CA FOUNDATION

SUB: PRINCIPLES AND PRACTICE OF ACCOUNTING

ANSWER NO. 1
a) True; Subsidy received from the government for working capital by a manufacturing concern is a
revenue receipt because it has no effect on improvement of future capability of business in
revenue generation.
b) False; Sales Book is a register specially kept for recording credit sales of goods dealt in by the
firm, cash sales are entered in the Cash Book and not in the Sales Book.
c) False; There are three ways of preparing an Account Current: with help of interest table; by
means of products and by means of products of balances.
d) True; Consignee is not concerned when goods are consigned to him or when the consignor incurs
expenses. He is concerned only when he sends an advance to the consignor, makes a sale, incurs
expenses on the consignment and earns his commission. He does not pass any entry in his books
at the time of receiving goods from consignor.

ANSWER NO. 2
Floating charge: A general charge on some or all assets of an enterprise which are not
attached to the specific assets and are given as security against a debt.
Obsolescence: Diminution in the value of an asset by reason of its becoming out-of-date or
less useful due to technological changes, improvement in production methods, change in
market demand for the product or service output of the asset, legal or other restrictions
 ANSWER NO. 3
Journal Entries
Particulars L.F. Dr. ₹ Cr. ₹
(i) Suspense Account Dr. 936
To Profit and Loss Adjustment A/c 936
(Correction of error by which Purchase
Account was over debited last year- ₹ 5,615
carried forward instead of ₹ 6,551)
(ii) Profit & Loss Adjustment A/c Dr. 540
Customer’s Account Dr. 1,102
To Suspense Account
1,642
(Correction of the entry by which (a) Sales A/c was over
credited by ₹ 540 (b) customer was credited by ₹ 821
instead of being debited by ₹ 281)
(iii) Suspense Account Dr. 590
To Profit & Loss Adjustment A/c 590
(Correction of error by which Returns Inward Account
was debited by ₹ 295 instead of Returns Outwards
Account being credited by ₹ 295)
(iv) Suspense Account Dr. 1,790
To Senu 895
To Sethu 895
(Removal or wrong debit to Sethu and giving credit to
Senu from whom cash was received)
(v) Customer’s Account Dr. 1,400
To Profit & Loss Adjustment A/c 1,400
(Rectification of the error arising from non- preparation
of invoice for goods delivered)
(vi) Profit & Loss Adjustment A/c Dr. 1600
To Customer’s Account 1,600
(The Customer’s A/c credited with goods
not yet purchased by him)
(vii) Inventory A/c 1280
To Profit & Loss Adjustment A/c 1280
(Cost of goods debited to inventory and credited to
Profit & Loss Adjustment A/c)
(viii) Trade receivable/ Q’s Account Dr. 600
To Suspense Account 600
(₹ 600 due by Q not taken into trial balance, now
rectified)
(ix) R’s account/Trade receivable Dr. 3,000
To Profit & Loss Adjustment A/c 3,000
(Sales to R omitted, now rectified)
(x) Profit & Loss Adjustment A/c Dr. 5,066
To Joshi’s Capital Account 5,066
(Transfer of the Profit & Loss Adjustment A/c
balance to the Capital Account)
 ANSWER NO. 4
Truck A/c
Date Particulars Amount Date Particulars Amount
2019 2019
Jan-01 To balance b/d 35,000,000 Oct-01 By bank A/c 35,00,000
To Profit & Loss A/c By Depreciation
Oct-01 Profit on settlement 7,50,000 Oct-01 on lost assets 7,50,000
of Truck (W.Note 1)
Oct-01 To Bank A/c 60,00,000 Dec-31 By Depreciation 93,00,000
A/c (W Note 3)
Dec-31 By balance c/d 2,82,00,000
4,17,50,000 4,17,50,000
2020 2020
Jan-01 To balance b/d 2,82,00,000 Dec-31 By Depreciation 1,02,00,000
A/c (W Note 3)
Dec-31 By balance c/d 1,80,00,000
2,82,00,000 2,82,00,000
Working Note:
1. Profit on settlement of truck
Original cost as on 1.7.2017 50,00,000
Less: Depreciation for 2017 (6 months) 5,00,000
45,00,000
Less: Depreciation for 2017 10,00,000
35,00,000
Less: Depreciation for 2019 (9 months) 7,50,000
27,50,000
Less: Amount received from Insurance company 35,00,000
Profit on settlement of truck 7,50,000
2. Calculation of WDV of 10 trucks as on 01.01.2018
Amount
WDV of 1 truck as on 31.12.2017 (Refer W.N 1) 35,00,000
WDV of 10 trucks as on 01.01.2018 3,50,00,000
3. Calculation for Depreciation for 2018 and 2019
Amount
Depreciation for 2018
On 9 trucks (₹ 50,00,000 x 9 x 20%) 90,00,000
On new truck (₹ 60,00,000 x 1 x 20% x 3/12) 3,00,000
93,00,000
Depreciation for 2019
 ANSWER NO. 5
A Products Ltd.
Dr. Consignment to Mumbai Account Cr.
Particulars ₹ Particulars ₹
To Goods sent on By C Stores
Consignment A/c
1,000 5 kg. tins 1,00,000 500, 5 kg. tins @ ₹ 150 75,000
@ Rs 100
1,000 10 kg. 800,10 kg. tins. @ ₹ 250 2,00,000 2,75,000
tins. @ ₹ 180 1,80,000 2,80,000 By Bank A/c
To C Stores: (Damage charges) 5,000
Freight 20,000 By Profit & Loss A/c
-
Insurance 10,000 abnormal loss (Net) 4,225
Storage charge 20,000
Commission 27,500 77,500 By Inventory on 83,025
consignment A/c
To Profit & Loss A/c – 9,750
Profit
3,67,250 3,67,250

Working Notes:
(i) Calculation of Freight
Sale value of total consignment:
1,000 5 kg. tins @ ₹ 150 1,50,000
1,000 10 kg. tins @ ₹ 250 2,50,000
4,00,000
Freight @ 5% of above 20,000
(ii) Inventories at the end:
450, 5 kg. tins @ ₹ 100 (Selling Price ₹ 67,500) 45,000
180,10 kg. tins. @ ₹ 180 (Selling Price ₹ 45,000) 32,400
77,400
Add: Freight 5% of (Selling Price ₹ 1,12,500) 5,625
83,025
(iii) Loss in transit:
Cost of 50,5 kg. tins @ ₹ 100 & 20, 10 kg tins @ 180 8,600
Freight @ 5% of Selling Price ₹ 12,500 625
Gross abnormal Loss 9,225
Less : Damage charges received (5,000)
 Net abnormal Loss 4,225

ANSWER NO. 6
In the books of ABC. Ltd. Journal Entries
Date Particulars Dr. ₹ Cr.₹
L.F.
March. Sales A/c (₹ 50 X 60)
Dr. 3,000
31 To XYZ Limited A/c
(Being the60 units of goods accepted by XYZ limited 3,000
at 700 per unit.)
Sales A/c ( 40 X ₹ 750) Dr 30,000
To XYZ Limited A/c 30,000
(Being the cancellation of original entry for sale in
respect of 40 units of goods not yet returned
or approved by customers)
March. Inventories with Customers on Sale or Return A/c Dr. 20,000
31 To Trading A/c 20,000
(Being the cost of goods sent to customers on
approval or return basis not yet approved, adjusted)
Note: Quantity of goods lying with XYZ as on 31.3.2020 = 100-60 = 40

ANSWER NO. 7
Let us take 13.08.2020 as Base date.
Bills receivable
Bill Date Tenure Due date No. Of days from Amount Product
13.08.2020
12/06/19 3 months 15/09/2020 33 5,000 1,65,000
10/07/19 1 month 13/8/2020 0 6,200 0
15/07/19 3 months 18/10/2020 66 3,500 2,31,000
12/06/19 2 months 14/08/2020 1 1,500 1,500
28/06/19 2 months 31/8/2020 18 2,500 45,000
18,700 4,42,500
Bills payable
Bill Date Tenure Due date No. Of days from Amount Product
13.08.2020
27/05/19 3 months 30/08/2020 17 3,700 62,900
07/06/19 3 months 11/09/2020 29 4,000 1,16,000
10/07/19 1 month 13/08/2020 0 5,000 0
12,700 1,78,900
Excess of products of bills receivable over bills payable = 4,42,500 - 1,78,900
= 2,63,600Excess of bills receivable over bills payable = 18,700 – 12,700 = 6,000
Number of days from the base date to the date of settlement is 2,63,600 /6,000 = 43.94
(approx.)
Hence date of settlement of the balance amount is 44 days after 13.08.2020 i.e.
26th September, 2020.
On 26th September, 2020, Rajesh has to pay Mahesh ₹ 6,000 to settle the account.

ANSWER NO. 8
Bank Reconciliation Statement of Mr. Gadbadwala as on 31st Dec., 2019
Particulars Details ₹ Amount ₹
Balance as per the Cash Book 8,36,400
Add: Mistake in bringing forward ₹15,260 debit balance as 30,520
credit balance on 18th Dec., 2019
Cheques issued but not presented: ₹
Issued 11,514
Cashed 7,815 3,699
Dividends directly collected by bank but not
yet entered in the Cash Book 25,000
Cheque recorded twice in the Cash Book 3,50,000
Deposit not recorded in the Bank column 1,50,000 5,59,219
13,95,619
Less: Wrong casting in the Cash Book on 15th Dec. 10,000
Cheques issued but not entered in the Bank 1,31,000
column Subscription paid by the bank directly not
yet recorded in the Cash Book 1,000 (1,42,000)
Balance as per the Pass Book 12,53,619

******