Question collection of Financial Accounting II from VS Moketan College

V.S. Niketan College

I Module Test

2061

                                   

                        Subject: Financial Accounting II                                                                    F.M. 50

                        Class: BBA 2^nd Semester                                                                                P.M.   25

                        Time: 1.5 hours

                       

QN. 1. The following information is available to assist you in preparing a bank reconciliation statement for Rara Craft Co. on January 31, 2004:

a.       Balance as per bank                                        Rs. 12,700

b.       Outstanding cheques                                         Rs. 6,800

c.        Dishonored cheques returned by bank              Rs. 900

d.       Cheque under collection                                   Rs. 1,100

e.        Bank service charge for January                        Rs. 120

f.        Bills receivable collected by bank                   Rs. 2,000

g.        Interest on preceding bill                                      Rs. 100

       Required: i. Bank reconciliation statement for the month of January 2004, showing the cash balance to be shown in Balance sheet as on 31, January 2004                                                                                                                           [10]

ii. Prepare the necessary entries on the books of Rara Craft Co.                                                              [5]

QN. 2.

 a. . Following informations are extracted from the inventory record of Chaudhary Bros. from October 1 to                        December 12, 2003:

                                Net sales from October 1 to December 12                      Rs. 48,000

                                Beginning inventory – October 1                                      Rs. 9,600

                            Purchases from October 1 to December 12                    Rs. 28,000

On December 12, 2003 a portion of Chaudhary Bros. inventory is destroyed by fire. The company determines by physical count, that the cost of the merchandise not destroyed is Rs. 1,600. & gross profit ratio as 30% of net sales. The company needs to estimate the cost of inventory lost for purposes of insurance reimbursement which is agreed to pay Rs. 2,000 as a full settlement for the inventory lost in the fire.

Required: Journal entries in the books of Chaudhary Bros. to record the Insurance settlement after necessary              calculations for: Amount of gross profit, Cost of goods sold, & Value of ending inventory at the time                  of fire.                                                                                                                                                                    [7]

           b. Record the following transactions in the form of journal entries so as to highlight the difference between; Periodic      & Perpetual inventory systems.                                                                                                                                                    [8]

Jan – 1, 2004       Purchased on account 4,000 units @ Rs. 1 each.

Jan – 5, 2004       Returned 800 defective units, which were damaged in transit.

Jan – 12, 2004     Sold on account 1,600 units @ Rs. 1.25 each.

QN. 3.

            a. Bloomer Company purchased new machinery on 1^st January 2000. for Rs. 10,000. The machinery has four years         life and zero residual value at the end of the fourth year.

       

Required:

                                                              I.Calculate the depreciation expenses for each of the four years using straight-line method and the double declining balance method. (Show the depreciation expenses in columnar form for comparison purposes.)                        

                                                            II. Assuming that the Bloomer Company falls under the 40% tax bracket; calculate the amount of tax saved by the Company for the year 2000 using the double decline & straight-line methods of depreciation.                                                                               [7]

b.       Gahana Kunja distributes fine stones. It sells on credit to retail Jewelry stores and extends terms of 2/10, net 30. For accounts that have probability of collecting the receivables as follows:

                               Not yet due                                                                               95%

                               One month past due                                                               80%

                               One to two months due                                                          60%

                               More than two months due                                                   40%

On December 31^st 2003, the credit balance in allowance for doubtful account is Rs. 12,300. The amount of gross receivables by age on this date is as follows:

                               Current (not yet due)                                                 Rs. 200,000

                               Past due:

                               Less than one month                                                   Rs. 45,000

                               One to two months                                                      Rs. 25,000

                               More than two months                                               Rs. 10,000

Required: Prepare a schedule to estimate the amount of uncollectible accounts at December 31^st 2003 and prepare            necessary entries to adjust the allowance for doubtful debt account.                                                   [8]

QN. 4. Write short notes on: ( any two)                                                                                                                                 [2.5×2=5]

                                a. Credit memoranda         b. Depletion expenses         c. Non interest bearing notes

**************************************Good Luck***********************************

Meaning and concept of Trial Balance

Meaning and concept of Trial Balance

Double entry bookkeeping is the backbone of all accounting, according to which each debit entry must be followed by a credit entry and vice-versa. It means that if individual debit must be equal to individual credit entry, then the total debit entries must be equal to total of credit entries. We need to check whether it is the case or not. Hence, to see whether all debit entries have the equal corresponding entries, a statement is generated which is known as a Trial balance.

Things to Remember

The Trial Balance is not an account but it is a statement and does not form a part of book-keeping process.

Therefore, a Trial Balance is a statement of accounts, which is prepared to prove the arithmetical accuracy of the books of accounts maintained. This is done to ensure that the fundamental principle of double entry book keeping has been followed for all transactions. It is to be noted in the early stage of learning only that a trial balance is not an account but a statement and therefore, it is not a part of the process of book keeping. We can highlight the meaning of Trial Balance with the help of following definitions:

According to R. N. Carter: “Trial balance is the list of debit and credit balances, taken out from ledger; it also includes the balances of cash and bank taken from cash book.”

According to M.S. Gosav : “ Trial balance is a statement containing the balance of all the ledger accounts as at any given date, arranged in the form of debit and credit columns, placed side by side and prepared with the object of checking the arithmetical accuracy of ledgers posting.”

A Trial Balance, is, thus a statement of debit balances and credit balances extracted from ledger accounts so as to summarise all Ledger Balances outstanding as on a particular date.

Activity 1.1

1.

Objective of Trial Balance

Establish the Arithmetical Accuracy of Ledger Accounts

When the ledger accounts are prepared correctly then the total of debit items and credit items in a trial balance will be equal. However, a tallied trial balance is not a conclusive proof of the accuracy of the ledger accounts. Trial balance determines only the arithmetical accuracy and not the accounting accuracy. Arithmetical accuracy is different from accounting accuracy. Arithmetical accuracy refers to agreement of the total of all debits and credits. It can be achieved even if the wrong accounts and wrong amounts are debited and credited, so long the amounts of debit and credit are equal. On the other hand, accounting accuracy refers to the compliance to the rules of debit or credit and other principles of accounts. This can be established only by verifying each and every entry and not by preparing the Trial balance.

Facilitate Location of Errors

The disagreement of a Trial Balance indicates the presence of some errors, committed while preparing the ledger accounts. Although it is not necessary that all errors can be located by preparing a trial balance, common errors can, however, be traced without much difficulty.

Aids the Preparation of the Final Accounts

Trial balance takes out a summary of accounts, which can be the starting point to prepare the final accounts. Since, all accounts having balances are listed by a trial balance; it can be very useful while drawing-up the final accounts as the possibility of missing some figures is virtually eliminated.

Importance of Trial Balance

 As stated above a Trial Balance is prepared in order to fulfil the different objectives like; locating the errors, checking the arithmetical accuracy and to aids for the preparation of final accounts. It is equally importance to trading and non trading organization as well as government and non government organization. The common importances of Trial Balance are:

1.       Without preparing Trial Balance one can not ensure that the accounting entries have been posted correctly and the accounts balances have been added to arrive at the total equality of the debit and credits.

2.       Trial Balance provides the clear picture of all the ledger accounts as it is a summary of all ledger accounts.

3.       The Trial Balance is the first step towards which all financial statements of an organization are prepared.

4.       It helps to identify income, expense, assets and liabilities easily since debit and credit balances are arranged separately.

Types of Trial Balance

Unadjusted Trial Balance

In practice a large number of transactions and events occur at the year end. But the accountant should first prepare a Trial Balance without making the adjustments for such year end transactions. The Trial Balance which is prepared without making the adjustments for year end transactions is Unadjusted Trial Balance and also can be termed as Rough Trial Balance.

The Adjusted Trial Balance

Firms usually redraft their Trial Balance after passing the adjusting journal entries to prove that the ledger is still in balance. It also provides a complete list of ledger accounts balances, including the adjusting entries, to be used for finalising the books of accounts. It shall be discussed later in the book.

Preparation of Trial Balance

To confirm the accuracy of the posting of ledger accounts in terms of the debit and credit amounts, a periodic trial balance may be prepared at the end of month or quarter or half year. While a trial balance may be prepared at any time, it should be compulsorily prepared at the close of every accounting period to verify the arithmetical accuracy of the ledger accounts as a basis to the preparation of the financial statements.

A trial balance is a schedule listing the names and balances of all accounts in the order in which they appear in the ledger, the debit balances are listed in the debit column, and the credit balances in the credit column.

There are two methods of preparing a trial balance:

1.       Totals Method

2.       Total Method excluding Closed Accounts

3.       Balance Method

4.       Total & Balance Method

1. The Totals Method: It is a list of all ledger accounts and the totals of their respective debit and credit side. The sum of the debit side total and the sum of the credit side total is expected to be equal. If the trial balance ascertains this equality then it can be said that the books are arithmetically accurate.

A format of Trial Balance by Totals Method and Totals Method excluding Closed Accounts is shown below:

FIGURE 4- 1 Format of Trial Balance

Trial Balance of ………….. (Name of the company)

As on ………. (Date on which the Trial Balance is prepared)

S.No.	Name of the Accounts	L.F	Dr. Total	Cr. Total

Illustration 4- 1

Given below are the ledger accounts extracted from the books of Degoo Furniture House Ratopul as on January 31, 2004. You are required to prepare the Trial Balance by Totals Method.

Share Capital Account

Dr.                                                                                                                                                                 Cr.

	Balance c/d		100,000		Bank		100,000
			100,000				100,000
					Balance b/d		100,000

Bank Account

Dr.                                                                                                                                                                 Cr.

a.	Share Capital		100,000		Rent		10,000
	Cash		60,000		Salary		15,000
					Drawing		5,000
					Purchase		50,000
					Balance c/d		80,000
			160,000				160,000
	Balance b/d		80,000

Purchase Account

Dr.                                                                                                                                                                 Cr.

	Bank		50,000		Balance c/d		50,000
			50,000				50,000
			50,000

Sales Account

Dr.                                                                                                                                                                 Cr.

	Balance c/d		60,000		Cash		60,000
			60,000				60,000
							60,000

Cash Account

Dr.                                                                                                                                                                 Cr

	Sales		60,000		Bank		60,000
			60,000				60,000

Rent Account

Dr.                                                                                                                                                                 Cr.

	Bank		10,000		Balance c/d		10,000
			10,000				10,000
	Balance b/d		10,000

Salary Account

Dr.                                                                                                                                                                 Cr

	Bank		15,000		Balance c/d		15,000
			15,000				15,000
	Balance b/d		15,000

Drawing Account

Dr.                                                                                                                                                                 Cr.

	Bank		5,000		Balance c/d		5,000
			5,000				5,000
			5,000

Solution 4- 1

Trial Balance of Dego Furniture house ratopul

As on 31^st January, 2004

Particulars	LF	Dr. Amount	Cr. Amount
Bank	1	160,000	80,000
Share Capital	2	-0-	100,000
Purchase	3	50,000	-0-
Cash	4	60,000	60,000
Sales	5	-0-	60,000
Rent	6	10,000	-0-
Salary	7	15,000	-0-
Drawing	8	5,000	-0-
Total		300,000	300,000

2. The Totals Method excluding Closed Accounts: It is the same method as the Totals Method except that accounts which get automatically closed, i.e. the total of debit side and credit side of an individual account is equal. It is an improvement of the totals method by leaving out those accounts which would make no difference in the total of a trial balance. This can be illustrated with the help of the ledger accounts of illustration 4-1

Solution 4- 2

Trial Balance of Dego Furniture house ratopul

As on 31^st January, 2004

Particulars	LF	Dr. Amount	Cr. Amount
Bank	1	160,000	80,000
Share Capital	2	-0-	100,000
Purchase	3	50,000	-0-
Sales	5	-0-	60,000
Rent	6	10,000	-0-
Salary	7	15,000	-0-
Drawing	8	5,000	-0-
Total		240,000	240,000

Things to Remember

Since the cash account was closed account, it has been left out while drawing up of the above trial balance.