Question 1

Bills receivable are shown in books as:

Accepted Answer

Bills receivable represent amount to be received in future; hence asset.

Question 2

Dishonour of a bill occurs when:

Accepted Answer

Dishonour means non-acceptance or non-payment as per terms of bill.

Question 3

Closing stock appears in:

Accepted Answer

Closing stock is credit in Trading A/c and asset in Balance Sheet.

Question 4

Errors of principle occur when:

Accepted Answer

Errors of principle are due to wrong classification of capital vs revenue etc.

Question 5

Subscription received in advance is shown in Balance Sheet as:

Accepted Answer

Advance subscriptions represent obligation to provide membership in future; treated as liability.

Question 6

Noting is done by:

Accepted Answer

Noting is recording dishonour details by a Notary Public.

Question 7

Forfeiture of shares occurs due to:

Accepted Answer

Shares are forfeited when shareholder fails to pay due amounts on shares.

Question 8

Golden rule for Real Account is:

Accepted Answer

Real Account: debit what comes in, credit what goes out.

Question 9

Bank Reconciliation Statement is prepared to reconcile:

Accepted Answer

BRS reconciles balances as per cash book and pass book/bank statement.

Question 10

Redemption of debentures means:

Accepted Answer

Redemption is repayment/settlement of debentures as per terms.

Question 11

SLM depreciation formula is:

Accepted Answer

SLM: (Cost − Scrap Value) / Useful Life.

Question 12

GAAP mainly aims to ensure:

Accepted Answer

GAAP provides accepted rules for uniformity, comparability, reliability in reporting.

Question 13

Accounting is often called the:

Accepted Answer

Accounting communicates financial information to users, so it is known as the language of business.

Question 14

Called-up capital is:

Accepted Answer

Called-up capital is the amount called/demanded by the company on subscribed shares.

Question 15

Receipts and Payments Account is prepared on:

Accepted Answer

Receipts & Payments is a summary of cash and bank transactions.

Question 16

The excess of income over expenditure in an NPO is called:

Accepted Answer

NPOs report surplus/deficit, not profit.

Question 17

Del credere commission is given to consignee for bearing risk of:

Accepted Answer

Del credere commission compensates consignee for risk of non-recovery from credit customers.

Question 18

Which of the following is a direct expense?

Accepted Answer

Direct expenses are related to purchases/production (carriage inward, wages, etc.).

Question 19

Hidden goodwill arises when:

Accepted Answer

Hidden goodwill is computed when implied firm value from partner’s capital is higher than actual capital.

Question 20

Under Straight Line Method, depreciation is:

Accepted Answer

SLM charges equal amount each year.

Question 21

Differentiate depreciation and amortisation (one point).

Accepted Answer

**Depreciation** relates to tangible fixed assets, while **amortisation** relates to intangible assets.

Question 22

What is Profit & Loss Account?

Accepted Answer

**Profit & Loss Account** is prepared to ascertain **Net Profit** or **Net Loss** after considering indirect expenses and other incomes.

Question 23

What is called-up capital?

Accepted Answer

**Called-up capital** is that part of subscribed capital which has been called/demanded by the company from shareholders.

Question 24

What is securities premium?

Accepted Answer

**Securities premium** is the excess of issue price of shares over their face value, credited to Securities Premium A/c.

Question 25

Define debenture.

Accepted Answer

**Debenture** is a written acknowledgement of debt by a company, creating a liability to pay interest and repay the principal as per terms.

Question 26

State the accounting equation.

Accepted Answer

Accounting equation: **Assets = Liabilities + Capital**.

Question 27

Who is a consignee?

Accepted Answer

**Consignee** is the agent who receives goods from consignor and sells them on behalf of consignor for a commission.

Question 28

What is endorsement of a bill?

Accepted Answer

**Endorsement** means signing on the back of the bill to **transfer** it to another person (endorsee).

Question 29

State any one cause of depreciation.

Accepted Answer

One cause of depreciation is **wear and tear** due to usage of the asset.

Question 30

What is posting?

Accepted Answer

**Posting** is the process of transferring journal entries into the relevant ledger accounts.

Question 31

Explain forfeiture of shares (any three points) and its basic accounting effect (overview) with a mini table.

Accepted Answer

Forfeiture of shares means cancellation of shares due to **non-payment** of allotment/call money.

Points (any three):
- it happens when a shareholder defaults on amount due on shares.
- the amount already received is credited to **Share Forfeiture A/c**.
- share capital relating to forfeited shares is reduced and unpaid amount is removed from shareholder’s account.

Mini table (effect):

| Account | Effect |
|---|---|
| Share Capital | decreases |
| Share Forfeiture | increases (credit) |
| Shareholders A/c | closed for forfeited shares |

Thus, forfeiture reduces share capital and records forfeited amount separately.

Question 32

Explain gross profit and net profit (any three points) with a short comparison table.

Accepted Answer

Gross profit and net profit (any three points):

- **Gross Profit (GP)** is the profit from trading activity only; it is calculated in **Trading A/c**.
- **Net Profit (NP)** is the final profit after adding other incomes and subtracting indirect expenses; it is calculated in **P&L A/c**.
- GP helps judge **pricing/cost of goods sold** efficiency, while NP shows overall business profitability.

Comparison table:

| Basis | Gross Profit | Net Profit |
|---|---|---|
| Statement | Trading A/c | P&L A/c |
| Includes | direct items | indirect items + other incomes |

Thus, GP is the first level profit and NP is the final profit.

Question 33

Explain revaluation account and its purpose at admission/retirement (any three points).

Accepted Answer

Revaluation A/c is prepared to adjust asset and liability values to current values.

Points (any three):
- it records increase/decrease in **assets** and **liabilities**.
- profit/loss on revaluation is transferred to partners’ capital accounts as per applicable ratio (often **old ratio**).
- it ensures the firm’s balance sheet reflects **true values** at the date of change.

Thus, revaluation ensures fairness between old and new/remaining partners.

Question 34

Explain branches of accounting (any three) with examples.

Accepted Answer

Branches of accounting (any three) with examples:

- **Financial accounting**: prepares financial statements for external users (Trading/P&L/Balance Sheet).
- **Cost accounting**: finds cost of products/services for cost control and pricing.
- **Management accounting**: prepares internal reports for planning and decision making (budgets, variance analysis).
- **Tax accounting**: computes taxable income and supports tax compliance.

Thus, different branches serve different information needs of business and users.

Question 35

Explain gaining ratio and its importance at retirement/death (any three points) with a table.

Accepted Answer

Gaining ratio is used when a partner retires/dies because remaining partners gain his share.

Points (any three):
- **Gain = New share − Old share** for each remaining partner.
- Used to adjust **goodwill** payable to outgoing partner.
- Shows who benefits more from outgoing partner’s share.

Table:

| Item | Formula |
|---|---|
| Gain | new share − old share |
| Use | goodwill compensation |

Hence, goodwill burden at retirement is borne in gaining ratio.

Question 36

Explain provision for doubtful debts adjustment (exam-style) with a small worked example and table.

Accepted Answer

### **Provision for Doubtful Debts — Exam-Style**

Businesses may not recover full amount from all debtors, so they create a **provision** as per prudence.

Treatment:
- provision is an **expense** in Profit & Loss A/c.
- it is deducted from **debtors** in Balance Sheet.

Worked example:
- Debtors = Rs. 50,000
- Provision @ 5% = Rs. 2,500
- Debtors shown in B/S = 50,000 − 2,500 = Rs. 47,500

Table:

| Item | Amount (Rs.) |
|---|---:|
| Debtors | 50,000 |
| Less: Provision (5%) | 2,500 |
| Net debtors in B/S | 47,500 |

**Conclusion:** Provision ensures realistic debtor value and prevents overstatement of profit.

Question 37

Explain rectification of one-sided errors using suspense account (exam-style) with an illustrative entry and flow.

Accepted Answer

### **Rectification of One-Sided Errors using Suspense A/c — Exam-Style**

One-sided errors affect only one account/one side, so trial balance does not agree.

Illustration:
- Sales Rs. 5,000 correctly recorded in Sales A/c, but posting to Debtor’s A/c is omitted.
- Effect: Debtors are **understated** and TB credit is higher.

Rectification entry:
- **Debtor’s A/c Dr 5,000**
  To **Suspense A/c 5,000**

Flow:

```text
One-sided posting error → Trial balance difference → Open Suspense → Pass rectification entry → Suspense reduced/closed
```

**Conclusion:** Suspense account is used only temporarily and should become nil after all such errors are corrected.

Question 38

Explain securities premium: meaning and typical uses (exam-style) with a table.

Accepted Answer

### **Securities Premium — Exam-Style**

**Meaning:** Securities premium is the amount received by the company over and above the face value of shares.

Why it is special:
- It is treated as a **capital item** and its use is restricted (as per law).

Typical uses (broad overview):
- writing off preliminary/issue expenses (where permitted)
- writing off discount/loss on issue of securities (where permitted)
- issue of **bonus shares**
- other specific purposes allowed by statute

Table:

| Aspect | Securities Premium |
|---|---|
| Nature | capital reserve-like |
| When arises | shares issued above face value |
| Use | restricted to specified purposes |

**Conclusion:** Securities premium strengthens capital base but cannot be used freely like revenue profits.

Question 39

Explain the life cycle of a bill of exchange (exam-style) and show it as a flowchart.

Accepted Answer

### **Life Cycle of a Bill of Exchange — Exam-Style**

A bill of exchange generally passes through the following stages:

- **Drawing of bill**: seller (drawer) draws bill on buyer (drawee) for a fixed amount.
- **Acceptance**: drawee accepts; he becomes **acceptor** and becomes primarily liable.
- **Holding/negotiation**: holder may keep the bill till due date, or **endorse** it to a creditor.
- **Discounting**: holder may discount the bill with bank to get early cash (bank charges **discount**).
- **Maturity**: on due date, bill is presented for payment.
- **Payment or dishonour**: if paid, bill is settled; if dishonoured, it may be **noted/protested** and debtor-creditor relationship is restored.

Flowchart:

```text
Credit sale → Bill drawn → Acceptance → (Hold / Endorse / Discount) → Maturity → Payment OR Dishonour → Noting/Protest
```

**Conclusion:** A bill converts credit sale into a legally enforceable instrument and provides flexibility through endorsement and discounting.

Question 40

Explain issue of shares in stages (exam-style) with a flowchart and key entries overview.

Accepted Answer

### **Issue of Shares in Stages — Exam-Style**

Shares are commonly issued by collecting money in stages:
- **Application**
- **Allotment**
- **Calls** (first/final)

Key points:
- on receipt of application money, **Bank A/c** is debited.
- on allotment/calls becoming due, shareholders’ account is debited and **Share Capital** (and premium, if any) is credited.
- when money is received, Bank is debited and shareholders’ account is credited.

Flowchart:

```text
Application received → Allotment made → Calls due → Calls received → Paid-up capital determined
```

**Conclusion:** A clear stage-wise approach helps pass correct journal entries and avoids confusion in numericals.

Business Accountancy — Question Paper

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