RISE SCHOOL OF ACCOUNTANCY

Certificate in Accounting & Finance Examination

Autumn 2014

2 September 2014
CAF 1 Introduction to Accounting

Introduction to Accounting
Suggested Solution

CAF-01
Introduction To Accounting
Prepared by: Adnan Rauf, ACA

Reviewed by: Mr. Naveed Ansari, FCA

Adnan Rauf, ACA

Adnan Rauf, ACA qualified CA in 2008. He completed his articles from A. F. Ferguson & Co,
Chartered Accountants. After qualification, he served the same firm at managerial level. Then, he
joined the teaching profession on full time basis. Currently, he is teaching the subjects of
Introduction to Accounting, Financial Accounting and Reporting-1 and Principles of Taxation
to the students of CA in RISE School of Accountancy (RAET approved by ICAP). 3 of his students
have received certificate of merits. He has authored 2 books.
Naveed Ansari, FCA
He is Principal at Garden Town Campus, Rise School of Accountancy. He has taught thousands of
students of professional qualifications like CA and ACCA. 5 of his students have got distinctions in
various papers. He has authored 1 book.

Introduction to Accounting

I Page 2 of 8

Answer-1
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)

Completeness/ Materiality
Materiality
Separate entity concept
True and fair view
Matching concept
Prudence
Going concern
Consistency

Answer-2
Dr.
Opening balance (Dr.)
Sale
Bill receivable (dishonored)

Cr.

Debtor Control Account

1,744,500
10,796,300 Sale return (144,400 - 22,000)
30,900 Cash
Discount allowed
Bad debt
Bill received
Creditor control account (contra)
Closing balance (bal.)

Dr.

122,400
9,404,300
348,000
16,000
508,400
35,000
2,137,600
Cr.
1,366,000
8,166,600

Creditor Control Account

Opening balance
315,900 Purchases
7,236,300
204,800
35,000
277,700
30,000
1,432,900

Purchase return
Cash (7,210,300 + 26,000)
Discount received
Debtor control account (contra)
Bill given to supplier
Posting error
Closing balance (bal.)
Answer-3

Comments
In my opinion the concept of distribution of loss of a partner is not in syllabus as it is not mentioned anywhere
in study text or question bank.

Ali
b/d
Capital-Zahid (W)
Realisation (loss)
Cash (bal.)

229,619
449,378
617,303

Partners capital accounts

Zahid
194,400 b/d
172,215
Realisation (cost)
337,034
337,034 Cash
527,797
Capital-Zia, Ali(bal)
Zia

Ali
1,296,300

Zia
864,200
172,845

Zahid

129,600
401,834

By: Adnan Rauf, ACA

Debtors
Stock
Furniture
Cash
- Creditors (2,484,600 +21,600)
Capital Zia (Dissolution cost)
(see below)

Commission payable to Zia

Realisation Account
1,706,800 Creditors
2,592,600 Provision for doubtful debt
259,300
Cash
- Debtor
2,506,200 - Stock
- Furniture
172,845
Loss on revaluation
- Capital Ali (1,123,445 x 40%)
- Capital Zia (1,123,445 x 30%)
- Capital Zahid (1,123,445 x 30%)
(1,306,300 + 1,944,500 + 206,100) x 5%

I Page 3 of 8

2,549,400
108,000

1,306,300
1,944,500
206,100

449,378
337,034
337,034
172,845

Cash Account
64,800

b/d
Realisation a/c
- Debtor
- Stock
- Furniture
Capital Zahid

1,306,300
1,944,500
206,100
129,600

Realisation a/c
- Creditor

Capital Ali
Capital Zia

Note: Relaisation expenses are ignored in the solution because these are to be borne by Mr. Zia.
(W) Journal entry for distribution of loss
Dr.
Capital Ali (401,834 x 4/7)
229,619
Capital Zia (401,834 x 3/7)
172,215
Capital Zahid
(Loss of Zahid is distributed between Zia and Ali in their profit sharing ratios)
Answer-4
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)

2,506,200

617,303
527,797

Cr.

401,834

Machine purchased by paying cash of Rs. 14,600.

Cash received from debtors amounted to Rs. 4,100.
Machine purchased costing Rs. 61,600. Cash paid amounted to Rs. 16,000 and Rs. 45,600 are still
payable.
Goods retuned to creditors amounted to Rs. 66,100.
Cash received from owner amounted to Rs. 68,400.
Machine purchased costing Rs. 9,600 on credit.
Owner withdrew cash for personal purpose amounting to Rs. 22,000.
Contra settlement of Rs. 15,000 is made between debtors and creditors.

Answer-5
Chart of accounts
Chart of accounts is a list of account names and numbers used in accounting to mange accounting records into
various heads such as expenses, incomes, liabilities, assets and capital.
Purpose of creating chart of accounts
1. Each account has distinct serial number

Introduction to Accounting

I Page 4 of 8

2. A detailed track in record keeping system can be made.

3. Classification of all transaction in their respective heads can easily be made.
4. Errors and mistakes can be easily traced.
Answer-6
Comments
In my opinion the concept of preparing inventory ledger card under periodic system is not in syllabus as it is
not mentioned anywhere in study text or question bank.
(a)

Cost of inventory Rs. 2,226,000

Purchases
Qty.

1-Aug
12-Aug
15-Aug
28-Aug
30-Aug
b)

20,000
20,000

75
78

Value

20,000
20,000

PUC
75
78

Stock

Qty.

PUC

Value

30,000

71.6667

2,150,000

20,000

74.2000

1,484,000

1,500,000
1,560,000

Cost of inventory Rs. 2,197,500

Purchases
Qty.

1-Aug
12-Aug
28-Aug
31-Aug

PUC

Sales

Value

Qty.
40,000
60,000
30,000
50,000
30,000

Sales

PUC
70
71.6667
71.6667
74.2000
74.2000

Value
2,800,000
4,300,000
2,150,000
3,710,000
2,226,000

Stock

Qty.

PUC

Value

50,000

73.2500

3,662,500

1,500,000
1,560,000

Qty.
40,000
60,000
80,000
30,000

PUC
70
71.6667
73.2500
73.2500

Value
2,800,000
4,300,000
5,860,000
2,197,500

Answer -7
Comments
Trade discount does not appear anywhere in books of accounts. Therefore trade discount appearing in trial
balance is assumed as cash discount.
Mr. Salman
Statement of Comprehensive income
for the year ended June 30, 2014
Rs. In 000
Sales
353,300
Less: Sale return
(10,000)
Net sales
343,300
Less: Cost of sales
Opening Stock
127,762
Purchases less returns
(330,530 -500)
330,030
Carriage in
10,420
Closing Stock
(237,500)
(230,712)
Gross Profit
112,588
Less: Admin Expenses
Salary to Salman
(150 x 12)
1,800
Depreciation - plant and machinery
(45,000 + 500) x 10%
4,550

By: Adnan Rauf, ACA

Depreciation - factory building

Interest expense
Power and utility charges
Discount
Salaries and wages
Rent and rate
Insurance
Advertisement
Miscellaneous expense
Provision for doubtful debt

(42,400 x 5%)

I Page 5 of 8
2,120
800
6,500
2,432
40,400
6,992
1,350
4,512
4,130
1,288
(76,874)

(W-2)

(W-1)

Add: Other Income

Interest income
Other income
Net Profit

11,930
3,100
50,744
Mr. Salman
Statement of financial position
as on June 30, 2014

Capital and liabilities

Capital
Capital
Add: Net Profit
Less: Drawings

Rs. In 000
300,000
50,744
(28,700)
322,044

(30,500 - 150 x 12)

Non-current liabilities
Loan from bank
Current Liabilities
Trade Creditors
Bill payable
Accrued expenses

40,000
104,724
23,150
3,460
131,334
493,378

Assets
Non-Current Assets
Plant and machinery WDV
Factory building WDV

(45,000 + 500 - 4,550)

(42,400 - 2,120)

40,950
40,950
81,230
20,000

Goodwill
Current Assets:
Trade Debtors
Less: Provision for doubtful debts
Prepaid insurance
Stock
Bill receivable
Bank
Cash

(W-1)

109,420
(2,188)

107,232
650
237,500
32,526
13,512
728
392,148
493,378

Introduction to Accounting

Workings
(W-1)

(W-2)

Dr.

I Page 6 of 8

Provision for doubtful debt account

unadjusted cl.
P&L (Bal.)
closing balance (109,420 x 2%)
2,188

Cr.
900
1,288

Dr.
Unadjusted balance

Cr.
1,350
650

Insurance expense
2,000 P&L (Bal.)
Closing prepaid

Answer-8
Comments
Wherever the word cash payment is appearing in the question, it is assumed that it is paid through cheque, as it
is no where mentioned in the question that business has withdrawn cash from bank.
a)
Date
1-Jul

3-Jul

5-Jul

7-Jul

8-Jul

15-Jul

30-Jul

31-Jul

Description
Bank
Capital
(Owner brought capital)
Land
Building
Bank
Note Payable
(Land and building purchased)
Van a/c (10 x 300,000)
Bank
Payable for Van (bal.)
(Van purchased)
Payable for Van
Van
(Van returned)
Office equipment
Bank
(Office equipment purchased)
Security deposit
Bank
(Security deposit paid)
Bank (30,000 x 3)
Rent in advance
(Rent received in advance)
Payable for Van
Bank
(Payment for liability of van)

Dr.
20,000,000

Cr.
20,000,000

7,200,000
2,800,000
3,000,000
7,000,000
3,000,000
600,000
2,400,000
300,000
3000,000
2,400
2,400
15,000
15,000
90,000
90,000
1,000,000
1,000,000

b)
Date
31-Jul

Particulars
Balance c/d

Capital
Date
1-Jul
20,000,000
Debit

Particulars
Bank

Credit
20,000,000

By: Adnan Rauf, ACA

Date
1-Jul
30-Jul

Capital
Rent in advance

Date
3-Jul

Particulars
Bank and Note Payable

Date
3-Jul

Particulars

Particulars
Bank and Note Payable

Bank Account
Debit
Date
20,000,000 3-Jul
90,000 5-Jul
8-Jul
15-Jul
31-Jul
31-Jul

Particulars
Land and building
Van
Office equipment
Security deposit
Payable for van
Balance c/d

Land Account
Debit
Date
Particulars
7,200,000
31-Jul
Balance c/d

Date
5-Jul

Particulars
Bank and payable for van

Debit
3,000,000

Date
8-Jul

Date
15-Jul

Date
31-Jul

Particulars

Particulars
Bank

Particulars
Bank

Particulars
c/d

7,200,000

Credit
7,000,000

c/d

Van
Bank
c/d

Credit

2,800,000

Date
31-Jul

Date
7-Jul
31-Jul
31-Jul

Credit
3,000,000
600,000
2,400
15,000
1,000,000
15,472,600

Building Account
Debit
Date
Particulars
2,800,000
31-Jul
Balance c/d
Note Payable
Debit
Date
Particulars
7,000,000 3-Jul
Land and building

Particulars

I Page 7 of 8

Van
Date
7-Jul
31-Jul

Particulars
Payable for van
Balance c/d

Payable for van

Debit
Date
300,000 5-Jul
Van
1,000,000
1,100,000

Particulars

Office equipment
Debit
Date
Particulars
2,400
31-Jul
Balance c/d
Security deposit Account
Debit
Date
Particulars
15,000
31-Jul
Balance c/d
Rent in advance
Debit
Date
90,000 30-Jul
Bank

Particulars

Credit

Credit
300,000
2,700,000

Credit
2,400,000

Credit
2,400

Credit
15,000

Credit
90,000

Introduction to Accounting

I Page 8 of 8

c)
Mr. Abdullah
Trial Balance as on July 31, 2014
Description
Capital
Bank Account
Land
Building account
Note payable
Van
Payable for van
Office equipment
Security deposit
Rent-in-advance

Dr.

Cr.
20,000,000

15,472,600
7,200,000
2,800,000
7,000,000
2,700,000
1,100,000
2,400
15,000
28,190,000

(THE END)

90,000
28,190,000