2010 Dec Fund 50 Basic Accounting.pdf

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THE ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA



FOUNDATION EXAMINATION - DECEMBER 2010

(50) BASIC ACCOUNTING

Time: 03 hours

• Instructions to candidates

(1) This paper consists of three (03) Sections A, B & C. (2) Five (05) questions should be answered as follows:• Question No.01 of Section A

• Both questions of Section B

• Any two (02) questions from Section C (3) Answers should be in one language, in the medium applied

for, in the booklets provided. (4) Submit all workings and calculations. State clearly assumptions made by you, if any.

(5) Use of calculators is permitted. (6) 100 Marks.

SECTION - A Multiple Choice Questions All questions of this Section should be answered. 30 marks

01. Select from (1), (2), (3), (4) the most correct answer to each of the following questions. Write the number of the

selected answer in your answer booklet with the English letter assigned to the question.

(A) Select from the following, the most correct statement:

(1) Financial accounting provides information only to internal parties of an entity.(2) Cost accounting aims at providing information to parties external to an entity.

(3) Financial accounting focuses primarily on past transactions and events.

(4) Both statements (2) and (3) above are correct.

(B) Of the following, accounting inputs include:

(1) Income statement & Balance sheet.

(2) Transactions & events.

(3) Ledgers, journals and cash book.

(4) (2) and (3) of the above.

(C) Which of the following statements is true with regard to cash discounts?(1) Cash discounts are offered when reducing the invoice price below the listed

price.

(2) Cash discounts are offered to induce debtors for prompt settlement.

(3) Cash discounts are disregarded in accounting.

(4) None of the above.

22-01-2011 Morning 9.00 – 12.00

No. of Pages: 09 No. of Questions: 06



(D) It has not been possible to identify reasons for a difference of Rs.35,000/- in the credit column of a trial balance.



Assuming prudence the Book-keeper has shown this as a liability in the balance sheet. As a student which of the

following statements, do you agree?

(1) I agree with the treatment by the Book-keeper, as it is a prudent

assumption.

(2) I do not agree with the treatment by the Book-keeper, as the difference

could be a result of a number of errors.

(3) I do not agree with the treatment by the Book-keeper, because it should

have been shown as an income.

(4) I do not agree with any of the above treatments.

(E) Depreciation of depreciable assets is recognized as a charge in the income

statement. This treatment is based on the concept of:

(1) Going concern. (2) Matching. (3) Materiality. (4) Periodicity.

(F) Overhead cost comprises of:

(1) All expenses charged to Manufacturing Account.

(2) All Indirect Expenses.

(3) All Variable Costs.

(4) Prime Cost.

(G) Details of the trading account of a company engaged in buying and selling of

commodities for a month is as follows:

Rs.’000 Sales 3,000 Opening stock 25

In arriving at the above gross profit, which of the following accounting concepts has not been complied with by the

company?

(1) Prudence concept. (2) Accrual concept.

(3) Matching concept. (4) Consistency concept.

(H) Salaries paid to factory foremen and office executives should be categorized as:

(1) Direct wages. (2) Indirect wages.

(3) Variable cost. (4) Semi variable cost.

Purchases 2,000

Closing stock 35

Gross profit 1,000

2



(I) Accounts Receivable balance as at 31st March 2010 of AB Ltd. was Rs.136,000/- and the Provision for Doubtful

Debts as at 01st April 2009 was Rs.2,720/-. One of the debtors, Peter was declared bankrupt in March 2010 and it

was decided to write off Rs.17,000/- due from him. No entries have been passed in the books of accounts to record

the above write-off. In addition to the above, a sum of Rs.25,000/- written off prior to 01st April 2009 as a bad debt

was recovered in January 2010. It is the policy of the company to make a provision for doubtful debts at 2% of the

outstanding debtors balance.

The provision for doubtful debts of AB Ltd. as at 31st March 2010 accordingly is:

(1) Rs.2,720/-. (2) Rs.2,380/-.

(3) Rs.1,880/-. (4) None of the above.

(J) Goods Received Note (GRN) is raised:

(1) to certify that goods are of good quality.

(2) by the production Manager to request materials from stores.

(3) to accept the goods into the stores.

(4) to record goods returned to the supplier.

(K) Select from the following, the group which consists examples for non-production

overheads:

(1) Factory Rent and Rates.

(2) Depreciation of Plant & Machinery.

(3) Rent and insurance of office premises.

(4) Salaries paid to factory Supervisors and Foremen.

(L) Given below is the information pertaining to Ajith’s milk business:

Rs. January 01st Opening inventory 30 liters

at Rs.30/- 900/- January 05th Purchased 60 liters at Rs.36/- 2,160/-

Sales during the month were 200 liters at Rs.40/-. The value of the closing stock under First-In, First-Out (FIFO)

method is:

(1) Rs.900/-. (2) Rs.1,200/-. (3) Rs.240/-. (4) Rs.1,500/-.

(M) Which of following graphs describe the behavior of variable cost?

A B C t s o C l a t o T

t s o C t i n U

Activity level

(1) A only. (2) A and B only. (3) C only. (4) B and C only.

t s o C l a t o T

Activity level

Activity level

January 15th Purchased 70 liters at Rs.34/- 2,380/-

January 25th Purchased 70 liters at Rs.40/- 2,800/-

3



LiL



(N) Golden company made a loss on disposal of a depreciable asset. The proceeds

received from the disposal of this asset is:



(1) More than the cost of the asset.

(2) Less than the cost of the asset but more than the written down value of

the asset.

(3) Less than the written down value of the asset.

(4) Equal to written down value of the asset.

(O) Factory overhead costs do not include:

(1) Direct labour and direct material cost.

(2) Royalties paid on each unit produced.

(3) Royalties paid on each unit sold.

(4) All of the above.

(02 marks each, Total 30 marks)

SECTION - B Compulsory Questions Answer both questions of this Section 50 marks

02. Mallika started a retail shop on 01st January 2010, depositing Rs.10,000/- into a bank account. Rs.60,000/- worth

of furniture and equipment were brought to the business by Mallika on the same day. The following information was

extracted from her records for the three month period ended 31st March 2010:

Rs.

Cash payments (made from daily collection)

Electricity 4,000 Transport 7,000

Cheque payments

Cash deposited in bank 210,000

Loan from Lalani (cash) 25,000

Sundry expenses 3,000

Suppliers 40,000

Expenses on Business opening day 5,000

Suppliers 120,000 Motor bicycle (could use for 3 years and can be sold for Rs.12,000/- after 3 years)

36,000

Rent (2,000 per month) 24,000

Settlement of part of the loan - Lalani 12,000

Painting work of the shop 4,000

4



The following additional information is provided:

(1) All sales were on cash basis, Mallika has deposited receipts from sales keeping a cash in hand balance of

Rs.5,000/-. She has started to withdraw Rs.500/- each daily from the collection (for private use) with effect from 01st

March to 31st March 2010.

(2) Furniture and equipment should be replaced after 4 years, the saleable value of

these assets after 4 years would be Rs.12,000/-.

(3) The trade payables as at 31st March 2010 were Rs. 13,000/-.

(4) The stock on 31st March 2010 was valued at Rs.23,000/-.

(5) Outstanding bills payable as at 31st March 2010 were:

Electricity Rs.2,000/-

Water Rs.1,000/-

You are required to prepare:

(a) Trading, Profit/Loss account for the three months period ended 31st March 2010,

(15 marks)

(b) Balance Sheet as at 31st March 2010, (10 marks)

of the business of Mallika. (Total 25 marks)

03. (a) You are given the cash book and bank statement of Udara & Company for the

month of December 2010.

Udara & Company Cash Book for the month of December 2010

Date Description

Amount

Rs.

Date Description

Amount

Rs.

01.12.2010 Balance B/f 34,200 02.12.2010 Silva Ltd. 68003 6,400

04.12.2010 Ajith Ltd. 56308 105,000 05.12.2010 Electricity 68004 14,000

08.12.2010 Cash 25,000 08.12.2010 Sheela 77613 43,000

17.12.2010 Cash 50,000 10.12.2010 Peter 68005 20,000

17.12.2010 Cecil Ltd. 453015 61,000 15.12.2010

26.12.2010 Daya Ltd. 242156 76,000 17.12.2010 Rent 68006 60,000

27.12.2010 Basil Ltd. 71303 47,300 26.12.2010 Computer 68007 64,000

398,500 398,500

5

31.12.2010 C/d 91,100

Transfer to savings account 00016015

100,000



Balance



(Rs.)

01.12.2010 Balance - - 48,100

02.12.2010 Withdrawal cheque No. 68001 10,000 - 38,100

08.12.2010 Deposits - 25,000 63,100

10.12.2010 Deposit cheque No. 77613 - 43,000 106,100




15.12.2010 Transfer to Savings Account No.00016015 100,000 - 93,200


17.12.2010 Deposits - 50,000 204,200

22.12.2010 Standing order 5,000 - 199,200

Assume that the Bank has recorded all entries correctly.

You are required to Prepare,

(i) Adjusted cash book.

(ii) Bank reconciliation statement for the month of December 2010.

(10 marks)

(b) The information given below was extracted at the end of December 2010 from

the books of a trading company.

Debtor

Balance Cash 01.12.2010

Sales during the month

received from debtors during the

Rs.

Rs.

month Rs. Sales returns

Discounts during the

allowed month Rs.

Rs.

Sylvester 4,000 4,000 400 5,000 250 Rahula 3,000 5,000 300 3,000 150

Swarnamali 2,000 6,000 0 1,000 50

Anthony 1,000 7,000 0 5,000 400

Total 10,000 22,000 700 14,000 850

Bank Statement for the month of December 2010

Date Description

Dr. (Rs.)

You are required to prepare,

(i) The Debtors (Accounts Receivables) Ledger Control Account as it would



appear in the general ledger.

(ii) Individual ledger accounts of each debtor as they would appear in the subsidiary ledger. (07 marks)

6

Cr. (Rs.)



You are required to, identify possible transactions that causes impact of item 2 to 8 above.



Example relating to Item 1 is given below: Transaction: Cash sales of Rs.5,000/- of goods costing for Rs.3,000/-.

(08 marks) (Total 25 marks)

SECTION - C Answer any two (02) questions from this Section 20 marks

04. (a) The Trial Balance extracted from the books of Belta Company reflects that the debit side total is greater

than the total in the credit side, thereby creating a suspense account. Subsequent investigations have revealed the

following:

Reference No.

Error

1 The debit side of salaries account was over-cast by Rs.3,000/-.

2 Discount received of Rs.500/- was debited to discounts allowed account.

(c) Impact of some of the transactions in the accounts of Silva Bake House are

given below:

Item Cash Inventories Receivables Capital

Assets Fixed

Revenue Expenses

1 + 5,000 - 3,000 - - - + 5,000 + 3,000 2 + 3,000 - - + 6,000 + 3,000 - -

You are required to prepare, Journal Entries to correct the above errors.

(07½ marks)

(b) What are the advantages of WAC (Weighted Average Cost) pricing method for issuing inventories? (02½ marks)

(Total 10 marks)

3 - - 500 - - + 500 - -

4 - - 4,000 - - 4,000 - - -

5 - - - + 300 - - + 300

6 - - - - - 700 - + 700

7 + 1,000 - 3,000 + 3,000 - - + 4,000 + 3,000

8 + 2,000 - - 2,100 - - - + 100

3

4

5

6

7

A cash sale of Rs.4,000/- was not recorded in the sales account, but debited to cash book.

A purchase of Rs.12,000/- was taken to purchase account as Rs.21,000/-, while the credit entry was recorded

correctly.

A sale of Rs.3,000/- was credited to debtors account as Rs.3,300/-, but the sales account was correctly recorded.

A credit sale of Rs.2,700/- to Rukshan was debited to Rukmal but the sales account was credited as Rs. 1,700/-.

Interest expense of Rs.1,350/- was credited to interest income account, but the bank account was correctly recorded.

7



05. (a) The information on Property, Plant and Equipment given below relates to a

company that started its business on 01st April 2009.

Asset

Expected residual value Rs.’000 Plant (expected output = 3 million units) 3,000 01.07.2009 300 Air conditioning

machine (expected to use for 10,400 hours)

Cost Rs.’000

Date acquired

400 01.10.2009 50

The company produced 600,000 units up to 31st March 2010. The air conditioning machine was used continuously

over 5 days a week, 8 hours a day. The building should be depreciated at 5% per annum on cost. A Lorry was

acquired on 01st January 2010 for Rs.3,000,000/-, expecting to be used for five years and then to be sold at

Rs.1,000,000/-. However, it was used only for two months and sold at Rs.2,800,000/-.

You are required to,

(i) Prepare the provision for depreciation account as at 31st March 2010.

(ii) Prepare the depreciation expense account for the year ended 31st March 2010.

(iii) Indicate the written down value of each asset as at 31st March 2010.

(07½ marks)

(b) Briefly explain with an example for each of the following:

(i) Production Overheads.

(ii) Non production Overheads. (02½ marks) (Total 10 marks)

06. (a) Tikiri is involved in the buying and selling business of domestic water tanks. At the physical verification of

stock carried out on 10th January 2010, it was found that 74 numbers of tanks were in good condition in the yard. The

stock movements for the period from 01st January 2010 to 10th January 2010 were as follows:

Nos. Sales (Rs.2,000/- each) 16

Purchases 20

Building 4,000 01.04.2009 -

Cost of a tank was Rs.1,000/- during the year 2009, however, it was Rs.1,100/- in the year 2010. The damaged tanks

had been purchased in 2009.

You are required to, Assess the value of the stock at cost to be included in the balance sheet as at 31st December

2009. (03 marks)

Returns in good condition (out of December 2009 sales) 6

Damaged in the yard due to an accident (with zero scrap value) 2

8



(b) The following particulars have been obtained from the books of business of

Anura.

Rs.’000 Trade Receivables (Debtors) control account:

Balance as at 01.01.2010 (Dr) 80

Based on the above particulars, you are required to prepare, Trading Account of business of Anura for the year

ended 31st December 2010. (4½ marks)

(c) Indicate three documents used in recording of labour cost, and briefly explain any one of them. (02½ marks) (Total

10 marks)

- o0o -

Trade Payables (Creditors) control account:

Inventories:

Transactions during the year:

Balance as at 31.12.2010 (Dr) 108

Balance as at 01.01.2010 (Cr) 45

Balance as at 31.12.2010 (Cr) 51

Balance as at 01.01.2010 40

Balance as at 31.12.2010 35

Cash sales 210

Cash received from debtors 350

Cash paid to creditors 290

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2010 Dec Fund 50 Basic Accounting.pdf

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