Model Question
BIM 3rd Semester/ACC 201: Financial Accounting
Group “A”
Brief Answer Questions
1.Define accounting standards.
Ans: Accounting standards, also known as Generally Accepted Accounting Principles (GAAP), are a set of guidelines and rules that define the acceptable accounting practices and methods for preparing financial statements.
2. What is intangible asset?
Ans: An intangible asset is a non-physical asset that holds economic value and provides long-term benefits to an organization.
• Examples of intangible assets include intellectual property (such as patents, trademarks, and copyrights), goodwill, brand recognition.
3. What do you mean accounting period concept?
Ans: The accounting period concept is a fundamental principle in accounting that requires financial activities and transactions to be reported and analyzed over specific, consistent periods of time.
• These periods, known as accounting periods, can be monthly, quarterly, or annually, and they allow businesses to prepare periodic financial statements and assess their financial performance over time.
4. Write about cash basis of accounting.
Ans: The cash basis of accounting is a method of recording financial transactions where revenues and expenses are recognized only when cash is actually received or paid.
• Under this system, income is recorded when payment is received, and expenses are recorded when they are paid, regardless of when the goods or services were actually delivered or incurred.
5.What are the different types of cheque?
Ans: There are several different types of cheques, each serving specific purposes.
- Bearer Cheque
- Order Cheque
- Crossed Cheque
- Blank Cheque
- Account Payee Cheque
6. The following transaction are given:
- Cash of Rs.160,000 and furniture of Rs.140,000 invested in the business as capital.
- Commission received Rs.42000 including advance commission of Rs.6,000
Required: Accounting equation
Ans:
7.The following particulars are provided to you:
- Profit for the year Rs.10,000
- Loss on revaluation Rs.9000
- Gain from cash flow hedges Rs.13000
- Gain on sale of investment Rs.12000
Required: Statement of Other Comprehensive Income as per NFRS
Ans:
8.You are given following information of a company:
Share capital and net profit on 1st January 2021 was Rs. 500,000 and Rs 100000 respectively and preliminary expenses was Rs 10,000.On 1st July 2021, the company issued 3,000 additional shares of Rs.100 each at 10% premium. Net profit earned by the company during the year amounting Rs.80,000 out of which the company paid dividend Rs.20000 to its shareholders .
Required: Statement of changes in Equity at the end of 2021
Ans:
9. KK Company Purchased a micro bus at the cost of Rs.840000 on 1st Baisakh 2077. The estimated life of the micro bus is Rs 80,000 KMs with the salvage value of Rs.40,000. During 2077 and 2078, the micro bus was run for 12,000 KM and 14,000 KM respectively.
Required: Depreciation for the year 2077 and 2078
Ans:
10.The following are the revenue and capital items:
- Carriage on new machine purchased
- Repair costs of second hand bike purchased
- White wash of old building
- Salary paid
Required: The revenue and capital items
Ans:
Group “B”
Shorts Answer Question(Attempt any SIX Questions)
11. Who are the users of accounting information?
Ans: Accounting information serves various users and purposes within and outside an organization.
The users of accounting information may broadly be classified into two groups:
Internal Users:
Internal users are individuals or groups within the organization who use accounting information for decision-making and management purposes.
Some of the internal users are:
Board of directors (BOD):
The Board of Directors is a group of elected or appointed individuals who represent the shareholders’ interests and oversee the management of the company. They use accounting information for various purposes, including: Strategic Decision-Making, Performance Monitoring, Risk Management etc.
• It formulates plans and policies for both short-run and long-run.
Managers:
Managers at various levels within an organization use accounting information for day-to-day operations, planning, and decision-making. Their use of accounting information includes: Budgeting and Planning, Performance Evaluation, Decision-Making etc.
Accountant and Others:
Accounting professionals within an organization, including accountants, controllers, and finance staff, play a crucial role in generating, analyzing, and interpreting accounting information. Their responsibilities include: Recording Transactions, Financial Reporting, Analysis and Interpretation etc.
External Users:
External users are individuals or entities outside the organization who rely on accounting information to make decisions or evaluate the financial health and performance of the entity.
Some of the external users are:
Investors/shareholders:
Investors and shareholders are external parties who have invested capital in the company. They use accounting information to assess the company’s financial health and make informed investment decisions.
Lenders:
Lenders, including banks and financial institutions, use accounting information to evaluate the creditworthiness of a company before extending loans or credit.
Suppliers:
Suppliers use accounting information to evaluate the financial stability and creditworthiness of their customers. Suppliers may offer favorable credit terms or adjust payment terms based on their assessment of the customer’s financial position, which can be derived from financial statements.
Customers:
Customers may use accounting information to assess the financial stability and reliability of the businesses they engage with. They may prefer to establish relationships with financially stable suppliers to ensure a reliable and consistent source of products or services.
Government:
Government agencies use accounting information for regulatory and taxation purposes. They may also be interested in the economic impact of businesses on the broader economy. They use financial statements to verify the accuracy of tax returns and ensure that companies comply with taxation regulations.
12. Differentiate between accounting and accountancy.
Ans: Here is a table differentiating between accounting and accountancy:-
13.What is ledger? Why it is prepared?
Ans: A ledger, often referred to as the general ledger, is a comprehensive record of all financial transactions of a business, categorized by accounts.
• It is a fundamental component of the double-entry bookkeeping system, where every financial transaction affects at least two accounts, maintaining the accounting equation (Assets = Liabilities + Equity).
→ It is prepared for:
- Organization of Financial Data: The ledger organizes all financial transactions by account, providing a clear and detailed record of all business activities.
- Preparation of Financial Statements: The information in the ledger is used to prepare key financial statements, such as the balance sheet, income statement, and cash flow statement.
- Tracking Financial Transactions: It helps in tracking all financial transactions and their impact on different accounts, ensuring accuracy and completeness.
- Facilitating Audits: A well-maintained ledger facilitates internal and external audits by providing a clear trail of all financial activities.
- Supporting Decision-Making: By providing detailed financial information, the ledger supports management in making informed business decisions.
- Compliance and Reporting: It ensures compliance with accounting standards and regulatory requirements by maintaining a precise record of financial activities.
- Detecting Errors and Fraud: Regularly updating and reviewing the ledger helps in detecting and correcting errors, as well as identifying any fraudulent activities.
14.Following are the information of assets of a company:
| Particular | 2077 | 2078 |
| Plant and Machinery | 200,000 | 350,000 |
| Building | 3,00,000 | 4,50,000 |
| Investment | 1,00,000 | 2,50,000 |
| Trademarks | 50,000 | 75,000 |
| Cash and Bank | 70,000 | 35,000 |
| Inventory | 60,000 | 90,000 |
| Account Receivable | 50,000 | 30,000 |
Required : Comparative or Horizontal Analysis
Ans:
15. The Bank statement of ABC Traders shows a balance of RS. 32000 on 31st Ashadh 2079. However the company balance showed a difference balance of RS 20000. On the investigation, the following difference were noticed:
- Outstanding cheque RS 12000
- Deposit in transit RS 6,000
- A customer’s cheque of RS 2000 was return with the bank statement marked NSF.
- Collection of notes receivable for RS 25000 and interest on investment Rs1500
- Bank charge RS.500 for the service provided by the bank
- A cheque of RS.2500 was paid by the bank. However, the company recorded RS. 7000 in its statement.
Required: Bank reconciliation statement
Ans:
16. The following information is provided to you:
Sales RS 6,00,000
Material consumed RS 1,00,000
Carriage on purchase RS 40,000
Administrative and selling expenses RS 50,000
Wages and Salaries RS 40,000
Interest on loan RS 10,0000
Dividend received RS20,000
Depreciation on office equipment RS30,000
Income tax paid RS 15000
Required: a. Value added Statement and b. Net profit for the year
Ans:
17. The following transactions are given:
1st January 2019 Machinery purchased RS. 4,00,000
30th June 2020 Additional machinery purchased RS 300,000
30th June 2021 Machinery purchased on 1st January was sold RS 280,000
Additional Information:
a. Depreciation is to be provided at the rate of 15% per annum on the basis of reducing balance method.
b. Accounts are closed on 31st December, each year.
Required: Machinery account from 2019 to 2021.
Ans:
Group “C”
Long Answer Questions (Attempt any THREE questions)
18.”Accounting is the language of business “,discuss.
Ans: The phrase “accounting is the language of business” underscores the critical role accounting plays in communicating financial information within and outside an organization.
Here’s a discussion on this concept:
Communication of Financial Information:
Accounting translates business transactions into standardized financial statements, such as the balance sheet, income statement, and cash flow statement. These documents communicate a company’s financial health, performance, and cash flows in a clear and consistent manner.
Decision-Making:
Managers, investors, creditors, and other stakeholders rely on accounting information to make informed decisions. Accurate financial data is essential for evaluating past performance, planning future activities, and allocating resources effectively.
Standardization and Comparability:
Accounting provides a standardized framework through generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). This standardization ensures that financial information is comparable across different organizations, facilitating investment and lending decisions.
Performance Measurement:
Through various accounting metrics and ratios, businesses can measure their performance over time. Metrics such as profitability, liquidity, and solvency ratios help in assessing how well a company is performing and managing its resources.
Regulatory Compliance:
Accounting ensures that businesses comply with legal and regulatory requirements. Accurate financial reporting is essential for tax filings, audits, and adhering to financial regulations imposed by governing bodies.
Transparency and Trust:
Consistent and transparent accounting practices build trust with stakeholders. Investors and creditors are more likely to invest in or lend to companies with reliable and transparent financial reporting.
Historical Record:
Accounting maintains a historical record of financial transactions. This historical data is invaluable for analyzing trends, conducting audits, and making strategic decisions based on past performance.
Strategic Planning:
Businesses use accounting information for strategic planning and forecasting. Budgeting and financial planning rely heavily on accurate accounting data to predict future financial conditions and set achievable goals.
In conclusion, accounting serves as the language of business by systematically capturing and reporting financial information in a way that is universally understood by all stakeholders. It enables effective communication, informed decision-making, and trust-building, making it an indispensable tool for any business.
19.What is accounting standard ? Also explain the needs and limitations of accounting standards
Ans: Accounting standards, also known as Generally Accepted Accounting Principles (GAAP), are a set of guidelines and rules that define the acceptable accounting practices and methods for preparing financial statements.
• These standards ensure consistency, comparability, transparency, and reliability in financial reporting.
• They are crucial for facilitating meaningful communication of financial information and promoting confidence among users of financial statements.
→ The needs of accounting standards are explained below:-
Uniformity in accounting:
The need for uniformity in accounting practices is critical for consistency and comparability. Accounting standards establish a standardized framework that ensures entities follow consistent methods for recording, measuring, and presenting financial transactions.
Improves reliability of financial statements:
The reliability of financial statements is paramount for decision-making by investors, creditors, and other stakeholders. Accounting standards contribute significantly to the improvement of financial statement reliability.
Prevents frauds and manipulations:
A crucial aspect of accounting standards is their role in preventing frauds and manipulations in financial reporting. Without standardized rules, entities might be tempted to engage in creative accounting practices to present a more favorable financial picture than the reality. Accounting standards set boundaries and prescribe ethical practices, acting as a deterrent against fraudulent activities.
Comparability:
Comparability is a key need in financial reporting, allowing users to make meaningful comparisons between different entities and across various reporting periods. Accounting standards play a pivotal role in ensuring comparability by establishing consistent methods of measurement and presentation.
→ The limitations of accounting standards are explained below:-
Complexity: Accounting standards can be complex and technical, making them challenging to understand and implement, particularly for small businesses with limited resources and expertise.
Subjectivity: Despite efforts to standardize accounting practices, certain accounting treatments involve judgment and estimation, leading to subjectivity and potential inconsistencies in financial reporting.
Lag in Updating Standards: Accounting standards may lag behind evolving business practices and emerging industries. Delayed updates to standards can result in outdated accounting treatments that do not accurately reflect economic realities.
Cost of Compliance: Complying with accounting standards can impose significant costs on businesses, including the implementation of new systems, training of personnel, and engagement of external auditors. These compliance costs may be disproportionately burdensome for smaller companies.
20.The Trial balance of KK Company as on 31st December 2021 is given below:
Adjustments:
- Closing stock RS 30,000
- Depreciation rate of building 5% and equipment 25%
- Salary to be paid RS 3,000
- Prepaid insurance expired RS 18,000
Required:
a. Profit and loss statement for the year ending 31st December 2021 as per NFRS.
b. Statement of financial position as on 31st December 2021 as per NFRS.
Ans:
21.The ABC Company’s Statement of Profit and Loss account and Statement of Financial Position for two years have been given below:
