account always shows a debit balance because assets
come in.
2. (a)
Date Particulars Dr. Cr.
` `
(1) Scooter A/c Dr. 27,000
To Profit and Loss Adjustment 27,000
A/c
(Purchase of scooter wrongly
debited to
2
 conveyance account now rectified-
capitalization of `27,000, i.e.,
`30,000 less 10% depreciation)
(2) Suspense A/c Dr. 1,00,000
To Profit & Loss Adjustment 1,00,000
A/c
(Purchase Account overcast in the
previous year error now rectified).
(3) Profit & Loss Adjustment A/c Dr. 40,000
To Sam’s Account 40,000
(Credit purchase from Sam’s
`20,000, entered as sales last year,
now rectified)
(4) Bhaskar’s A/c Dr. 10,000
To Anand’s A/c 10,000
(Amount received from Mr. Anand
wrongly posted to the account of Mr.
Bhaskar; now rectified)
(5) Suspense A/c Dr. 10,000
To Paras’s A/c 10,000
(` 5,000 received from Paras
wrongly debited to his account; now
rectified)
(6) Trade receivables (Ramesh) / Dr. 5,000
Ramesh A/c
To Suspense A/c 5,000
(`5,000 due by Mr. Ramesh not
taken into trial balance now rectified)
(7) Ram’s A/c Dr. 20,000
To Profit & Loss Adjustment 20,000
A/c
(Sales to Ram omitted last year; now
adjusted)
(8) Suspense A/c Dr. 1,980
To Profit & Loss Adjustment 1,980
A/c
(Excess posting to purchase account
last year, `25,930, instead of
`23,950, now adjusted)
(9) Profit & Loss Adjustment A/c Dr. 1,08,980
To Manas’s Capital A/c 1,08,980

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 (Balance of Profit & Loss Adjustment
A/c transferred to Capital Account)
(10) Manas’s Capital A/c Dr. 1,06,980
To Suspense A/c 1,06,980
(Balance of Suspense Account
transferred to Capital Account)
(b) Profit and Loss Adjustment A/c
` `
To Advertisement 80,000 By Net profit 8,00,000
(samples)
To Sales 2,00,000 By Electric fittings 30,000
(goods approved in By Samples 80,000
April to be taken as
April sales)
To Adjusted net profit 16,80,000 By Stock (Purchases of 5,00,000
March not included in
stock)
By Sales (goods sold in 4,00,000
March wrongly taken
as April sales)
By Stock (goods sent on 1,50,000
approval basis not
included in stock)
19,60,000 19,60,000
Calculation of value of inventory on 31st March, 2024
`
Stock on 31st March, 2024 (given) 7,50,000
Add: Purchases of March, 2024 not included in the stock 5,00,000
Goods lying with customers on approval basis 1,50,000
14,00,000
3. (a) Trading and Profit and Loss Account of Mr. Saurav
for the year ended 31st March, 2024
` ` ` `
To Opening 1,17,000 By Sales 9,74,000
stock
To Purchases 8,04,250 Less: Returns 21,500 9,52,500
Add: Omitted 1,000 By Closing stock 1,96,500
invoice 8,05,250
Less: Returns 14,500

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 7,90,750
Less: Drawings 1,500 7,89,250
To Carriage
Inwards 49,000
To Gross profit
c/d 1,93,750
11,49,000 11,49,000
To Rent and By Gross profit
taxes 11,750 b/d 1,93,750
To Salaries and By Discount
wages 23,250 received 11,100
To Bank interest 2,750
Add: Due 4,250 7,000
To Printing and
stationary 36,000
Less: Prepaid
(1/4) 9,000 27,000
To Discount
allowed 4,500
To General
expenses 28,625
To Insurance 3,250
To Postage &
telegram
expenses 5,825
To Travelling
expenses 2,175
To Provision for
bad debts [W.N.] 2,875
To Provision for
discount on
debtors [W.N.] 1,093
To Depreciation
on furniture &
fittings 1,250
To Net profit 86,257
2,04,850 2,04,850

Working Note:
Provision for bad & doubtful debts:
@ 5% on ` 57,500 (60,000-2,500) 2,875
Provision for discount:
2% on ` 54,625 (57,500 -2,875) 1,093

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(b) (i) Journal Entry in the books of the M/s Vivek Bros
Dr. Cr.
Date Particulars ` `
April, 1 Amit’s Capital A/c Dr. 3,000
2024 Puneet’s Capital A/c Dr. 3,000
To Sumit’s Capital A/c 6,000
(Being the required adjustment
for goodwill through partner’s
capital accounts)
(ii) Revaluation Account
Dr. Cr.
Particulars ` Particulars `
To Furniture A/c 3,000 By Machinery A/c 5,100
(` 16,800 – 13,800) (` 35,100 - 30,000)
To Inventory A/c 1,200
(` 5,700 – 4,500)
To Partners’ Capital A/c 900
(Amit - ` 300, Puneet -
` 300, Sumit - ` 300)
5,100 5,100
Partners’ Capital Accounts
Particulars Amit Puneet Sumit Particulars Amit Puneet Sumit
To Sumit 3,000 3,000 – By Balance b/d 24,600 24,600 27,000
(Goodwill)
To Bank A/c – – 6,000 By General 3,000 3,000 3,000
Reserve A/c
To – – 30,300 By Revaluation 300 300 300
Executors A/c (Profit)
A/c
To Balance 24,900 24,900 – By Amit – – 3,000
C/d (Goodwill)
By Puneet – – 3,000
(Goodwill)
27,900 27,900 36,300 27,900 27,900 36,300

Working Note:
Statement showing the Required Adjustment for Goodwill
Particulars Amit Puneet Sumit
Right of goodwill before death 1/3 1/3 1/3
Right of goodwill after death 1/2 1/2 –
Gain / (Sacrifice) (+) 1/6 (+) 1/6 (-) 1/3

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4. (a) (i) Revaluation Account
` `
To Furniture 1,740 By Building 6,400
To Stock 2,140 By Sundry 2,800
creditors
To Provision of doubtful By Investment 900
debts (` 3,500 – ` 400) 3,100
To Outstanding wages 3,120 ____
10,100 10,100
(ii) Partners' Capital Accounts
A B C A B C
` ` ` ` ` `
To A’s 9,000 By Balance b/d 88,000 72,000 –
Capital

To B’s 6,000 By Cash A/c – – 50,000

Capital
To Balance 97,000 78,000 35,000 By C’s Capital
c/d A/c
(Working 9,000 6,000
Note)
97,000 78,000 50,000 97,000 78,000 50,000
(iii) Balance Sheet of New Partnership Firm
(after admission of C) as on 31.3.2024
Liabilities ` Assets `
Capital Building (52,000 + 6,400) 58,400
Accounts:
A 97,000 Furniture (11,600 – 1,740) 9,860
B 78,000 Stock-in-trade (42,800 – 2,140) 40,660
C 35,000 2,10,000 Debtors 70,000
Bills Payable 8,200 Less: Provision for 66,500
bad Debts (3,500)
Bank Overdraft 18,000 Investment (5,000 + 900) 5,900
Sundry creditors 23,000 Cash (31,000 + 50,000) 81,000
(25,800-2,800)
Outstanding
wages 3,120
2,62,320 2,62,320
Working Note:
1. Calculation of goodwill
C's contribution of ` 50,000 consists only 1/6th of capital.
Therefore, total capital of firm should be ` 50,000 × 6 = ` 3,00,000.
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 But combined capital of A, B and C amounts ` 88,000 + 72,000 +
50,000 = ` 2,10,000.
Thus Hidden goodwill is ` 90,000 (` 3,00,000 – ` 2,10,000).
C's share 1/6th = 15,000
Goodwill will be shared by A & B in their sacrificing ratio.
2. Calculation of sacrificing ratio
Partners New share Old share Sacrifice Gain
A 3 3 -3 -
6 5 30
B 2 2 -2 -
6 5 30
C 1 - - 1
6 6

Therefore,
3
A will get = ` 90,000 × = ` 9,000;
30
2
B will get = ` 90,000 × = ` 6,000; and
30
1
C will be debited on account of goodwill = ` 90,000 × = ` 15,000
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(b) Subscription for the year ended 31.3.2024
`
Subscription received during the year 22,50,000
Less: Subscription receivable on 1.4.2023 67,500
Less: Subscription received in advance on
(99,000)
31.3.2024 31,500
21,51,000
Add: Subscription receivable on 31.3.2023 99,000
Add: Subscription received in advance on
1,53,000
1.4.2024 54,000
Amount of Subscription to appear in Income &
23,04,000
Expenditure Account
Sports material consumed during the year end 31.3.2024
`
Payment for Sports material 13,50,000
Less: Amounts due for sports material on 1.4.2023 (4,05,000)
9,45,000
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 Add: Amounts due for sports material on 31.3.2024 5,85,000
Purchase of sports material 15,30,000
Sports material consumed:
Stock of sports material on 1.4.2023 4,50,000
Add: Purchase of sports material during the year 15,30,000
19,80,000
Less: Stock of sports material on 31.3.2024 (6,75,000)
Amount of Sports Material appearing in Income &
13,05,000
Expenditure Account
Balance Sheet of M/s Football Club For the year ended 31st March,
2024 (An extract)
Liabilities ` Assets `
Unearned Subscription 31,500 Subscription receivable 99,000
Amount due for sports Stock of sports material
5,85,000 6,75,000
material
5. (a) Bank Reconciliation Statement as on 31st March, 2024
Particulars Details Amount
(`) (`)
Balance as per Pass Book (Cr.) 1,50,000
Add: Cheque deposited but not yet cleared 22,000
Add: Cheque recorded in Cash Book but not yet 5,000
deposited
Add: Bank Charges debited by bank 250 27,250
Less: Cheque issued but not yet presented 48,000
Less: Amount deposited but not recorded in 15,700
Cash Book
Less: Interest allowed by bank 1,500 65,200
Balance as per Cash Book 1,12,050
(b) Calculation of Capital of Zavier
` 1-4-2021 ` 1-4-2023
` `
Assets
Cash in hand 25,500 16,000
Inventory 56,000 91,500
Sundry debtors 41,500 52,500
Land & Building 1,90,000 1,90,000

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 Wife’s Jewellery 75,000 1,25,000
Motor Car — 1,25,000
Loan to Zavier’s Brother — 20,000
3,88,000 6,20,000
Liabilities:
Owing to Zavier’s 40,000 —
Brother
Sundry creditors 35,000 75,000 55,000 55,000
Capital 3,13,000 5,65,000
Income during the
two years:
Capital as on 1-4-2023 5,65,000
Add: Drawings – Domestic Expenses for the two years 96,000
(` 4,000 × 24 months)
6,61,000
Less: Capital as on 1-4-2021 (3,13,000)
Income earned in 2021-2022 and 2022-2023 3,48,000
Income declared (` 1,05,000 + ` 1,33,000) 2,38,000
Suppressed Income 1,10,000
The Income-tax officer’s contention that Zavier has not declared his true
income is correct. Zavier’s true income is in excess of the disclosed
income by ` 1,10,000 based on the information available.
(c) Journal Entries in the Books of Safari Ltd.
Dr. ` Cr. `
Bank A/c Dr. 1,12,500
To Equity Shareholders A/c 1,12,500
(Application money received on 7,500
shares @ ` 15 per share to be issued as
rights shares in the ratio of 1:4)
Equity Shareholders A/c Dr. 1,12,500
To Equity Share Capital A/c 75,000
To Securities Premium A/c 37,500
(Share application money on 7,500
shares @ ` 10 per share transferred to
Share Capital Account, and ` 5 per share
to Securities Premium Account vide
Board’s Resolution dated…)
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 Securities Premium A/c Dr. 37,500
Profit & Loss A/c Dr. 37,500
To Bonus to Shareholders A/c 75,000
(Amount transferred for issue of bonus
shares to existing shareholders in the
ratio of 1:5 vide General Body’s
resolution dated...)
Bonus to Shareholders A/c Dr. 75,000
To Equity Share Capital A/c 75,000
(Issue of bonus shares in the ratio of 1
for 5 vide Board’s resolution dated....)
12% Debentures A/c Dr. 1,80,000
Premium Payable on Redemption A/c Dr. 5,400
To Debenture holders A/c 1,85,400
(Amount payable to debentures holders)
Profit and loss A/c Dr. 5,400
To Premium Payable on Redemption 5,400
A/c
(Premium payable on redemption of
debentures charged to Profit & Loss A/c)
Debenture Redemption Reserve A/c Dr. 18,000
To General Reserve 18,000
(For DRR transferred to general reserve)
Bank A/c Dr. 27,000
To Debenture Redemption Reserve 27,000
Investment
(for DRR Investment realised)
Debenture holders A/c Dr. 1,85,400
To Bank A/c 1,85,400
(Amount paid to debenture holders on
redemption)
6. (a)
Dr. Cr.
` `
1 Bank A/c Dr. 27,00,000
To Share Application & Allotment 27,00,000
A/c

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 (Being Application money on 3,00,000
shares at ` 9 per share received.)
2 Share Application & Allotment A/c Dr. 27,00,000
To Share Capital A/c (75,000 x ` 4) 3,00,000
To Securities premium A/c 3,75,000
(75,000 x ` 5)
To Bank A/c (2,00,000 x ` 9) 18,00,000
To Share First & Final Call A/c 2,25,000
(Being application money transferred)
3 Share First & Final Call A/c (75,000 x6) Dr. 4,50,000
To Share Capital Account 4,50,000
(Amount First & Final Call A/c due from
members as per Directors, resolution
no...... dated.....)
4 Bank Account A/c Dr. 2,21,625
Calls in arrear A/c Dr. 3,375
To Share First & Final Call Account 2,25,000
(Being Receipt of the amounts due on
first call.)
5 Equity share capital A/c Dr. 11,250
To Share forfeiture A/c 7,875
To Calls in arrear A/c 3,375
(Being 1,125 shares forfeited for non
payment of final call.)
6 Bank Account A/c (1,125 x ` 6) Dr. 6,750
Share forfeiture A/c (1,125 x ` 4) 4,500
To Share Capital A/c 11,250
(1,125 x ` 10)
(Being forfeited shares reissued at ` 4
discount)
7 Share forfeiture A/c 3,375
To Capital reserve A/c 3,375
(Being share forfeiture transferred to
capital reserve)

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 Working notes:
1.
Shares Shares Money Money Money Excess Share Amount Money
Applied Allotted Received Transferred Transferred Application First and received Refunded
on to Share to Security Money Final Call from
Application Capital@ Premium @ ` 6/- Share
@ ` 9/- ` 4/- @` 5/- First and
Final Call
including
excess
appl.
Money
received
2,00000 - 18,00,000 - - - - - 18,00,000
1,00,000 75,000 9,00,000 3,00,000 3,75,000 2,25,000 4,50,000 4,46,625 -
3,00,000 75,000 27,00,000 3,00,000 3,75,000 2,25,000 4,50,000 4,46,625* 18,00,000

* `2,25,000+ ` 2,25,000 - ` 3,375.

2. Number of shares allotted to Mr. Raj = 1,500 x 75,000 / 1,00,000
= 1,125 shares
3. Calculation of calls in arrear
Application money received from Raj (1,500 x9) 13,500
Less: actual application money 1,125 x9 10,125
Excess Application & Allotment Money 3,375
Adjusted with first and final call
Final call due from Raj 6,750
Less: Adjusted with final call (3,375)
Calls in arrear 3,375
(c) The difference between the balance shown by the passbook and the
cashbook may arise on account of the following:
(i) Cheques issued but not yet presented for payment.
(ii) Cheques deposited into the bank but not yet cleared.
(iii) Interest allowed by the bank.
(iv) Interest and expenses charged by the bank.
(v) Interest and dividends collected by the bank.
(vi) Direct payments by the bank.
(vii) Direct deposits into the bank by a customer.
(viii) Dishonour of a bill discounted with the bank.
(ix) Bills collected by the bank on behalf of the customer.
(x) An error committed by the bank etc.

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 OR
(c) Normally, the following subsidiary books are used in a business:
(i) Cash book to record receipts and payments of cash, including
receipts into and payments out of the bank.
(ii) Purchases book to record credit purchases of goods dealt in or of
the materials and stores required in the factory.
(iii) Purchase Returns Books to record the returns of goods and
materials previously purchased.
(iv) Sales Book to record the sales of the goods dealt in by the firm.
(v) Sale Returns Book to record the returns made by the customers.
(vi) Bills receivable books to record the receipts of promissory notes or
hundies from various parties.
(vii) Bills Payable Book to record the issue of the promissory notes or
hundies to other parties.
(viii) Journal (proper) to record the transactions which cannot be
recorded in any of the seven books mentioned above.

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