B.Com I Accounting

Instructions: Attempt any FIVE questions.

Q.1. VALUATION ACCOUNTS RECEIVABLE

Given: Hadi Brothers furnished the following account balances and transactions concluded during 2008:

Accounts Receivable 01-01-2008 ………………………………. 1,50,000
Allowance for Bad Debts 01-01-2008 ……………………………. 6,400
Total Cash Collected from Customers …………………………… 3,95,000
Promissory notes received from customers
to apply on account ………………………………………………… 34,000
Credit balance in customers accounts end
the year, advance payments ………………………………………. 23,300
Customers account written off during the year ………………….. 3,600
Gross credit sales for the year …………………………………… 6,00,000
Sales return and allowance ……………………………………….. 32,400
Sales discount allowed to customers ………………………………4,500
Previously written off A/C receivable recovered …………………. 8,500

NOTE: Allowance for bad debts December 31, 2008 should be equal to 5% of the year end balance of accounts receivable account.

Required:
i. Make posting of the above transactions directly into the accounts receivable and the allowance for the bad debts accounts. Balance both the accounts on December 31, 2008.
ii. Prepare a journal entry to record the year end adjustment as required in the note. Prepare a partial balance sheet showing the accounts receivable and its Allowance for Bad Debts accounts.

Q.2. BANK RECONCILIATION

The accountant of Urooj Ltd. has extracted the following data from its Cash Book (Bank Column) and the Bank Statement on November 30, 2008:

i. Credit Balance (O.D.) as per Cash Book Rs. 74,000.
ii. Debit Balance (O.D.) as per Bank Statement Rs. 62,700.
iii. Bank charges not recorded by the Co. Rs. 1,200.
iv. Cheque deposited on November 30, 2008 but not shown on Bank Statement Rs. 28,000.
v. Deposit by a customer directly made in company’s account not recorded by the company Rs. 50,000.
vi. A cheque for purchase of supplies was drawn for Rs. 65,000 but was recorded on Company’s records as for Rs. 56,000.
vii. The Company Officer issued a cheque for Rs. 5,000 for traveling expenses. This cheque was not recorded by the Company.
viii. Cheque issued during November but not presented to the bank for payment Rs. 4,500.

Required:
i. Prepare a Bank Reconciliation Statement showing the corrected balances.
ii. Prepare necessary adjusting entries in the General Journal.

Q.3. Voucher System

Uroosa Company uses a voucher system for all major expenditures. selected transactions for June 2008 are presented below:

i. Paid a Note including accrued interest Rs. 41,500 (Face value of NOte was Rs. 40,000).
ii. Gave a 10% sixty day Note in settlement of outstanding voucher for Rs. 10,000.
iii. Drew a cheque for Rs. 5,000 to establish a petty cash fund.
iv. Purchased goods from Adnan Store for Rs. 60,000, making a down payment of Rs. 20,000 and agreeing to pay the balance in 15 days.
v. Received credit memorandum from Adnan Store for Rs. 5,000 for the return of goods purchased from them.
vi. Advanced by cheque Rs. 18,000 for traveling expense to an officer making business trip.
vii. Drew a cheque for Rs. 4,500 to reimburse petty cash fund office expense.
viii. Reimbursed the office by Cheque of Rs. 2,000 for trip expenses incurred by him in excess of advance of Rs. 18,000.
ix. Paid Adnan Stores invoice taking the discount.

Required: Using general journal form show how the above transactions would be recorded by the company in the Voucher Register Cheque Register and General Journal.

Q.4. WORK SHEET

The Pre-Closing Trial Balance of Nadir and Company on December 31, 2007 is as under:

Debit Balance
Cash Rs. 1,200, Office Supplies Rs. 800, Prepaid Advertising Rs. 6,000, Rent Expense Rs. 3,000, Furniture Rs. 10,000, Salaries Expenses Rs. 5,000. (Total – 26,000)

Credit Balance
Allowance for Depreciation Rs. 2,000, Nadir Capital Rs. 10,000, Commission Income Rs. 14,000. (Total – 26,000)

Date for Adjustment on December 31, 2007
i. Office Supplies on hand Rs. 500
ii. Advertising cost unexpired Rs. 2,000
iii. Current year depreciation on furniture 20% on cost
iv. Prepaid Salaries Rs. 800
v. Actual rent expense for the year Rs. 3,600
vi. Commission Receivable Rs. 300 and unearned commission Rs. 700.

Required: Prepare a 10 Column Work Sheet.

Q.5. ADJUSTING, CLOSING AND REVERSING ENTRIES

Take the data given in Question No. 4, prepare dated Adjusting, Closing and Reversing entries.

Q.6. DEPRECIATION

M/S Saad Trading Co. acquired a business machine at a cost of Rs. 2,70,000 on Jan 01, 2003. The life of the machine was estimated at 5 years with a scrap value of Rs. 25,000. The company uses sum of the year digits method for computing the depreciation.
On January 08, 2006 extra ordinary repairs were made at a cost of Rs. 42,500. As a result of which the normal life of the machine was extended to four years from January 2006. The Co. uses straight line method after the repairs.
On October 01, 2008 the machine was sold for Rs. 48,000. The company follows calender year for closing its books of accounts.

Required: Prepare dated general journal entries for all the transactions between 2003 and 2008.

Q.7. CORRECTION OF ERRORS

The books keeper of Amen Company prepared the income statement of the company which revealed.
Cost of Good Sold …………………………….. 2,00,000
Net Income …………………………………….. 80,000

The company’s Auditor detected the following errors:

i. Ending Merchandise Inventory was overstated by Rs. 6,000.
ii. Sales return of Rs. 2,000 were charged to purchase.
iii. Sales included Rs. 7,000 of advance from customers.
iv. Sale of Equipment for Rs. 3,000 was credited to sales Account, Book value of the Equipment was Rs. 4,000.
v. Office Supplies of Rs. 200 were on hand whereas the office supplies showed a debit balance of Rs. 1,000.

Required:
i. Prepare a Statement showing the amount that should be added to or deducted from cost of goods sold and Net Income so as to arrive at their correct figures.
ii. Assuming the books have not been closed, give the necessary correcting entries.

Q.8. PARTNERSHIP – LIQUIDATION

On December 31, 2007, the following Balance Sheet of M/S. Shireen, Sumaira and Shabana partners who share profit and losses in the ratio of 1 : 2 : 3 respectively.

Assets ……………………………………………….. Equities
Cash …………………. 50,000 | Accounts Payable …………… 70,000
A/C Receivable ……… 60,000 | Notes Payable ………………. NIL
Mrds. Inventory ……. 75,000 | Capital – Shireen …………….. 90,000
Equipment …………… 30,000 | Capital – Sumaira ……………. 60,000
Furniture ……………. 15,000 | Capital – Shabana ……………. 10,000
……………………… 2,30,000 | ……………………………….. 2,30,000

On this date they liquidated their business. Collected Rs. 50,000 from the Accounts Receivable in full settlement. Assets other than Cash and Furniture were sold out for cash Rs. 1,33,000. The furniture was taken over by Shireen at agreed market value of Rs. 12,000. The Creditors were paid Rs. 65,000 in full settlement.

Required: Give all necessary entries in the general journal of the firm to record the above process of liquidation assuming Shabana to be personally insolvent.

Q.9. VALUATION OF MERCHANDISE INVENTORY

The record of Maria Traders show the following data relating to commodity A:

2008 ……………………………………………. Units ………….. Per Unit
Jan 01 …………. Opening Inventory ……….. 100 ……………… 50
Feb 05 …………. Purchases …………………. 200 ……………… 55
Mar 12 …………. Purchases …………………. 300 ……………… 54
Mar 14 …………. Sales ………………………. 350 ……………… 100
April 12 ………… Purchases …………………. 500 ……………… 60
May 14 ………… Purchases …………………. 100 ………………. 70
Jun 30 …………. Sales ………………………. 400 ……………… 110

Required:
i. Compute the cost of ending inventory on June 30, 2008 by each the following methods:
a. First in first out (FIFO)
b. Last in first out (LIFO).
Assume that company uses periodic system of inventory valuation.
ii. Prepare comparative income statement showing effect of two alternative valuation methods on gross profit.