Institute of Chartered Financial Analysts of India (ICFAI) University 2007 Certification Finance Financial Accounting (CFA510): - Question Paper

other than this all the other above mentioned items should be deducted from the gross profit to arrive at the
net profit to compute managerial remuneration. Hence the ans is (d).
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42. ans : (a)
cause : Sinking fund is created out of profit. It is the part of profit and should be listed under the heading
“Reserves and Surplus” and not under “unsecured loans”. Loans and advances from subsidiaries, short
term loans and advances from banks, loans and advances from others and fixed deposits are unsecured
loans.
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43. ans : (a)
cause : As per the Companies Act, the item “Proposed additions to reserves” should be included under (a)
Reserves and Surplus in the Balance Sheet of a company
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44. ans : (b)
cause : Dividend from subsidiary companies in India is included in Profit and loss a/c. other than this, all the other
items are the classification of foreign exchange earnings. Hence option (b) is accurate ans.
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45. ans : (d)
cause : Profit and loss appropriation account depicts appropriation of net profit. Interim dividend (d) is
appropriation of net profit. It appears in Profit and loss appropriation account. Provisions for bad debts
(a), provision for taxation for current year (b), Director’s remuneration (c) and penalty paid for delay in
payment of tax (e) all are charged against profit and loss account. Hence, (d) is accurate ans.
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46. ans : (c)
cause :
Fixed assets Freehold (Rs)
Cost as on 31.03.2006 28,57,000
Less: Freehold sold on 01.11.06 1,00,000
27,57,000
Less: Depreciation Up to 31.03.06 4,27,000
23,30,000
Add: Depreciation recouped on sale 20,000
23,50,000
Less: Depreciation for the year 26,000
Book value as on 31.03.07 23,24,000
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47. ans : (c)
cause :
Dr. Profit and Loss appropriation account Cr.
Particulars Rs. Particulars Rs.
To Transfer to Debenture By Balance b/d 67,000
Redemption Reserve 50,000 By Profit for the year
b/d
1,90,610
To Proposed Dividend (10% of
Rs.19,90,000)
1,99,000
To Surplus carried to Balance Sheet 8,610
2,57,610 2,57,610
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48. ans : (c) < TOP >
cause : The directors of a company have proposed a dividend of 18% of the paid-up capital. The percentage of
profits which will have to be compulsorily transferred to reserve is 7.5%.
49. ans : (e)
cause : Goodwill is the unidentifiable intangible asset that increases the earning capacity of a business. The
other intangible assets (a), Patents (b) Copyrights, (c) Trade marks and (d) Licenses are identifiable
intangible assets that increase the earning capacity of business. option (e) is the accurate ans.
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50. ans : (b)
cause : Unearned income is a current liability till it is earned. Once it is earned, it becomes income. (b) is the
accurate ans.
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51. ans : (c)
cause : Under Simple Profit Method, (I) avg. of the adjusted profits of the chosen period and (II) The
number of years of purchase are to be considered to compute goodwill of a business. The combination
of the statements in (I) and (II) i.e. option (c) is the accurate ans.
The avg. annual profit expected to accrue in the future is to be arrived at based on the past profits of
the chosen period adjusting against non-recurring incomes and expenses. The statements in (III) Normal
rate of earnings and (IV) Capital employed of the business are to be considered in case of computation of
goodwill under Super Profit method.
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52. ans : (b)
cause : Let the original value of the asset be Rs.100, depreciation under SLM and WDV is as follows:
Thus, the straight line method will provide higher amount of depreciation from 5th year.
Year SLM WDV
1 10 25.00
2 10 18.75
3 10 14.06
4 10 10.54
5 10 7.91
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53. ans : (c)
cause : When capital is introduced owner’s equity increases, total liabilities increase and assets also increase.
Hence, (c) is accurate ans.
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54. ans : (b)
cause :
Particulars Rs.
The opening balance in the accumulated depreciation A/c
as on April 01, 2006
2,00,000
Less : Accumulated depreciation of the asset disposed 80,000
1,20,000
Add : Current year’s depreciation
(10,00,000 – 5,00,000) x
50,000
The balance of the accumulated depreciation account as
on March 31, 2007
1,70,000
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55. ans : (b)
cause :
Cash Account in the books of Mr. Nair
Dr. Cr.
Particulars Rs. Particulars Rs.
To Capital Account 40,000 By Purchases 25,000
To Sales 32,000 By Misc. expenses 2,700
By Drawings (450 x 12) 5,400
By Other expenses 1,700
By balance c/d 37,200
72,000 72,000
To Balance b/d 37,200
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56. ans : (e)
cause : avg. profits
= (35,000 + 40,000 + 44,000 + 48,000 + 50,000)/5 = Rs.2,17,000/5 = Rs.43,400
Since goodwill is based on three years avg. = three × Rs.43,400 = Rs.1,30,200.
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57. ans : (c)
cause : The payments made on April 02, 2006 for three months ended July 31, 2006 and July 15, 2006 for six months
ended January 31, 2007 fully belong to the relevant accounting year, 2006-07. However, in respect of
the payment of Rs.48,600 made on December 01, 2006 in respect of the period ended April 30, 2007 one
month insurance is prepaid, since the financial year 2006-2007 ends on March 31, 2007. This implies a
month’s advance payment was made in respect of the next financial year.
Hence, the prepaid insurance = Rs.48,600/4 = Rs.12,150.
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58. ans : (e)
cause : part 211 and 212 (1) of the Companies Act, 1956 lays down that the final accounts of a company
must current an overall actual and fair view of the affairs of the company presented in the form set out as
per schedule VI of the Companies Act, 1956 and giving due regard to ‘Notes’ at the end of balance sheet
for contingent liabilities. Hence, (e) is the accurate ans.
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59. ans : (e)
cause : Dividend is payable only on paid-up capital. It is not payable on calls-in-advance amount, dividend
declared should be regarded as current liability. Dividend cannot be paid out of capital. Interim dividend
can be declared by the directors without any approval of shareholders. Therefore (e) is accurate ans.
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60. ans : (a)
cause : Interest accrued and due on debentures (though it is a short-term liability) as per the Companies Act, it
must be shown in the Balance Sheet along with the amount outstanding in respect of debentures. Hence,
(a) is accurate ans.
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61. ans : (a)
cause :
Particulars computations Rs.
avg. profit Rs.(16,000 + 20,000 + 24,000 + 36,000)/4 24,000
Maintenable profit avg. profit – increase in rent
Rs.24,000 – Rs.1,000 = Rs.23,000
23,000
Normal profit Capital employed x Normal rate
Rs.1,00,000 x 15%
15,000
Super profit Maintenable profit – Normal profit 8,000
Under capitalization of super
profit method Goodwill will be
Super prfoit /Normal rate of return =
Rs.8000/15%
53,333
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62. ans : (e)
cause : Total units in hand before sale = 15 + 20 + 10 = 45
Number of units sold = 32
Number of units in hand = 13
Under 1st in 1st out method of inventory valuation, value of closing inventory is computed as
follows:
3 Units @ Rs.450 = Rs.1,350
10 Units @ Rs.460 = Rs.4,600
Value of closing inventory = Rs.5,950
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63. ans : (c)
cause :
Particulars Rs. Rs.
Closing capital 4,00,000
Add: Drawings 1,00,000
Interest on drawings @ 6% 6,000 1,06,000
Total 5,06,000
Less: Additional capital 50,000
Interest on opening capital @ 5% on Rs.2,00,000 10,000
Opening capital 2,00,000 2,60,000
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Net profit earned during the year 2,46,000
64. ans : (c)
cause : Purchase A/c debited for furniture purchased is an fault of principle and does not affect trial balance.
For salary paid Bansal’s A/c is also debited. This is an excess debit of Rs.3,000.
For goods purchased from D. Gupta’s, their account should have been credited by Rs.7,350 instead of
being debited their A/c. The difference in trial balance due to the above fault is double the amount i.e.,
Rs.7,350 × two = Rs.14,700. For cash discount allowed by Roy & Co., their A/c should have been debited
instead of giving rise to a difference of Rs.200 in the trial balance. So the Suspense A/c will have a debit
of Rs.17,700 (Rs.3,000 + Rs.14,700) and a credit of Rs.200. The net difference is Rs.17,700 less Rs.200
= Rs.17,500.
Dr. Suspense account Cr.
Particulars Rs. Particulars Rs.
To Bansal account 3,000 By Difference in Trial balance 17,500
To D Gupta account 14,700 By M/s Roy & Co. 200
17,700 17,700
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65. ans : (e)
cause :
Dr. Accounts Payable Cr.
Dr. Stock A/c Cr.
Profit is on cost of goods sold = on cost or on sales.
*Cost of goods sold = Rs.2,00,000 × = Rs.1,50,000
Particulars Rs. Particulars Rs.
To Cash 1,50,000 By Balance b/d 30,000
To Balance c/d 40,000 By Purchases
(Balancing figure)
1,60,000
1,90,000 1,90,000
Particulars Rs. Particulars Rs.
To Balance b/d
(Balancing figure)
80,000 By Cost of goods
sold*
1,50,000
To Purchases 1,60,000 By Goods lost 30,000
By Balance c/d 60,000
2,40,000 2,40,000
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66. ans : (c)
cause :
calculation of Inventory
Particulars Rs. Rs.
Inventory as per books 1,50,000
Add Purchases received but not
accounted for
10,000
Sales yet to be delivered 30,000 40,000
1,90,000
Less Returns outward 5,000
Amount overcast in stock sheet 6,000 11,000
Value of physical inventory 1,79,000
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67. ans : (a)
cause : When opening stock is understated and closing stock is overstated, the gross profit as well as net profit
will increase. Closing stock appearing as an asset in the Balance-sheet when overstated, will also
increase the current assets. Hence, (a) is accurate ans.
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68. ans : (b)
cause : Credit sale of goods is entered in sales book. The transactions mentioned in other choices are not
entered in sales book. Hence, (b) is the accurate ans.
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69. ans : (a)
cause : Straight line depreciation per annum = Rs. 3,50,000 x 5% = Rs. 17,500
Number of years for which depreciation has been charged on this basis
= years
If 8% depreciation was charged by the reducing balance method, written down values (WDV’s) would
be
WDV at the end of the first year (3,50,000 x 92%) Rs.3,22,000
WDV at the end of second year (3,22,000 x 92%) Rs.2,96,240
WDV at the end of third year (2,96,240 x 92%) Rs.2,72,541
So extra depreciation to be given = 2,97,500 – 2,72,541 = Rs. 24,959 or Rs. 24,960
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70. ans : (d)
cause : Rate of Depreciation : 12%
No. of years : 3
Depreciation method : Straight line
Book value : Rs.25,600
Cost of machine (x) : x(1 – 0.36) = Rs.25,600
x0.64 = Rs.25,600
x = × 100 = Rs.40,000
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71. ans : (d)
cause : Statement of accounting policies need not be said in the Director’s Report. It is to be said in
Auditors’ Report.
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Earning:   Approval pending.