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2015

PRINCIPLES OF

ACCOUNTING

B.com-1 Private Annual Examination 2015

Compiled & Solved By : Jahangeer Khan

Compiled & Solved By: JAHANGEER KHAN

PRINCIPLES OF ACCOUNTING - 2015 B.com1 Private Annual Examination 2015

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Q.1: FINANCIAL STATMENT:

The following balance have been taken from the pre-closing trial balance of M/S Shah and Co. on 31, Dec. 2015. DEBIT BALANCES: Cash Rs.88,000 , Accounts Receivable Rs.100,000 , Merchandise Inventory Rs.45,000 , Prepaid Office Rent Rs.20,000 , Sales equipment Rs.85,000 , Drawing Rs.10,000 , Sales Return & Allowance Rs.8,000 , Purchases Rs.200,000 , Transportation-in Rs.20,000 , Office Salaries expense Rs.50,000 , Sales Salaries expense Rs.60,000. CREDIT BALANCE: Allowance for Bad Debts Rs.15,000 , Allowance for Depreciation Rs.25,000 , Account Payable Rs.65,000 , Mortgage payable Rs.20,000 , Shah Capital Rs.123,000 , Sales Rs.400,000 , Commission Income Rs.8,000 , Purchase Return & Allowance Rs.14,000 , Purchase Discount Rs.16,000. Data for Adjustment on Dec. 31, 2015: 1. Increased the allowance for bad debts by Rs.5,000. 2. Prepaid Office Rent expired Rs.8,000. 3. Depreciation sales equipment for the year @10% by Diminishing Balance Method. 4. Office Salaries expense outstanding Rs.9000. 5. Sales Salaries was prepaid to the extent of Rs.8,000. 6. Merchandise Inventory at Dec. 31 was valued of Rs.62,000.

REQUIRED: Multiple Step Income Statement and Classified Balance Sheet.

SOLUTION 1: M/S SHAH COMPANY INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2015 Sales 400,000 Less: Sales Return and Allowance (8,000)

Net Sales 392,000 Less: Cost of Goods Sold: Inventory (Opening) 45,000 Add: Net Purchases: Purchases 200,000 Transportation– in 20,000 Gross Purchases 220,000 Less: Purchase Return and Allowance 14,000

Purchase Discount 16,000 (30,000) Net Purchases 190,000 Goods Available for Sale 235,000 Less: Inventory (Ending) (62,000)

Cost of Goods Sold (173,000) Gross Profit 219,000

Less: Operating Expenses Office Salaries Expense (50,000 + 9,000) 59,000 Sales Salaries Expense (60,000 – 8,000) 52,000 Bad Debts Expense 5,000 Office Rent Expense 8,000 Depreciation Expense [(85,000 – 25,000) x 10%] 6,000

Total Operating Expenses (130,000) Operating Income 89,000



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Add: Commission Income 8,000

Net Income 97,000

M/S SHAH COMPANY

BALANCE SHEET AS ON DECEMBER 31, 2015

ASSETS EQYITIES Current Assets: Current Liabilities: Cash 88,000 Accounts Payable 65,000 Account Receivable 100,000 Office Salaries Payable 9,000 Less: All. For Bad Debts (20,000) 80,000 Total Current Liabilities 74,000 Merchandise Inventory 62,000 Prepaid Office Rent 12,000 Fixed Liabilities Prepaid Sales Salaries 8,000 Mortgage Payable 20,000 Total Current Assets 250,000 Total Fixed Liabilities 20,000 Total Liabilities 94,000 Fixed Assets: Sales Equipment 85,000 Owner’s Equity: Less: All. For Depreciation (31,000) Shah Capital(123000–

10000+97000)

Total Fixed Assets 54,000 Total Owner’s Equity 210,000

Total Assets 304,000 Total Equities 304,000

Q.2: WORK SHEET OR ADJUSTING & CLOSING ENTRIES:

Take the data from Question No 1. REQUIRED: Prepare 10 column worksheet OR Record Adjusting & Closing Entries.

SOLUTION 2: M/S SHAH COMPANY

WORK SHEET FOR THE YEAR ENDED DECEMBER 31, 2015



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M/S SHAH COMPANY ADJUSTING ENTRIES

S.no Particulars P/R Debit Credit 1. Bad Debts Expense 5,000 Allowance for Bad Debts 5,000 (To record bad debts expense)

2. Office Rent Expense 8,000 Prepaid office Rent 8,000 (To record expired office rent)

3. Depreciation Expense [(850,000-25,000)x10%] 82,500 Allowance for Depreciation (Equipment) 82,500 (To record depreciation expense on equipment)

4. Office Salaries Expense 9,000 Office Salaries Payable 9,000 (To record outstanding office salaries)

5. Prepaid Sales Salaries 8,000 Sales Salaries Expense 8,000 (To record prepaid sales salaries)

6. Merchandise Inventory 62,000 Income Summary 62,000 (To record ending inventory)

M/S SHAH COMPANY

CLOSING ENTRIES S.no Particulars P/R Debit Credit

1. Income Summary 403,000 Merchandise Inventory (Opening) 45,000 Purchases 200,000 Transportation–in 20,000 Sales return and Allowances 8,000 Office Salaries Expense 59,000 Sales Salaries Expense 52,000 Bad Debts Expense 5,000 Office Rent Expense 8,000 Depreciation Expense 6,000 (To close various expenses into income summary

account)

2. Sales 400,000 Merchandise Inventory (Ending) 62,000 Purchase Return and Allowance 14,000 Purchase Discount 16,000 Commission Income 8,000 Income Summary 500,000 (To close various revenues into income summary

account)

3. Income Summary 97,000 Shah Capital 97,000 (To close income summary into capital account)



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S.no Particulars P/R Debit Credit

4. Shah Capital 10,000 Drawing 10,000 (To close drawing into capital account)

Q.3: BANK RECONCILIATION: The following information pertains to Ibrahim & Co. as on February 29, 2016.

1. Balance as per Cash Book Rs.16766.95 2. Balance as per Bank Statement ? 3. A deposit of Rs.4017.15 made after banking hours on July 31, does not appear in Bank

Statement. 4. Note Receivable collected by bank Rs.4545.00 not shown in cash book. 5. Bank service charges of Rs.7.65 not entered in cash book. 6. A cheque of Rs.835.02 issued for purchase of office equipment erroneously entered in

cash book as Rs.853.02. 7. Cheque issued but yet not paid by bank for Rs.640.80, Rs.861.12, and Rs.301.05. 8. A cheque of Rs.180 deposited but returned by bank marked NSF.

REQUIRED: (a) Prepare a schedule showing addition to and deduction from the balance per cash book to arrive at the adjusted balance.

(b) Determine the balance as per bank statement. (c) Prepare adjusting entries.

SOLUTION 3 (a): IBRAHIM & CO.

SCHEDULE OF ADDITION TO AND DEDUCTION FROM CASH BOOK FOR THE MONTH OF FEBRUARY 2016

Balance as Per Cash Book 16,766.95 Add: Notes Receivable 4,545.00 Less: Service Charges (7.65) Add: Error in Recording of Office Equipment (853.02 – 835.02) 18.00 Less: N.S.F Cheque (180.00) Adjusted Balance as Per Cash Book 21,142.30

SOLUTION 3 (b): COMPUTATION FOR BALANCE AS PER BANK STATMENT

Adjusted Balance as Per Cash Book and Bank Statement 21,142.30 Less: Late Deposit (4,017.15) Add: Unpaid Cheques (640.80 – 861.12 – 301.05) 1,802.97 Balance as Per Bank Statement 18,928.12

SOLUTION 3 (c): IBRAHIM & CO.

ADJUSTING ENTRIES S.no Particulars P/R Debit Credit

1. Bank 4,545.00 Notes Receivable 4,545.00 (To record collection of note by bank)



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2. Service Charges 7.65 Bank 7.65 (To record service charges deducted by bank)

3. Bank Office equipment (To correct over recorded office equipment)

4. Account Receivable 180.00 Bank 180.00 (to record a customer cheque marked N.S.F by bank )

Q.4(a): INVENTORYVALUATION:

The merchandise inventory of Ayan & Co. was destroyed by fire on 4th May, 2015. The following data were obtained from the accounting record: Merchandise Inventory Beginning Rs.1120,000 Purchases Rs.1056,000 Purchase return & allowances Rs.52,000 Sales Rs.2870,000 Sales return & allowances Rs.8,000 Estimated Gross Profit Rate 41%

REQUIRED: Calculate the estimated cost of merchandise destroyed by fire.

SOLUTION 4 (a):

Merchandise Inventory Beginning 1,120,000 Add: Net Purchases Purchases 1,056,000 Less: Purchas Return and Allowances (52,000) Net Purchases 1,004,000 Goods Available for Sale 2,124,000 Less: Cost of Goods Sold: Sales 2,870,000 Less: Sales Return and Allowances (8,000) Net Sales 2,862,000 Less: Gross Profit (2,862,000 x 41%) (1,173,420) Cost of Goods Sold (1,688,580)

Cost of Merchandise Destroyed by Fire 435,420

Q.4(b): INVENTORYVALUATION:

Each of the following lines represents a separate set of information, copy the table and fill the missing amount working is not required:

Net Sales Beginning inventory

Net Purchases

Ending Inventory

Cost of Goods Sold

Gross Profit

Operating Expenses

Net Profit (loss)

1 300,000 95,000 130,000 44,000 ? 119,000 90,000 ?



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2 600,000 90,000 340,000 ? 330,000 ? ? 25,000 3 700,000 230,000 ? 185,000 490,000 210,000 165,000 ? 4 900,000 ? 500,000 150,000 ? 260,000 300,000 ? 5 ? 260,000 ? 255,000 660,000 225,000 250,000 (25,000)

SOLUTION 4 (b):

Net Sales Beginning inventory

Net Purchases

Ending Inventory

Cost of Goods Sold

Gross Profit

Operating Expenses

Net Profit (loss)

1 300,000 95,000 130,000 44,000 181,000 119,000 90,000 29,000 2 600,000 90,000 340,000 100,000 330,000 270,000 245,000 25,000 3 700,000 230,000 445,000 185,000 490,000 210,000 165,000 45,000 4 900,000 290,000 500,000 150,000 640,000 260,000 300,000 (40,000) 5 885,000 260,000 655,000 255,000 660,000 225,000 250,000 (25,000)

ADDITIONAL WORKING: 1(a): COMPUTATION FOR COST OF GOODS SOLD:

Beginning Inventory 95,000 Add: Net Purchases 130,000 Goods Available for Sale 225,000 Less: Ending Inventory (44,000) Cost of Goods Sold 181,000

1 (b): COMPUTATION FOR NET PROFIT/LOSS:

Gross Profit 119,000 Less: Operating Expenses (90,000) Net Profit 29,000

2 (a): COMPUTATION FOR ENDING INVENTORY:

Beginning Inventory 90,000 Add: Net Purchases 340,000 Goods Available for Sale 430,000 Less: Cost of goods Sold (330,000) Ending Inventory 100,000

2 (b): COMPUTATION FOR GROSS PROFIT:

Net Sales 600,000 Less: Cost of Goods Sold (330,000) Gross Profit 270,000

2 (c): COMPUTATION FOR OPERATING EXPENSES:

Gross Profit 270,000 Less: Net profit (25,000) Operating Expenses 245,000

3 (a): COMPUTATION FOR NET PROFIT/LOSS:

Gross Profit 210,000 Less: Operating Expenses (165,000) Net Profit 45,000



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3 (b): COMPUTATION FOR NET PURCHASES:

Cost of Goods Sold 490,000 Add: Ending Inventory 185,000 Goods Available for Sale 675,000 Less: Beginning Inventory (230,000) Net Purchases 445,000

4 (a): COMPUTATION FOR COST OF GOODS SOLD:

Net Sales 900,000 Less: Gross Profit (260,000) Cost of Goods Sold 640,000

4 (b): COMPUTATION FOR BEGINNING INVENTORY:

Cost of Goods Sold 640,000 Add: Ending Inventory 15,0000 Goods Available for Sale 790,000 Less: Net Purchases (500,000) Beginning Inventory 290,000

4 (c): COMPUTATION FOR NET PROFIT/LOSS:

Gross Profit 260,000 Less: Operating Expenses (300,000) Net Loss (40,000)

5 (a): COMPUTATION FOR COST OF GOODS SOLD: Cost of Goods Sold 660,000 Add: Gross Profit 225,000 Net Sales 885,000

5 (b): COMPUTATION FOR BEGINNING INVENTORY:

Cost of Goods Sold 660,000 Add: Ending Inventory 255,000 Goods Available for Sale 915,000 Less: Beginning Inventory (260,000) Net Purchases 655,000

Q.5: DEPRECIATION:

On Jan 01, 2014 Fahad Co. purchased a machine at a cost of Rs.61875. The machine had an estimated useful life of 15 years and 300,000 units, its estimated residual value is Rs.1875. the machine produced 27000 units in 2014 and 21600 units in 2015.

REQUIRED: Compute the following tables showing computation.

Depreciation Method Depreciation Expense Book Value at the End of 2014 2015 2014 2015

1 Straight line 2 Units of Production 3 Sum of the year digit 4 15% Diminishing Balance



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SOLUTION 5: FAHAD CO.

SCHEDULE OF DEPRECIATION

2014 2015 2014 2015 1 Straight line 4,000 4,000 57,875 53,875 2 Units of Production 5,400 4,320 56,475 52,155 3 Sum of the year digit 7,500 7,000 54,375 47,375 4 15% Diminishing Balance 9,281 7,889 52,594 44,705

x x

x

x

x



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x x x Q.6(a) ACCOUNT RECEIVABLE:

The following transactions are related to Shaheer & Co. on Dec 31, 2015. Account Receivable Rs.500,000 Allowance for Bad Debts (Dr.) Rs.15,000 Sales Rs.750,000 Sales Return & Allowance Rs.25,000 Cash collected from customers Rs.875,000 Bad Debts estimated 3% on Account Receivable

REQUIRED: Compute and Record the estimated Bad Debts expense at Dec 31, 2015.

SOLUTION 6 (a):

Account Receivable 500,000 Rate of Bad Debts 3% Estimated Bad Debts (500,000 x 3%) 15,000 Add: Allowance for Bad Debts (Debit Balance) 15,000

Adjusted Balance 30,000

SHAHEER & CO.

ADJUSTING ENTRY S.no Particulars P/R Debit Credit

1. Bad Debts Expense 30,000 Allowance for Bad Debts 30,000 (To record bad debts expense)

Q.6(b) Account RECEIVABLE:

An analyses of the account receivable of Sahr International at 31, Dec. 2015 produced the following Age Group: 1. Not yet due Rs.49,000 2. 1 to 30 days Past due 21,000 3. 30 to 60 days Past due 12,800 4. 61 to 90 days Past due 3,000 5. Over 90 days Past due 5,000 Percentage considered uncollectable: 2% of Group 1, 5% of Group 2, 10% of Group 3, 20% of Group 4 and 50% of Group 5.

REQUIRED: (1) Compute the estimated amount of uncollectable. (2) Record the adjusting entry for bad debts expense assuming that allowance for

Bad Debts account has a balance of Rs.4000/=



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SOLUTION 6 (b - 1):

S.no Age Groups Amount Rate Computation Estimated Bad Debts

1. Not yet due Rs.49,000 2% (49,000 x 2%) 980 2. 1 to 30 days Past due 21,000 5% (21,000 x 5%) 1,050 3. 30 to 60 days Past due 12,800 10% (12,800 x 10%) 1,280 4. 61 to 90 days Past due 3,000 20% (3,000 x 20%) 600 5. Over 90 days Past due 5,000 50% (5,000 x 50%) 2,500 Total Estimated bad Debts 6,410 Less: Allowance for Bad Debts (Credit Balance) (4,000) Adjusted Balance 2,410

SOLUTION 6 (b - 2): SAHR INTERNATIONAL

ADJUSTING ENTRY S.no Particulars P/R Debit Credit

1. Bad Debts Expense 2,410 Allowance for Bad Debts 2,410 (To record bad debts expense)

Q.7: LIQUIDATION OF PARTNERSHIP:

Sami, Ayan & Ibrahim decided to discontinue business operation as on 31st Dec. 2015 and liquidated their partnership. The partners has capital balance of Rs.45,600, Rs.25,200 and Rs.41,600 respectively. The Cash balance is Rs.15,200, the book value of non-cash assets total Rs.157,200 and liabilities total Rs.60,000. The partners share income 7 loss in the ratio of 4 : 2 : 4. The non-cash assets were sold for Rs.150,000 and liabilities are paid and remaining cash is distributed among the partners. The partner with debit capital balance pays the amount owed to the firm.

REQUIRED: Prepare a summary of Liquidation & present necessary entries in general journal form.

SOLUTION 7: _____________ PARTNERSHIP LIQUIDATION SUMMARY

Particulars Cash Non – Cash

Assets Liabilities

Ibrahim Capital

Ayan Capital

Sami Capital

Balances 15,200 157,200 60,000 45,600 25,200 41,600 Sale of Non – Cash Assets 150,000 (157,200) (2,880) (1,440) (2,880) Balances 165,200 ---- 60,000 42,720 23,760 38,720 Payment of liabilities (60,000) (60,000) Balances 105,200 ---- ---- 42,720 23,760 38,720 Final Settlement (105,200) (42,720) (23,760) (38,720) Balances ---- ---- ---- ---- ---- ----



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_____________ PARTNERSHIP

GENERAL JOURNAL S.no Particulars P/R Debit Credit

1. Cash 150,000 Realization 7,200 Non – Cash Assets 157,200 (To record sale of non – cash assets on loss)

2. Sami Capital (7,200 x 4/10) 2,880 Ayan Capital (7,200 x 2/10) 1,440 Ibrahim Capital (7,200 x 4/10) 2,880 Realization 7,500 (To close realization account in partners capital

account)

3. Liabilities Cash (To record payment of liabilities)

4. Sami Capital (45,600 – 2,880) 42,720 Ayan Capital (25,200 – 1,440) 23,760 Ibrahim Capital (41,600 – 2,880) 38,720 Cash 105,200 (To record final settlement of partners capital

account)

Q.8: CORRECTION OF ERRORS:

1. Outstanding Advertising Expense was overlooked Rs.20,000. 2. Rs paid for proprietor’s son tuition fee debited to general expense account 3. Rs.50,000 spent on the extension of Building was debited to building repair account. 4. Equipment purchased on credit for Rs.15,000 was entered in purchase account. 5. Rs received from Rehan have been credit to Karim’s account 6. Additional investment by owner of Rs.100,000 was credit to sales account. 7. Sales Return of Rs.7,000 was charged to purchase account. 8. Prepaid Salaries of Rs.30,000 was included in salaries expense account. 9. Cash drawings of Rs.6,000 was credited to the bank column of cash book. 10. Goods valued Rs.1500 was taken by the owner for his personal use was credited to sales

account. REQUIRED: Pass rectifying entries in General Journal assuming that the errors were discovered

before closing accounts.

SOLUTION 8: M/S ______________

CORRECTING ENTRIES S.no Particulars P/R Debit Credit

1. Advertising Expense 20,000 Advertising Payable 20,000 (To correct overlooked outstanding advertising

expense)

2. Drawing 1,500 General Expense 1,500 (To correct drawing and general expense accounts)



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3. Building 50,000 Building Repair Expense 50,000 (To correct building and building repair expense

accounts)

4. Equipment 15,000 Purchases 15,000 (To correct equipment and purchases accounts)

5. Account Receivable (Karim) 5,500 Account Receivable (Rehan) 5,500 (To correct account receivables of Rehan and

Karim)

6. Sales 100,000 Capital 100,000 (To correct sales and capital accounts)

7. Sales Return 7,000 Purchases 7,000 (To correct sales return and purchases accounts)

8. Prepaid Salaries 30,000 Salaries Expense 30,000 (To correct salaries expense and prepaid salaries

account)

9. Bank 6,000 Cash 6,000 (To correct cash and bank accounts)

10. Sales 1,500 Merchandise/Purchases 1,500 (To correct sales and merchandise/purchases

accounts)

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