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MUHAMMAD IMRAN
FROM LICCS CAMUS LAYYAH
MC090401446
MBA.MAREKTING COMPLETE
[email protected]
FINALTERM LONG QUESTION OF MGT101

Long Questions including my and my Friends…

Question: Marks=3
What the difference between Debtors turnover Ratio and Creditor turnover ratio?

Question: Marks = 5
If A and B are two partners and their profit ratio is 3:1 and their capitals are 30000
and 100 respectively. The net profit is 160000 and B get salary Rs. 200 p.m. Prepare
Profit distribution account of A and B Partnership.

Question: marks = 5
Pass the Rectify entries.
1: Purchases on credit rs. 10000 to Rizwan have passed through the Sales book.
2: The casting of sales book 151594 but wrongly pass in sales Rs. 115594.

Question No: 54 ( Marks: 10 )

Write a note on legal documents required for the formation of company.

ANSWER:
LEGAL DOCUMENTS REQUIRED FOR FORMATION OF COMPANY:

MEMORENDUM OF ASSOCIATION: It contains the following information

1. Name of company.
2. Place of registered office
3. Objective
4. Amount of share capital with which company registers.

ARTICLES OF ASSOCIATION: It contains the following information

A document that contains all the policies and other matters necessary to run the
business of the company. It is signed by all the members of the company.

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Question No: 52 ( Marks: 10 )
Briefly explain the financial statements prepared by the organization. Why these
are important for manufacturing concern?

ANSWER: The financial statements prepared by any organization are as follows:

1. Profit and loss account: It shows the performance of the business in a given
period. It shows the profitability of business which shows the success or failure of
the business.
2. Balance sheet: Balance sheet shows the position of business at a given point. It
shows the resources available by the business and the resources invested by the
owner and other loans.
3. Cash flow statements: Cash flow statements show the generation of cash and its
usage over a given period.
IMPORTANCE OF FINANCIAL STATEMENTS FOR MANUFACTURING
CONCERN: These financial statements are important for manufacturing concern
organization as they provide information related to financial affairs of the
organization. The profitability and liquidity, the resources available to the company
and the generation of cash and its usage over a given period which provides
reasonable information to the management to take decisions.

Question No: 54 ( Marks: 10 )

Pass the rectifying entries to correct the following errors:

• Mr. “Ali” purchased goods of Rs. 1,500 on cash, but omitted to enter in the books
of accounts.
• An amount of Rs. 5,000 received from Mr. Amir, was credited to the account of
Mr. Ameer.
• Goods returned worth Rs. 500 to Mr. “B” wrongly debited to sales Account.
• A purchase of goods from Mr. “B” of Rs. 400 has been wrongly debited to
Furniture Account.
• Furniture purchased on cash Rs. 8,000 posted as purchases.

Rectification of Errors

Error 1.
A purchase of goods of Rs. 1,500 on cash was omitted by mistake

Rectification Entry on the date of discovery:

Debit: Purchase Account 1,500
Credit: Cash Account 1,500

Error 2

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 Debit: Mr. Ameer 5,000
Credit: Mr. Amir 5,000

• Error 3 Goods returned worth Rs. 500 to Mr. “B” wrongly debited to sales
Account.

Debit: Goods Return Rs. 500

Credit: Sales Account Rs. 500

Error 4 A purchase of goods from Mr. “B” of Rs. 400 has been wrongly debited
to Furniture Account.

Debit: Purchases Rs. 400

Credit Furniture Account Rs. 400

Error 5 Furniture purchased on cash Rs. 8,000 posted as purchases.

Debit Furniture Account Rs. 8,000

Credit Purchase Post Account Rs. 8,000

Question No: 52 ( Marks: 10 )

Write down the at least ten distinguishing features of a limited company which
differentiate it from Partnership business

The basic difference between a partnership and a limited company is the concept of
limited liability.

1. If a partnership business runs into losses and is unable to pay it’s liabilities, its
partners will have to pay the liabilities from their own wealth.
2. In case of limited company the shareholders don’t lose anything more than the
amount of capital they have contributed in the company. It points that personal
wealth is not at stake and their liability is limited to the amount of share capital
they have contributed.
3. The concept of limited company is to mobilize the resources of a large number of
people for a project, which they would not be able to afford independently and
then get it managed by experts.
4. Listed Company have more than twenty partners, so problem of extra capital is
reduced to minimum.
5. The liabilities of the members of a company is limited to the extent of capital
invested by them in the company
6. There are certain tax benefits to the company, which a partnership firm can not
enjoy

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 7. In Pakistan, affairs of limited companies are controlled by “Companies
Ordinance” issued in 1984
8. The formation of a company and other matters related to companies are governed
by “Securities and Exchange Commission of Pakistan (SECP)

Question No: 54 ( Marks: 10 )

The following discrepancies were noted on comparing Cash Book with Pass Book.

(1) The following cheques were deposited into bank on 28th March but were not
collected by the bank by 31st March, (i) Rs. 500, (ii) Rs. 300, (iii) Rs. 200.
(2) The following cheques were issued but were not presented for the payment by
31st March. (i) Rs. 200, (ii) Rs. 450 (iii) Rs. 525 (iv) Rs. 375.
(3) The bank credited a dividend of Rs. 2,000 on 31st march but intimation was
received by the trader on 5th April, 2008.
(4) The bank credited interest of Rs. 50 on 31st March but not debited in Cash
Book.
(5) The Bank charged (debited) a commission of Rs. 100 on 31st March.
(6) A cheque of Rs. 500 was received from customer and was entered in the bank
column of Cash Book on 25th March, but was paid into the bank on 1st April.

Required: Prepare a Bank Reconciliation Statement, if the Bank balance as per Cash
Book (Dr.) was Rs. 15,000 on 31st March, 2008.

Answer:

Balance as per Cash book. Dr 15000

Less not collected Cheques. (500+300+200) Cr 1000
Dr 14000
Add UN Presented Cheques (200+450+525+375) Dr 1550
Dr 15550
Add dividend Credit by bank Dr 2000
Dr 17550
Add interest credit by bank Dr 50
Dr 17600
Less bank charges Cr 100
Dr 17500
Less Cheque received Cr 500
Balance as per Bank Book Cr 17000

Question No: 52 ( Marks: 10 )

Income Statement of XYZ Ltd for the year ended on 30th June, 2007:
Particulars Rs. Rs.
Sales 500,000
Less: Cost of Goods Sold 250,000
Gross Profit 250,000

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 Less: Operating expenses
Administrative expenses 110,000
Interest expenses 20,000 130,000
Net profit before Tax 120,000
Less: Taxes 36,000
Net profit after tax 84,000

Opening Stock for the year was Rs. 60,000.

Balance Sheet of XYZ Ltd on 30th June, 2007:

Assets Rs.
Fixed Assets 400,000
Stock 60,000
Debtors 230,000
Bills Receivable 40,000
Cash at bank 150,000
Prepaid expenses 20,000
Total 900,000
Liabilities
Share capital 200,000
Reserves and surplus 250,000
10% Debentures 200,000
Creditors 180,000
Bills payable 70,000
Total 900,000

Calculate following ratios from the financial statement of XYZ Ltd.

1. Current Ratio
2. Acid Test Ratio
3. Stock turn over Ratio
4. Debt equity Ratio
5. Gross profit Ratio
Solution:
1: Current Ratio:
Total Assets/Total Liabilities
= 900000/900000
=1

2: Acid Test Ratio

Total Assets-Stock/Total Liabilities
= 900000-60000/900000
= 840000/900000
= 0.933333

3: Stock turn over Ratio

(Average Stock / Cost of goods sold) x 365

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Average Stock = opening stock + Closing Stock/2
= 60000+60000/2
= 60000
= (Average Stock / Cost of goods sold) x 365
= (60000/250000) x 365
= 0.24 x 365
= 87.4

4: Debt equity Ratio

Long term Liabilities / Equity
= 200000/200000
=1

5: Gross profit Ratio

(Gross Profit / Sales) x 100
= 250000/500000 x 100
= 0.5 x 100
= 50

Question No: 51 ( Marks: 5 )

10 % Debentures of Rs. 80,000 are shown in trial balance. How it will be shown in
financial statements? Also mention why a company issues debentures.

Answer:
10% Debentures of Rs. 80000 is shown the Owners Equity pr liability Side of Balance
sheet.
Debentures are issued under the common seal of the company and debentures are an
instrument for obtaining the loan from the general public. Company also paid mark up on
debentures which generally equal to the market rate.
Question No: 55 ( Marks: 3 )
On January 31st the finished goods Inventory of XYZ Company was Rs 500,000. During
the year, manual Cost of goods manufactured was Rs. 1,900,000, sales were Rs.
2,000,000 and cost of goods sold is 75% of sales.
Required: Calculate of cost of opening finished goods.

Question No: 56 ( Marks: 5 )

Particulars Rs.
Opening balance of debtors 49,000
Closing balance of debtors 25,400
Bills Receivable en-cashed during 1,00,000
the year
Returns inwards during the year 7,800
Cash received from debtors 8,400
Cash sales 70,000

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 Bills receivable 1,50,000

Required: Calculate credit sales by preparing debtors account.

Question No: 57 ( Marks: 5 )

ABC, Inc had the following positive and negative cash flows during the year.
Positive cash flows:
Received from customers Rs.250,000
Interest and dividends 50,000
Sale of plant asset 350,000
Issued stock 500,000
Negative cash flows:
Paid to suppliers and employees 130,000
Purchase of investments 40,000
Purchase of treasury stock 35,000
Payment of interest 20,000
Paid cash dividends 50,000

Determine the amount of cash provided by or used for operating activities.

Question No: 58 ( Marks: 10 )

Prepare Profit and Loss Account for the year ending 31st December 2007 from the
Trial Balance and adjustments of MS Company given below:

Debit Credit
Particulars
Rs. Rs.
Drawings 14,000
Capital Account 80,000
Opening Stock 55,000
Purchases 485,000
Sales 610,000
Sundry Debtors 80,000
Sundry Creditors 60,500
Sales Returns 5,000
Carriage Inwards 6,000
Salaries 28,000
Rent, Rates, Taxes 15,000
Insurance 4,000
Machinery 50,000
Furniture 5,000
Cash in hand 3,500
Total 750,500 750,500

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Adjustments:
v Depreciate machinery and furniture @20%p.a.
v Outstanding Salaries Rs. 2,000
v Insurance paid in advance Rs. 500
v Maintain @5% reserve for doubtful debts on debtors.
v Closing Stock was valued at Rs. 60,000

Question No: 59 ( Marks: 10 )

On 01-01-2007, the provision for doubtful debts a/c stood at Rs. 12,000 (credit balance).
In 2007, the bad debts amounted to Rs. 10,000. The debtors on 31-12-2007 are amounted
to Rs. 3, 20,000 and a provision for doubtful debt to be maintained @ 10%.

Required:
Prepare Bad Debts account and Provision for doubtful account. Also show how the items
will appear in Profit and Loss account and Balance sheet as at 31-12-2007
(Show complete working where it is necessary)

Question No: 55 ( Marks: 3 )

Give four reasons, why capital might change.

1. The entrance or exit of some (new) partner

2. Withdraw by partner(s)
3. Additional Investment by the partner(s)
4. Profit/Loss

Question No: 56 ( Marks: 5 )

Write down the five advantages of Limited Company.

1. It is a legal entity created by law and hence has its own recognition, good will and
brand equity etc.
2. It is a wide form of business and hence a formal approach for various
partners/investors to come and work for the same objectives in an organized form.
3. Liability limited to company assets only. Investors/partners do not personally
liable for any loss or in state of bankrupty.
4. Being a legal entity, easy to get loans or gather funds from public (for public
limited companies only) or financial institutes.
5. Being a legal entity, it can enjoy more opportunities for mega projects and
trade/operations opportunities in international markets on its on behalf.

Question No: 57 ( Marks: 5 )

ABC Company purchased goods of Rs.150,000 on credit from which goods of Rs.20,000
were defected and returned. Company received 2% discount at the time of payment from
the supplier.

Required:
What will be the amount of discount received by the company?

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 Also show the journal entries

Solution:
(A)
Discount Received= (150,000-20,000) x (2/100) = 2600

(B)
Particulars Dr. Cr.
Entry for Purchase
Goods 150,000
A/P 150,000

Entry for Return

A/P 20,000
Goods 20,000

While making Payment (@ 2% discount = 2600)

A/P 130,000
Discount income 2,600
Cash 127,400

Question No: 58 ( Marks: 10 )

State clearly how you will deal with Bad Debts Account, Provision for Bad Debts
Account, Profit & Loss account and Balance Sheet in the following case:

The items appearing in the trial balance are bad debts Rs. 300, provision for bad debts Rs.
350 and sundry debtors Rs. 12,000. It is required to increase the provision for bad debts
to 5% on sundry debtors.

Question No: 59 ( Marks: 10 )

The unadjusted and adjusted trial balances for Tinker Corporation on December 31,
2007, are shown below:

Tinker Corporation
Trial Balances
December 31, 2007
Unadjusted Adjusted
Debit Credit Debit Credit
Rs. Rs. Rs. Rs.
Cash 35,200 35,200
Accounts receivable 29,120 29,120
Unexpired insurance 1,200 600

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Prepaid rent 5,400 5,400
Office supplies 680 380
Equipment 60,000 60,000
Accumulated depreciation: equipment 49,000 50,000
Accounts payable 900 900
Notes payable 5,000 5,000
Interest payable 200 200
Salaries payable - 2,100
Income taxes payable 1,570 1,570
Unearned revenue 6,800 3,800
Capital stock 25,000 25,000
Retained earnings 30,000 30,000
Fees earned 91,530 94,530
Advertising expense 1,500 1,500
Insurance expense 6,600 7,200
Rent expense 19,800 19,800
Office supplies expense 1,200 1,500
Repairs expense 4,800 4,800
Depreciation expense: equipment 11,000 12,000
Salaries expense 26,300 28,400
Interest expense 200 200
Income taxes expense 7,000 7,000
210,000 210,000 213,100 213,100

Journalize the five adjusting entries that the company made on December 31, 2007.

Solution:

Date Particular Dr. Cr.

Dec 31 Insurance expense 600
to Unexpired insurance 600

Dec 31 Office Supplies Expense 300

to Office Supplies 300

Dec 31 Depreciation Expense-Equip. 1000

to Accumulated depreciation-Equip. 1000

Dec 31 Salaries Expense 2100

to Salaries Payable 2100

Dec 31 Unearned revenue 3000

to Fee Earned 3000

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Question No: 55 ( Marks: 3 )
Show how the following items will appear in profit and loss account.

Particulars Rs.
Bad debts 3,600
Provision for doubtful debts (old) 8,500
Provision for doubtful debts (new) 1,500

Question No: 56 ( Marks: 5 )

What is the Purpose of Control Accounts?

Question No: 57 ( Marks: 5 )

Umer and Usman, both of whom are CPAs, form a partnership, with Umer investing
Rs.100,000 and Usman, Rs.80,000. They agree to share net income as follows:
1. Salary allowances of Rs.80,000 to Umer and Rs.50,000 to Usman.
2. Interest allowances at 15 percent of beginning capital account balances.
3. Any partnership earnings in excess of the amount required to cover the interest
and salary allowances to be divided 60 percent to Umer and 40 percent to Usman.
The partnership net income for the first year of operations amounted to Rs.247,000
before interest and salary allowances. Show how this amount should be divided between
the two partners.

Question No: 58 ( Marks: 10 )

Following information are extracted from the books of XY and Sons for the year 2007.

Particulars Rs.
Fixed Asset at WDV 529,500
Material 31-12-2007 188,000
Work in process on 31-12-2007 178,000
Finished Goods on 31-12-2007 198,000
Debtors 160,000
Bank 7,000
Creditors 100,000
Expenses payable 15,000
Profit for the year X:90,000
Y:80,000
Drawings for the year X:10,000
Y:15,000
Capital X:400,000
Y: 350,000
Current Account X: 13,000
Y:10,000

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 Long term loans 2,27,500

You are required to prepare Balance Sheet as on 31st December 2007. Show
complete working.

Question No: 59 ( Marks: 10 )

Prepare Bank Reconciliation Statement as on 31st March 2009 with the help of given
data.

Particulars Rs.
1 Balance as per Cash Book (Dr.) 180,000
2 Cheques paid into Bank in March 2009 but credited by the bank in April 2009 7,900
4,500
1,300
3 Cheques issued in March 2009 but cashed in April 2009 11,000
5,800
4 Cheques entered in the Cash Book in March 2009 but paid into bank in April 2009 1,000

5 Interest allowed by the bank 2,500

6 Interest charged by the bank 500

Question No: 55 ( Marks: 3 )

Mr. Hassan is a partner in a partnership firm. His capital on July 1, 2001 was Rs.
400,000. He invested further capital of Rs. 150,000 on March 01, 2002. Markup rate is
@6%p.a. The financial year of such a business is from 1st July to 30th June.
Required: You are required to calculate his markup on Capital at the end of 30th June
2002.

a) Capital invested on july 1 2001 = 400,000

Markup rate on 400,000 = 6% of 40,000 = 24,000

b) Further capital introduced / invested = 150000 on March 1, 2002

Markup rate = 6% of 150000 = 9000 x 4/12 = 3000

Total mark up rate = a + b = 24000 + 3000 = 27000

Question No: 56 ( Marks: 5 )

Calculate cost of goods sold with he help of given data.

Particulars Rs.
Purchases 418,000

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 Carriage inwards 7,900
Discount Allowed 750
debtors 16,000
Sales man commission 2,000
Office expenses 2,000
Carriage outwards 1,700
Salaries 13,000
Direct labor 3,825
FOH 2,100
Plant & Machinery 53,000
Buildings 35,000
Tools 8,650
Helping data:
a. Plant & Machinery depreciate @ 10% and charged to FOH
b. Buildings depreciate @ 5% and 40% charged to Administrative expenses and balance
to FOH
c. 40% of salaries will be charge to office and balance to Selling expenses

Question No: 57 ( Marks: 5 )

X and Y were partners in a business sharing profits in the ratio of 3:1. Their capital were
Rs.30,000 and Rs.10,000 respectively. They earned a net profit of Rs. 160,000. Mr. Y
was entitled to a salary of Rs.200 p.m. Prepare Profit Distribution Account of X & Y
Partnership.

X AND Y ARE SHARED WITH the ratio 3:1

X capital = 30000
Y capital = 10000
Net profit = 160,000
Mr. Y salary is = 200 p.m entitled
Total investment = X + Y capital = 30000 +10000 = 40000

X profit distribution = 30,000/40000 x 160000 = 120,000

Y profit distrubtion = 10,000/40000 x 160000 x 40000 = 40000

Question No: 58 ( Marks: 10 )

Mention the effects of following on financial statements.
d. Markup on debentures

Markupdebture – Dr. while Debenture Cr

e. Creation of reserves

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 f. Payments of dividend
g. Carriage inwards

h. Current Assets are less than Current Liabilities

Question No: 59 ( Marks: 10 )

The following is the trial balance of Sikander’s Photo Studio, Inc., dated December 31,
2007. The net income for the period is Rs.36,000. You are required to prepare Balance
Sheet as on December 31, 2007.
Sikander’s Photo Studio, Inc.
Trial balance
December 31, 2007

Cash Rs.171,100
Accounts receivable 9,400
Prepaid studio rent 3,000
Unexpired insurance 7,200
Supplies 500
Equipment 18,000
Accumulated depreciation: equipment Rs.7,200
Notes payable 10,000
Accounts payable 3,200
Salaries payable 4,000
Income tax payable 6,000
Unearned revenue 8,800
Capital stock 100,000
Retained earnings 34,000
Revenue earned 165,000
Salary expense 85,000
Supply expense 3,900
Rent expense 12,000
Insurance expense 1,900
Advertising expense 500
Depreciation expense: equipment 1,800
Interest expense 900
Income taxes expense 23,000
338,200 338,200

Question No: 51 ( Marks: 5 )

10 % Debentures of Rs. 80,000 are shown in trial balance. How it will be
shown in
financial statements? Also mention why a company issues debentures.
Answer:

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10% Debentures of Rs. 80000 is shown the Owners Equity pr liability Side of
Balance
sheet.
Debentures are issued under the common seal of the company and debentures
are an
instrument for obtaining the loan from the general public. Company also paid
mark up on
debentures which generally equal to the market rate.
Question No: 52 ( Marks: 10 )
Following information is extracted from the books of Arfan Ltd as on December
31st,
2007.
Particulars Cost Depreciation
rate
Accumulated Depreciation
On 01-01-2007
Vehicles 01-01-2007 1,90,000 10% 10,000
Building 01-01-2007 4,00,000 20% 12,500
Furniture & Fixture 01-01-2007 4,15,000 15% 34,500
Land 01-01-2007 1,58,000 -- ---
You are required to calculate Written down value of each asset and show
working of
complete depreciation for the year ending on December 2007.
Particulars Cost Rate Accumulated Depreciation WDV
As
At
1-1-2007Addition/deletionAsAt31st-12-2007As At1-1-2007ForTheYearAs
At31st12-2007
Vehicles 190000 0 190000 10% 10000 19000 29000 161000
Building 400000 0 400000 20% 12500 80000 92500 307500
Furniture 415000 0 415000 15% 34500 62250 96750 318250
Land 158000 0 158000 0 0 0 0 158000
Total 1163000 0 1163000 57000 161250 218250 944750
Question No: 53 ( Marks: 10 )
Prepare Profit and Loss Account for the year ending 31st December 2007
from the
Trial Balance and adjustments of MS Company given below:
Debit Credit
Particulars
Rs. Rs.
Drawings 14,000
Capital Account 80,000
Opening Stock 55,000
Purchases 485,000
Sales 610,000
Sundry Debtors 80,000

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Sundry Creditors 60,500
Sales Returns 5,000
Carriage Inwards 6,000
Salaries 28,000
Rent, Rates, Taxes 15,000
Insurance 4,000
Machinery 50,000
Furniture 5,000
Cash in hand 3,500
Total 750,500 750,500
Adjustments:
4) Depreciate machinery and furniture @20%p.a.
5) Outstanding Salaries Rs. 2,000
6) Insurance paid in advance Rs. 500
7) Maintain @5% reserve for doubtful debts on debtors.
8) Closing Stock was valued at Rs. 60,000
Trading & Profit & Loss Account
For the year ending 31st December 2007
Particulars Debit Balance/Rs Particulars Credit Balance/Rs
Opening Stock
Purchases
Carriage in
Gross Profit
55000
485000
6000
119000
Sales 610000
Less returns: 5000
Closing Stock
605000
60000
665000 665000
Salaries 28000
+outstanding: 2000
Rent, Rate, Taxes
Insurance 4000
Less advance: 500
Depreciation:
Machinery: 10000
Furniture: 1000
Provision of bed
debts
Net Profit:
30000
15000

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3500
11000
4000
55500
Gross Profit 119000
119000 119000
Question No: 54 ( Marks: 10 )
What is the effect of given adjustments on Trading & Profit & Loss account
and
Balance Sheet?
a. Accrued Expenses or Outstanding Expenses
b. Prepaid Expenses or Unexpired Expenses
c. Accrued Revenue or Revenue Receivable
d. Unearned Revenue or Revenue Received in Advance
e. Depreciation of Asset
1. Accrued Expenses or Outstanding Expenses
Trading and profit and loss account effect
These expenses will be shown in profit and loss account under administrative
expenses and will and be deducted from gross profit. They will be used to
calculate net
profit
Balance sheet effect
These expenses will be shown as expense payable or accrued expenses in
balance
sheet as current liabilities and will be shown under current liabilities section of
liabilities as they have to be paid by business..
2. Prepaid Expenses or Unexpired Expenses
Trading and profit and loss account effect
These will be deducted from relevant expense account to get the actual
expenses for
the period and that actual amount of expense will be deducted from gross profit
to
arrive at net profit. This amount of prepaid expenses will not be included in profit
and
loss account as an expense itself but its effect will be on current expenses for the
period for which profit and loss is being calculated.
Balance sheet effect
These prepaid expenses will be show and current assets in balance sheet and
will be
shown under the section of current assets in balance sheet.
3. Accrued Revenue or Revenue Receivable
Trading and profit and loss account effect
These will be added to sales in trading account in profit and loss statement and
will be
treated as a revenue in the calculation of gross profit by subtracting cost of goods
sold

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from net sales. This will affect gross profit in trading account.
Balance sheet effect
In balance sheet this revenue will be shown under current assets as receivables
from
debtors and will be shown under the section of current assets of the business.
4. Unearned Revenue or Revenue Received in Advance
Trading and profit and loss account effect
This will not be added to the sales as sales is recognized when the actual
services
have been provided or when goods have been shipped irrespective of whether
payment has been received or not. So this will not affect profit and loss account
as it
is still not recognized as sales/revenue.
Balance sheet effect
This is a liability for the company because the company has to give goods or
services
to the buyer for the advance payment done by the buyer and will be shown as a
liability in the balance sheet under the current liability section of balance sheet.
Also
the same amount will be shown in the bank or cash as current asset to offset the
liability because the cash or cheque has been received for goods not given or
services
not rendered yet.
5. Depreciation of Asset
Trading and profit and loss account effect
The depreciation of asset is an operating expense for the business and will affect
profit and loss account. It will be added to the administrative expense and will be
appear in the administrative expense section of profit and loss account and will
be
deducted from gross profits to arrive at net profits along with other expenses.
Balance sheet effect
In balance sheet it will appear as deduction from the fixed asset as the fixed
assets in
balance sheet will be shown at written down value. So this will be added to
previous
balance of accumulated depreciation and will be deducted from the total cost of
the
fixed assets and will appear in the assets section under the heading of fixed
asset. It
might appear in notes as sometimes in balance sheet summarized figure of fixed
asset
at WDV will be shown. In any case it is deducted from fixed asset in balance
sheet
and affects the total assets side
Question No: 51 ( Marks: 5 )

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What is bank overdraft? Mention an example for this. Why companies have to
pay mark
up on it. Under which head mark up paid on overdraft is shown in financial
statement.
Answer:
An overdraft occurs when withdrawals from a bank account exceed the available
balance. In this situation a person is said to be "overdrawn”.
Question No: 52 ( Marks: 10 )
Income Statement of XYZ Ltd for the year ended on 30th June, 2007:
Particulars Rs. Rs.
Sales 500,000
Less: Cost of Goods Sold 250,000
Gross Profit 250,000
Less: Operating expenses
Administrative expenses 110,000
Interest expenses 20,000 130,000
Net profit before Tax 120,000
Less: Taxes 36,000
Net profit after tax 84,000
Opening Stock for the year was Rs. 60,000.
Balance Sheet of XYZ Ltd on 30th June, 2007:
Assets Rs.
Fixed Assets 400,000
Stock 60,000
Debtors 230,000
Bills Receivable 40,000
Cash at bank 150,000
Prepaid expenses 20,000
Total 900,000
Liabilities
Share capital 200,000
Reserves and surplus 250,000
10% Debentures 200,000
Creditors 180,000
Bills payable 70,000
Total 900,000
Calculate following ratios from the financial statement of XYZ Ltd.
1. Current Ratio
2. Acid Test Ratio
3. Stock turn over Ratio
4. Debt equity Ratio
5. Gross profit Ratio
Solution:
1: Current Ratio:
Total Assets/Total Liabilities
= 900000/900000

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=1
2: Acid Test Ratio
Total Assets-Stock/Total Liabilities
= 900000-60000/900000
= 840000/900000
= 0.933333
3: Stock turn over Ratio
(Average Stock / Cost of goods sold) x 365
Average Stock = opening stock + Closing Stock/2
= 60000+60000/2
= 60000
= (Average Stock / Cost of goods sold) x 365
= (60000/250000) x 365
= 0.24 x 365
= 87.4
4: Debt equity Ratio
Long term Liabilities / Equity
= 200000/200000
=1
5: Gross profit Ratio
(Gross Profit / Sales) x 100
= 250000/500000 x 100
= 0.5 x 100
= 50
Question No: 53 ( Marks: 10 )
Pass the rectifying entries to correct the following errors:
Question No: 54 ( Marks: 10 )
The following discrepancies were noted on comparing Cash Book with Pass
Book.
(1) The following cheques were deposited into bank on 28th March but were not
collected by the bank by 31st March, (i) Rs. 500, (ii) Rs. 300, (iii) Rs. 200.
(2) The following cheques were issued but were not presented for the payment
by
31st March. (i) Rs. 200, (ii) Rs. 450 (iii) Rs. 525 (iv) Rs. 375.
(3) The bank credited a dividend of Rs. 2,000 on 31st march but intimation was
received by the trader on 5th April, 2008.
(4) The bank credited interest of Rs. 50 on 31st March but not debited in Cash
Book.
(5) The Bank charged (debited) a commission of Rs. 100 on 31st March.
(6) A cheque of Rs. 500 was received from customer and was entered in the
bank
column of Cash Book on 25th March, but was paid into the bank on 1st April.
Required: Prepare a Bank Reconciliation Statement, if the Bank balance as per
Cash
Book (Dr.) was Rs. 15,000 on 31st March, 2008.
Answer:
Balance as per Cash book. Dr 15000

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Less not collected Cheques. (500+300+200) Cr 1000
Dr 14000
Add UN Presented Cheques (200+450+525+375) Dr 1550
Dr 15550
Add dividend Credit by bank Dr 2000
Dr 17550
Add interest credit by bank Dr 50
Dr 17600
Less bank charges Cr 100
Dr 17500
Less Cheque received Cr 500
Balance as per Bank Book Cr 17000
Question No: 51 ( Marks: 5 )
Calculate net income with the help of given date for the year end of 2007
and show
complete working of Cost of Goods sold.
Raw material Stocks on 1-1-2007 Rs. 30,000
Work in process on 1-1-2007 35,600
Finished Goods on 1-1-2007 35,400
Raw material Stocks 31-12-2007 Rs. 31,000
Work in process 31-12-2007 25,000
Finished Goods 31-12-2007 53,900
Total factory Cost 543,339
Additional data
v Other expenses for the year is Rs. 5,000.
v Operating expenses for the year Rs. 15,000
v Sale for the year Rs. 1,500,000
Solution:
Name of the Company
Income Statement
For the period of 2007
Particulars Amount Rs Amount Rs
Sales
Less Cost of Good Sold
Gross Profit
Less: Expenses:
Other Expenses
Operating expenses
Net Income
5000
15000
1500000
(534439)
965561
(20000)
9455 61

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Working:
Calculate Cost of Good Sold:
Raw Material:
Opening Raw Material: 30000
- Closing Raw Material: 31000
Cost of Material Consumed: -1000
Conversion Cost:
Direct Labor: 0
FOH: 0
Total Factory Cost: 542339
Work in Process:
+Opening WIP: 35600
-Closing WIP: 25000
Cost of Goods Manufactured: 552939
Finish Goods:
+Opening FG: 35400
-Closing FG: 53900
Cost of Good Sold: 534439
Question No: 52 ( Marks: 10 )
Write down the at least ten distinguishing features of a limited company
which
differentiate it from sole proprietor business
Question No: 53 ( Marks: 10 )
On 01-01-2007, the provision for doubtful debts a/c stood at Rs. 12,000 (credit
balance).
In 2007, the bad debts amounted to Rs. 10,000. The debtors on 31-12-2007 are
amounted
to Rs. 3, 20,000 and a provision for doubtful debt to be maintained @ 10%.
Required:
Show Journal entries and necessary accounts. Also show how the items will
appear in
Profit and Loss account and Balance sheet

Solution:
Entry#1
Provision for Doubtful Debts 32000
Debtors Control Account 32000
Make Ledgers of each account
Debtors Account
Debit Side Credit Side
Date No. Particulars Dr. Rs. Date No. Particulars Cr. Rs.
Balance 32000 Provision for
doubtful debts
32000
32000 32000
Provision of Doubtful debts

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Debit Side Credit Side
Date No. Particulars Dr. Rs. Date No. Particulars Cr. Rs.
Debtors
Account
32000 Balance 32000
32000 32000
And you people already know to show these accounts in P n L and Balance
Sheet.
IN PL Account = 32000+10000-12000=30000 on Debit Side
In Balance Sheet
Debtors = 320000-32000-12000-276000
Question No: 54 ( Marks: 10 )
Following information is extracted from the books of Arfan Ltd as on December
31st,
2007.
Particulars Cost Depreciation
rate
Accumulated Depreciation
On 01-01-2007
Vehicles 01-01-2007 1,90,000 10% 10,000
Building 01-01-2007 4,00,000 20% 12,500
Furniture & Fixture 01-01-2007 4,15,000 15% 34,500
Land 01-01-2007 1,58,000 -- ---
You are required to calculate Written down value of each asset and show
working of
complete depreciation for the year ending on December 2007.
Particulars Cost Rate Accumulated Depreciation WDV
As
At
1-1-
2007
Addition/
deletion
As
At
31st-
12-
2007
As At
1-1-
2007
For
The
Year
As At
31st-

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12-
2007
Vehicles 190000 0 190000 10% 10000 19000 29000 161000
Building 400000 0 400000 20% 12500 80000 92500 307500
Furniture 415000 0 415000 15% 34500 62250 96750 318250
Land 158000 0 158000 0 0 0 0 158000
Total 1163000 0 1163000 57000 161250 218250 944750
Composed & Solved
Question No: 1 ( Marks: 1 ) - Please choose one
Prepaid interest given in the Trial Balance will be treated as a (an):
_ Asset
_ Liability
_ Revenue
_ Deferred expense
Question No: 2 ( Marks: 1 ) - Please choose one
The net income calculated in the income statement for the accounting period is
reported
on:
_ Bank Statement
_ Statement of retained earnings
_ Statement of cash flows
_ None of the given options
Question No: 3 ( Marks: 1 ) - Please choose one
If the Capitals of partners are fixed then, at the end of financial year a partner’s
drawings
are transferred to the:
_ Credit side of the partner’s capital account
_ Credit side of the partner’s current account
_ Debit side of partnership bank account
_ Debit side of the partner’s current account
Question No: 4 ( Marks: 1 ) - Please choose one
If one partner receives a salary which is credited to him at the end of the year,
the share
of profit available for distribution will be:
_ Increased
_ Decreased
_ Unchanged
_ Changed and become negative
Question No: 51 ( Marks: 5 )
Following information is extracted from the books of Abrar Ltd as on December
31st,
2007.
Particulars Rs
Carriage inwards 8,000
Legal charges 6,500
Financial charges 223,500

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Tax payable 30,000
Advances from customer 10,000
General reserve 40,000
Accumulated profit brought forward(credit balance ) 95,000
Long term loans 1,00,000
Additional information
The authorized capital is Rs. 50, 00,000 divided into 500,000 shares of Rs. 10
each.
Issued and paid up capital 2, 500,000.
You are required to prepare calculate Share holders equity
Share holder equity will have Authorized capital, Paid up capital, General
Reserves &
Accumulated profit brought forward
Authorized capital = Rs. 50,00,000 divided into 500,000 shares of Rs. 10 each
Issued and paid up capital 2,500,000
General Reserve 40,000
Accumulated profit brought forward (Credit balance) 95,000
2500000 + 40000 + 95000 = 2635000
Question No: 52 ( Marks: 10 )
Write down the at least ten distinguishing features of a limited company
which
differentiate it from sole proprietor business
The basic difference between a partnership and a limited company is the concept
of
limited liability.
1. If a partnership business runs into losses and is unable to pay it’s liabilities, its
partners will have to pay the liabilities from their own wealth.
2. In case of limited company the shareholders don’t lose anything more than the
amount of capital they have contributed in the company. It points that personal
wealth is not at stake and their liability is limited to the amount of share capital
they have contributed.
3. The concept of limited company is to mobilize the resources of a large number
of
people for a project, which they would not be able to afford independently and
then get it managed by experts.
4. Listed Company have more than twenty partners, so problem of extra capital is
reduced to minimum.
5. The liabilities of the members of a company is limited to the extent of capital
invested by them in the company
6. There are certain tax benefits to the company, which a partnership firm can not
enjoy
7. In Pakistan, affairs of limited companies are controlled by “Companies
Ordinance” issued in 1984
8. The formation of a company and other matters related to companies are
governed
by “Securities and Exchange Commission of Pakistan (SECP)

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,
Question No: 53 ( Marks: 10 )
The following Trail balance is taken out from the books of Rahman & Sons as on
31st
December, 2008.
Dr. Cr.
Rs. Rs.
Sales 204,000
Capital 120,000
Bank overdraft 103,560
Sundry Creditors 120,000
Opening Stock 60,400
Purchases 231,600
Sundry Debtors 109,660
Returns Inwards 3,640
General Expenses 6,980
Plant 22,620
Wages & Salaries 16,740
Building 50,000
Cash in Hand 680
Cash at bank 8,720
Drawings 16,960
Motive Power 2,300
Dock &clearing
Charges 1,300
Coal, Gas, Water 1,700
Salaries 9,820
Interest on O/D 4,440
Rent rates Taxes 1,400
Discount Allowed 2,000
Interest received 3,400
550,960 550,960
Requirement:
Prepare The Trading and Profit & Loss account of the business for the year
ended.
Closing Stock is valued at Rs.40, 000.
Trading & Profit & Loss Account
For the year ending 31st December 2008
Particulars Debit Balance/Rs Particulars Credit Balance/Rs
Opening Stock
Purchases
Dock &clearing
Charges
Wages
Motive Power
Coal gas Water

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60400
231600
1300
16740
2300
1700
Sales 204000
Less returns: 3640
Closing Stock
Gross Loss
200360
40000
73680
314040 314040
Gross Loss
Salaries
Rent, Rate, Taxes
General Expenses
Interest on O/D
Discount Allowed
73680
9820
1400
6980
4440
2000
Interest received
Net Loss
3400
94920
98320 98320
Question No: 54 ( Marks: 10 )
Pass the rectifying entries to correct the following errors:
• Mr. “Ali” purchased goods of Rs. 1,500 on cash, but omitted to enter in the
books
of accounts.
• An amount of Rs. 5,000 received from Mr. Amir, was credited to the account of
Mr. Ameer.
• Goods returned worth Rs. 500 to Mr. “B” wrongly debited to sales Account.
• A purchase of goods from Mr. “B” of Rs. 400 has been wrongly debited to
Furniture Account.
• Furniture purchased on cash Rs. 8,000 posted as purchases.
Rectification of Errors
Error 1.
A purchase of goods of Rs. 1,500 on cash was omitted by mistake
Rectification Entry on the date of discovery:

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Debit: Purchase Account 1,500
Credit: Cash Account 1,500
Error 2
Debit: Mr. Ameer 5,000
Credit: Mr. Amir 5,000
• Error 3 Goods returned worth Rs. 500 to Mr. “B” wrongly debited to sales
Account.
Debit: Goods Return Rs. 500
Credit: Sales Account Rs. 500
Error 4 A purchase of goods from Mr. “B” of Rs. 400 has been wrongly debited
to Furniture Account.
Debit: Purchases Rs. 400
Credit Furniture Account Rs. 400
Error 5 Furniture purchased on cash Rs. 8,000 posted as purchases.
Debit Furniture Account Rs. 8,000
Credit Purchase Post Account Rs. 8,000

Question No: 51 ( Marks: 5 )

What is the Purpose of Control Accounts?
A business needs to have accounts created for individual creditors and
debtors in its
general ledger. Creditors are people/entity to whom company owes money
and
debtors are entities/people who owe money to the business. But when a
business
grows then the number of creditors and debtors also grows. We know that
trial
balance can give us the mathematical accuracy of accounts and if there is
any
difference in trial balance we can know it from the general ledger by
actually
checking each and every transaction for the year. But it is a very time
consuming
job to check each and every transaction if the business of the company is
huge
because it will have many many transaction to check. So in this control
accounts are
maintained in general one for total creditors and one for total debtors.
Debtor’s
account is called debtor’s control account and creditor’s account is called
creditor’s
control account. These accounts will not get hit by individual purchase,
purchase
returns, payments to creditor in case of creditor’s control account and by
sales, sales

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return, receipts in case of debtor’s control account. Periodically this
summarized
data will be posted from individual ledgers which will be created for each
type of
transaction e.g a sales subsidiary ledger, purchase subsidiary ledger etc
which will
contain actual details of transactions with invoice number and periodically
the
amounts will be summarized from these subsidiary ledgers and posted to
the control
accounts at a single time. This way the transactions in general ledger will
decrease
and will become easy to manage and can be easily checked against
creditor’s or
debtor’s details in total creditor’s ledger and total debtor’s ledger for
accuracy.
Question No: 52 ( Marks: 10 )
What is the effect of given adjustments on Trading & Profit & Loss account
and
Balance Sheet?
0. Accrued Expenses or Outstanding Expenses
1. Prepaid Expenses or Unexpired Expenses
2. Accrued Revenue or Revenue Receivable
3. Unearned Revenue or Revenue Received in Advance
4. Depreciation of Asset
ˇ. Accrued Expenses or Outstanding Expenses
Trading and profit and loss account effect
These expenses will be shown in profit and loss account under administrative
expenses and will and be deducted from gross profit. They will be used to
calculate net
profit
Balance sheet effect
These expenses will be shown as expense payable or accrued expenses in
balance
sheet as current liabilities and will be shown under current liabilities section of
liabilities as they have to be paid by business..
ˇ. Prepaid Expenses or Unexpired Expenses
Trading and profit and loss account effect
These will be deducted from relevant expense account to get the actual
expenses for
the period and that actual amount of expense will be deducted from gross profit
to
arrive at net profit. This amount of prepaid expenses will not be included in profit
and
loss account as an expense itself but its effect will be on current expenses for the
period for which profit and loss is being calculated.

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Balance sheet effect
These prepaid expenses will be show and current assets in balance sheet and
will be
shown under the section of current assets in balance sheet.
ˇ. Accrued Revenue or Revenue Receivable
Trading and profit and loss account effect
These will be added to sales in trading account in profit and loss statement and
will be
treated as a revenue in the calculation of gross profit by subtracting cost of goods
sold
from net sales. This will affect gross profit in trading account.
Balance sheet effect
In balance sheet this revenue will be shown under current assets as receivables
from
debtors and will be shown under the section of current assets of the business.
ˇ. Unearned Revenue or Revenue Received in Advance
Trading and profit and loss account effect
This will not be added to the sales as sales is recognized when the actual
services
have been provided or when goods have been shipped irrespective of whether
payment has been received or not. So this will not affect profit and loss account
as it
is still not recognized as sales/revenue.
Balance sheet effect
This is a liability for the company because the company has to give goods or
services
to the buyer for the advance payment done by the buyer and will be shown as a
liability in the balance sheet under the current liability section of balance sheet.
Also
the same amount will be shown in the bank or cash as current asset to offset the
liability because the cash or cheque has been received for goods not given or
services
not rendered yet.
ˇ. Depreciation of Asset
Trading and profit and loss account effect
The depreciation of asset is an operating expense for the business and will affect
profit and loss account. It will be added to the administrative expense and will be
appear in the administrative expense section of profit and loss account and will
be
deducted from gross profits to arrive at net profits along with other expenses.
Balance sheet effect
In balance sheet it will appear as deduction from the fixed asset as the fixed
assets in
balance sheet will be shown at written down value. So this will be added to
previous

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balance of accumulated depreciation and will be deducted from the total cost of
the
fixed assets and will appear in the assets section under the heading of fixed
asset. It
might appear in notes as sometimes in balance sheet summarized figure of fixed
asset
at WDV will be shown. In any case it is deducted from fixed asset in balance
sheet
and affects the total assets side
Question No: 53 ( Marks: 10 )
Prepare profit & loss Appropriation account with the help of given data and show
capital
accounts and current account in balance sheet for XY Z & Sons

Particulars Rs.
Net profit for the year 600,000
Opening balance of Capital X:400,000
Y: 250,000
Z: 300,000
Drawings during the year X: 100,000
Y: 150,000
Z: 125,000
Salaries are to be paid X: 12,000
Y:20,000
Z:15,000
Opening Balance of current account X: 50,000
Y: 60,000
Z: 45,000
Mark up rate on capital 5%
Mark up rate on drawings 5%
Profit sharing ratio for X:Y:Z 30: 25:45
It is assumed that no capital introduced during the year.
ANSWER
XYZ Sons
Profit and Loss Appropriation account for the period ending ----
Particulars Amount Rs
Amount
Rs
Net Rrofit for the year 600,000
Less Salaries for partners Partner X (12,000)
Partner Y (20,000)
Partner Z (15,000) (47,000)
Less Interest on Capital(5%)
5 % on 400,000 for partner
X (20,000)
5 % on 250,000 for partner
Y (12,500)
5 % on 300,000 for partner
Z (15,000) (47,500)

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Add : Markup on drawings(5%) Partner X's drawing 5,000
100,000
Partner Y's drawing
150,000 7,500
Partner Z's drawing
125,000 6,250 18,750
Net Profit avaialble for distribution 524,250
Profit distributed to partners X's share 30% (157,275)
Y's share 25% (131,063)
Z's share 45% (235,913) (524,250)
Total 0
ANSWER PART 2
CURRENT ACCOUNTS OF PARTNERS
XYZ LTD Partner's X Current Account Account Code --
DEBIT SIDE CREDIT SIDE
Date
2002 Vr.#
Narration /
Particulars Dr. Rs
Date
2002 Vr.#
Narration /
Particulars Cr. Rs
Drawing 100,000 Opening balance 50,000
Markup on drawing 5,000 Salary 12,000
Interest on
capital 20,000
Profit paid 157,275
Balance c/d 134,275
TOTAL 239,275 TOTAL 239,275
XYZ LTD Partner's Y Current Account Account Code --
DEBIT SIDE CREDIT SIDE
Date
2002 Vr.#
Narration /
Particulars Dr. Rs
Date
2002 Vr.#
Narration /
Particulars Cr. Rs
Drawing 150,000
Opening
balance 60,000
Markup on drawing 7,500 Salary 20,000
Interest on
capital 12,500
Profit paid 131,063
Balance c/d 66,063
TOTAL 223,563 TOTAL 223,563
XYZ LTD
Partner
Z Current Account Account Code --
DEBIT SIDE CREDIT SIDE
Date
2002 Vr.#

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Narration /
Particulars Dr. Rs
Date
2002 Vr.#
Narration /
Particulars Cr. Rs
Drawing 125,000
Opening
balance 45,000
Markup on drawing 6,250 Salary 15,000
Interest on
capital 15,000
Profit paid 235,913
Balance c/d 179,663
TOTAL 310,913 TOTAL 310,913
Question No: 54 ( Marks: 10 )
Following is information of Shumile Ltd for the year ended December 31st, 2006
Particular Rs.
Current Asset 160,850
Current Liability 72,500
Plant & Machinery 171,000
Furniture 30,000
Land 100,000
Accumulated profit & Loss c/f (credit balance ) on 31st
December,2006
7,250
Gross Profit on 31st December,2006 125,000
Issued capital 150,000
General Reserve 12,000
Authorized Capital Rs. 10/each 500,000
Long term investment 200,000
Other information:
Depreciation is charged on all Fixed Assets (except Land) @ 10%.
Prepare Balance Sheet as on 31st December, 2006.
Answer :
Shumile Lts
Balance sheet as on date Dec 31st 2006
Particulars Amount Rs
Amount
Rs
Assets
Fixed Assets
Fixed Assets at WDV Note 1 280,900
Current Assets
Cuurent Assets 160,850
Current Liability
Current Liability 72,500
Working Captial 88,350
Net Assets employed Note 2 369,250
Financed by
Authorized share
capital (50,000 shares

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at Rs 10 each) 500,000
Share Holder's Equity
Issued Capital 150,000
General Reserve 12,000
Accumulated profit ansd loss 7,250
Net Shareholder's Equity 169,250
Long Term Liability
Long Term Investment 200,000
Total 369,250
NOTES TO BALANCE SHEET
Note 1 Depreciaiton
Depreciation
Pariculars Cost of Item Rate
Opening
Balance
Depreciation
for the year
Total
Accumulated
Depreciation
Written
Down
Value
Land 100,000 0 0 0 0 100,000
Plant and machinery 171,000 0.10 0 17,100 17,100 153,900
Furniture 30,000 0.10 0 3,000 3,000 27,000
TOTAL 20,100 20,100 280,900
Note 2
Net assets
employed
Partiucular Amount
Working Capital 883,850
Fixed assets 280,900
Net Assets employed =
Working Capital +
Fixed assets 1,164,750
Question No: 51 ( Marks: 5 )
With the help of given data prepare Capital account of a sole trader and
calculate
closing balance of capital.
Rs.
Balance b/f 550,000
Drawings 50,000
Profit & Loss (debit balance) 45,000
CAPITAL ACCOUNT
DEBIT SIDE CREDIT SIDE
PARTICULARS AMOUNT PARTICULARS AMOUNT
Profit and loss 45000 Balance b/f 550,000
Drawings 50,000
Balance c/f 455,000
TOTAL 550,000 TOTAL 550,000
Question No: 52 ( Marks: 10 )

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Briefly explain the financial statements prepared by the organization. Why
these
are important for manufacturing concern?
ANSWER: The financial statements prepared by any organization are as follows:
1. Profit and loss account: It shows the performance of the business in a given
period. It shows the profitability of business which shows the success or failure of
the business.
2. Balance sheet: Balance sheet shows the position of business at a given point.
It
shows the resources available by the business and the resources invested by the
owner and other loans.
3. Cash flow statements: Cash flow statements show the generation of cash
and its
usage over a given period.
IMPORTANCE OF FINANCIAL STATEMENTS FOR MANUFACTURING
CONCERN: These financial statements are important for manufacturing concern
organization as they provide information related to financial affairs of the
organization. The profitability and liquidity, the resources available to the
company
and the generation of cash and its usage over a given period which provides
reasonable information to the management to take decisions.
Question No: 53 ( Marks: 10 )
The comparative financial statement data for XYZ Company is given below:
December 31
Assets: 2007 2006
Rs. Rs.
Cash 4,000
7,000
Accounts receivable 36,000 29,000
Inventory 75,000 61,000
Plant and equipment 210,000 180,000
Accumulated depreciation (40,000) (30,000)
Total Assets 285,000 247,000
Liabilities & Stockholder’s equity:
Accounts payable 45,000 39,000
Common stock 90,000 70,000
Retain earnings 150,000 138,000
Total liabilities & Stockholder’s equity 285,000 247,000
For 2007, the company reported net income as follows:
XYZ Company
Income Statement
For the year ended 31st December, 2007
Rs.
Sales 500,000
Less: Cost of goods sold 300,000
Gross margin 200,000

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Less Operating expenses 180,000
Net Income 20,000
Required:
Prepare a Statement of Cash Flows if dividend of Rs. 8,000 was declared and
paid during
the year 2007. There were no sales of plant and equipment during the year.
ANSWER:
Starting balance:
Net income 20,000
Add: adjustment for non cash items
Depreciation 38,000
Operating profit before working capital changes: 58,000
Working capital changes:
Add: cash 3,000
Less: accounts receivable (7,000)
Add: accounts payable 7,000
Cash generated from operations 61,000
Cash flow from investing activities
Cash flow from financing activities:
Common Stock 20,000
Net decrease in cash 3,000
Net cash flow 78,000

Question No: 54 ( Marks: 10 )

Write a note on legal documents required for the formation of company.
ANSWER:
LEGAL DOCUMENTS REQUIRED FOR FORMATION OF COMPANY:
MEMORENDUM OF ASSOCIATION: It contains the following information
1. Name of company.
2. Place of registered office
3. Objective
4. Amount of share capital with which company registers.
ARTICLES OF ASSOCIATION: It contains the following information
A document that contains all the policies and other matters necessary to run the
business of the company. It is signed by all the members of the company.

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