Suggested CAP I Dec 2022

SUGGESTED ANSWERS TO
THE QUESTIONS SET AT

CHARTERED ACCOUNTANCY PROFESSIONAL (CAP)-I LEVEL
December 2022 EXAMINATIONS
The Institute of Chartered Accountants of Nepal (ICAN)

ICAN Marg, Satdobato, Lalitpur
Suggested Answers December 2022 Examination (CAP I)
© The Institute of Chartered Accountants of Nepal

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Year and month of Publication: 2023 March
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2
Table of Contents
Paper 1: Fundamentals of Accounting ................................................................................. 4

Paper 2: Part A: Mercantile Laws ...................................................................................... 16
Paper 2: Part B: Fundamentals of Economics .................................................................... 20
Paper 3: Part A: Fundamentals of Management ................................................................. 28
Paper 3: Part B: Commercial Mathematics and Statistics .................................................. 34
Examiner’s Commentary on Students' Performance in December 2022 Examinations .... 39
3
Paper 1: Fundamentals of Accounting

Marks
Attempt all questions. Working notes should form part of the answer.
1. The following are the balances at the end of the Ashadh 32, 2079 (Shrawan 01,
2078 to Ashadh 32, 2079) abstracted from the books of Mr. Bishwa:
Particulars Amount (Rs.)
Bishwa's capital 30,000
Bishwa's drawings 5,000
Furniture and fittings 2,600
Bank overdraft 4,200
Creditors 13,300
Business premises 20,000
Stock on Shrawan 01, 2078 22,000
Debtors 18,600
Rent from tenants 1,000
Purchases 110,000
Sales 150,000
Sales returns 2,000
Discounts – debit 1,600
Discounts – credit 2,000
Taxes and insurance 2,000
General expenses 4,000
Salaries 9,000
Commission – debit 2,200
Carriage on purchases 1,800
Provision for bad and doubtful debts 600
Bad debts written off 800
The following adjustments should be made:
a) Stock on hand on Ashadh 32, 2079, was estimated at Rs. 20,000.
b) Rent, Rs. 300, is still due from the tenant and salaries, Rs. 750, are yet
unpaid.
c) Write off bad debts Rs. 600, and depreciate business premises by Rs. 300
and furniture and fittings by Rs. 266.
d) Make a provision of 5% on debtors for bad and doubtful debts and a
provision of 2% for discounts and carry forward Rs. 700 for unexpired
insurance.
e) The manager is entitled to a commission of 10% on profits remaining after
charging the commission.
f) Cheque of Rs. 5,000 paid to Kailash, one of the creditors, was not recorded
in books.
Difference, if any, in trial balance is to be treated as expense or income accordingly.
Prepare: Trading and Profit and Loss Account for the year Shrawan 01, 2078 to
Ashadh 32, 2079, and Balance Sheet as at Ashadh 32, 2079. 15
4
Answer
1)
Trading and Profit and Loss Account of
Bishwa for the year ended Ashad 32, 2079
Particulars Amount Particulars Amount

By Sales 1,50,000
To Opening Stock 22,000
Less: Sales Return (2,000) 1,48,000
To Purchase 1,10,000
To Carriage 1,800 By Closing Stock 20,000
To Gross Profit 34,200
Total 1,68,000 Total 1,68,000
To Salaries
Paid Rs. 9,000 By Gross Profit b/d 34,200
Add: Due Rs. 750 9,750
By Rent
To General Expenses 4,000 Received Rs. 1,000
Add: Due Rs. 300 1,300
To Commission 2,200 By Discount Received 2,000
To Discounts 1,600 By Other Income (Suspense) 500
To Depreciation
Business Premises Rs. 300
Furniture & Fittings Rs. 266 566
To Provision for bad &
Doubtful debts
Required [WN2] 900
Add: Bad Debts Rs. 1,400
Less: Existing Rs. (600) 1,700
To Provision for Discount
342
[WN2]
To Taxes & Insurance
Paid Rs. 2000
Less: Prepaid Rs: (700) 1,300
To Commission to Manager
1,504
[WN3]
To Net Profit 15,038
Total 38,000 Total 38,000
5
Balance Sheet of
Bishwa as at Ashad 32, 2079
Liabilities Amount Rs. Assets Amount Rs.
Fixed Assets
Capital Business Premises
Opening Balance Rs. 30,000 Opening Balance Rs. 20,000 19,700
Add: Net Profit Rs. 15,038 Less: Depreciation Rs. (300)
40,038
Less: Drawings Rs. (5,000)
Furniture & Fixture
Opening Balance Rs. 2600 2,334
Less: Depreciation Rs. (266)
Bank Overdraft 9,200 Current Assets

[4,200+5,000]
Creditors 8,300 Debtors
[13,300-5,000] Sundry Debtors WN2 Rs.
18,000
Less: Provision for Bad &
Doubtful Debts Rs. (900)
17,100
Less: Provision for discount
Rs. (342) 16,758
Salary Payable 750 Stock 20,000
Amount due from tenant 300
Commission Payable WN3 1,504
Prepaid Insurance 700
Total Liabilities 59,792 Total Assets 59,792
Working Note 1:
As the question does not give regular trial balance, it is better to first prepare a regular trial
balance to locate any difference that there may be.
Trial Balance of
Bishwa as at Ashad 32, 2079
Debit Amount Credit Amount
Particulars
Rs. Rs.
Bishwa's Capital - 30,000
Bishwa's Drawings 5,000 -
Furniture and Fittings 2,600 -
Bank Overdraft - 4,200
Creditors - 13,300
Business Premises 20,000 -
Stock on Shrawan 01, 2078 22,000 -
Debtors 18,600 -
Rent from Tenants - 1,000
Purchases 1,10,000 -
Sales - 1,50,000
Sales Returns 2,000 -
Discounts- Debit 1,600 -
Discounts- Credit - 2,000
Taxes and Insurance 2,000 -
6
General Expenses 4,000 -

Salaries 9,000 -
Commission- Debit 2,200 -
Carriage on Purchases 1,800 -
Provision for Bad and Doubtful Debts - 600
Bad Debts written off 800 -
Other Income - Suspense Account
- 500
(Difference in trial balance)
Total 2,01,600 2,01,600
The total of the credit side is Rs. 2,01,100, whereas it is Rs. 2,01,600 for the debit side. Hence,
Rs. 500 has been credited to the Suspense Account and booked as other income.
Working Note 2: Debtors, Bad Debts and Provision for Debtors

Particulars Amount
(i) Existing Debtors 18,600
(ii)Less: Additional Bad debts written off (600)
(iii) Debtors after Bad Debts written off 18,000
(iv) Less: Required Provision for Bad Debts (5% of (iii)) (900)
(v) Debtors after Provision for Bad Debts 17,100
(vi) Less: Required Provision for Discount on Debtors (2%of (v)) (342)
Net Debtors for Balance sheet 16,758
Working Note 3: Commission to Manager

Particulars Amount
Profit after deduction all expenses expect the Commission to Manager
(Rs. 38,000 - Rs. 21,458) 16,542
Manager's commission (Rs. 16,542*10/110) 1,504
2.
a) Mr. E and Mr. M were partners in a firm sharing profits in the ratio of 3:1. They admitted
Mr. J as a new partner for 3/8th share in the profits. The new profit sharing ratio will be
3:2:3. Mr. J brought Rs. 200,000 for his capital and Rs. 50,000 for goodwill. On 32nd
Ashadh, 2079, the date of Mr. J’s Admission, the Balance Sheet of Mr. E and Mr. M was
as follows:
Capital & Liabilities Amount (Rs.) Assets Amount (Rs.)
Partners’ capital: Furniture 50,000
E’s capital 350,000 Machinery 210,000
M’s capital 150,000 Cash 90,000
Creditors 60,000 Debtors 80,000
Bills payable 20,000 Stock 150,000
Total 580,000 Total 580,000
It was agreed that:
i. Stock to be valued at Rs. 200,000.
ii. Machinery will be depreciated by 12% and furniture by Rs. 6,000.
iii. A provision of 5% for doubtful debts will be made on debtors.
7
iv. The capital accounts of all the partners were adjusted in the new profit
sharing ratio. For surplus or deficiency, the current accounts were to be
opened.
Prepare the Revaluation Account, Partners’ Capital Accounts and the Balance
Sheet of the new firm. 10
b) M/s Hima Electronics Pvt. Ltd. consigned 250 televisions costing Rs. 55,000
per television to M/s Rupandehi Traders at Butwal on 1st Magh, 2078. M/s
Hima Electronics Pvt. Ltd., made payments for transportations Rs. 108,000,
insurance cost Rs. 80,100, loading cost Rs. 39,300. Five televisions were fully
damaged in transit. As per the accounts sales provided by the M/s Rupandehi
Traders dated Ashadh end, 2079 showed that 205 Televisions were sold at the
rate of Rs. 69,500 each. M/s Rupandehi Traders incurred Rs. 41,000 for local
taxes. Rs. 51,000 for unloading charges, and Rs. 105,000 for other direct cost.
M/s Rupandehi Traders incurred Rs. 75,000 for rent expenses. M/s Rupandehi
Traders is entitled 6% commission on sales. Insurance company admitted only
Rs. 51,000. You are required to prepare consignment account and M/s
Rupandehi Trader’s Account in the books of M/s Hima Electronics Pvt. Ltd. 10
Answer
2 a)
In the Books of E & M

Partners' Revaluation Account
Dr. Cr.
Particulars Amount Rs. Particulars Amount Rs.
To Machinery A/C 25,200 By Stock A/C 50,000
To Furniture A/C 6,000
To Provision for Doubtful Debts A/C 4,000

To Profit on Revaluation Transferred to
E's Capital A/C 11,100
M's Capital A/C 3,700 14,800
Total 50,000 Total 50,000
In the books of M/S E, M & J

Balance Sheet as at 32.03.2079 after J's Admission
Capital & Liabilities Amount Rs. Assets Amount Rs.

Creditors Cash (90000+200000+50000) 340,000
60,000
Bills Payable 20,000 Stocks 200,000
E's Current A/C 211,100 Debtors 76,000
M's Current A/C 20,367 Furniture 44,000

Partners' Capital Machinery 184,800
8
E's Capital A/C 200,000
M's Capital A/C 133,333
J's Capital A/C 200,000
Total 844,800 Total 844,800
Working Notes:
1. Calculation of Sacrificing Ratio
E's Sacrifice 3/4-3/8=3/8

M's Sacrifice 1/4-2/8=Nil
Only E Sacrifices his share of profit
Premium of Goodwill is given to E only
2. Calculation of Partners' New Capitals
Capital of the New partner/Share of Profit

(a) Total Capital of the Firm = of New Partner
= 200000x8/3=1600000/3
(b) New Capital of Partners
E's Capital = =1600000/3X3/8=200,000

M's Capital = =1600000/3X2/8=133,333
In the Books of E, M & J
Partners' Capital Accounts
Dr. Cr.
Particulars E M J Particulars E M J
To, Partners'
Current A/C 211,100 20,367 - By, Balance b/d 350,000 150,000 -
To, Balance c/d 200,000 133,333 200,000 By, Revaluation A/C 11,100 3,700 -
By Cash A/C-Capital - - 200,000

By Cash A/C-Goodwill
in Cash by Mr. J 50,000 - -
Total 411,100 153,700 200,000 Total 411,100 153,700 200,000
9
2 b)
In the Books of M/S Hima Electronics Pvt. Ltd.

Consignment Account to M/S Rupandehi Traders
For the period from 01 Magh, 2078 to 32 Ashadh, 2079
Amount Amount Amount

Particulars Rs. Amount Rs. Particulars Rs. Rs.
To, Goods sent on By, M/S Rupandehi
Consignment A/C 13,750,000 Traders 14,247,500
By, Insurance Co. 51,000

By, General Profit & Loss
To, Bank/Cash A/C A/C 228,548
Transportation 108,000 (Abnormal Loss)
Transit Insurance 80,100
Loading Charges 39,300 227,400 By, Consignment Stock 2,268,547
To, M/S Rupandehi

Traders
Unloading Charges 51,000
Local Taxes 41,000
Rent Expenses 75,000
Other Direct Expenses 105,000
Commission on sales 854,850 1,126,850

To, General Profit and
Loss A/C 1,691,345
16,795,595 16,795,595
Working Notes:
1. Abnormal Loss:
Cost of 5 Television 275,000

(5 Unit @ Rs. 55,000)
Add: Proportionate
expenses incurred by the
M/S Hima Electronics Pvt.
Ltd.
(5 Units X 227,400/250) 4,548
10
279,548
Less: Insurance Claim 51,000
Total abnormal loss 228,548
2. Valuation of Stock
40 Unit @ Rs 55,000 2,200,000

Add: Proportionate
M/S Hima Electronics Pvt.
Ltd.
(40 Units X 227,400/250) 36,384
Add: Proportionate
M/S Rupandehi Traders 32,163
(40 Units X 197,000/245) 2,268,547
Proportionate Expenses incurred by M/S Rupandehi Traders for the purpose of valuation of
closing stock
Unloading 51,000
Local Taxes 41,000
Other Direct cost 105,000
Total 197,000
Rupandehi Traders A/C

To Consignment (sales) 14,247,500 By Consignment
- Unloading charges 51,000
- Local taxes 41,000
- Rent expenses 75,000
- Other direct expenses 105,000
By Consignment 854,850
By Balance c/d 13,120,650
14,247,500 14,247,500
11
3.
a) Prepare Receipts and Payments Account and Income and Expenditure Account
of Malpi Youth Club for the year ended 31st Chaitra, 2078 from the following: 10
Particulars Amount(Rs.)
Subscription collected (including Rs. 4,000 for 2077) 30,000
Donation received (not to be capitalized) 2,000
Subscription (outstanding at the end of the year) 6,000
Rent paid 1,800
Purchase of furniture (life 10 years) on 1.1.2078 1,000
Purchase of sports equipment 2,500
Purchase of magazines and newspapers 1,200
Sale of old furniture on 1.1.2078 (book value Rs. 300) 500
Cash and bank balance as on 1.1.2078 6,800
Investments purchased 4,000
Interest on investment received 1,000
Bank charges 20
Postage, telegrams and telephones 1,800
Printing & stationery (one bill of Rs. 300 for last year) 1,000
Printers bill not yet paid 500
Entrance fees (50% to be capitalized) 1,400
Legacies received ( to be capitalized) 2,000
Secretary's allowances (including Rs. 200 for last
year) 1,800
Outstanding allowances (Secretary) 300
b) What is Deferred Revenue Expenditure? How is it treated in financial

statement? 5
Answer
3 a)
Receipt and Payments Account
for the year ended 31st Chaitra 2078
Dr. Cr.
To cash and bank balance
b/d 6,800 By Rent 1,800
To subscription 30,000 By Furniture 1,000
To Donations 2,000 By Sports equipment 2,500
To Sale of old furniture 500 By Magazines and newspaper 1,200
To Interest on Investments 1,000 By Investments 4,000

To Entrance Fees By Bank Charges
12
1,400 20
By Postage, Telegram and
To Legacies 2,000 Telephone 1,800
By Printing and Stationary 1,000
By Secretary's allowances 1,800
By Cash and Bank balance c/d 28,580
43,700 43,700
13
Income and Expenditure Account

for the year ended 31st Chaitra 2078
Dr. Cr.
To Rent 1,800 By Subscription 30,000

Less: Outstanding at
To Magazine and the beginning of the
Newspaper 1,200 year (4,000)
26,000
Add: Outstanding at
To Bank Charges 20 the end of the year 6,000 32,000
To Postage, telegrams and
telephones 1,800 By Donations 2,000
By Profit on sale of
To Depreciation on Furniture (Rs. 500-
Furniture (Rs. 1000 x 1/10) 100 Rs. 300) 200
By Interest on
To Printing & Stationary 1,000 Investments 1,000
Less: Outstanding at the
beginning of the year (300) By Entrance Fees 700
700
Add: Outstanding at the end
of the year 500 1,200
-
To Secretary's Allowances 1,800

Less: Outstanding at the
beginning of the year (200)
1,600
Add: Outstanding at the end
of the year 300 1,900
To Surplus transferred to
Capital Fund 27,880
35,900 35,900
3 b) It is the expenditure which is for the time being, deferred from being charged against profits.
It refers to expenditure for which payment has already been made but the amount paid is
carried forward on the presumption that it will be of benefit over a subsequent period(s).
Deferred revenue expenditure do not create any asset but its benefit is expected to defer to
more than 1 accounting period.
14
Deferred revenue expenditure, despite being in the nature of revenue expenditure, is carried
initially in the Balance Sheet under Assets side. Then every year, certain portion is written
off to the Profit & Loss A/c as expenses thereby reducing the asset. Deferred revenue
expenditure is treated as a fictitious asset in the Balance sheet.
Few examples of it is as under:
i. Preliminary expenses (Legal, registration) at the time of Starting of company,
ii. Heavy advertisement to launch a new product,
iii.Research and Development costs,
iv. High cost training provided to staffs.
15
Paper 2: Part A: Mercantile Laws

Marks
Attempt all questions.
1. Answer the following questions:

a) At what condition registration of partnership firm registered under
Partnership Act, 2020 may be cancelled? Describe. 5
b) Discuss the difference between the Partnership firm and limited company. 5
Answer
1 a) As per the section 11B (1) of the partnership Act 2020 the concerned Department may
cancel registration of the partnership firm registered under the Act, in any of the
following conditions.
• In case a firm registered for undertaking commercial operations does not renew
its certificate within the prescribed time limit.
• In case the partners of the firm request the appropriate Department for
permission to dissolve the firm along with appropriate reasons for doing so.
• In case the concerned firm does not submit the particulars demanded by the
appropriate Department under Section 11A within the prescribed time limit.
• In case a firm relating to industry closes down the industry after
commencing operations with or without furnishing information to the appropriate
Department.
• In case a firm relating to industry does not renew its certificate within the
prescribed time limit after the expiry of time limit for renewal, or renews its
certificate but does not submit to the appropriate Department progress report in
writing concerning the construction of the factory, purchase of machinery, tools
or equipment required for the establishment and operation of the industry or
concerning necessary actions undertaken to operate the industry according to the
conditions stipulated in the certificate.
• In case the firm does anything in contravention of the Act, or the Rules
framed there under.
Before canceling the registration of a partnership firm under the above mentioned
circumstances, the appropriate Department must provide reasonable opportunity to the
concerned firm to submit its explanations.
1 b)
Basis Partnership Limited company
Governing act Partnership Act, 1964 (2020) Companies Act, 2063
Legal status It does not have a legal It is separate entity distinct
personality distinct from its promoters.
from personality of its partners.
Agency Mutual agency is the basis of There is no mutual agency
partnership i.e. every partner is between the shareholders of
an the company.
agent if the other partners as
wellas the firm.
16
Extent of liability The liability of partners is The liability of shareholder is

unlimited. If there is a loss or the limited to the amount, if any,
firm is unable to pay liability unpaid on his shares.
incurred in normal course of
business, then it shall be
recovered from the personal
property of the
partners.
Transfer of share No partner is entitled to sale or The share may be transferred
transfers his share of the by a shareholder subject to the
partnership to others freely, for provisions of the
which approval from all the other Memorandum and Articles of
partners is required. association.
Number of The minimum numbers of The minimum number of
members partners in a partnership is two. shareholder in a private
However, the maximum number limited company is one and
has not been prescribed in the minimum number of
Act. shareholders in public limited
company is seven. Maximum
number of shareholder in
private limited company is
hundred and no limit of
maximum shareholder in a
public limited
company.
Duration of A firm shall be dissolved A company has perpetual
existence immediately, upon the death of a existence unless it is
partner or upon the adjudication liquidated or dissolved.
of a partner as an insolvent for
being unable to pay back the debt
of the
creditor.
Minimum capital Not prescribed. The minimum paid-up capital
for a public company shall be
ten million rupees whereas no
limit has been prescribed for
private limited company.
2. Answer the following questions:

a) What is the voidable contract? What are the grounds that a contract
becomes voidable? Describe. 5
b) What is caveat emptor? Discuss the exception to the doctrine of caveat
emptor. 5
c) What do you mean by contract of guarantee? Explain the essential elements
of contract of guarantee. 5
Answer
2 a) An agreement which is enforceable by law at the option of one or more of the
parties thereon but not at the option of the other or others is a voidable contract. As
per section 518 (1) of National civil code 2074, voidable contract is one which
can be declared void when the innocent party to the contract seeks intervention of
the court. Section 518 (1) mentions following grounds in which the aggrieved
party can seek legal remedy to declare the contract as void:
17
• Contract concluded through coercion

A person shall be deemed to have indulged in coercion if he/she, with the
objective of compelling any person to accept any contract against his/her will,
withholds or threatens to withhold property belonging to him /her or threatens
to defame him/her or life or body, or takes or threatens to take any other
action in contravention of prevailing law.
• Contract concluded by undue influence

Undue influence means influence exercised by a person upon another person
who is under his/her influence and is amenable to his /her personal benefit or
interest.
• Contract concluded by fraud

A party to be a contract or his/her agent shall be deemed to have committed
fraud if he/she leads the other party or his/her agent to believe or takes any
action to believe the particular matter is true, although he/she knows that it is
false, or suppresses any information in his/her possession, or indulges in any
other fraudulent act punishable under prevailing law, with the intention of
deceiving the opposite party or his/her agent.
• Contract concluded through misrepresentation or deceit.
Any of the following act shall be taken as deceit:
i. Submission of false particulars on any matter without reasonable basis
for doing so,
ii. Misleading any party so as to aggrieve him/her
iii. Causing any wrong deliberately on the matter of contract.
iv. Contract is made for the different topic than that is brought in to
confidence.
2 b)
Caveat Emptor is a Latin term meaning “let the buyer beware”. It casts responsibility
of checking and confirming the condition, fitness and suitability of goods upon the
buyer, except in some particular cases. Once a buyer is satisfied with the product
suitability, then he has no subsequent right to reject such product. A buyer should
inspect the goods using his skill and knowledge and make sure that the goods are fit
and proper. If any defect is found, the buyer should mention the defect to the seller
and reject the goods and not enter into the contract of sale. However, if the buyer has
already inspected goods but did not reject them even when they were defective, he
cannot subsequently return the goods. The seller is in no way responsible for the bad
selection of the buyer.
Except otherwise provided in the contract, the seller shall not be deemed to have given
a warranty to the effect that the goods sold or to be sold has been of a specific
quality.
Exception of the doctrine of caveat emptor:
Where the doctrine of Caveat Emptor applies the buyer cannot claim damage nor
reject the goods. So the doctrine of caveat emptor does not apply in every sale
transaction. It means the buyer does not lose his right against the seller in every sale
transaction. They are as follows:
1. In case of misrepresentation by the seller: If the seller, while selling the goods,
commits any misrepresentation, the doctrine of caveat emptor does not apply. The
buyer does not lose his right.
2. In case of latent defects: If the goods contain latent defects, the doctrine of caveat
emptor does not apply because the buyer is not bound to trace out the latent
defects.
18
3. In case the goods do not correspond to the sample: If the seller sells the goods on
the basis of the sample, but the sold goods does not match with the sample, the
doctrine of caveat emptor does not apply.
4. In case the goods do not correspond the description: If the seller sells the goods on
the basis of the description but the sold goods do not match with the description,
the doctrine of caveat emptor does not apply.
5. In case the goods do not have merchantable quality: If the sold goods do not have
merchantable quality, the doctrine of caveat emptor does not apply.
6. In case of goods does not fit a particular purpose: If the buyer buys the goods for a
particular purpose, but the goods does not match with that purpose of the buyer.
2 c) A contract of guarantee is a contract to perform the promise, or discharge the liability

of a third person in case of his default.
A contract relating to guarantee shall be deemed to have been concluded in case it
provides that if any person ( debtor) defaults in the repayment of the loan obtained by
him/her or defaults in fulfillment of the obligation accepted by him/her, it shall be
repaid or fulfilled by a third person (surety) .
In case a third party has provided guarantee and in case the person who has to repay
the loan does not repay it or fulfill the obligation to be fulfilled, the person providing
guarantee for such loan or obligation shall repay the loan or fulfill the condition
according to the contract.
Essential elements of a contract of guarantee are:
i) Tripartite agreement
There are three contracts in contract of guarantee.
a. Contract between debtor and creditor
b. Contract between creditor and surety
c. Contract between debtor and surety
ii) Consent of three parties: There must be consent of all the three parties.
iii) Must be in writing: Contract relating to guarantee must have been made in writing.
iv) Existence of liability: There must be an existing debt or liability whose
performance is guaranteed.
v) Essentials of valid contract: contract of guarantee must fulfill all the essentials of a
valid contract like: free consent, lawful consideration, lawful object, legal
relationship, meeting of minds etc.
vi) Guarantee not to be obtained by misrepresentation: Contract of guarantee should
not be obtained by misrepresentation. If it is obtained by misrepresentation, it is
invalid.
vii) Guarantee not to be obtained by concealment of material fact: Contract of
guarantee should not be obtained by concealment of material fact. If it is obtained
by concealment of material fact, it is invalid.
19
Paper 2: Part B: Fundamentals of Economics

Marks
1. Long Answer Questions:

a) “Economics is the science of scarcity and choice.” Justify. 5
b) Define production function. Explain the concept of short run production
function with the help of law of diminishing return. (1+4=5)
Answer
1 a) Lionel Robbins, the professor of London school of economics has given scarcity definition of
economics. It is the modern definition of economics which is universally accepted. In the
definition, he has given emphasis on allocation of resources. In his words "Economics is a
science that studies human behavior as a relationship between limited resources and unlimited
wants which have alternative uses." As a result, all human wants cannot be fulfilled. There is
need of allocation of resources.
According to Robbins’s, human wants are unlimited. These unlimited wants are not
possible to satisfy at a time. If one want is satisfied, another arises in our mind
immediately. Thus, there is a chain of wants, one want chasing another. There are no
ends of human needs. If one want is fulfilled another arise immediately. Human wants
are unlimited but the means to satisfy them are limited. Wants are more than means.
Resources are limited whose supply is less than demand. Limited resources are like
money, wealth, etc. Human wants are unlimited but the means to satisfy these wants are
scare. The scare means have alternative uses. For example, money can be used to buy
food, a book or to go to the cinema hall etc.
All wants are not equally urgent. They differ in urgency. Some wants are more urgent
than the other ones. So, more urgent wants need more satisfaction and others can wait.
Current wants are more important than future wants. For example, food is more
important than mobile phone.
Although human wants are unlimited, all the wants are not equally important or urgent.
More important wants have to be choiced immediately and less important can be
postponed. So, human beings make a choice of wants to derive maximum satisfaction.
So, according to Robbins’s, choice making is really an economic problem.
Thus, economics is fully concentrated with solving the problems created by scarcity. It is
the universal problem and exist in both developed and developing countries. Overall
subject matters of economics are related with solving the problem of scarcity. It deals
with what to produce, how to produce, how much to produce, for whom to produce, how
to achieve full employment and how to achieve high economic growth. all those
problems are the related to scarcity.
From above writing one can say economics is the science of scarcity and choice.
1 b) Production function is related to the technological aspect of production process. It can be

defined as a technical/mathematical/ physical/functional relationship between inputs and
output. It is related to the study of how inputs are transformed into output at a given
time period. There are two types of production function: short run and long run
production function.
Short run production function explains the relationship between inputs and outputs
when some inputs are fixed and some are variable. During the period output can be
20
changed only by changing variable inputs such as labour. It is explained by the law of
variable proportion. Law of Variable Proportion states that as we combine more and
more of the variable factor along with the fixed factor.
Assumptions of the Law:
(i) State of technology is constant.

(ii) All units of the variable factor are homogenous.
(iii) There must always be some fixed input.
(iv) Possibility of combining fixed and variable inputs in different proportion etc.
It is shown in the given schedule:
Units of labour TP AP MP Stages

O 0 0 - Increasing returns
1 10 10 10
2 24 12 14
3 39 13 15
4 52 13 13
5 60 12 8 Decreasing returns
6 60 10 0
7 56 8 -4 Negative returns
Three Stages of Production:

(i) Stage of Increasing Returns
(ii) Stage of Diminishing Returns
(iii) Stage of Negative Returns
21
i. Stage of Increasing Returns: -

In this stage, total product increases at an increasing till MP increases. This is because
the efficiency of the fixed factors increases as additional units of the variable factors
are added to it. In the figure, from the origin to the point F, slope of the total product
curve TP is increasing i.e. the curve TP is concave upwards up to the point F, which
means that the marginal product MP of labor rises. The point F where the total product
stops increasing at an increasing rate and starts increasing at a diminishing rate is called
the point of inflection. Corresponding vertically to this point of inflection marginal
product of labor is maximum, after which it diminishes. This stage is called the stage of
increasing returns because the average product of the variable factor increases
throughout this stage. This stage ends at the point where the average product curve
reaches its highest point.
ii. Stage of Decreasing Returns: -
In this stage, total product continues to increase but at a diminishing rate until it
reaches its maximum point H where the second stage ends. In this stage both the
marginal product and average product of labor are diminishing but are positive. This is
because the fixed factor has its optimal use at this stage and becomes inadequate
relative to the quantity of the variable factor. At the end of the second stage, i.e., at
point M marginal product of labor is zero which corresponds to the maximum point H
of the total product curve TP. This stage is important because the firm will seek to
produce in this range.
22
iii. In the stage, total product declines and therefore the TP curve slopes downward. As a
result, marginal product of labor is negative and the MP curve falls below the X-axis.
In this stage the variable factor (labor) is the over utilization of the fixed factor. AP also
decreases but never becomes zero.
Thus, if we increase only the unit of one variable input by keeping all other inputs
fixed finally total, average and marginal productivity of input will be diminished.
2. Short Answer Questions (Any Five):
a) What do you mean by cross elasticity of demand? Explain its types. 3
b) Define average revenue (AR) and marginal revenue (MR). Explain the
relationship between linear AR and MR curves in different market. (1+2=3)
c) Define free trade. Explain any four disadvantages of free trade. (1+2=3)
d) Explain any four basic problems faced by medium and large scale industries in
Nepal. 3
e) Write any six determinants of supply of tomatoes in Nepal and explain any two
of them. 3
f) Explain any six importance of service sector in economic development of
Nepal? 3
Answer
2 a) Cross elasticity is defined as the proportionate change in quantity demand of one good
(say X) due to proportionate change in price of another good (say Y). It is related to two
goods which have some relation between them.
If X and Y are two goods, then
Proportionate change in quantity of X  %QX 
ec = Proportionate change in price of Y = 
 %PY
Symbolically,
QX
 
 QX  QX PY
ec = = 
PY PY QX
 
 PY 
Where,
℮c = Cross elasticity
ΔQX = Change in quantity of X
ΔPY = Change in price of Y
PY = Original price of Y
QX = Original quantity of X
Types of Cross Elasticity of Demand
i. Positive Cross Elasticity (ec > 0)
If change in price of Y and quantity of X move in same direction, ec is said
to be positive, i.e.
PY  QX
PY QX
23
If two goods X and Y are substitutes, ec is said to be positive. Coke and

Pepsi can be taken as substitutes.
ii. Negative Cross Elasticity (ec < 0)
It change in price of Y and quantity demand of X move in the opposite
direction, ec is said to be negative; i.e.
PY  QX
PY QX
If two goods X and Y are complements, ec is said to be negative. Mobile set
and sim card can be taken as complementary goods.
iii. Zero Cross Elasticity (ec=0)
If change in price of Y leads to no change in quantity of X, ec is said to be
zero, i.e.,
PY  QX = 0
PY QX = 0
If two goods X and Y are independent, ec will be zero. Book and seed for a
farmer or a student can be independent (or unrelated goods).
The various degrees of cross elasticity can be shown by the following
combined figure:
Y
eC = 0 eC > 0
Price of Y
eC < 0
X
O
Quantity of X
2 b) Revenue refers to the sales receipts that a firm receives after selling the output at a given
price
Average Revenue (AR)
Average revenue is the revenue per unit output sold. It is calculated by dividing the total
revenue (TR) by the total output sold (Q). In other words, it is the per unit price (P).
TR P×Q
So, AR = Q or AR = Q = P = Per unit price
Marginal Revenue (MR)
Marginal revenue is the ratio of change in the total revenue (TR) with change in the total
sales quantity(Q). In other words, it is defined as the addition made to the total revenue by
selling one more unit of the output. It reflects the rate of change in total revenue with
respect to change in output. Thus,
MR
So, MR = or, MR = TRn – TRn–1
Q
Relation between AR and MR
The relation between linear AR and MR is explained below.
1. Under perfect competition, price remains constant as output
increases. Hence, when AR curve slopes horizontally or
24
parallel to X-axis, the MR curve coincides with the AR curve.
2. Under imperfect competition, both AR and MR slopes

downward. When AR curve slopes downwards linearly to the
right, the MR curve will cut any line perpendicular drawn to
the Y-axis halfway from the average revenue curve. It is due
to the fall in price at same at any level of output. In the
figure, ba is the perpendicular drawn from AR to the Y-axis.
Point c is the center (middle point) of ba and MR cuts ba at c.
Thus, ac = cb.
2 c) Free trade refers to a condition of international trade when all kinds of artificial controls
on international trade, such as tariffs, quotas, etc. are absent. Free trade policy is also
known as the laissez- faire policy, i.e., the policy of government non-interference in
foreign trade. Under such a policy, all barriers to the international movement of goods
are removed and the trade between the countries is allowed to take its natural course.
The following are the disadvantages of free trade:
i. Unrealistic Policy
Free trade policy is based on the assumption of laissez-faire or government non-
intervention. Its success also requires the pre-condition of perfect competition. But, such
conditions are unrealistic and do not exist in the actual world.
ii. Non-Cooperation of Countries
Free trade policy works smoothly if all the countries cooperate with each other and
follow this policy. If some countries decide to gain more by imposing import restrictions,
the system of free trade cannot work.
iii. Economic Dependence
Free trade increases the economic dependence on other countries for certain essential
products such as food, raw materials, etc. Such dependence proves harmful particularly
during war time.
iv. Political Slavery
Free trade leads to economic dependence and economic dependence leads to political
slavery. For political freedom, economic independence is necessary. This requires
abandonment of free trade.
2 d) The medium and large scale industries of Nepal are facing infinite problems. If these
problems are solved then the industrial sector of Nepal can grow faster. Some of the
major problems of these industries can be described as follows.
i. Lack of Capital
For the establishment of medium and large scale industries, huge amount of
capital is required. But such a huge amount of capital is not sufficient in the
country. Therefore, the development of medium and large scale industries is
lagging behind.
ii. Limited Market
The production of medium and large scale industries is huge. But the market of
these goods is very limited in Nepal and almost negligible in foreign countries.
25
Hence, small size of market is also one of the major problems of industrial
development in Nepal.
iii. Lack of Transportation and Communication
Transportation and communication are pre-requisites for industrial development.
But in the case of Nepal these sectors are not sufficiently developed. Hence, it is
impossible to develop the medium and large scale industries in Nepal.
iv. Lack of Raw Materials
Due to the traditional farming system and frequent natural calamities, the agro-
based and forest-based industries are not getting the required amount of raw
material. As a result, it should be imported from abroad. Hence, lack of raw
material is also the major problem of industrial development.
2 e) The determinants of supply of tomatoes are as follows:
1. Price of the tomato
2. Price of factors
3. Government policy
4. Numbers of seller
5. Technological improvement
6. Weather condition
Price of tomatoes
Price of the tomatoes in the market positively affects the quantity supplied of the
tomatoes. When price increases, farmers get more profit. This encourage the farmers
to plant more tomatoes which increases the quantity supplied of the tomatoes.
Technological improvement in tomato plantation
Technological improvement increases the productivity of the tomato and thereby
reduces the cost of production. This increases the profit of the producers and
encourage the farmers to expand the area of tomato plantation. Thus the
technological improvement positively affects the supply of the tomatoes.
2 f) The service sector, also known as the tertiary sector, involves a variety of services
produced within the economy. Some of which are trade, transportation, accommodation
and food service, communication, financial, public service, health, and recreation
activities. During past decades, the service sector has undergone a great evolution
and holds the highest share in the country’s GDP. The importance of service sector in
economic development of Nepal are (consider any six):
1. Promotes industrialization: The service sector provides various facilities such as
transportation, banking, electricity, repair, or communication in support of the
distribution of the manufactured goods which directly affects the development of an
industry in a country. For example-transport systems helps to carry laborer, raw
material and finished goods to their destination, communication networks are
required to make a market for the product.
2. Growth of Agriculture: By providing network facilities, service sectors help in the
development of agricultural products such as helping in the transport of raw material
and finished goods from one place to another.
3. Increase in the productivity of the goods: The service sector helps in providing
appropriate technical knowledge to the workers as well as provide them with proper
medical facilities. Moreover, the service sector also facilitates an organized network
of communication and transport systems which helps in increasing mobility and
information among the workers. This results in an increase in the productivity.
4. Growth of Market: This sector provides various services catering to the needs of both
primary and secondary sectors and thus helps in providing a market for the finished
26
goods as well as raw materials or semi-finished goods for both i.e. agriculture and
industries.
5. Removes regional disparities: The service sector has made it possible to connect
every small town and village through a well-organized system of communication and
transport. Moreover, the expansion of education, medical as well as banking services
in various backward areas of the country has helped in removing the regional
imbalances and disparities throughout the nation.
6. Creates Employment Opportunities: Service sector creates employment
opportunities for the people of the country. Before 1983, Agriculture and
construction sectors were major job creators in the country. But after 1991, several
sub-sectors like trade, hotels, restaurants, and transport, etc. created a lot of
employment opportunities. Now within the service sector, employment opportunity is
highest in finance, insurance, and business services, followed by trade, hotels and
restaurants, and transport, etc.
7. Contribution Toward Human Development: Service sector encourages some
valuable services like health services, educational facilities, IT-enabled services, skill
development, health tourism, sports, cultural services, etc. which is a valuable
contribution toward human development and improvement of quality of life of the
people which directly helps in the growth of economy.
27
Paper 3: Part A: Fundamentals of Management

Marks
3. Long Answer Questions: (2×5=10)

a) Explain business environment. Describe the internal environmental forces.
Solution:
Business environment consist of all those factors which influence the development,
performance and outcome of a business. Business environment is the result of
number of interacting and constantly changing social, political, legal and economic
forces. These forces keep on changing, and thus, present the firm with
opportunities and threats for its operation.
According to Keith Davis, “Business environment means the aggregate of all

conditions, events and influences that surround and affect a business”.
Business environment is dynamic. It keeps on changing whether in terms of
technological improvement, shifts in consumer preferences or entry of new
competition in the market. It is the sum total of all things to business firms and, as
such, is aggregative in nature. It includes both specific and general forces. Specific
forces affect enterprises in their day-to-day working. General forces have impact
on all enterprises and affect an individual firm only indirectly. Business
environment is largely uncertain as it is very difficult to predict future happenings,
especially when environment changes are taking place too frequently as in the case
of information technology or fashion industries.
The internal environment is the environment that has a direct impact on the
business. There are some internal factors which are generally controllable because
the company has control over these factors. It can alter or modify such factors as
its personnel, physical facilities, organization and functional means, like
marketing, to suit the environment. Strength and weakness are the outcome of
internal environment. Strength is inherent capacity that can be used to gain
strategic advantaged over its competitors. Weakness is an inherent limitation that
creates strategic disadvantage for organization in relation to competitors.
a. Organizational Resources: Organizational resources include physical, financial,
informational, human and technological. Resources availability sets a limit on the
activities of business organization. Human resources are the most strategic
resources that mobilize all other resources available in the organization.
b. Goals, Policies, Strategies: Goals are the end results or desired outcomes. It may
be multiple. The primary goal of business org is to earn profit. All the activities of
organization are guided by its goal. Policies are the guidelines for future course of
action. It guides decision making process. Business org operate within the policy
guideline framework. Strategies provide long term direction or roadmap for future
activities. They are broad action plan. It follows from the goals and policies.
c. Management structure and nature: The structure of the organization also

influences the business decisions. Structure is the design of jobs and relationship.
It defines authority-responsibility relationships, span of control, chain of command
28
etc. The structure and style of the organization may delay a decision making or
some other may help in making quick decisions. The organizational structure like
the composition of board of directors influences the decisions of business as they
are internal factors.
d. Organizational Culture: It refers the shared norms, values, beliefs, expectations

and practice that are shared in common. This guides behavior of individual, group
and all human resource in the organization. The value system of the founders and
organization itself has important role on the choice of business, the mission and the
objectives of the organization, business policies and practices.
b) Define system perspective of management and describe its four important features.
Solution:
The term system refers an integrated set of elements functioning as a whole. Based
on definition stated above, the system perspective of management assumes that
managers can better understand the importance of business environment and the
level of interdependence among sub systems within the organization, if viewing it
as system.
The organization system involves five basic elements. They are environment,
inputs, processing, outputs and feedback. These five elements are inter-related and
interdependent each other and they act together from the achievement of
organizational goals. Such as organization, system collects required resources as
inputs to produce outputs form external to internal environment. Convert the inputs
into outputs (goods and services and other) by using transformation process. After
completing the process, organization sends back the outputs in external
environment for consumption. At last an organization collect response about
products and services from external environment. The responses may be positive
or negative. An organization improves its inputs and process according to the
feedback they received.
Features of system perspective of management
1) Organization is an open system: Organizations interact with it external

environment for its successful operation. Organizations who makes the mistake of
ignoring their environment and behaving as though their environment is not
important may fail.
2) Synergy: Organization system creates synergy between organizational units and

department. It means organizational units (subsystems) may often be more
29
successful working together than working alone. Which is essential to optimum

utilization of resources for the achievement of better results.
3) Subsystem: A broader organization system have several departments and units.

Such as production, marketing etc. They have own system and work as subsystem
of broader system. If all subsystems perform their responsibility perfectly, the
whole system will be perfect.
4) Entropy: A broader organization system may failure, if there entropy appear

there. It means entropy leads to system decline. It is the measure of the disorder of
a system. It appears in the system, when an organization does not monitor
feedback from its environment and make appropriate adjustment, system may fail.
4. Short Answer Questions (Any Five): (5×3=15)

a) Discuss about ‘managerial skill and roles’
b) Discuss about democratic leadership style.
c) Define the social-cultural environment of organizations.
d) Define the term stakeholder and mention any three important stakeholders
of ICAN.
e) Goal succession
f) Middle level management.
2a. Answer:
Managers' skills are the ability of managers to perform a given task effectively and
efficiently. The success of the managers depends upon their managerial skills
rather than personality traits. Successful managers are those who have enough
managerial skills in their area. In this context, Robert L. Katz identified three
kinds of skills for managers. They are technical skill, human skill and conceptual
skill.
A role is an organized set of behaviors. Managers fulfill a variety of roles. Henry

Minzberg, a prominent management researcher, says that what managers do can
best be described by looking at the roles they play at work. There are three types of
roles which a manager usually applies in any organization. They are interpersonal,
informational and decisional.
2b. Answer:
Democratic leadership style is widely known as the participative or employee
oriented leadership. It is a compromise between autocratic and laissez faire
leadership. Democratic method is followed while finding problems and their
solutions. The leader consults the subordinates, collects opinions, suggestions and
by mutual discussion, the decision is drawn. All the members of the group are
supposed to be important contributors to the final decision. Upward and downward
30
both types of communication come into existence. Democratic leadership style is

based on decentralization of authority and power to subordinates in decision
making. Here are some advantages of democratic leadership style.
a. Sound decision: In this style of leadership, as the lower levels are also participated
in the decision making process. The ideas, opinions, knowledge and experiences of
different people are accumulated for decision making. So, better decision is
possible.
b. Widely accepted system: It is democratic era. Any kind of action done in
democratic way is very widely accepted. It provides satisfaction to the people.
c. Wider communication: Upward, downward, horizontal, all kinds of
communication is held in this leadership. All the people are well informed about
organization's policy, programme and decision.
d. Staff satisfaction: As it considers the opinion of lower level people, their
knowledge, skill and experiences are utilized for the betterment of organization.
People satisfy much in this leadership.
2c. Answer:
The socio-cultural dimension is one of the component of organizations' general
environment. It refers to trends, developments and changes in attitudes, behavior, and
values in society. It is closely related to population, lifestyle, culture, tastes, customs,
and traditions. These factors are created by the community and often are passed down
from one generation to another. They may be changes according change in customers'
time, income, education, employment etc.
Thus, organizations need to consider those socio-cultural factors when formulating

organizational goals, & strategies and their implementation. Without considering those
factors, organizations could not satisfy the customer needs and achieve its objectives.
2d. Answer:
The term stakeholder refers any individual, group, or party that has an interest in an
organization and the outcomes of its actions. They can be internal or external to an
organization. Internal stakeholders are people whose interest in a company comes
through a direct relationship, such as employment, ownership, or investment.
External stakeholders are those who do not directly work with a company but are
affected somehow by the actions and outcomes of the business. Suppliers, creditors,
and public groups are all considered external stakeholders.
Institute of Chartered Accountants of Nepal (ICAN) is the only professional

accountancy organization in Nepal. The institution manly involves conducting
professional examinations; issuing Chartered Accountant Membership Certificates and
31
Certificates of Practice; setting rules of professional conduct and many more. Thus,
major three stakeholders of this institution are students, members and the governing
body.
32
2e. Answer:
The organization should either formulate new goals when the established goals are
achieved or the existing goals cannot be achieved because of the environmental
situation. The management should assess the environment factors with the help of
various statistical methods. With correct method and future prediction the old goals
should be changed or modified. This process is known as goal succession. It is the
intentional review and modification of existing goals.
The goals should be flexible enough to bring modification in the changed
environmental context.
2f. Answer:
Middle level management consists of departmental heads which are generally
classified under middle level management and deputy heads of departments and
sectional heads, area managers etc. it is basically concerned with the task of
implementing the policies and plans laid down by the top management. The important
functions of middle management are as follow
• Interpreting the policies framed by top management

• Assigning duties and responsibilities for timely execution of the plans
• Motivating personnel to achieve higher productivity
• Preparing the organizational set-up in their respective departments.
• Comparing and issuing instructions to the supervisors under their control.
• Coordinating with other departments so as to ensure a smooth running of the entire
organization
• Reporting to feedback to top management
• Collecting information and reports on performance
• Making recommendation to top management for the better implementation of plans
and policies
33
Paper 3: Part B: Commercial Mathematics and Statistics

Marks
1.
a) Substitute a single future claim payable 2 years for the sum of
two future claims. One for Rs. 6000 due in 4 years and the other
for Rs. 12000 due in 5 years. Allow compound interest at 3%
p.a. 4
Solution:
Given,
First case
A1 = 6000, n = 4years, r = 3%, P1 = ?
Now, P1 =
Second case
A2 = 12000, n = 5years, r = 3%, P2 = ?
Now, P2 =
Sum of two claims

P = P1 + P2 =
r = 3%
n = 2 years
A=?
Now, A = =
b) A company manufactures different types of electrical

appliances. It has been radio
advertising its products. The following table shows amounts of
radio time (x in minutes) and the number of electrical appliances
sold (y) over the last six days.
x 25 18 32 21 35 29
y 16 11 20 15 26 28
Calculate Karl Pearson’s Correlation Coefficient between two series and interpret the result. 4
Solution:
X Y U=X–A V=Y–B UV
(A = 25) (B = 20)
25 16 0 -4 0 16 0
18 11 -7 -9 49 81 63
32 20 7 0 49 0 0
21 15 -4 -5 16 25 20
35 26 10 6 100 36 60
34
29 28 4 8 16 64 32
Correlation coefficient = r =
=
r = 0.84
There is high degree of positive correlation between radio(x) and the number of electrical
appliance sold(y).
Alternative Method
X Y X2 Y2 XY
25 16 625 256 400
18 11 324 121 198
32 20 1024 400 640
21 15 441 225 315
35 26 1225 676 910
29 28 841 784 812
∑X=160 ∑Y=116 ∑X2=4480 ∑Y2=2462 ∑XY=3275
r=
X= X-
Y = Y-
r=
=
=
= 0.839
c) Construct the cost of living index number for 1985 on the basis
of 1979, from the following data using family budget method. 4
Commodity Price in base Price in Value weight in
year 1979 1985 base year 1979
Wheat 15 20 300
Rice 20 24 160
Sugar 160 200 320
Ghee 40 40 160
Solution:
construction of cost of living index number
Commodity Price in Price in P= x W= p0q0 PW
1979 1985
35
(p0) (p1) 100
Wheat 15 20 400/3 300 40000

Rice 20 24 120 160 19200
Sugar 160 200 125 320 40000
Ghee 40 40 100 160 16000
∑W = 940 ∑PW =
115200
Here , required cost of living index number = = = 122.55
d) Find the missing frequency in the following distribution if N =

100 and median is 32. 4
Marks 0-10 10-20 20-30 30-40 40-50 50-60 Total

No. of 10 ? 25 30 ? 10 100
Students
Solution :
Let us assume that, number of students having marks in the range 10 – 20 and 40 – 50 are ‘x’ and
‘y’ respectively.
Marks Frequency (f) Cumulative Frequency (cf)
0-10 10 10
10-20 x 10+x
20-30 25 10+x+25 = 35+x
30-40 30 35+x+30 = 65+x
40-50 y 65+x+y
50-60 10 65+x+y+10 = 75+x+y
Now, we have been given that, there are 100 students,

∴∑f=100
⇒75+x+y=100
⇒x+y=25………(1)
We know that, median = L+ (N/2-cf/f)*h

We have been given that median = 32, which lies in the range 30 – 40. Therefore, 30 – 40 is the
median class. So,
L = 30
N = 100
f = 30
cf = 35 + x
h = 10 – 0 = 10
Substituting these values in the formula for median, we get,
⇒32 = 30 + {100/2-(35+x)/30}*10
⇒2 = 50 -35-x/3
36
By cross – multiplication, we get,
⇒6=15−x
⇒x=9
Substituting x = 9 in equation (1), we get,

⇒y=25−x
⇒y=25−9
⇒y=16
Hence, the missing frequencies are 9 and 16.
2.
a) Three numbers are in A.P. and their sum in 30. If 2, 8, 38 be
added to them respectively, they form a G.P. Find the numbers
of an A.P. 3
Solution:
Let (a – d), a and (a + d) be the three number in A.P.
Given that their sum = 30
 (a – d) + a + (a + d) = 30
or, 3a = 30 or, a = 10
If 2, 8 and 38 be added to then respectively, they form a G.P.,
So, (a – d +2), (a + 8), (a + d + 38) are in G.P.
i.e. (10 – d +2), (10 + 8) and (10 + d + 38) are in G.P. [ ... a = 10 ]
i.e. (12 – d), 18, (48 + d) are in G.P.
 18 = G.M. = (12 − d) (48+ d)
or, 182 = (12 – d) (48 +d) or, 324 = 576 + 12d – 48d – d2
or, d2 + 36d – 252 = 0 or, d2 + 42d – 6d – 252 = 0
or, (d + 42) (d – 6) = 0  d = – 42 or 6
So,
when a = 10 and d = –42, the three numbers in an A.P are 52, 10, –32
when a = 10 and d = 6, the numbers in an A.P are 4, 10, 16.
b) How many numbers of three digits all different and less than
500, greater than 500 can be formed from the integers 1, 2, 3, 4,
5, 6? 3
Solution:
In a number less than 500, the digits in the hundredth place should be either 1
or 2 or 3 or 4 so it can be chosen in 4 ways.
37
The digits in tenth and unit places can be chosen from the remaining 5 integers
in ways.
Total number of 3 digits less than 500 = 4
In a number greater than 500, the digit in the hundredth place should be either
5 or 6. So it
can be chosen in 2 ways.
The digit in tenth and unit places can be chosen in ways.
Total number of 3 digits more than 500 = 2
c) During a study of auto accidents, the Traffic Police of valley

found that 65% of all accidents occur at night, 48% are alcohol
related and 35% occur at night and alcohol related. 3
i. What is the probability that an accident was alcohol related
given that it occurred at night?
ii. What is the probability that an accident occurred at night
given that it was alcohol related?
Solution:
Given,
P(N)= prob. of an accident occur night = 65% = 0.65
P(A) = prob of an accident are alcohol related = 48% = 0.48
P(N prob. of an accident occur at night and alcohol
related = 35% = 0.35
(i) Probability that an accident was alcohol related given that it
occurred at night.
P(A/N) =
(ii) Probability that an accident occurred at night given that it was
alcohol related.
P(N/A) =
38
Examiner’s Commentary on Students' Performance in

December 2022 Examinations
Paper 1: Fundamentals of Accounting
List of Questions Specific Comments on the Performance of the Students

Question no. 1 a. Most of the students solved this question but few failed to
calculate commission to Manager.
Question no. 2 a. Most of the students failed to complete Partnership MCQS.
b. Most of the students failed to calculate closing stock and
Abnormal loss on consignment costing.
Question no. 3 a. Most of the students failed to have proper knowledge about
Receipts Payment/Revenue and Expenditure.
Paper 2: Part A: Mercantile Laws

Question no. 1 a) Answers by many students were satisfactory. But few
students seemed to be confused in cancellation and
dissolution of partnership form.
Question no. 2 a) Many students performed well but few were confused on
essential elements of Valid contract of Guarantee and rules of
Guarantee.
Paper 2: Part B: Fundamentals of Economics

Question no. 1 a. Few analysis on Robins theory, how to produce and current
issues.
b. Table , figure and law was not properly explained at some
part.
Question no. 2 a. Lack of clear knowledge on types of cross elasticity.
b. Satisfactory performance.
c. Satisfactory performance.
d. Satisfactory performance.
e. Satisfactory performance.
f. Average performance.
Paper 3: Part A: Fundamentals of Management

Question no. 1 a. Internal environmental factors were not illustrated by many
students.
b. System Approach/Perspective of Management was not clear
to many students.
Question no. 2 a. Few students did not answer the role of manager.
b. Satisfactory performance.
c. Satisfactory performance.
d. The term stakeholder was misunderstood as shareholder.
e. Satisfactory Performance.
39
Paper 3: Part B: Commercial Mathematics and Statistics

Question no. 1 Most of the students did not give the answers of Q.No 1(a) and 1(b).
Regarding Q.No 1(c) students performed well.
Question no. 2 Some students did not have knowledge on permutation,
combination, and conditional probability.
40

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SUGGESTED ANSWERS TO

THE QUESTIONS SET AT

The Institute of Chartered Accountants of Nepal (ICAN)

© The Institute of Chartered Accountants of Nepal

Year and month of Publication: 2023 March

Paper 1: Fundamentals of Accounting ................................................................................. 4

Paper 1: Fundamentals of Accounting

Particulars Amount Particulars Amount

Bank Overdraft 9,200 Current Assets

General Expenses 4,000 -

Working Note 2: Debtors, Bad Debts and Provision for Debtors

Working Note 3: Commission to Manager

In the Books of E & M

To Machinery A/C 25,200 By Stock A/C 50,000

To Furniture A/C 6,000

To Provision for Doubtful Debts A/C 4,000

M's Capital A/C 3,700 14,800

Total 50,000 Total 50,000

In the books of M/S E, M & J

Capital & Liabilities Amount Rs. Assets Amount Rs.

Bills Payable 20,000 Stocks 200,000

E's Current A/C 211,100 Debtors 76,000

M's Current A/C 20,367 Furniture 44,000

E's Capital A/C 200,000

M's Capital A/C 133,333

J's Capital A/C 200,000

Total 844,800 Total 844,800

E's Sacrifice 3/4-3/8=3/8

2. Calculation of Partners' New Capitals

Capital of the New partner/Share of Profit

(b) New Capital of Partners

E's Capital = =1600000/3X3/8=200,000

By Cash A/C-Capital - - 200,000

Total 411,100 153,700 200,000 Total 411,100 153,700 200,000

In the Books of M/S Hima Electronics Pvt. Ltd.

Amount Amount Amount

By, Insurance Co. 51,000

Transportation 108,000 (Abnormal Loss)

Transit Insurance 80,100

Loading Charges 39,300 227,400 By, Consignment Stock 2,268,547

To, M/S Rupandehi

Unloading Charges 51,000

Local Taxes 41,000

Rent Expenses 75,000

Other Direct Expenses 105,000

Commission on sales 854,850 1,126,850

Cost of 5 Television 275,000

(5 Units X 227,400/250) 4,548

Less: Insurance Claim 51,000

Total abnormal loss 228,548

40 Unit @ Rs 55,000 2,200,000

(40 Units X 227,400/250) 36,384

(40 Units X 197,000/245) 2,268,547

Local Taxes 41,000

Other Direct cost 105,000

Rupandehi Traders A/C

b) What is Deferred Revenue Expenditure? How is it treated in financial

To subscription 30,000 By Furniture 1,000

To Donations 2,000 By Sports equipment 2,500

To Sale of old furniture 500 By Magazines and newspaper 1,200