ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD(Department of Commerce)

PRINCIPLES OF ACCOUNTING (438)

CHECK LIST

SEMESTER: AUTUMN, 2010

This packet comprises following material:-

1. Text book (One)2. Assignment No. 1 & 23. Assignment forms (One set)4. Schedule for submitting the assignments and tutorial meetings

If you find anything missing in this packet, please contact at the address given below:

DirectorAdmission & MailingAllama Iqbal Open UniversityH-8, Islamabad051-9057611-12

S. M. Aamir ShahCourse Coordinator

9057154

1

ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD(Department of Commerce)

WARNING1. PLAGIARISM OR HIRING OF GHOST WRITER(S) FOR SOLVING

THE ASSIGNMENT(S) WILL DEBAR THE STUDENT FROM AWARD OF DEGREE/CERTIFICATE, IF FOUND AT ANY STAGE.

2. SUBMITTING ASSIGNMENTS BORROWED OR STOLEN FROM OTHER(S) AS ONE’S OWN WILL BE PENALIZED AS DEFINED IN “AIOU PLAGIARISM POLICY”.

Course: Principles of Accounting (438) Semester: Autumn, 2010Level: B.A/B.Com Total Marks: 100

ASSIGNMENT No. 1(Units 1–4)

Q.1 a) Distinguish Double entry system of Book- keeping from single entry. (5)

b) Describe accounting cycle giving explanation to each step. (5)

Q.2 a) What do you think about the differences in book of accounts of a services enterprise, merchandising enterprise and manufacturing enterprise? (10)

b) M/s Nomi and Brothers started a computer repair services business as a sole proprietor; he is unaware of maintaining accounting record. He desired you to Journalize the following transactions in Journal General, post them to concerned ledgers and prepare trial balance account. (10)1. Nomi started business with Rs. 100,0002. Bought PC for office use for Rs. 30,0003. Bought tool kit for Rs. 150004. Purchased office furniture for Rs. 10,0005. Paid office rent Rs. 50006. Purchased stationary for Rs. 5007. Paid salary to office boy Rs. 20008. Services rendered during the month worth of Rs. 10,000 and received

cash.9. Services performed during the month but not yet billed to clients worth

of Rs. 2000

Q.3 Noor ud Din Company operates consultancy business. Some clients are required to pay in advance for the company’s services, while other are billed after the services

2

have been rendered. The business adjusts and closes its accounts each month. At May 31, the trial balance appeared as follows: (20)

Trial BalanceMay 31, 2008

Title of Accounts Dr. (Rs) Cr (Rs)Cash 17150Fees receivable 37800Unexpired insurance 2000Prepaid rent 5400Office supplies 1050Office equipment 17100Accumulated depreciation-office equipment 5700Accounts payable 3900Unearned consultancy fees 24000Capital stock 48600Consultancy Fees earned 24800Telephone expense 1200Salaries expense 19500Utilities expense 2400Travel expense 3400Retained earnings 0

Other information: The useful life of the office equipment was estimated at five years. Fees of Rs. 6400 were earned during the month by performing services for clients

who had paid in advance. Salaries earned by employees during the month but not yet recorded or paid

amounted to Rs. 1700. One May 1st the business moved into a new office and paid the first three month’s

rent in advance. Consultancy services rendered during the month but not yet collected or billed to

clients amounted to 2900. Office supplies on hand may 31st amounted to Rs. 600. On April 1st Rs. 2400 was paid as the premium for six months insurance.

1. Prepare the adjusting entries required at May 31st.2. Prepare work sheet.3. Prepare formal Profit and Loss account for the month and balance sheet as on

May 31st.

3

Q.4 M/s Shoukat a trader extracted the following trial balance from his books for the year ending 31st March 2010. (20)

Purchases and SalesOpening Stock (1.4.2009)CapitalBank OverdraftCashDiscountReturns InwardsReturn OutwardsCarriage outwardsRent and insuranceProvision for Bad & Doubtful debtsFixtures and FittingsDelivery VanDebtors and CreditorsDrawingsWages and SalariesGeneral Office Expenses

228605160

901440810

21601740

12002100

1191028808940450

61740

41970

72004350

930

570

660

6060

_____61740

The following adjustments are also to be made.Adjustments:a) Stock on 31st March 2010 was Rs. 4290.b) Wages and Salaries accrued at 31st March 2010, Rs. 210c) Office Expenses owing Rs. 20.d) Rent prepaid 31st March 2010 Rs. 180.e) Increase the provision for bad and doubtful debts by Rs. 810.f) Depreciation is charged as follows:

Fixture & Fitting 10%.Delivery Van Rs. 300

Required: Prepare profit and loss account and balance as on 31st March 2010.

Q.5 a) On 1st July 1998, Ajmal purchased a second-hand machine for Rs.46000 and spent Rs.4000 on its repairs and installation. On 30 th June, 2001 the machinery as disposed off for a sum of Rs.27000. Assuming the books are closed on 31st December each year and taking the rate of depreciation at 10% p.a. on diminishing balance, show the machinery account. (10)

b) On April 1st 2000, Angro industries purchased new equipment at a cost of Rs.325000. The useful life of this equipment was estimated at 5 years, with a residual value of Rs.25000. The equipment on expiry of its life was sold for Rs.20,000.Computer the depreciation expense for each year using following methods and also record the journal entry for disposal of assets on expiry. (10)(1) Straight line method (2) Declining balance method(3) Sum of years digit method

4

Q.6 Napa Ltd took delivery of a microcomputer and printer on 1st July, 2009, the beginning of its financial year. The list price of the equipment was Rs. 4999 but Napa Ltd. was able to negotiate a price of Rs. 4000 with the supplier. However, the supplies charged on additional Rs. 340 to install and test the equipment. The supplier offered a 5% discount if Napa Ltd paid for the equipment and additional installation cost within seven days. Napa Ltd was able to take advantage of this additional discount. The installation of special electrical wiring for the computer cost Rs. 110. After initial testing certain modifications costing Rs. 199 proved necessary. Napa Ltd also insured the machine against fire and theft at a cost or Rs. 50 per annum. A maintenance agreement was entered into with supplier. Under this agreement supplier promised to provide 24 hours breakdown cover for one year. The cost of the maintenance agreement was Rs. 350. (10)

Identify the expenditure which will be capitalized and distinguish capital expenditure with revenue expenditure by giving justification.

ASSIGNMENT No. 2(Units 5–9)

Q.1 a) How will you differentiate “Receipt and Payment Account” from “income and Expenditure Account”? Also explain what type of business use these accounts? (10)

b) Narrate the steps, which you would take to convert receipt and payment account into an income and expenditure account. (10)

Q.2 On 1st March Jamal Stores cashbook showed debit balance of cash Rs. 1550 and bank Rs. 13575/-. During the month of March following business was transacted. (20)

March 1March 3March 4

March 6March 8March 10

March 12

March 16March 27March 30March 31March 31

Purchase office typewriter for cash Rs.750/- and cash sales Rs.1315/-.Deposited cash Rs.500/-.Received from A. Hassan a cheque for Rs.2550/- in part payment of his account.Paid by cheques for merchandise purchased worth Rs.1005/-Deposited into bank the cheques received from A Hassan.Received from Hayat Khan a cheque for Rs.775/- in full settlement of his account and allowed him discount Rs.15/-.Sold merchandise to Divan Brothers’ for Rs.15000/- who paid by cheque which was deposited into bank.Paid Salman Rs.915/- by cheque, discount received Rs.5/-.Paid to Gulzar Ahmed by cheque Rs.650/-.Paid salaries by cheque Rs.1750/-.Deposited into bank the cheque of Hayat Khan.Drew from bank for office use Rs.250/-.

You are required to enter the above transaction in three column cash book and balance it.

5

Q.3 On 31st March the bank statement showed the credit balance of Rs.10500/- cheques amounting to Rs.2750/- were deposited in the bank but only cheques or Rs.750/- had not been cleared up to 31st March. Cheques amounting to Rs.3500/- were issued, but cheques for Rs.1200/- had not been presented for payment in the bank up to 31st March. Bank had given the debit of Rs.35/- for sundry charges and also bank had received directly from customers Rs. 800/- and dividend of Rs.130/- up to 31st March. Prepare a bank reconciliation statement and find out the balance as per cashbook. (20)

Q.4 Following is the Receipts and payment account of Faisalabad Club for the year ended 31-12-2009. (20)

Receipts Rs. Payments Rs.Opening BalanceSubscriptions:2008 2502009 10002010 200Rent received for the use of HallProfit from entertainmentSales of newspaper

350

1450700400100

3000

SalariesGeneral expensesElectricity chargesBooksNewspaperClosing Balance

1400300200500400200

3000a) The club has 50 members, each paying an annual subscription of Rs. 25/-

subscriptions outstanding on 31st December 2008 were Rs. 300/-.b) One 31-12-2009 outstanding general expenses amount to Rs. 100/- salaries

paid in 1989 included Rs. 300/- for the year 2008.c) On 1-1-2009 the club owned building valued Rs. 10000/-, Furniture

Rs. 1000/- and Books Rs. 1000/-.d) Provided depreciation of Furniture 10%.Required: Prepare Income and Expenditure A/c and Balance Sheet for the year ended 31st December 2009.

Q.5 Kamran, Imran and Sherzaman are partners in a firm. The share profit and loss in 3:5:2 ratios. Their balance sheet on 31st December is as under: (10)

Equities & LiabilitiesSundry creditorsBank overdraftsCapital – Kamran 90000Capital – Imran 60000Capital – Sherzaman 50000

Amount150006000

200000

______

AssetsCash in handCash in bankSundry debtorsStockFurniture 6000Less depreciation 600Machinery 49000Less depreciation 4400BuildingTools (less depreciation)

Amount56503000

1150045850

5400

446007600029000

6

221000 221000

They admit Kamram, at the time of admission, assets were re-valued as such:1. Stock re-valued Rs. 42000/-.2. Rs. 200/- on sundry debtors is not to be received.3. Building is appreciated by Rs. 34300/-.4. Tools are re-valued at Rs. 37000/-.5. Furniture is valued at Rs. 5000/- Machinery at Rs. 42000.6. Kamran contributed Rs. 80000/- for share in profit.7. Goodwill account for Rs. 85000/- is raised.

Required: Journalize the above matters. Prepare balance sheet of the new firm.

Q.6 Write short notes on the following: (10)a) Accruals based accounting VS cash based accountingb) Petty cash Vs imprest system.

=======

7