Financial Accounting Solved Paper’ 2021
Gauhati University Solved Question Papers
4 (Sem–1/CBCS) FAC HC/RC
2020 (Held in 2021)
Full Marks: 70
Time: Three hours
The figures in the margin indicate full marks for the questions.
Answer either in English or in Assamese.
Answer all questions.
Answer as directed:
1. Select appropriate answer from different alternatives: 1×4=4
(a) Financial statements provide information on
1) Assets and liabilities.
2) Equities or capital.
3) Incomes/gains and expenses/losses.
4) All of the above.
Ans: 4) All of the above
(b) As per structure of GAAP, Accounting Entity is considered as
3) Modifying principle.
4) Economic unit.
Ans: 4) Economic Unit
(c) Annual Report of a company includes
1) Directors’ Report.
2) Auditors’ Report.
3) Balance Sheet and Statement of Profit & Loss.
4) All of the above.
Ans: 4) All of the above
(d) Amount paid for acquisition of goodwill is
1) Revenue expenditure.
2) Capital expenditure.
3) Deferred revenue expenditure.
4) None of the above.
Ans: 3) Deferred revenue expenditure
State whether the following statements are ‘True’ or ‘False’: 1×3=3
1) Revenue is generally recorded at the point of sale.
2) Ind AS 2 prescribes accounting treatment for inventories.
3) Interest on drawings is added to capital and deducted from drawings.
Fill in the blanks with appropriate word/words: 1×3=3
1. Revenue Recognition Principle states that income should be measured in the period in which it is earned.
2. To delete a particular ledger we have to select ‘Alter’ option and press Alt + delete.
3. In case of installment purchase system, total interest payable by the buyer is debited to ________. (interest account/interest suspense account)
2. Answer the following questions very briefly: 2×5=10
a) State two mandatory items of information which are to be disclosed in annual report.
Ans: Mandatory items in annual report:
– Financial statements such as Balance sheet, profit and loss account, cash flow statement.
– Notes to financial statements
b) Write the names of the major heads of structure of GAAP.
Ans: Name of major heads of structure of GAAP:
– Financial Accounting Standards Board (FASB)
– The U.S. Securities and Exchange Commission (SEC), and
– The American Institute of Certified Public Accountants (AICPA)
c) What is the principle of conservatism? Give one example of it.
Ans: This convention follows the policy of caution or playing safe. It takes into account” all possible losses but not the possible profits or gains”. The implication of this principle is to give a pessimistic view of the financial position of the business. For example: Provision of depreciation, provision for bad debts etc.
d) Write two distinctions between revenue expenditure and capital expenditure.
Ans: Difference between Capital Expenditure and Revenue Expenditure:
|Basis||Capital Expenditure||Revenue Expenditure|
|1. Benefits||Its benefit realised for more than one accounting period.||Its benefits enjoyed within a particular accounting period.|
|2. Nature||It is non-recurring (Irregular) in nature.||It is Recurring (Regular) in nature.|
e) Write any four items of inventories as per the Companies Act, 2013.
Ans: Items of inventories as per the Companies Act’ 2013:
– Raw Materials
– Work in Progress
– Finished Goods
– Stores and Consumable Stores
3. Answer the following questions: 5×4=20
(a) Write a brief note on qualitative features of accounting information.
Ans: Accounting information must possess the following qualitative characteristics:
1. Reliability: Reliability means the users must be able to depend on the information.
2. Relevance: To be relevant, information must be available in time, must help in prediction and feedback.
3. Understandability: Understandability means decision-makers must interpret accounting information in the same sense as it is prepared and conveyed to them.
4. Comparability: The users of the accounting information must be able to compare various aspects of an entity over different time period and with other entities.
5. Timeliness: Timeliness is how quickly information is available to users of accounting information. The less timely (thus resulting in older information), the less useful information is for decision-making. Timeliness matters for accounting information because it competes with other information.
Write five objectives of Accounting Standards.
Ans: Objectives or Purposes of Accounting Standards:
The whole idea of accounting standards is centered around harmonization of accounting policies and practices followed by different business entities so that the diverse accounting practices adopted for various aspects of accounting can be standardized. Accounting standards standardizes diverse accounting policies with a view to:
- To provide information to the users as to the basis on which the accounts have been prepared and the financial statements have been presented.
- To serve the statutory purpose of eliminating the impact of diverse accounting policies and practices and to ensure uniformity in accounting policies & practices, i.e., to harmonize the diverse accounting policies & practices which are in use the preparation & presentation of financial statements.
- To make the financial statements more meaningful and comparable and to make people place more reliance on financial statements prepared in conformity with the accounting standards.
- To guide the judgment of professional accountants in dealing with those items, which are to be followed consistently from year to year.
- To provide a set of standard accounting policies, valuation norms and disclosure
(b) Write five features of computerized accounting system.
Ans: Features of Computerized Accounting System:
- It leads to quick preparation of accounts.
- It ensures control over accounting work and records.
- Errors and mistakes would be at minimum in computerized accounting.
- Maintenance of uniform accounting statements and records is possible.
- Flexibility in maintaining accounts is possible.
What are the account groups of assets in relation to Tally 9?
Ans: An Account group in Tally 9 means collection of ledgers of same nature. Account groups of assets means collection of ledgers of assets of same nature. Some of the common assets groups:
a) Fixed assets: It includes all tangible and intangible assets which is hold for more than one year such as Plant and machinery, land and building etc.
b) Deposit: It includes all deposits for long term and short term.
c) Inventories: It includes raw material, work in progress, finished goods etc.
d) Loan & Advances: It includes all loans and advances for short term and long term.
(c) From the following information of M/s Rupali, Guwahati, prepare a Trading Account for the year ended on 31st March, 2020:
|Stock on 1.4.2019
Stock on 31.03.2020
Pass journal entries in the books of M/s Barnali, Nagaon, a registered dealer under AGST Act, the dealer is entitled to claim input tax credit:
|2020, April 1||Purchased goods Rs. 1, 00,000 on credit locally (Intra state) from M/s Momee Traders, Nagaon.|
|2020, April 10||Purchased furniture for office use Rs. 50,000 from M/s Furniture House, Nagaon on credit.|
(d) What are the rights of hire purchaser under the Hire Purchase Act, 1972?
Ans: RIGHTS OF THE HIRE PURCHASER
1. Right of hirer to purchase at any time with rebate: The hirer may, at may time during the continuance of the hire-purchase agreement and after giving the owner not less than fourteen days notice in writing of his intention so to do, complete the purchase of the goods by paying or tendering to the owner the hire-purchase price or the balance thereof as reduced by the rebate.
2. Right of hirer to terminate agreement at any time: The hirer may, at Dairy time before the final payment under the hire-purchase agreement falls due, and after giving the owner not less than fourteen days’ notice in writing of his intention so to do, terminate the hire-purchase agreement.
3. Right to appropriate payments in respect of two or more agreements in such proportions as he thinks fit.
4. Assignment and transmission of hirer’s rights or interest under hire-purchase agreement: The hirer may assign his right, title and interest under the hire-purchase agreement with the consent of the owner, or, if his consent is unreasonably withheld, without his consent.
5. Rights of hirer in case of seizure of goods by owner: Where the owner seizes the goods let under a hire-purchase agreement, the hirer may recover from the owner the amount, if any, by which the hire-purchase price falls short of the aggregate of the following amounts, namely the date:
- The amounts paid in respect of the hire-purchase price up to the date of seizure;
- The value of the goods on the date of seizure.
M/s Medicos purchased 5 nos. of computers from Computek, Guwahati on hire purchase system and furnished the following information:
|Date of agreement
Cash price of the computers
Down payment on the date of agreement
No. of annual equal installment
Amount payable in each installment
Date of payment of annual installment
Rate of interest
31st March each year
Calculate the amount of interest included in each installment.
4. Answer question no [(a) and (b)] or (c):
(a) Write the meaning with two examples of: 5
1) Capital Expenditure.
Ans: Capital Expenditure: The transactions of capital expenditure give benefits for more than one accounting period, such as acquisition and improvement of assets, acquisition of special rights, increasing of earning capacity, and restoration of operating efficiency. It is non-recurring in nature. Therefore, they are shown on the assets side of the Balance Sheet.
Some examples of capital expenditure: (i) Purchase of land, building, machinery or furniture; (ii) Cost of leasehold land and building; (iii) Cost of purchased goodwill; (iv) Preliminary expenditures; (v) Cost of additions or extensions to existing assets; (vi) Cost of overhauling second-hand machines; (vii) Expenditure on putting an asset into working condition; and (viii) Cost incurred for increasing the earning capacity of a business.
2) Revenue Expenditure.
Ans: Revenue Expenditure: It is incurred for generating revenue in the current accounting period and its benefit expires with such period. It helps to maintain the normal working condition of a business. It is charged as expenses in Trading / Profit & Loss Account on debit side.
Some examples of Revenue Expenditure: (i) Salaries and wages paid to the employees; (ii) Rent and rates for the factory or office premises; (iii) Depreciation on plant and machinery; (iv) Consumable stores; (v) Inventory of raw materials, work-in-progress and finished goods; (vi) Insurance premium; (vii) Taxes and legal expenses; and (viii) Miscellaneous expenses.
(b) What are the circumstances where revenue expenditure becomes capital expenditure? 5
Ans: Revenue expenditure is treated as capital expenditure in the following cases:
- Raw material consumed during a period: Raw materials consumed in the production of goods are treated as revenue expenditure but if such raw materials are consumed in the construction of fixed assets are treated as capital expenditure.
- Wages: Wages paid to labourers which are engaged in the production of goods are treated as revenue expenditure but if wages paid to workers who are engaged in the construction of fixed assets, then such wages are treated as capital expenditure.
- Repairs: Repairing expenses are of nominal nature and debited to profit and loss account. But repairing expenses incurred on old or second hand assets which increase the capacity or life of the assets are treated as revenue expenditure.
- Legal charges: Legal charges are normally debited to profit and loss account because it is nominal in nature. But if legal expenses are incurred in acquisition of fixed assets then such expenses are treated as capital expenditure and added with the cost of asset.
- Brokerage and stamp duty: Brokerage and stamp duty are normally debited to profit and loss account because it is nominal in nature. But if Brokerage and stamp duty expenses are incurred in acquisition of fixed assets then such expenses are treated as capital expenditure and added with the cost of asset.
(c) Write five features of business income and five objectives of income measurement. 5+5=10
Ans: Business is an economic activity, which is related with continuous and regular production and distribution of goods and services with a view to earn profit. In accounting, the term income refers to business income. Business income can be defined as excess of revenue over expenses. Revenue means inflow of assets from business operations which result in an increase in the owner’s equity. The terms ‘expense’ refers to the amount incurred in the process of earning revenue. If revenue exceeds expenses, it would represent income or profit. If expenses exceed revenue, it would represent loss. Thus, Net Income (Profit/Loss) = Total Revenue-Total Expenses.
Features of Business income
Following are the main features of business income:
- Business income is based on the transactions (both external and internal) actually entered into the business enterprise.
- Business income always pertains to a given accounting period.
- Business income is based on the recognition and measurement of revenues.
- Business income requires the measurement of all business expenses in terms of historical cost.
- Business income is based on the principle of matching realized revenues of the period with corresponding relevant costs.
Objectives of Measurement of Business Income
- To measure of Managerial Efficiency.
- To measure the Creditworthiness or short term liquidity.
- To provide base for calculation of tax.
- To help in taking investments decisions.
- To assist in taking dividend decision.
5. From the following Trial Balance and other information of M/s Aradhana, Howly, as on 31.3.20 prepare a Trading Account and Profit and Loss Account for the year ended on 31.3.20 and a Balance Sheet as on that date: 10
- Closing stock 20,000.
- Salaries prepaid 2,000.
- Salaries outstanding 4,000.
Following is the Trial Balance of Ajay and Bijay as on 31st March, 2020:
Cash in Hand
Cash at Bank
Prepare the Profit & Loss Account and Profit & Loss Appropriation Account for the year ended on 31st March, 2020 and a Balance sheet of the firm as on that date after taking into consideration the following additional information: 10
- Depreciate Machinery @ 10% p.a. and Furniture @ 20% p.a.
- Partners will get interest on Capital @ 5% p.a.
- Ajay is entitled to a salary of Rs. 2,000 p.a.
- The Profit sharing ratio between Ajay and Bijay was 3:2.
6. What is meant by installment purchase system? Write four features of installment purchase system and state four points of distinctions between hire purchase system and installment purchase system. 2+4+4=10
Ans: Meaning and Definition of Installment Purchase System
Installment payment system (also called the deferred installments) is a system where the buyer is given the ownership as well as the possession of the gods at the time of signing the contract. The buyer has the facility to pay the price in installments.
According to J.B. Batliboi, Installment Purchase System is a system under there is an agreement to purchase and pay by installments, the goods which become the property of the Purchaser immediately when he receives the delivery of the same.
Features and Characteristics of Installment Payment System:
- Under this system, there will be an outright sale of goods/assets.
- The possession as well as the ownership is passed to the buyer right at the time of signing the contract.
- The buyer can make the payment in installments.
- IN case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price.
- The buyer cannot exercise the option of returning the goods and terminate the contract, unless the same becomes void or voidable under the contract act.
Differences Between Hire Purchase System and Installment Purchase System:
|Hire-Purchase System||Installment Purchase|
|It is a contract of hiring.||It is a contract of sale.|
|It is transferred by seller to buyer only after payment of all installments.||It is transferred by seller to buyer, immediately on signing the contract.|
|In this case, the buyer is like a bailee||In this case, the buyer is not in the position of a bailee|
|Such risk is on the seller.||Such risk is on the buyer.|
|On default of payment of any installment by the buyer, the seller can repossess the goods.||On default and payment of any installment by the buyer, seller cannot repossess the goods, but can file a suit in the court of law against the buyer for the recovery of unpaid price.|
|The buyer can exercise the option of return of goods.||The buyer cannot exercise the option of return of goods.|
|The buyer cannot dispose the goods, until the payment of last installment. If disposed, the third party buyer does not get a better title.||The buyer has the right to dispose the goods, even if all installments are not yet paid.|
M/s Paridhan, having their head office at Guwahati has a branch at Tezpur. Following are the transactions of the head office with its Tezpur branch for the year ended on 31st March, 2020:
Stock at Branch
Stock at Branch
Petty expenses incurred by the Branch during the year
Goods supplied to Branch during the year
Goods returned by Branch
Cash sales at Branch
Cheque sent to Branch:
Office Expenses 5,000
Petty Cash 6,000
Prepare Tezpur Branch Account, Goods sent to Branch Account and Branch Stock Account under Debtors system in the books of Head Office. 6+2+2=10