ICWAI Financial Accounting Previous Years Question Papers

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Previous year question papers exam of Institute of Cost and Works Accountants of India of Financial Accounting


Answer Question No I which is compulsory and any five from the rest
1(a). Distinguish Between Liability and Provision. (3 marks)
(b).A & B are two partners of a firm sharing the profits & losses in the ratio of 7/12 and
5/12 respectively. On Ist April 2009,they take C as a partner giving him 1/6 share. A & B
agreed further to share the C future profits in the ratio of 13/12 & 7/24 resp.C,in addition to
his capital, brings in Rs96000 as his goodwill for 1/6 share. The goodwill is amount to be
shred between A & B.

The share of goodwill amount of A & B respectively will be
A: Rs24000 & Rs72000
B: Rs72000 & Rs24000
C: Rs56000 & Rs40000
D: Rs52000 & Rs44000

Choose the correct answer. (3 marks)

©Match the following
(i) AS-4 (1) Disclosure of Accounting Policies
(ii) AS-10 (2) Contingencies & Events occurring after the Balance Sheet Date
(iii)As-26 (3) Accounting for Fixed Assets
(iv)AS-1 (4) Intangible Assets (4 marks)
(d) Match the following
(i) Cash Reserve (1)Electricity Supply Co
(ii)Clear Profit (2) Construction Co
(iii)Escalation Clause (3)Banking Co (3 marks)
(e) Can a company change the method of providing Depreciation? (3 marks)
(f)State whether each of the following statement is true or false
(i) Dividend can be declared out of revaluation of fixed assets
(ii) Calls in arrears is shown in the B/S under the heading current assets
(4 marks)

(g)Mention the funds out of which a company can purchase its own share? (3 marks)
(h) Choose the correct answer
Under the Hire Purchase System the last installment paid comprises
(i) Cash Price only
(ii) Interest only
(iii) Cash Price and Interest
(2 marks)

2. (a) M/s Rama and Rina commenced business on 1st January 2005, when they purchased
plant and equipment for Rs. 7,00,000. They adopted a policy of (i) charging depreciation at
15% p.a. on diminishing balance method and (ii) charging full year’s depreciation on
additions. Over the years, their purchases of plant have been :

Date Amount
August 1, 2006 1,50,000
September 30, 2009 2,00,000
On January 1,2009 it was decided to change the method and rate of depreciation to 10% p.a.
on straight line method with retrospective effect from January 1, 2005, the adjustment being
made in the accounts for the year ending 31st December, 2009.Kolkata the difference in
depreciation to be adjusted in the Plant and Equipment Account on January 1, 2009 and show
the ledger account for the year 2009. (10 marks)
(b) Classify the following items as capital or revenue expenditure:
(i) An extension of railway tracks in the factory area;
(ii) Wages paid to machine operators;
(iii) Installation costs of new production machine;
(iv) Materials for extensions to foremen’s offices in the factory;
(v) Rent paid for the factory. (5 marks)

3.(a) The Bihar Coal Co. Ltd. holds a lease of coal mines for a period of twelve years,
commencing from 1st April 2002. According to the lease, the company is to pay Rs 7.50 as
royalty per ton with a minimum rent of Rs 150,000 per year. Short workings can, however,
be recovered out of the royalty in excess of the minimum rent of the next two years only. For
the year of a strike the minimum rent is to be reduced to 60%. The output in tons for the 6
years ending 31st March,2008 is as under: 2002-03 : 10,000; 2003-04 : 12,000; 2004-
05:25,000; 2005-06: 20,000; 2006-07: 50,000; and 2007-08:15,000 (strike). Write up the
necessary Ledger Accounts in the books of Bihar Coal Co. Ltd. (10 marks)
(b) Distinguish between Hire Purchase System and Instalment System. (5 marks)

4 (a) From the following information, calculate the value of goodwill by super profit method
and CapitaIisation method
(i) Average Capital employed in the business Rs. 7,00,000.
(ii) Net trading profit of the firm for the past three years Rs. 1,47,600; Rs. 1,48,100
and Rs.1,52,500.
(iii) Rate of Interest expected from capital having regard to the risk involved —18%.
(iv) Fair remuneration to the partners for their services 12,000 per annum.
(v) Sundry Assets (excluding goodwill) of the firm Rs. 7,54,762.
(vi) Sundry Liabilities Rs. 31,329.
(vii) Goodwill valued at 2 years’ purchase (10 marks)
(b) Write a short Note on Segmental Reporting (5 marks)

5 (a) Swapna Ltd has two branches, at Mumbai and at Delhi. Goods are invoiced to
Branches at cost plus 50%. Goods are transferred by/to anther branch at its cost. Following
information is available of the transactions of Mumbai for the year ended on 31st March
2008.
Rs.
(a) Opening Stock at its cost 26,700
(b) Goods sent to Branch (including goods invoiced at . 1,500
to Branch on 31st March but not received by Branch before closing) 78,300
(c) Goods received from Delhi Branch 600
(d) Goods transferred to Delhi Branch 5,100
(e) Goods returned by Branch to H.O. 1,170
(f) Goods returned by Credit Customers to Branch 570
(g) Goods returned by Credit Costomers directly to H.O. 120
(h) Agreed allowance to Customers off the selling price 100
(already taken into account while invoicing)
(i) Normal loss due to wastage and deterioration of stock (at cost) 150
(j) Loss-in transit (at invoice price) Rs. 660 against which a sum of Rs.400 was recovered
from the Insurance Company in full settlement of the claim.
(k) Cash Sales Rs. 3,200 and Credit Sales 72940
(l) Branch Expenses (including Insurance charges) 5,000
(m) Bad Debts Rs. 100 and Discount allowed to Customers 50
Prepare Branch Stock Account, Branch Adjustment Account and Branch Profit and Loss
Account in the following case
If the Closing Stock at Branch at its cost as per physical verification amounted to
Rs. 20,000 (10 marks)
(b) Write short notes on treatment of abnormal losses in Branch Account. (5 marks)

6. (a) Alpha Ltd issued a prospectus inviting applications for 2,000 shares of Rs.10 each at a
premium of Rs. 2 per share, payable as follows :
On Application Rs.2 On Allotment Rs 5 (including premium)
On First Call Rs.3 On Second & Final Call Rs. 2
Applications were received for 3,000 shares and pro rata allotment was made on the
applications for 2,400 shares. It was decided to utilise excess application money towards the
amount due on allotment.
Mohit, to whom 40 shares allotted, failed to pay the allotment money and on his subsequent
failure to pay the first call, his shares were forfeited.
Jagat, the holder of 60 shares failed to pay the two calls and on his such failure, his
shares were forfeited.
Of the shares forfeited, 80 shares were sold to Rishav credited as fully paid for Rs. 9 per
share, the whole of Mohit’s shares being included.
Give Journal Entries to record the above trasactions (including cash transactions)
(10 marks)
(b) Discuss the conditions of Companies Act with regard to buy back of shares.
(5 marks)

7 (a) Hansa Ltd. was incorporated on 1st July, 2008 to acquire a running business with effect
1st April, 2008. The accounts for the year ended 31st March, 2009 disclosed the following :
(i) There was a gross profit of Rs. 30,00,000.
(ii) The sales for the year amounted to Rs. 1,20,00,000 of which Rs. 24,00,000 were for
the first six months.
(iii) The expenses debited to the Profit and Loss Account included—directors’ fees :
Rs. 1,50,000; bad debts : Rs. 36,000; advertising : Rs. 1,20,000 (under a contract
amounting to Rs. 10,000 per month); salaries and general expenses : Rs. 6,40,000;
preliminary expenses written off Rs. 50,000; and donation to a political party given by
the company Rs. 50,000.
Prepare a statement showing the amount of profit made before and after incorporation.
(10 marks)
(b)Distinguish between Statutory Reserve and Cash Reserve in respect of
Banking Companies
(5 marks)

8. Write NOTES ON
(a) Double Accounting System
(b) Reinsurance
©Materiality Concept
(d)Minimum Rent
(e) Bonus Share (15 marks)

FINANCIAL ACCOUNTING
Q. 1. State whether following statements are True/False.
(i) Expenses + Loss+ Assets=Income+ Gains+ Liabilities.
(ii) Bank Overdraft is a Real Account.
(iii) Short workings is the amount by which the minimum rent falls short of the actual royalty.
(iv) Hire purchase stock represents the installments from buyers not yet due.
(v) Life Membership fee is an item of liability in case of a club.
(vi) The inventory under AS 2 is valued on the basis of cost price or current replacement cost which
ever is lower.
(vii) Goodwill is a fictitious asset.
(viii) Debit balance in the Profit and Loss A/c is treated as surplus.
(ix) A and B divide profit in the ratio of 5:3. Z is admitted for 1/5 share in the business. The new profit
sharing ratio is 5:3:2.
(x) Gaining Ratio is applicable at the time of retirement of a partner.
(xi) The contract of insurance is a contract of guarantee.
(xii) Issue of Sweat Equity shares is a non-cash transaction.
(xiii) Stock Turnover ratio is Average Stock/Net Sales.
(xiv) High Capital Gearing ratio means high return to equity shareholders even in case of low profit.
(xv) AS 4 deals with prior period adjustments.
(xvi) The amortization of the amount of software commences from the date when it is available for
use.
(xvii) Changing of rings and pistons of an engine to increase efficiency is in the nature of revenue
expenditure.
(xviii) Preference shares may be redeemed from the General Reserve.
(xix) In case of a Branch situated in New York, Balance in ‘Head Office A/c’ in the Branch Books is to be
taken at Dollars.
(xx) Buy back is permitted only in respect of fully paid-up shares.
Answer 1.

(i) The Statement is True.
(ii) False – Bank O/D is a personal account.
(iii) False – Short workings is the amount by which the minimum rent exceeds the actual royalty.
(iv) The Statement is True.
(v) The Statement is True.


(vi) False – As per AS 2 on valuation of inventories, inventory is valued at the lower of historical cost
and net realizable value.
(vii) False – Goodwill is an intangible asset.
(viii) False – Debit balance in the Profit and Loss A/c is treated as deficit or loss as expenses are more
than income.
(ix) True – A’s new share is 5/8*4/5=1/2. B’s new share is 3/8*4/5=3/10. So new share is (½:3)/(10:1/5).
Multiplying the ratio with 10, the new ratio is 5:3:2.
(x) The Statement is True.
(xi) False – The contract of insurance is a contract of indemnity.
(xii) The Statement is True.
(xiii) Stock Turnover ratio Cost Of Goods Sold/ Average Stock.
(xiv) False – High Capital Gearing ratio means high return to equity shareholders in case of high profit.
(xv) False – AS 4 deals with Contingencies and Events occurring after the Balance Sheet Date.
(xvi) The Statement is True.
(xvii) The Statement is True.
(xviii) False – According to Section 80 of the Companies Act Preference Shares can be redeemed out of
profits or out of fresh proceeds of a fresh issue of shares made for the purpose of redemption.
(xix) False – It should be taken at Indian Rupees.
(xx) The Statement is True.

Q. 2A. Choose the correct alternative :
(i) Bank Reconciliation Statement is prepared to :
(a) rectify the mistakes in pass book.
(b) to rectify the mistakes in cash book.
(c) to arrive at balance as per bank statement.
(d) to find the reasons of differences in balance as per Cash Book and Bank Statement.
(ii) Which of the following is a Revenue Expenditure?
(a) Construction of Factory shed.
(b) Sales Tax paid in connection with purchase of Office Equipment.
(c) Legal Expenses in connection with defending a title to firm’s property.
(d) License fees.
(iii) Capital is shown on the liability side because of :
(a) Business Entity Concept.
(b) Conservatism Concept.
(c) Accrual Concept.
(d) Duality Concept.
(iv) Depreciation is a process of:
(a) apportionment
(b) valuation
(c) allocation
(d) appropriation

(v) For Sales Return at Branch, in case of dependent branches, entry to be passed in HO books,
(a) Debit Branch Debtors A/c, Credit Branch Stock A/c.
(b) Debit Branch Stock A/c , Credit Branch Debtors A/c.
(c) Debit Sales A/c, Credit Branch Debtors A/c.
(d) Debit Sales A/c, Credit Branch Stock A/c.
(vi) Which of the following is treated as contingent liability as per AS 4?
(a) Obligations under retirement benefit plan.
(b) Commitments arising from long term lease contract.
(c) Arrears of fixed cumulative dividends.
(d) Liabilities of Life and General Insurance out of policies issued by enterprise.
(vii) Which of the following is not a unsecured loan in Balance sheet of a Company?
(a) Acceptance of Fixed Deposits.
(b) Creation of Sinking Funds.
(c) Loans and advances from others.
(d) Short term loans from Banks.
(viii) Any profit prior to incorporation may be:
(a) Credited to Capital Reserve A/c.
(b) Debited to Goodwill A/c
(c) Debited to Suspense A/c
(d) None of the above.
(ix) Which of the following terms is related to Accounts of Electricity Companies?
(a) Clear profit
(b) Work uncertified
(c) NPA
(d) Claims outstanding.
(x) Current Ratio is a :
(a) Efficiency Ratio
(b) Profitability Ratio
(c) Solvency Ratio
(d) Yield Ratio.
Answer 2A.

(i) (d) to find the reasons of differences in balance as per Cash Book and Bank Statement.
(ii) (c) Legal Expenses in connection with defending a title to firm’s property.
(iii) (a) Business Entity Concept.
(iv) (c) allocation
(v) (b) Debit Branch Stock A/c , Credit Branch Debtors A/c.
(vi) (c) Arrears of fixed cumulative dividends.
(vii) (b) Creation of Sinking Funds.
(viii) (a) Credited to Capital Reserve A/c.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(ix) (a) Clear profit.
(x) (c) Solvency Ratio.

Q. 2B. Match the items in Column (I) with the items shown in Column (II) :
Column (I) Column (II)
(i) Minimum Rent (a) Insurance A/c
(ii) Average Clause (b) Contract A/c
(iii) Undervaluation of asset (c) Sinking Fund
(iv) Work certified (d) Company Accounts
(v) DRFI (e) Capital Reserve
(vi) Money at call and in short notice (f) Allocation
(vii) Calls-in-arrear (g) Royalty A/c
(viii) Profit Prior to Incorporation (h) Appropriation
(ix) Charging of Depreciation (i) Bank Account
(x) Charging of Rent (j) Secret Reserve
Answer 2B.

Column (I) Column (II)
(i) Minimum Rent (a) Royalty A/c
(ii) Average Clause (b) Insurance A/c
(iii) Undervaluation of asset (c) Secret Reserve
(iv) Work certified (d) Contract A/c
(v) DRFI (e) Sinking Fund
(vi) Money at call and in short notice (f) Bank Account
(vii) Calls-in-arrear (g) Company Accounts
(viii) Profit Prior to Incorporation (h) Capital Reserve
(ix) Charging of Depreciation (i) Allocation
(x) Charging of Rent (j) Appropriation

Q. 2C. Fill up the blanks :
(i) Recording of fixed assets at cost ensures adherence of concept.
(ii) Conversion of debt into equity shares is transaction.
(iii) Amount received on account of Legacies is generally taken to .
(iv) Errors in Principle affect Balance Sheet.
(v) Average Clause is intended to discourage .
(vi) Premium brought in by a new partner is shared among old partners in their ratios.
(vii) As per AS 28 recoverable amount of an asset is higher of and Value in use.
(viii) Yield method of valuing shares is also known as method.

DIRECTORATE OF STUDIES, THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
(ix) Cost of incorporating a Company should be debited to A/c.
(x) Velocity Ratios are also known as ratios.
(xi) The Double Account System is a method of presenting Annual Financial statements of .
Answer 2C.
(i) cost
(ii) non-cash
(iii) Balance Sheet
(iv) does not
(v) under-insurance
(vi) sacrificing
(vii) Net selling price
(viii) Earning Capacity
(ix) Preliminary Expenses
(x) Turnover
(xi) Public Utility Concerns