INSTITUTE OF BUSINESS MANAGEMENT

Final Assessment – Spring 2020

Course Title: Introduction to Financial Accounting Course Code: ACC-101
Faculty: M. Muzaffar Ali: Section: M-5560
Day / Date: Monday, 14thMay 2020 Timings: 15 May 8:00 am – 13 May 7:45 am
Total Marks: 40
Student’s Name Student ID:

Note:
a. Attempt All Questions
b. All answers should be in your own hand writing.
c. You have to submit the pdf file only
d. Upload this paper in the first Three hours when exam starts. And logout from LMS.
e. Show your complete working in proper order.
f. 10% marks of each numerical question are allocated for working only
g. .Upload this final assessment in PDF form within 24 hours on LMS.

Q.1
a) You have completed your MBA from CBM and You were called for a job interview for the Post
of Finance Manager. You need to answer the following question asked by the interviewer: What
will be Positive or negative impacts of GAAP matching principle on Final accounts of the
company and discuss the four important aspects which put the impact on the significance of the
final accounts. Give at least three real examples of three different businesses in your own hand
writing.
b) Discuss the significance of the valuation of A/c Receivable in Business. Discuss the different
approaches being followed for this purpose.
c) Give reasons why the opening inventory is not given in Trial balance if cost of goods sold is
mentioned and state the nature of the COGS. Discuss the situations where you have the negative
balance of the COGS
d) What do you understand by the negative balance of Trade debtors’ account?
e) Suggest the management of M/s Edward Trading Company that what percentage of the federal
Tax will be saved/lost , if the Opening Stock of the company is undervalued by $ 50,000 and
Federal Tax Rate is 40%. ( The Net Income before tax of the company is $ .5 million)

Q.2 Choose the correct answer for each from the given options:
1) The nature of the Depletion is :

A) Expense B) Asset C) Liability D) Revenue

2) Depreciable cost is:

A) Assets - Liabilities B) Cost + Salvage Value C) Cost – Salvage Value

D) Cost – Allowance for Depreciation

3) It does not appear on the Balance Sheet:

A) Furniture B) Prepaid expenses C) Preliminary Expenses D) Rent expense

4) Discount on Invoice price is known as:

A) Sales discount B) Cash discount C) Purchase discount D) Trade discount

5) Final accounts does not include except Income statement, Balance Sheet and:

A) Bank Reconciliation Statement B) Control accounts C) Cash Book D) All of these

6) If Balance of A/c Receivable i:Rs. 120,000 ,allowance for Bad debts Debit balance is Rs. 13,000 on dec.
31st and bad debts are estimated @ 10 %, the adjusting entry will be observed with :

A) 1,000 B) 25,000 C) 12,000 D) 2,000

7) Accrued Income is

A) Income Receivable B) Income Payable C) Income Unearned D) None of these

8) When Gross Profit is Negative, it implies that:

A) GP>COGS B) COGS>GP C) Net Sales > Gross Profit D) Net Sales < COGS

9) A Fixed Asset is reported in Balance Sheet at it’s:

A) Replacement Value B) Scrap Value C) Market Value D)Book Value

10) Total Liabilities of a business are Rs.60, 000 which is 1/4 of the total Assets then the total capital will
Be:

A) Rs. 180,000 B) Rs. 240,000 C) Rs. 300,000 D)Rs. 100,000

Q. NO. 3

a) Following are the balance provided by Wilson Traders on December 31st 2019 before closing
Opening Balance of Trade debtors $ 500 during the year Wilson Traders collected cash from
customers $ 3156. Closing balance of A/c receivable $ 700. Mr. Tom who owed $ 785 to Wilson
Traders showed a credit balance in his books of account to $ 115 which was not taken into
account by Wilson Traders. You, being expert need to locate the amount of Total credit sales for
the year of Wilson Traders.

b) With the help of the following information prepare an income Statement for the year ended
December 31st 2019 and Balance Sheet as on December 31st 3019 of M/s Ellen Wood Traders.
i) Net Profit is $ 25,000 ie 5 % of the net credit sales of the year and 25% of G.P.
ii) Closing Stock is 20% of net Sales and Opening Stock is 20% 0f the closing stock
iii) Current Assets as on Dec 31st $ 580,000 (excluding Inventory), Net Fixed Assets $
700,000, Current Liabilities $0.1million, Bank Loan $ .2 million, Capital? ,
Drawings $ 20,000. Total Sales $505,000.
Returns in?, Purchases?, Operating expenses?, Opening and closing stock ?, and COGS ?

Q.4 a) What are the impacts of understatement and overstatement of Opening and Closing stock
on COGS and Net Profit of the firm?
b) Discuss the valid basis to choose the LIFO,FIFO, and Weighted average method.
c) Siddique Corporation provided the following information for the year 2016
 Inventory Data:

Date Description Units Per Unit Cost

st
January 1 Beginning 875 12.50
February 28 1st Purchase 2900 12.20
June 20 2nd Purchase 4300 12.00
August 24 3rd Purchase 5400 12.80
November 15 4th Purchase 6600 12.90
November 30 5th Purchase 2000 11.90
December 10 6th Purchase 3600 13.00

Total sales for the year were Rs. 398,820.

You are required to calculate the following using periodic system and give entries in general journal
including adjusting and closing entries:

i) Cost of ending inventory (4,000 Units) using LIFO , FIFO and weighted average method
ii) Per unit selling price
iii) Cost of Goods Sold, using LIFO , FIFO and weighted average method.
iv) Gross Profit, using LIFO , FIFO and weighted average method.
v) Prepare a comparative Income Statement

Q.5 A) What do you understand by the negative balance of Trade debtors’ account?

B) Following are the information for the year 2018 of M/s Edward Traders:

a) Calculate the adjusted amount of Bad Debts for the year ended Dec. 31st 2018 if bad debts are estimated @
10 % of A/c Receivable if Balance of A/c Receivable is Rs.200,000 and Allowance for Bad Debts showed
Credit balance of Rs. 20,000
b) Calculate the adjusted amount of Bad Debts for the year ended Dec. 31st 2018 if bad debts are estimated @
10 % of A/c Receivable if Balance of A/c Receivable is Rs.180,000 and Allowance for Bad Debts showed
Credit balance of Rs. 20,000
c) Calculate the adjusted amount of Bad Debts for the year ended Dec. 31st 2018 if bad debts are estimated @
5 % of A/c Receivable if Balance of A/c Receivable is Rs.200,000 and Allowance for Bad Debts showed
Debit balance of Rs. 2,500
d) Give necessary entries in general journal if a customer who owed Rs 5,000 and his account was written off
last year he paid Rs.2, 000.
e) Give adjusting entry if Bad Debts are estimated @ 1/3 of 10 % of the net credit sales if Credit sales is
Rs.106,000. Allowance for Bad Debts is Rs. 3,000, Sales return Rs 11,000, and Discount allowed Rs.
5,000.

Q.6 Observe the adjusting entries under the following situations assuming that the accounting year ednds on
December 31st:

a) Un-expired insurance included an amount of $ 8,100 which was annual payment made on September
30th.
b) The accountant came to know that an amount of Opening Stock was overstated by $ 4,000.
c) Following are the balance before adjustment:
1) Accrued commission $ 780.
2) Commission received in advance $ 365
3) Commission receivable $ 800.

Commission accrued at the end of the year was $ 100, unearned commission $ 140
 d) Accounts of the Diner’s Club showed the total receipts on account of the subscription Income on
December 31st 2019 $ 9,800, which includes subscription for 2018, $ 3,100 and $ 800 for the year
2020. Accrued subscriptions at the end of the year were $ 150 and Un- earned subscriptions at the end
of the year were $ 225. Accrued subscription at the end of the .Also required to compute the
subscription income for the year 2019. (Special 3 Marks entry)
e) Depreciation on furniture was overstated by $ 20,000 and on equipment was under stated by $ 12,000.
f) Balance of office supplies at the end of the year was $ 645. During the year supplies were purchased of
$ 7,800. Supplies of $ 330 were available in the beginning of the year.

Q.7. Samson Company presented the following selected information for the year 2019.
1) Accounts Receivable ( Jan. 1 2019 ) 110,000
2) Allowance for bad debts ( Jan. 1 2019 ) 12,000
3) Total credit sales for the year. 2,10,000
4) Cash collected from customers 1,20,000
5) Sales Return and Allowances 6,000
6) Discount allowed to customers 4,000
7) Customers A/c. written off during year 18,000
8) Accounts Receivable previously written off collected 15,000
9) In subsidiary ledger one of the customer’s account shows debit balance Rs.8,000

Required: Give entries in general journal including the adjusting entry for the year ended December 31st 2019 under
the following assumptions
A) Bad debts are estimated @2 % of the Net Sales.
B) Allowance for Bad Debts on December 31st 2019 should be equal to 5% of the A/c Receivable as on
December 31st 2019.
C) Allowance for Bad Debts on December 31st 2019 should be equal to 4% of the A/c Receivable as on
December 31st 2019.
D) Allowance for Bad Debts on December 31st 2019 should be equal to 10% of the A/c Receivable as on
December 31st 2019.

Q.8 You have learnt the accounting cycle and worked very hard preparing Final accounts. After
learning there was a lock down situation in the country where you were restricted to stay at home.
After some time you received a call from a businessman whose business was situated in your area
.He had to finalize his account in 24 hours to avoid the penalty to be imposed on him. How will
you help him so he can avoid the penalty in preparing Income statement, Balance Sheet and
closing entries and sorting the missing figures which were not available of his business? He
provided the following information.
a) Opening balance of Inventory 12,000
b) Furniture and Fixture 180,000
c) Building 800,000
d) Closing balance of Inventory 14,000
e) Opening Balance of A/c receivable 20,000
f) Cash paid to suppliers during the year 260,000
g) Cash collected from customers during the year 490,000
h) Closing balance of A/c receivable 7,000
i) Closing balance of A/c Payable 15,000
j) Cash Sales during the year 170,000
k) Opening Balance of A/c Payable 13,000
l) Operating and General expenses 175,000
m) Interest Income 8,000
n) Bank Loan 100,000
o) Drawing 21,000
p) Cash purchases 80,000
q) Cash Balance 76,000
Q.9 Following are the information provided by M/s Sam Traders for the month of May 2019.
a) Debit balance as per cash book Rs.4,564 and as per Bank statement Rs. 6,872.
b) Three Cheques were issued to the creditors totaling Rs.90,450 but one of the cheques of Rs.
18745 dishonored due to the reason mentioned torn cheque.
c) The bank issued a debit memo for the payment of a leasing cheque of Rs. 20,000.
d) A cheque of Rs. 55,500 of Sammie Traders was charged to Sam Traders by Bank.
e) A cheque issued for the payment of office Furniture of Rs. 14,536 was recorded in cash book
as 4,635.
f) A cheque of Rs. 16,000 received from customer was recorded on the payment side of cash
book.
g) Bank service charges debited by bank Rs. 1860.
h) The Bank debited Rs. 7,705 on account of note excluding interest of Rs 65.
i) The deposit in transit Rs. 21,000.
j) Direct deposited by customer Rs. 10,000.
k) The Bank returned a cheque marked NSF Rs. 21400.
l) Profit credited by bank Rs. 2743.
m) A ceque received from customer of Rs. 25,678 was entered in cash book as 53,678.
n) A credit advice of Rs. 16450 issued by the bank for the dividend.
o) Un cleared cheques Rs. 15,200
p) The Credit advice sent by the Bank for Dividend collection of Rs.85,537, was not recorded in
cash book.

Q.10 Fill in the Blanks

a) . The three main financial statements are Balance sheet, Income statement & ______.
b) An economic unit engaged in business activities is called ____________.
c) Assets - ____________ = Liabilities.
d) ------------- is the contra account of Capital
e) The recording of assets at their original cost is known as ____________.
f) Increase in revenue is recorded in __________ side.
g) Decrease in Preliminary expense is known as _________.
h) Net income directly affects _________ account.
i) Investment of cash and other assets increase ___________.
j) The nature of Loan received by the employee is ----------------------