Certificate in Accounting and Finance Stage Examination

The Institute of 2 September 2019

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Introduction to Accounting
Section A

Q.1 Lamda Establishment is preparing bank reconciliation statement on 30 June 2019. In this
respect, the following information is available:
(i) Cash book showed an overdrawn balance of Rs. 3,928,000.
(ii) Cheques outstanding as at 30 June 2019 amounting to Rs. 1,250,000 included:

a cheque of Rs. 10,000 dated 8 December 2018 issued to a welfare organisation
for donation.

a cheque of Rs. 150,000 dated 20 June 2019 mailed to a supplier on 10 July 2019.
(iii) A cheque of Rs. 391,000 issued to a supplier was recorded in the cash book as
Rs. 319,000.
(iv) Cheques received from customers amounting to Rs. 670,000 were recorded in the cash
book but not credited in bank statement. These cheques included a cheque dated
10 July 2019 amounting to Rs. 25,000 received from a customer on 28 June 2019.
(v) A bank debit advice dated 30 June 2019 for interest charges amounting to Rs. 80,000
was received in July 2019.

Required:
(a) Compute the corrected cash book balance as at 30 June 2019. (04)
(b) Compute the bank balance as would be appearing in the bank statement as at
30 June 2019. (04)

Q.2 Omikron Traders (OT) deals in one product. Following information for the month of
June 2019 has been collected for preparation of trading account:
Description Units Rupees Remarks
Opening inventory 4,000 745,000 At cost
Purchases 11,000 2,340,000 Inclusive of sales tax
Sales 12,000 4,800,000 Exclusive of sales tax
Additional information:
(i) Sales tax @ 17% on purchases is adjustable against sales tax payable by OT.
(ii) Handling and transportation costs to OT's premises are Rs. 20 per unit.
(iii) Units purchased are polished at a cost of Rs. 10 per unit prior to transferring to the
warehouse.
(iv) Units are stored in a warehouse which is acquired at a monthly rent of Rs. 380,000.
(v) 350 units were withdrawn for personal use during the month.
(vi) During the month-end physical inventory verification, it was observed that:

20 units were found short.

150 units were damaged during handling and are saleable at 40% of its selling
price after incurring an additional cost of Rs. 15 per unit.
Shortages/damages upto 200 units in a month are treated as normal loss.
(vii) OT uses periodic inventory method and cost is determined using weighted average
cost method.
 Introduction to Accounting Page 2 of 6

Required:
Prepare ‘Trading account’ for the month of June 2019. (08)

Q.3 Sigma Brothers (SB) has three partners A, B and C sharing profits and losses in the ratio of
3:2:5 respectively. SB’s draft statement of profit or loss for the year ended 30 June 2019
shows net profit of Rs. 4,100,000. On review of the financial statements, the partners have
identified the following matters:

(i) Annual bonus to SB’s employees at 10% of the net profit after bonus has not been
accrued.
(ii) Salaries withdrawn by the partners were charged to profit or loss. Salary for June 2019
was not withdrawn by C.
(iii) On 1 May 2019, SB opened a new outlet in a rented building. Annual rent effective
from 1 April 2019 amounting to Rs. 1,200,000 was paid in advance by C from his
personal bank account. The rent paid has not been accounted for in the books of SB.

As per the partnership agreement:

(i) A and C are entitled to a monthly salary of Rs. 50,000 each.
(ii) A is entitled to a minimum profit share of Rs. 1,800,000 per annum. Shortfall in profit,
if any, would be shared by B and C in their profit sharing ratio.

Required:
Show how SB’s profit for the year ended 30 June 2019 would be shared among the partners. (07)

Q.4 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions (MCQs).

(i) The matching concept matches:

(a) assets with liabilities (b) income with expenses

(c) capital with reserves (d) expenses with capital (01)

(ii) An inexperienced accountant has prepared the current account of one of the partners
as follows:

Current Account
Rs. Rs.
Interest on capital 33,000 Balance b/d 50,000
Balance c/d 40,000 Drawings 10,000
Share of residual profit 13,000
73,000 73,000

The balance brought down is entered correctly and the amounts of other entries are
correct. However, the accountant is not sure of the difference between debits and
credits.

What should be the correct amount of balance carried down?

(a) Rs. 60,000 (b) Rs. 70,000 (c) Rs. 86,000 (d) Rs. 96,000 (01)

(iii) Which of the following errors will create balance in a suspense account?

(a) Repairs expense was considered as purchase of asset

(b) Purchase of inventory was considered as purchase of non-current asset
(c) An invoice of Rs. 2,500 was totally omitted from the books
(d) Petty cash expenses of Rs. 500 were only credited to bank account (01)
 Introduction to Accounting Page 3 of 6

(iv) The purpose of depreciation is to:

(a) allocate the depreciable cost on a systematic basis over the asset’s useful life
(b) write the asset down to its realisable value each period
(c) accumulate a fund for asset replacement
(d) recognise that assets lose value over time (01)

(v) Zee bought goods on credit from Shan Traders (ST). The goods were not according to
the required specifications and therefore returned to ST. Which document should Zee
send to ST?

(a) Credit note (b) Debit note

(c) Invoice (d) Statement of account (01)

(vi) International Financial Reporting Standards are issued by:

(a) Financial Accounting Standards Board

(b) International Accounting Standards Board
(c) International Accounting Standards Committee
(d) Generally Accepted Accounting Principles Board (01)

(vii) The cost of a wastebasket having an estimated useful life of 5 years is charged off as an
expense upon purchase. This is an example of the application of the:

(a) consistency (b) matching principle

(c) materiality concept (d) historical cost principle (01)

(viii) Debit always means:

(a) left side of an account (b) right side of an account

(c) increase (d) increase in assets (01)

(ix) How will these assets expire?

Prepaid rent Office supplies

(a) With the passage of time Through use and consumption
(b) Through use and consumption With the passage of time
(c) With the passage of time With the passage of time
(d) Through use and consumption Through use and consumption (02)

(x) An unearned revenue in the books of a receiver is likely to be:

(a) a prepaid expense in the books of the payer

(b) an unearned revenue in the books of the payer
(c) an accrued expense in the books of the payer
(d) an accrued revenue in the books of the payer (01)

(xi) Which of the following is NOT an asset that falls under the scope of IAS 16 Property,
Plant and Equipment?

(a) Tangible assets

(b) Assets held for the production or supply of goods or services
(c) Assets held for sale in the normal course of business
(d) Assets expected to be used for more than one period (01)
 Introduction to Accounting Page 4 of 6

Section B

Q.5 Following information pertains to Omega Limited (OL) for the month of July 2019:

(i) Opening balances:

Rupees
Cash in hand 85,000
Cash at bank - as per cash book 650,000
- as per bank statement 780,000

OL maintains two columns cash book.

(ii) Transactions for the month:

Date Transactions
02-Jul Goods purchased on credit from Danish Stores for Rs. 475,000 (net of
5% trade discount).
04-Jul Goods sold on credit to XYZ & Co. for Rs. 500,000 after a trade
discount of 10%. In this respect, transportation charges of Rs. 15,000
were paid in cash by OL.
05-Jul Goods sold on credit to Zaid Brothers for Rs. 640,000 and offered a
discount of 5% on payment within 30 days.
07-Jul Cheques issued to Zee & Co. for Rs. 400,000 in full and final settlement
of one of its old invoice of Rs. 425,000 and ABC Stores for Rs. 190,000
(net of 5% payment discount).
09-Jul Goods sold to Qavi & Sons and received a cheque of Rs. 58,000.
10-Jul Cash payment of utility bills amounted to Rs. 45,000. This included a
bill of Rs. 5,000 belonged to the owner’s residence.
12-Jul Goods returned by Zaid Brothers amounted to Rs. 135,000.
12-Jul Goods returned to Danish Stores amounted to Rs. 50,000.
13-Jul Goods purchased on credit for Rs. 700,000 from Chenab Stores subject
to 10% discount on payment within 30 days.
15-Jul A cheque of Rs. 100,000 was encashed for day to day cash requirements.
20-Jul Fully depreciated laptops costing Rs. 134,000 were scrapped.
21-Jul New laptops were purchased for Rs. 245,000 from Shifa Electronics and
issued a cheque of Rs. 100,000 in part payment.
23-Jul 40% of the goods sold to Qavi & Sons on 9 July were returned and the
amount was refunded in cash. These goods were sold at cost plus 25%.
26-Jul Goods purchased for cash from Ravi Brothers having list price of
Rs. 68,000 and availed discount of 5%.
30-Jul Cheques received from Zamil Store of Rs. 285,000 (net of 5% payment
discount) and Zaid Brothers of Rs. 500,000 in settlement of an old
invoice of Rs. 550,000.

Required:
Enter the above transactions in the books of prime entry in a proper format. (Narrations are
not required) (15)

Q.6 Following information pertains to plant and machinery of Alpha Enterprises (AE):

(i) As at 1 January 2018, balances of cost and accumulated depreciation amounted to

Rs. 12,700,000 and Rs. 6,240,000 respectively.

(ii) On 1 April 2018, an old machine having fair value of Rs. 340,000 was exchanged for a
new machine. The balance of the purchase price was paid through a cheque of
Rs. 680,000. The list price of the new machine was Rs. 1,130,000. The old machine
had been acquired for Rs. 870,000 on 1 September 2015.
 Introduction to Accounting Page 5 of 6

(iii) On 1 February 2018, a plant having a list price of Rs. 10,000,000 was acquired. A
trade discount of 5% was allowed on the list price. The plant was ready for use on
1 August 2018 after incurring the following costs:
Rs. in '000
Freight charges 660
Consultant fees 540
Installation and testing 600
Administration and other general overheads 160
Staff training 120
Opening ceremony 100
2,180
(iv) On 31 October 2018, another machine was sold for Rs. 334,000. It was acquired on
1 January 2015 and had a net book value of Rs. 512,000 on 1 January 2018. A cost of
Rs. 25,000 was incurred on its disposal.
(v) AE depreciates plant and machinery at 20% per annum using the reducing balance
method.

Required:
Prepare following ledger accounts pertaining to the plant and machinery for the year ended
31 December 2018:
(a) Cost (06)
(b) Accumulated depreciation (06)
(c) Assets disposal (04)

Q.7 Financial statements of Zeta Traders (ZT) for the year ended 30 June 2019 is under
preparation. Following information has been gathered in this respect:

(i) Trade receivables as at 30 June 2019:

Rupees
Trade receivables 2,500,000
Provision for doubtful debts (400,000)
Net trade receivables 2,100,000

It was noted that:

an old outstanding balance of Rs. 250,000 which was written off previously was
settled during the year at 20% discount. The amount received was credited to
trade receivables.

purchase return amounting to Rs. 500,000 was mistakenly debited to trade
receivables.

Rana and Sons having a balance of Rs. 80,000 due for more than one year was
declared bankrupt and its balance needs to be written off.
ZT maintains provision for doubtful debts:

at 25% for balances outstanding for more than six months. As at 30 June 2019,
such balances are aggregated to Rs. 600,000 (excluding balance of Rana and
Sons); and

at 5% for the remaining balances

(ii) A cheque dated 25 June 2019 for Rs. 150,000 was received from an insurance company
and deposited by the owner in his personal bank account. The cheque was received in
settlement of an inventory loss claim. Actual inventory loss was determined at
Rs. 180,000. No entries have been made for loss of inventory and insurance claim.
 Introduction to Accounting Page 6 of 6

(iii) The opening balance of accumulated depreciation was brought forward as

Rs. 280,000 instead of Rs. 820,000. The error was tried to be corrected with the
difference by crediting accumulated depreciation and debiting depreciation expense.
(iv) Goods amounting to Rs. 350,000 received from a supplier on 30 June 2019 were
included in the year-end physical inventory count but recorded in purchases day book
on 1 July 2019.
(v) Third party stock of Rs. 500,000 lying on ZT premises has been included in ZT’s
year-end inventory.
(vi) ZT uses periodic inventory method.

Required:
(a) Prepare adjusting / correcting entries for the year ended 30 June 2019. (Narrations are
not required) (13)
(b) Compute the net effect of the above on ZT’s profit for the year ended 30 June 2019. (03)

Q.8 Following is the summarised trial balance of Delta Enterprises (DE), for the year ended
30 June 2019:
Rs. in '000
Description Debit Description Credit
Property, plant and equipment 230,600 Capital 145,000
Inventory – 30 June 2019 67,800 Profit or loss – 1 July 2018 34,500
Cash and bank balances 4,600 12% Bank loan 90,000
Trade receivables 94,800 Accumulated depreciation 44,300
Prepayments 3,000 Trade payables 41,400
Other receivables 5,300 Sales revenue 487,800
Cost of sales 354,700 Other income 2,600
Selling expenses 29,400
Administration expenses 25,900
Depreciation 19,800
Interest on bank loan 9,000
Bank charges 700
845,600 845,600

Additional information:
(i) Goods returned by a customer on 30 June 2019 were recorded on 1 July 2019. These
goods had been sold on credit for Rs. 1,950,000 at cost plus 30%.
(ii) On 1 October 2018, a printer was acquired on rent from Qazi & Co. The annual rent
of Rs. 480,000 was paid in advance and debited to prepayments. However, the printer
was purchased by DE on 1 April 2019 for Rs. 1,240,000. The payment net of rent
adjustment was made in July 2019. The purchase has not been accounted for. DE
depreciates office equipment at 20% using reducing balance method.
(iii) DE allocates depreciation to selling and administration in the ratio of 4:6 respectively.
(iv) Annual fire insurance premium of Rs. 4,500,000 was paid in advance on
1 January 2019 and debited to administration expenses. The payment also includes
Rs. 1,350,000 pertaining to the owner's personal property.
(v) Other income includes Rs. 900,000 collected on 1 April 2019 in respect of a service
agreement for the six months ending 30 September 2019.
(vi) An amount of Rs. 960,000 receivable on 1 August 2019 on completion of a service
agreement for the six months ended 31 July 2019 has not been accounted for.
(vii) 12% bank loan was acquired on 1 April 2018. The principal is repayable in ten equal
yearly installments commencing from 1 April 2019. Interest is payable on
1 October and 1 April each year.

Required:
(a) Prepare statement of profit or loss for the year ended 30 June 2019. (09)
(b) Prepare statement of financial position as at 30 June 2019. (09)
(THE END)