Untitled

Test Series: March, 2022
MOCK TEST PAPER 1

FOUNDATION COURSE
PAPER – 1: PRINCIPLES AND PRACTICE OF ACCOUNTING
Question No. 1 is compulsory.
Attempt any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed by way of note forming part of
the answer.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) State with reasons, whether the following statements are true or false:
(i) Wages paid for erection of machinery are debited to Profit and Loss Account.
(ii) Amount spent for the construction of temporary huts, which were necessary for construction
of the Cinema House and were demolished when the Cinema House was ready, is ca pital
expenditure.
(iii) The additional commission to the consignee who agrees to bear the loss on account of bad
debts is called overriding commission.
(iv) In the calculation of average due date, only the due date of first transaction must be taken as
the base date.
(v) The business of partnership must be carried on by all the partners.
(vi) Debenture interest is payable after the payment of preference dividend but before the
payment of equity dividend. (6 Statements x 2 Marks = 12 Marks)
(b) What services can a Chartered Accountant provide to the society? (4 Marks)
(c) Calculate the missing amount for the following.
Assets Liabilities Capital
(a) 45,00,000 7,50,000 ?
(b) ? 4,50,000 2,25,000
(c) 43,50,000 ? 41,25,000
(d) 1,71,00,000 (8,40,000) ? (4 Marks)
2. (a) M/s Krishna took lease of a quarry on 1-1-2019 for ` 6,00,00,000. As per technical estimate the total
quantity of mineral deposit is 12,00,000 tonnes. Depreciation was charged on the basis of depletion
method. Extraction pattern is given in the following table:
Year Quantity of Mineral extracted
2019 12,000 tonnes
2020 60,000 tonnes
2021 90,000 tonnes
Required
Show the Quarry Lease Account and Depreciation Account for each year from 2019 to 2021.
© The Institute of Chartered Accountants of India

(b) On 30th June. 2021, Cash Book of Ms. Suman (Bank Column of Account No. 1) shows a Bank
Overdraft of ` 1,97,400. On going through the Bank Pass book for reconciling the Balance, she
found the following:
(a) Out of cheques drawn on 26th June, those for ` 14,800 were cashed by the bankers on 2 nd
July.
(b) A crossed cheque for ` 3000 given to Abdul was returned by him and a bearer cheque was
issued to him in lieu on 1 st July.
(c) Cash and cheques amounting to ` 13,600 were deposited in the Bank on 29 th June., but
cheques worth ` 5,200 were cleared by the Bank on 1 st July., and one cheque for ` 1,000
was returned by them as dishonoured on the latter date.
(d) According to Suman’s standing instructions, the bankers have on 30 th June, paid ` 1,280 as
interest to her creditors, paid quarterly premium on her policy amounting to ` 640 and have
paid a second call of ` 2,400 on shares held by her and lodged with the bankers for safe
custody. They have also received ` 600 as dividend on her shares and recovered an
Insurance Claim of ` 3,200, as their charges and commission charged on the above being `
400. On receipt of information of the above transaction, she has passed necessary entries in
her Cash Book on 1 st July.
(e) Bankers seem to have given a wrong credit for ` 2,000 paid in by her in No. 2 account and
wrong debit in respect of a cheque for ` 1,200 drawn against her No. 2 account.
Prepare a Bank Reconciliation Statement as on 30 th June, 2021. (10 + 10 = 20 Marks)
3. (a) Nishant of Noida consigned 15,000 kgs of Sugar at ` 30 per kg to his agent Raja at Gurgaon. He
spent ` 5 per kg as freight and insurance for sending the Sugar at Gurgaon. On the way 100 kgs.
of sugar was lost due to the leakage (which is to be treated as normal loss) and 400 kgs. of sugar
was destroyed in transit. ` 9,000 was paid to consignor directly by the Insurance company as
Insurance claim.
Raja sold 7,500 kgs. at ` 60 per kg. He spent ` 33,000 on advertisement and recurring expenses.
You are required to calculate:
(i) The amount of abnormal loss
(ii) Value of stock at the end and
(iii) Prepare Consignment account showing profit or loss on consignment, if Raja is entitled to 5%
commission on sales.
(b) On 1st January, 2021, Aditi account in Deepti ledger showed a debit balance of ` 7,500. The
following transactions took place between Deepti and Aditi during the quarter ended 31 st March,
2021:
2021 `
Jan. 11 Deepti sold goods to Aditi 9,000
Jan. 24 Deepti received a promissory note from Aditi due after 3 months 7,500
Feb. 01 Aditi sold goods to Deepti 15,000
Feb. 04 Deepti sold goods to Aditi 12,300
Feb. 07 Aditi returned goods to Deepti 1,500
March 01 Aditi sold goods to Deepti 8,400
March 18 Deepti sold goods to Aditi 13,800
March 23 Aditi sold goods to Deepti 6,000

Accounts were settled on 31 st March, 2020 by means of a cheque. Prepare an Account Current to
be submitted by Deepti to Aditi as on 31st March, 2021, taking interest into account @ 10% per
annum. Calculate interest to the nearest multiple of a rupee.
(c) Mr. Somnath sends goods to his customers on Sale or Return. The following transactions took
place during the month of December, 2021.
December 12th - Sent goods to customers on sale or return basis at cost plus 25% - ` 1,60,000
December 20th - Goods returned by customers ` 70,000
December 22nd - Received letters from customers for approval ` 70,000
December 27th - Goods with customers awaiting approval ` 30,000
Mr. Somnath records sale or return transactions as ordinary sales. You are required to pass the
necessary Journal Entries in the books of Mr. Somnath assuming that the accounting year closes
on 31st Dec., 2021. Considered that the transaction values are at involve price (including profit
margin) (10 + 5 + 5 = 20 Marks)
4. (a) Amal, Kamal and Tamal are partners in a firm sharing profits and losses as 8:5:3. Their balance sheet
as at 31st December, 2021 was as follows:
Particulars Amount` Particulars Amount`
Sundry creditors 3,00,000 Cash 80,000
General reserve 1,60,000 Bills receivable 1,00,000
Partners’ loan accounts: Sundry debtors 1,20,000
Amal 80,000 Stock 2,40,000
Kamal 60,000 Fixed assets 5,60,000
Partners’ capital accounts:
Amal 2,00,000
Kamal 1,60,000
Tamal 1,40,000
11,00,000 11,00,000
From 1st January, 2022 they agreed to alter their profit-sharing ratio as 5:6:5. It is also decided
that:
(a) The fixed assets should be valued at ` 6,62,000;
(b) A provision of 5% on sundry debtors to be made for doubtful debts;
(c) Goodwill of the firm at this date be valued at three years’ purchase of the average net profits
of the last five years before charging insurance premium; and
(d) Stock be reduced to ` 2,24,000.
There is a joint life insurance policy for ` 4,00,000 for which an annual premium of ` 20,000 is
paid, the premium being charged to profit and loss account. The surrender value of the policy on
31st December, 2021 was ` 1,56,000.
The net profits of the firm for the last five years were ` 28,000, ` 34,000, ` 40,000, ` 44,000 and
` 54,000.
Goodwill and the surrender value of the joint life policy was not to appear in the books.
Draft journal entries necessary to adjust the capital accounts of the partners and prepare the
revised balance sheet. (20 Marks)
3

5. (a) The trial balance of Sahil as at 31st March, 2021 is as follows:
Dr. Cr.
` `
Sahil’s capital account - 1,91,725
Stock 1st April, 2020 1,17,000 -
Sales - 9,74,000
Returns inward 21,500 -
Purchases 8,04,250 -
Returns outward - 14,500
Carriage inwards 49,000 -
Rent & taxes 11,750 -
Salaries & wages 23,250 -
Sundry debtors 60,000 -
Sundry creditors - 37,000
Bank loan @ 14% p.a. - 50,000
Bank interest 2,750 -
Printing and stationary expenses 36,000 -
Bank balance 20,000 -
Discount earned - 11,100
Furniture & fittings 12,500 -
Discount allowed 4,500 -
General expenses 28,625 -
Insurance 3,250 -
Postage & telegram expenses 5,825 -
Cash balance 950 -
Travelling expenses 2,175 -
Drawings 75,000 -
12,78,325 12,78,325
The following adjustments are to be made:
(1) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on sundry
debtors.
(2) Personal purchases of Sahil amounting to ` 1,500 had been recorded in the purchases day
book.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Included amongst the debtors is ` 7,500 due from Sunder and included among the creditors
` 2,500 due to him.
(5) A quarter of the amount of printing and stationary expenses is to be carried forward to the
next year.

(6) Credit purchase invoice amounting to ` 1,000 had been omitted from the books.
(7) Stock on 31.03.2021 was ` 1,96,500.
(8) Interest on bank loan shall be provided for the whole year.
You are required to prepare Trading & profit and loss account for the year ended 31. 03.2021.
(b) The following information of M/s. Badminton Club are related for the year ended 31 st March, 2021:
(1)
Balances As on 01-04-2020 As on 31-3-2021
(`) (`)
Stock of Sports Material 4,50,000 6,75,000
Amount due for Sports Material 4,05,000 5,85,000
Subscription due 67,500 99,000
Subscription received in advance 54,000 31,500
(2) Subscription received during the year ` 22,50,000
(3) Payments for Sports Material during the year ` 13,50,000
You are required to:
(A) Ascertain the amount of Subscription and Sports Material that will appear in Income &
Expenditure Account for the year ended 31.03.2021 and
(B) Also show how these items would appear in the Balance Sheet as on 31.03.20 21.
(15 + 5 = 20 Marks)
6. (a) Give necessary journal entries for the forfeiture and re-issue of shares:
(i) Akhil Pvt. Ltd. forfeited 9,000 shares of ` 10 each fully called up, held by Aditya for non-
payment of allotment money of ` 3 per share and final call of ` 4 per share. He paid the
application money of ` 3 per share. These shares were re-issued to Katen for ` 8 per share.
(ii) Mr. C, who was the holder of 10,000 preference shares of ` 100 each, on which ` 70 per
share has been called up, could not pay his dues on Allotment and First call each at ` 20 per
share. The Directors forfeited the above shares and reissued 8,000 of such shares to Mr. D
at ` 60 per share paid-up as ` 70 per share.
(b) Galaxy Limited issued 10,000 8% Debentures of the nominal value of `1,00,00,000 as follows:
(a) To sundry persons for cash at 90% of nominal value of ` 25,00,000.
(b) To a vendor for purchase of fixed assets worth ` 10,00,000 – ` 12,50,000 nominal value.
(c) To the banker as collateral security for a loan of ` 10,00,000 – ` 12,50,000 nominal value
You are required to prepare necessary Journal Entries.
(c) Write short notes on:
(i) Adjusted Selling Price method of determining cost of stock.
(ii) Principal methods of ascertainment of cost of inventory. (10 + 5 + 5 = 20 Marks)

MOCK TEST PAPER 1
FOUNDATION COURSE
SUGGESTED ANSWERS/HINTS
1. (a) (i) False: Such wages being related to capital Asset should be debited to the machinery account.
(ii) True: Since the temporary huts were necessary for the construction, their cost should be
added to the cost of the cinema hall and thus capitalised.
(iii) False: The additional commission to the consignee who agrees to bear the loss on account
of bad debts is called del credere commission.
(iv) False: Due date may be the due date of the first transaction or the due date of the last
transaction or any other due date between the first and the last but preferably earlier due date
may be taken.
(v) False: The business of the partnership firm can be carried on by all the partners or by any
one of them acting for all.
(vi) False: Debenture interest is payable before the payment of any dividend on shares.
(b) The practice of accountancy has crossed its usual domain of preparation of financial statements,
interpretation of such statements and audit thereof. Chartered Accountants are presently taking
active role in company laws and other corporate legislation matters, in taxation laws matters (both
direct and indirect) and in general management problems.
Some of the services rendered by chartered accountants to the society are briefly mentioned
hereunder:
(i) Maintenance of books of accounts;
(ii) Statutory audit;
(iii) Internal Audit;
(iv) Taxation;
(v) Management accounting and consultancy services;
(vi) Financial advice and financial investigations etc.
Other services like secretarial work, share registration work, company formation receiverships,
arbitrations etc.
(c) Using the Accounting Equation:
Assets = Capital + Liabilities
(i) 37,50,000
(ii) 6,75,000
(iii) 2,25,000
(iv) 1,79,40,000

2. (a) Quarry Lease Account
Dr. Cr.
Date Particulars Amount ` Date Particulars Amount `
2019 2019
Jan. To Bank A/c 6,00,00,000 Dec. 31 By Depreciation A/c 6,00,000
[(12,000/12,00,000) ×
` 6,00,00,000]
Dec. 31 By Balance c/d
5,94,00,000
6,00,00,000 6,00,00,000
2020 2020
Jan. 1 To Balance b/d 5,94,00,000 Dec. 31 By Depreciation A/c 30,00,000
Dec. 31 By Balance c/d 5,64,00,000
5,94,00,000 5,94,00,000
2021 2021
Jan. 1 To Balance b/d 5,64,00,000 Dec. 31 By Depreciation A/c 45,00,000
Dec. 31 By Balance c/d 5,19,00,000
5,64,00,000 5,64,00,000
Depreciation Account
Dr. Cr.
` `
2019 2019
Dec. 31 To Quarry lease A/c 6,00,000 Dec. 31 By Profit & Loss A/c 6,00,000
6,00,000 6,00,000
2020 2020
30,00,000 30,00,000
2021 2021
45,00,000 45,00,000
(b)
Balance as per Cash Book (1,97,400)
Add : Cheques issued but not presented for payment 14,800
Crossed Cheque issued to Abdul not presented for
3,000
payment
Amounts collected by Bank on our behalf but
not entered in the Cash Book
Dividend 600
Insurance claim 3,200
3,800

(-) Bank Commission 400 3,400
Amount paid in A/c No. 2 credited by the
Bank wrongly to this A/c 2,000 23,200
(1,74,200)
Less : Cheques deposited in the bank but no cleared 6,200
(` 5,200 + ` 1,000)
Payments made by Bank on our behalf but not
entered in the Cash Book
Interest 1,280
Premium 640
Second call 2,400 4,320
Cheques issued against A/c No. 2 but wrongly
debited by the Bank to this A/c 1,200 (11,720)
Overdraft as per Pass Book 1,85,920
3. (a) In the Books of Nishant
Consignment Account
` `
To Goods sent on consignment A/c 4,50,000 By Consignee’s A/c-Sales 4,50,000
(15,000 kg x ` 30) (7,500 kg x ` 60)
To Cash A/c 75,000 By Abnormal Loss A/c (WN-1) 5,000
(Expenses 15,000 kg x ` 5)
By Insurance claim 9,000
To Consignee’s A/c: By Consignment Stock A/c (WN-2) 2,46,690
Advertisement & Recurring 33,000
expenses
Commission @ 5% on `4,50,000 22,500
To Profit and loss A/c 1,30,190
(Profit on Consignment) _______ _______
7,10,690 7,10,690
Working Notes:
1. Abnormal Loss:
Cost of goods lost: 400 kg
Total cost (400 x ` 30) 12,000
Add: expenses incurred by the consignor @ `5 per kg 2,000
Gross Amount of abnormal loss 14,000
Less: Insurance claim (9,000)
Net abnormal loss 5,000

2. Valuation of Inventories
Quantity (Kgs) Amount (`)
Total Cost (15,000 kg x `30) 15,000 4,50,000
Add: Expenses incurred by the consignor 75,000
Less: Value of Abnormal Loss – 400 kgs (WN 1) (400) (14,000)
14,600 5,11,000
Less: Normal Loss (100)
14,500 5,11,000
Less: Quantity of Sugar sold (7,500)
Quantity of Closing Stock 7,000
Value of 7,000 kgs – (5,11,000/14,500) x 7,000 2,46,690
(b) In the books of Deepti
Aditi in Account Current with Deepti
(Interest to 31st March, 2021 @ 10% p.a)
Date Particulars Amount Days Product Date Particulars Amount Days Product
2021 ` ` 2021 ` `
Jan.1 To Balance 7,500 90 6,75,000 Jan.24 By Promissor 7,500 (27) (2,02,500)
b/d Varun Note (due
date 27 th April)
Jan. 11 To Sales 9,000 79 7,11,000 Feb. 1 By Purchases 15,000 58 8,70,000
Feb. 4 To Sales 12,300 55 6,76,500 Feb. 7 By Sales Return 1,500 52 78,000
Mar. 18 To Sales 13,800 13 1,79,400 Mar. 1 By Purchases 8,400 30 2,52,000
Mar. 31 To Interest 328 Mar. By Purchases 6,000 8 48,000
23
Mar. By Balance of 11,96,400
31 Products
Mar. By Bank 4,528
31
42,928 22,41,900 42,928 22,41,900
Working Note:
Calculation of interest:
11,96,400 10
Interest = × = ` 328 (approx.)
365 100
(c) In the books of Mr. Somnath
Journal Entries
Date Particulars L.F. Dr. Cr.
(in ` ) (in ` )
2021
Dec. 12 Trade receivables A/c Dr. 1,60,000
To Sales A/c 1,60,000
(Being the goods sent to customers on sale or
return basis)

Dec. 20 Return Inward A/c Dr. 70,000
To Trade receivables A/c 70,000
(Being the goods returned by customers to
whom goods were sent on sale or return
basis)
Dec. 27 Sales A/c Dr. 30,000
To Trade receivables A/c 30,000
(Being the cancellation of original entry of sale
in respect of goods on sale or return basis)
Dec. 31 Inventories with customers on Sale or Return Dr. 24,000
A/c
To Trading A/c (Note 2) 24,000
(Being the adjustment for cost of goods lying
with customers awaiting approval)
Working Note:
(1) No entry is required for receiving letter of approval from customer.
(2) Cost of goods with customers = ` 30,000 x 100/125 = ` 24,000
4. (a) In the books of M/s Amal, Kamal and Tamal
Journal Entries
Date Particulars Dr. (`) Cr.(`)
2022 Fixed assets A/c Dr. 1,02,000
January 1 To Revaluation A/c 1,02,000
(Revaluation of fixed assets)
Revaluation A/c Dr. 22,000
To Stock A/c 16,000
To Provision for doubtful debts A/c 6,000
(Reduction in the value of stock and provision @
5% on sundry debtors created for doubtful debts)
Kamal’s capital A/c Dr. 21,000
Tamal’s capital A/c Dr. 42,000
To Amal’s capital A/c 63,000
(Adjustment for goodwill and joint life policy
(W.N.1))
Revaluation A/c Dr. 80,000
To Kamal’s capital A/c 25,000
To Tamal’s capital A/c 15,000
(Transfer of profit on revaluation)
General reserve A/c Dr. 1,60,000
To Kamal’s capital A/c 50,000
To Tamal’s capital A/c 30,000
(Transfer of general reserve)

Balance Sheet (revised)
as on 1st January, 2021
Liabilities Amount Assets Amount

` `
Sundry creditors 3,00,000 Cash 80,000
Partners’ loan A/cs: Bills receivable 1,00,000
Amal 80,000 Sundry debtors 1,20,000
kamal 60,000 1,40,000 Less: Provision 6,000 1,14,000
Partners’ capital A/cs: Stock 2,24,000
(W.N.2)
Fixed assets 6,62,000
Amal 3,83,000
Kamal 2,14,000
Tamal 1,43,000 7,40,000 _______
11,80,000 11,80,000
Working Notes:
(1) Adjustment for goodwill and joint life policy
`
Average profit of last five years 40,000
Add: Insurance premium per annum 20,000
Average profit before charging premium 60,000
Value of goodwill (3x ` 60,000) 1,80,000
Add: Surrender value of joint life policy 1,56,000
Total amount for adjustment 3,36,000
Amal Kamal Tamal

` ` `
Raised in old profit sharing ratio (8:5:3) 1,68,000 1,05,000 63,000
Written off in new profit sharing ratio (5:6:5) 1,05,000 1,26,000 1,05,000
Net effect in capital accounts 63,000 21,000 42,000
(Cr.) (Dr.) (Dr.)
Alternatively, the net effect in partners’ capital accounts due to adjustment for goodwill and
joint life policy can be shown on the basis of profit sacrificing ratio. Profit sacrificing ratios are:
Amal = (8/16) - (5/16) = 3/16
Kamal = (5/16) - (6/16) = (1/16)
Tamal = (3/16) - (5/16) = (2/16)
Therefore, adjustments in partner’s capital account:
Amal = 3/16 x ` 3,36,000 = ` 63,000 (Cr.)
Kamal = (1/16) x ` 3,36,000 = ` 21,000 (Dr.)
Tamal = (2/16) x ` 3,36,000 = ` 42,000 (Dr.)
6

(2) Partners’ Capital Accounts
Amal Kamal Tamal Amal Kamal Tamal
2021 ` ` ` 2021 ` ` `
Jan 1 To Amal’s - 21,000 42,000 Jan 1 By Balance 2,00,000 1,60,000 1,40,000
capital A/c b/d
To Balance 3,83,000 2,14,000 1,43,000 By Kamal and 63,000 - -
c/d Tamal’s
capital A/c (as
per contra)
By 40,000 25,000 15,000
Revaluation
A/c
(revaluation
profit)
By General
_______ _______ _______ reserve 80,000 50,000 30,000
3,83,000 2,35,000 1,85,000 3,83,000 2,35,000 1,85,000
5. (a) Trading and Profit and Loss Account of Mr. Sahil
for the year ended 31 st March, 2021
` ` ` `
To Opening stock 1,17,000 By Sales 9,74,000
To Purchases 8,04,250 Less: Returns 21,500 9,52,500
Add: Omitted 1,000 By Closing stock 1,96,500
invoice 8,05,250
Less: Returns 14,500
7,90,750
Less: Drawings 1,500 7,89,250
To Carriage Inwards 49,000
To Gross profit c/d 1,93,750
11,49,000 11,49,000
To Rent and taxes 11,750 By Gross profit b/d 1,93,750
To Salaries and wages 23,250 By Discount received 11,100
To Bank interest 2,750
Add: Due 4,250 7,000
To Printing and
stationary 36,000
Less: Prepaid (1/4) 9,000 27,000
To Discount allowed 4,500
To General expenses 28,625
To Insurance 3,250
To Postage & telegram
expenses 5,825
To Travelling expenses 2,175

To Provision for bad
debts [W.N.] 2,875
To Provision for discount
on debtors [W.N.] 1,093
To Depreciation on
furniture & fittings 1,250
To Net profit 86,257
2,04,850 2,04,850
Working Note:
Provision for bad & doubtful debts:
@ 5% on ` 57,500 2,875
Provision for discount:
2% on ` 54,625 (57,500 -2,875) 1,093
(b) Subscription for the year ended 31.3.2021

`
Subscription received during the year 22,50,000
Less: Subscription receivable on 1.4.2020 67,500
Less: Subscription received in advance on 31.3.2021 31,500 (99,000)
21,51,000
Add: Subscription receivable on 31.3.2020 99,000
Add: Subscription received in advance on 1.4.2021 54,000 1,53,000
Amount of Subscription appearing in Income & Expenditure Account 23,04,000
Sports material consumed during the year end 31.3.2021
`
Payment for Sports material 13,50,000
Less: Amounts due for sports material on 1.4.2020 (4,05,000)
9,45,000
Add: Amounts due for sports material on 31.3.2021 5,85,000
Purchase of sports material 15,30,000
Sports material consumed:
Stock of sports material on 1.4.2020 4,50,000
Add: Purchase of sports material during the year 15,30,000
19,80,000
Less: Stock of sports material on 31.3.2021 (6,75,000)
Amount of Sports Material appearing in Income & Expenditure Account 13,05,000

Balance Sheet of M/s Badminton Club For the year ended 31 st March, 2021 (An extract)
Liabilities ` Assets `
Unearned Subscription 31,500 Subscription receivable 99,000
Amount due for sports material 5,85,000 Stock of sports material 6,75,000
6. (a) (i) Journal Entries in the books of Akhil Ltd.
Date Dr. Cr.
` `
(a) Equity Share Capital A/c Dr. 90,000
To Equity Share Allotment money A/c 27,000
(9000 x ` 3)
To Equity Share Final Call A/c (9000 x ` 4) 36,000
To Forfeited Shares A/c (9000 x ` 3) 27,000
(Being the forfeiture of 9000 equity shares of
` 10 each for non-payment of allotment money and
final call, held by Aditya as per Board’s resolution
No…………….dated……………..)
(b) Bank Account (9,000 x 8) Dr. 72,000
Forfeited Shares Account (9,000x 2) Dr. 18,000
To Equity Share Capital Account 90,000
(Being the re-issue of 9,000 forfeited shares @
` 8 each as fully paid up to Katen as per Board’s
resolution No……….dated……………..)
(c) Forfeited Shares Account Dr. 9,000
To Capital Reserve Account 9,000
(Being the profit on re-issue, transferred to capital
reserve)
(ii)
Dr. Cr.
` `
Preference Share Capital A/c (10,000 x ` 70) Dr. 7,00,000
To Preference Share Allotment A/c (10,000 x ` 20) 2,00,000
To Preference Share First Call A/c (10,000 x ` 20) 2,00,000
To Forfeited Share A/c 3,00,000
(Being the forfeiture of 10,000 preference shares ` 70
each being called up for non-payment of allotment and first
call money as per Board’s Resolution No.... dated.....)
Bank A/c (8,000 x `60) Dr. 4,80,000
Forfeited Shares A/c (8,000 x `10) Dr. 80,000
To Preference Share Capital A/c 5,60,000
(Being re-issue of 8,000 shares at ` 60 per share paid-up
as ` 70 as per Board’s Resolution No…..dated….)
Forfeited Shares A/c Dr. 1,60,000
To Capital Reserve A/c (Note 1) 1,60,000
(Being profit on re-issue transferred to Capital/Reserve)

Working Note:
Calculation of amount to be transferred to Capital Reserve
Forfeited amount per share =` 3,00,000/10,000 = ` 30
Loss on re-issue =` 70 – ` 60 = ` 10
Surplus per share re-issued ` 20
Transferred to capital Reserve ` 20 x 8,000 = ` 1,60,000.
(b) In the books of Galaxy Ltd.
Journal Entries
Date Particulars Dr. Cr.
` `
(a) Bank A/c Dr. 22,50,000
To Debentures Application A/c 22,50,000
(Being the application money received on 10,000
debentures @ ` 225 each)
Debentures Application A/c Dr. 22,50,000
Discount on issue of Debentures A/c Dr. 2,50,000
To 8% Debentures A/c 25,00,000
(Being the issue of 10,000 8% Debentures @ 90%
as per Board’s Resolution No….dated….)
(b) Fixed Assets A/c Dr. 10,00,000
To Vendor A/c 10,00,000
(Being the purchase of fixed assets from vendor)
Vendor A/c Dr. 10,00,000
Discount on Issue of Debentures A/c Dr. 2,50,000
(Being the issue of debentures of ` 12,50,000 to
vendor to satisfy his claim)
(c) Bank A/c Dr. 10,00,000
To Bank Loan A/c (See Note) 10,00,000
(Being a loan of ` 10,00,000 taken from bank by
issuing debentures of `12,50,000 as collateral
security)
Note: No entry is made in the books of account of the company at the time of making issue of such
debentures. In the “Notes to Accounts” of Balance Sheet, the fact that the debentures being issued
as collateral security and outstanding are shown by a note under the liability secured.
(c) (i) Adjusted selling method is also called retail inventory method. It is used widely in retail
business or in business where the inventory comprises of items, the individual costs of which
are not readily ascertainable. The historical cost of inventory is estimated by calculating it in
the first instance at selling price and then deducting an amount equal to the estimated gross
margin of profit on such stocks.
(ii) The specific identification method, First-In–First-Out (FIFO) and weighted average cost
formulae are the principal methods of ascertaining the cost of inventory. The cost of
inventories of items that are not ordinarily interchangeable and goods or services produced
and segregated for specific projects should be assigned by specific identification of their
individual costs under the specific identification method.
10

Test Series: May, 2022
MOCK TEST PAPER 2
FOUNDATION COURSE
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
(Time allowed: 3 Hours) (100 Marks)
1. (a) State with reasons whether the following statements are True or False:
(i) Expenses in connection with obtaining a license for running the Cinema Hall is Revenue
Expenditure.
(ii) If the effect of errors committed cancel out, the errors will be called compensating errors and
the trial balance will disagree.
(iii) Stock at the end, if appears in the Trial Balance, is taken only to the Balance Sheet.
(iv) Consignment account is of the nature of real account.
(v) Partners can share profits or losses in their capital ratio, when there is no agreem ent.
(vi) Since company has existence independent of its members, it continues to be in existence
despite the death, insolvency or change of members.
(6 Statements x 2 Marks = 12 Marks)
(b) Explain Cash and Mercantile system of accounting. (4 Marks)
(c) Give journal entries (narrations not required) to rectify the following:
(i) Purchase of Furniture on credit from Samay for ` 4,300 posted to Vipin account as ` 3,400.
(ii) A Sales Return of ` 15,000 to Palash was not entered in the financial accounts though it was
duly taken in the stock book.
(iii) Investments were sold for ` 75,000 at a profit of ` 15,000 and passed through Sales account.
(iv) An amount of ` 37,000 withdrawn by the proprietor (Sukhdeep) for his personal use has been
debited to Trade Expenses account. (4 Marks)
2. (a) M/s Sam, Profit and loss account showed a net profit of ` 24,00,000, after considering the closing
stock of ` 22,50,000 on 31 st March, 2022. Subsequently the following information was obtained
from scrutiny of the books:
(i) Purchases for the year included ` 90,000 paid for new electric fittings for the shop.
(ii) M/s Sam gave away goods valued at ` 2,40,000 as free samples for which no entry was made
in the books of accounts.
(iii) Invoices for goods amounting to ` 15,00,000 have been entered on 27 th March, 2022, but the
goods were not included in stock.
(iv) In March, 2022 goods of ` 12,00,000 sold and delivered were taken in the sales for
April, 2022.

(v) Goods costing ` 4,50,000 were sent on sale or return in March, 2022 at a margin of profit of
33-1/3% on cost. Though approval was given in April, 2022 these were taken as sales for
March, 2022.
You are required to determine the adjusted net profit for the year ended on 31.3.2022 and calculate
the value of stock on 31 st March, 2022.
(b) S & Co. purchased a machine for `1,00,000 on 1.1.2019 Another machine costing `1,50,000 was
purchased on 1.7.2020. On 31.12.2021 the machine purchased on 1.1.2019 was sold for `50,000.
The company provides depreciation at 15% on Written Down Value Method. The company closes
its accounts on 31st December every year. Prepare – (i) Machinery Account, (ii) Machinery
Disposal Account and (iii) Provision for Depreciation Account. (10 +10 = 20 Marks)
3. (a) Ramesh had the following bills receivable and bills payable against Ravi.
Date Bills Tenure Date Bills Payable Tenure
Receivable
1st June 10,200 3 month 29th May 7,500 2 month
5th June 8,700 3 month 3rd June 10,200 3 month
9th June 17,400 1 month 9th June 17,100 1 month
12th June 5,100 2 month
20th June 5,700 3 month
15th August was a public holiday. However, 6 th September, was also declared as sudden holiday.
Calculate the average due date, when the payment can be received or made without any loss of
interest to either party.
(b) Attempt any one of the following two sub-parts i.e. Either (i) or (ii).
(i) From the following particulars prepare an account current, as sent by Mr. AB to Mr. XY as on
31st October, 2021 by means of product method charging interest @ 5% p.a.
Date Particulars (`)
1st July Balance due from XY 1,500
20th August Sold goods to XY 2,500
28th August Goods returned by XY 400
25th September XY paid by cheque 1,600
20th October Received cash form XY 1,000
(ii) Ms. Sangeeta sends out goods on approval to few customers and includes the same in the
Sales Account. On 31.03.2022, the Trade Receivables balance stood at ` 1,50,000 which
included `13,000 goods sent on approval against which no intimation was received during
the year. These goods were sent out at 30% over and above cost price and were sent to -
Ms. Mansi ` 7,800 and Ms. Divya ` 5,200.
Ms. Mansi sent intimation of acceptance on 25 th April, 2022 and Ms. Divya returned the goods
on 15th April, 2022.
Make the adjustment entries and show how these items will appear in the Balance Sheet as
on 31st March, 2022. Show also the entries to be made during April, 2022. Value of Closing
Inventories as on 31 st March, 2022 was ` 1,00,000.

(c) Ravi draws a bill for `45,000 on Rishi on 15th April, 2021 for 3 months, which is returned by Rishi
to Ravi after accepting the same. Ravi gets it discounted with the bank for ` 44,100 on 18 th April,
2021 and remits one-third amount to Rishi. On the due date Ravi fails to remit the amount due to
Rishi, but he accepts bill of ` 52,500 for 3 months, which Rishi discounts for `51,300 and remits
` 8,475 to Ravi. Before the maturity of the renewed bill Ravi becomes insolvent and only 50% was
realized from his estate on 31 st October,2021.
Pass necessary Journal entries for the above transactions in the books of Ravi.
(5 + 5 + 10 = 20 Marks)
4. (a) Venus and Mercury are partners in a firm, sharing Profits and Losses in the ratio of 3 : 2. The
Balance Sheet of Mercury and Venus as on 31.3.2022 was as follow:
Liabilities Amount ` Assets Amount
`
Sundry Creditors 51,600 Building 1,04,000
Bill Payable 16,400 Furniture 23,200
Bank Overdraft 36,000 Stock-in-Trade 85,600
Capital Account: Debtors 1,40,000
Mercury 1,76,000 Less: Provision 800 1,39,200
Venus 1,44,000 3,20,000 Investment 10,000
Cash 62,000
4,24,000 4,24,000
‘Mars’ was admitted to the firm on the above date on the following terms:
(i) He is admitted for 1/6th share in future profits and to introduce a Capital of ` 1,00,000.
(ii) The new profit sharing ratio of Venus, Mercury and Mars will be 3 : 2 : 1 respectively.
(iii) ‘Mars’ is unable to bring in cash for his share of goodwill, partners therefore, decide to raise
goodwill account in the books of the firm. They further decide to calculate goodwill on the
basis of ‘Mars’s share in the profits and the capital contribution made by him to the firm.
(iv) Furniture is to be written down by ` 3,480 and Stock to be depreciated by 5%. A provision is
required for Debtors @ 5% for Bad Debts. A provision would also be made for outstanding
wages for `6,240. The value of Buildings having appreciated be brought upto ` 1,16,800.
The value of investment is increased by ` 1,800.
(v) It is found that the creditors included a sum of ` 5,600, which is not to be paid off.
Prepare the following:
(i) Revaluation Account.
(ii) Partners’ Capital Accounts.
(iii) Balance Sheet of New Partnership firm after admission of ‘Mars’.
(b) Ms. Nidhi is engaged in business of selling magazines. Several of her customers pay money in
advance for subscribing his magazines. Information related to year ended 31st March 2022 has
been given below:

On 1.4.2021 he had a balance of `6,00,000 advance from customers of which `4,50,000 is related
to year 2020-21 while remaining pertains to year 2021-22. During the year 2020-21 she made
cash sales of ` 15,00,000. You are required to compute:
(i) Total income for the year 2020-21.
(ii) Total money received during the year if the closing balance in Advance from customers
Account is ` 5,10,000. (15 + 5 = 20 Marks)
5. (a) New State Society showed the following position on 31 st March, 2021:
Balance Sheet as on 31st March, 2021
Capital fund 15,86,000 Electrical fittings 3,00,000
Expenses payable 14,000 Furniture 1,00,000
Books 8,00,000
Investment in securities 3,00,000
Cash at bank 50,000
Cash in hand 50,000
16,00,000 16,00,000
The receipts and payment account for the year ended on 31 st March, 2022 is given below:
` `
To Balance b/d By Electric charges 14,400
Cash at bank 50,000 By Postage and stationary 10,000
Cash in hand 50,000 1,00,000 By Telephone charges 10,000
To Entrance fee 60,000 By Books purchased 1,20,000
To Membership subscription 4,00,000 By Outstanding expenses paid 14,000
To Sale proceeds of old papers 3,000 By Rent 1,76,000
To Hire of lecture hall 40,000 By Investment in securities 80,000
To Interest on securities. 16,000 By Salaries 1,32,000
By Balance c/d
Cash at bank 40,000
Cash in hand 22,600
6,19,000 6,19,000
You are required to prepare Income and Expenditure account for the year ended 31 st March, 2022
after making the following adjustments:
Membership subscription included ` 20,000 received in advance.
Provide for outstanding rent ` 8,000 and salaries ` 6,000.
Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be
depreciated at the same rate.
75% of the entrance fees is to be capitalized.

Interest on securities is to be calculated @ 5% p.a. including purchases made on 1.10.20 21 for
` 80,000.
(b) Zavier & Co. employs a team of 9 workers who were paid ` 1,20,000 per month each in the year
ending 31 st December, 2020. At the start of 2021, the company raised salaries by 10% to
` 1,32,000 per month each.
On 1 July, 2021 the company hired 2 trainees at salary of ` 63,000 per month each. The work force
are paid salary on the first working day of every month, one month in arrears, so that the employees
receive their salary for January on the first working day of February, etc.
(i) Amount of salaries which would be charged to the profit and loss account for the year ended
31st December, 2021.
(ii) Amount actually paid as salaries during 2021.
(iii) Outstanding salaries as on 31 st December, 2021. (15 + 5 = 20 Marks)
6. (a) Hari Om Ltd. registered with an authorised equity capital of ` 16,00,000 divided into 8,000 shares
of ` 100 each, issued for subscription of 4,000 shares payable at ` 25 per share on application,
` 30 per share on allotment, ` 20 per share on first call and the balance as and when required.
Application money on 4,000 shares was duly received and allotment was made to them. The
allotment amount was received in full, but when the first call was made, two shareholders failed to
pay the amount on 400 shares each held by them and another shareholder with 400 shares, paid
the entire amount on his shares. The company did not make any other call. Give the necessary
journal entries in the books of the company to record these transactions.
(b) Sampati Ltd. issued 300 lakh 8% debentures of `100 each at a discount of 6%, redeemable at a
premium of 5% after 3 years payable as : ` 50 on application and ` 44 on allotment.
You are required to prepare the necessary journal entries for issue of debentures.
(c) From the following particulars, prepare a Bank Reconciliation Statement for Adam Ltd. As on
31.3.2022
(1) Balance as per cash book is ` 6,00,000.
(2) Cheques issued but not presented in the bank amounts to ` 3,40,000.
(3) Bank charges amounts to ` 1,500.
(4) Interest credited by bank amounts to ` 7,500.
OR
(c) Explain in brief objective and advantages of setting Accounting Standards.
(10 + 5 + 5 = 20 Marks)

Test Series: May, 2022
MOCK TEST PAPER 2
FOUNDATION COURSE
ANSWERS
1. (a) (i) False: The Cinema Hall could not be started without license. Expenditure incurred to obtain
the license is pre-operative expense which is capitalized. Such expenses are not revenue and
amortized over a period of time.
(ii) False: If the effect of errors committed cancel out, the errors will be called compensating
errors and the trial balance will agree.
(iii) True: If closing stock appears in trail balance, it depicts that one aspect of the double entry
has been completed, hence it is taken only to Balance Sheet.
(iv) False: Consignment account is a nominal-cum-personal account
(v) False: According to Partnership Act, in the absence of any agreement to the contrary profits
and losses are to be shared equally among partners.
(vi) True: As per Perpetual Existence company has existence independent of its members, it
continues to be in existence despite the death, insolvency or change of members.
(b) Cash and mercantile system: Cash system of accounting is a system by which a transaction is
recognized only if cash is received or paid. In cash system of accounting, entries are made only
when cash is received or paid, no entry being made when a payment or receipt is merely due. Cash
system is normally followed by professionals, educational institutions or non-profit making
organizations.
On the other hand, mercantile system of accounting is a system of classifying and summarizing
trandsactions into assets, liabilities, equity (owner’s fund), costs, revenues and recording thereof.
A transaction is recognized when either a liability is created/ impaired and an asset is
created/impaired. A record is made on the basis of amounts having become due for payment or
receipt irrespective of the fact whether payment is made or received actual ly.
Mercantile system of accounting is generally accepted accounting system by business entities
(c) Journal Entries
Particulars L.F. Dr. Cr.
(` ) (` )
(i) Vipin A/c Dr. 900
Furniture A/c Dr. 3,400
To Samay A/c 4,300
(ii) Sales Returns A/c Dr. 15,000
To Palash A/c 15,000
(iii) Sales A/c Dr. 75,000
To P & L A/c (Gain on sale of investments) 15,000
To Investments A/c 60,000
(iv) Drawings A/c Dr. 37,000
To Trade Expenses A/c 37,000

2. (a) Profit and Loss Adjustment Account
` `
To Advertisement (samples) 2,40,000 By Net profit 24,00,000
To Sales 6,00,000 By Electric fittings 90,000
(goods approved in April to By Samples 2,40,000
be taken as April sales) By Stock (Purchases of March 15,00,000
To Adjusted net profit 50,40,000 not included in stock)
By Sales (goods sold in March 12,00,000
wrongly taken as April sales)
By Stock (goods sent on approval 4,50,000
basis not included in stock)
58,80,000 58,80,000
Calculation of value of inventory on 31st March, 2022
`
Stock on 31st March, 2022 (given) 22,50,000
Add: Purchases of March, 2022 not included in the stock 15,00,000
Goods lying with customers on approval basis 4,50,000
42,00,000
(b) S &Co.
Dr. Machinery Account Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
1.1.2019 To, Bank A/c 1,00,000 31.12.2019 By Balance c/d 1,00,000
1,00,000 1,00,000
1.1.2020 To, Balance b/d 1,00,000
1.7.2020 To, Bank A/c 1,50,000 31.12.2020 By Balance c/d 2,50,000
2,50,000 2,50,000
1.1.2021 To, Balance b/d 2,50,000 31.12.2021 By, Machinery Disposal 1,00,000
A/c
31.12.2021 By Balance c/d 1,50,000
2,50,000 2,50,000
1.1.2022 To, Balance b/d 1,50,000
Dr. Provision for Depreciation Account Cr.
(`) (`)
31.12.2019 To, Balance c/d 15,000 31.12.2019 By, Depreciation A/c 15,000
15,000 15,000
31.12.2020 To, Balance c/d 39,000 1.1.2020 By, Balance b/d 15,000
31.12.2020 By, Depreciation A/c 24,000
(` 12,750+`11,250)
39,000 39,000

31.12.2021 To, Machinery 38,587 1.1.2021 By, Balance b/d 39,000
Disposal A/c
[100000-61,413]
31.12.2021 To, Balance c/d 32,063 31.12.2021 By, Depreciation A/c 20,813
31.12.2021 By Depreciation 10,837
70,650 70,650
1.1.2022 By, Balance b/d 32,063
Dr. Machinery Disposal Account Cr.
(`) (`)
31.12.2021 To, Machinery 1,00,000 31.12.2021 By, Provision for 38,587
A/c Depreciation A/c
31.12.2021 By, Bank A/c 50,000
31.12.2021 By, Profit & Loss A/c 11,413
(Loss on Sale)
1,00,000 1,00,000
Working Notes:
1. Depreciation for the machine purchased on 1.7.2020.
6
For the year 2020 (Used for 6 months) = ` 1,50,000 x 15% x = ` 11,250
12
For the year 2021 (Used for full year) = ` 1,38,750 x15 % = ` 20,813
2. Depreciation for the machine purchased on 1.1.2019.
Depreciation = ` 1,00,000 x 15% = ` 15,000
So, Depreciation for 2 nd year = ` 85,000 x15% = ` 12,750
3. (a) Let us take 12.07.2021 as Base date.
Bills receivable
Due date No. of days from 12.07.2021 Amount Product
04/09/2021 54 10,200 5,50,800
08/09/2021 58 8,700 5,04,600
12/07/2021 0 17,400 0
14/08/2021 33 5,100 1,68,300
23/09/2021 73 5,700 4,16,100
47,100 16,39,800
Bills payable
Due date No. of days from 12.07.2021 Amount Product
01/08/2021 20 7,500 1,50,000
07/09/2021 57 10,200 5,81,400
12/07/2021 0 17,100 0
34,800 7,31,400

Excess of products of bills receivable over bills payable = 16,39,800 -7,31,400= 9,08,400
Excess of bills receivable over bills payable = 47,100 - 34,800 = 12,300
9,08,400
Number of days from the base date to the date of settlement is
12,300
= 73.85 (appox.)
Hence date of settlement of the balance amount is 74 days after 12 th July i.e. 24 th September.
On 24thSeptember, 2021 Ravi has to pay Ramesh ` 12,300 to settle the account.
(b) (i) XY in Account Current with AB as on 31 st Oct, 2021
(`) Days Product (`) Days Product
(`) (`)
01.07.21 To Bal. b/d 1,500 123 1,84,500 28.08.21 By Sales 400 64 25,600
Returns
20.8.21 To Sales 2,500 72 1,80,000 25.09.21 By Bank 1,600 36 57,600
31.10.21 To Interest 37 20.10.21 By Cash 1,000 11 11,000
20.10.21 By Balance of 2,70,300
Products
____ ______ 31.10.21 By Bal. c/d 1,037
4,037 3,64,500 4,037 3,64,500
Note:
5 1
Interest = ` 2, 70,300 x  = ` 37 (approx.)
100 365
(ii) In the Books of Ms. Sangeeta
Journal Entries
Dr. Cr.
Date Particulars L.F. ` `
2022 Sales A/c Dr. 13,000
March 31 To Trade receivables A/c 13,000
(Being the cancellation of original
entry for sale in respect of goods lying
with customers awaiting approval)
March 31 Inventories with Customers on Sale or Dr. 10,000
Return A/c
(Being the adjustment for cost of
goods lying with customers awaiting
approval)
April 25 Trade receivables A/c Dr. 7,800
To Sales A/c 7,800
(Being goods costing worth ` 7,800
sent to Ms. Mansi on sale or return
basis has been accepted by her)

Balance Sheet of Ms. Sangeeta as on 31st March, 2022 (Extracts)
Liabilities ` Assets ` `
Trade receivables 1,37,000
(` 1,50,000 - ` 13,000)
Inventories-in-trade 1,00,000
Add: Inventories with customers on
Sale or Return 10,000 1,10,000
2,47,000
Notes:
(1) Cost of goods lying with customers = 100/130 x ` 13,000 = ` 10,000
(2) No entry is required on 15 th April, 2022 for goods returned by Ms. Divya. Goods should be
included physically in the Inventories
(c) In the books of Ravi
Journal Entries
Date Particulars Debit Credit
Amount Amount
2021 ` `
April 15 Bills receivable account Dr. 45,000
To Rishi’s account 45,000
(Being acceptance received from Rishi for mutual
accommodation)
April 18 Bank account Dr. 44,100
Discount account Dr. 900
To Bills receivable account 45,000
(Being bill discounted with bank)
April 18 Anup’s account Dr. 15,000
To Bank account 14,700
To Discount account 300
(Being one-third proceeds of the bill sent to Rishi)
July 18 Rishi’s account Dr. 52,500
To Bills payable account 52,500
(Being Acceptance given)
July 18 Bank account Dr. 8,475
Discount account (1,200 x 3/4) Dr. 900
To Anup’s account 9,375
(Being proceeds of second bill received from Rishi)
Oct.21 Bills payable account Dr. 52,500
To Rishi’s account 52,500
(Being bill dishonoured due to insolvency)
Oct.31 Anup’s account (30,000+9,375) Dr. 39,375

To Bank account 19,687.50
To Deficiency account 19,687.50
(Being insolvent, only 50% amount paid to Rishi)
4. (a) (i) Revaluation Account
` `
To Furniture 3,480 By Building 12,800
To Stock 4,280 By Sundry creditors 5,600
To Provision of doubtful debts 6,200 By Investment
1800
(` 7,000 – ` 800)
To Outstanding wages 6,240
20,200 20,200
(ii) Partners' Capital Accounts
Mercury Venus Mars Mercury Venus Mars
` ` ` ` ` `
To Balance 284,000 216,000 1,00,000 By Balance b/d 1,76,000 1,44,000 –
c/d
By Cash A/c – – 1,00,000
By Goodwill A/c
(Working
____ ___ ____ Note) 1,08,000 72,000
284,000 216,000 1,00,000 284,000 216,000 1,00,000
(iii) Balance Sheet of New Partnership Firm

(after admission of Mars) as on 31.3.2022
Capital Accounts: Goodwill 1,80,000
Mercury 2,84,000 Building (1,04,000 + 12,800) 1,16,800
Venus 2,16,000 Furniture (23,200 – 3,480) 19,720
Mars 1,00,000 6,00,000 Stock-in-trade (85,600 – 4,280) 81,320
Bills Payable 16,400 Debtors 1,40,000
Bank Overdraft 36,000 Less: Provision for bad Debts (7,000) 1,33,000
Sundry creditors Investment (10,000 + 1,800)
46,000 11,800
(51,600-5,400)
Outstanding wages 6,240 Cash (62,000 + 1,00,000) 1,62,000
7,04,640 7,04,640
Working Note:
Calculation of goodwill
Mars's contribution of ` 1,00,000 consists only 1/6th of capital.
Therefore, total capital of firm should be ` 1,00,000 × 6 = ` 6,00,000.
But combined capital of Mercury, Venus and Mars amounts ` 1,76,000 + 1,44,000 + 1,00,000 =
` 4,20,000.
Thus Hidden goodwill is ` 1,80,000 (` 6,00,000 – ` 4,20,000).

(b) (i) Computation of Income for the year 2020-21:
`
Money received during the year related to 2020-21 15,00,000
Add: Money received in advance during previous years 4,50,000
Total income of the year 2020-21 19,50,000
(ii) Advance from Customers A/c

Date Particulars ` Date Particulars `
To Sales A/c 4,50,000 1.4.2020 By Balance b/d 6,00,000
(Advance related to
current year transferred
to sales)
By Bank A/c 3,60,000
31.3.21 To Balance c/d 5,10,000 (Balancing
Figure)
9,60,000 9,60,000
So, total money received during the year is:
`
Cash Sales during the year 15,00,000
Add: Advance received during the year 3,60,000
Total money received during the year 18,60,000
5. (a) New State Society
Income and Expenditure Account
for the year ended 31 st March, 2022
Dr. Cr.
Expenditure ` ` Income `
To Electric charges 14,400 By Entrance fee (25% of 15,000
To Postage and 10,000 ` 60,000)
stationary
To Telephone charges 10,000 By Membership 4,00,000
To Rent subscription 20,000 3,80,000
1,76,000
Add: Outstanding 1,84,000 Less: Received in
8,000
advance
To Salaries By Sale proceeds of old 3,000
1,32,000
Add: Outstanding 1,38,000 papers
6,000
To Depreciation By Hire of lecture hall 40,000
(W.N.1)
Electrical fittings 30,000 By Interest on securities 16,000
Furniture 10,000 (W.N.2)
Books 1,32,000 Add: Receivable 1,000 17,000
By Deficit- excess of 33,400
92,000
expenditure over
income
4,88,400 4,88,400

Working Notes:
1. Depreciation `
Electrical fittings 10% of ` 3,00,000 30,000
Furniture 10% of ` 1,00,000 10,000
Books 10% of ` 9,20,000 92,000
2. Interest on Securities
Interest @ 5% p.a. on ` 3,00,000 for full year 15,000
Interest @ 5% p.a. on ` 80,000 for half year 2,000 17,000
Less: Received (16,000)
Receivable 1,000
(b) (i) Amount of salaries to be charged to P & L A/c for the year ended 31 stDecember, 2021
Employees = 9 x ` 1,32,000 x 12 = ` 1,42,56,000
Trainees = 2 x ` 63,000 x 6 = ` 7,56,000
Salaries charged to P & L A/c ` 1,50,12,000
(ii) Amount actually paid as salaries during 2021
Employees = 9 x ` 1,32,000 x 11 + 9 x ` 1,20,000 = ` 1,41,48,000
Trainees = 2 x ` 63,000 x 5 =` 6,30,000
Amount paid as salaries ` 1,47,78,000
(iii) Outstanding salaries as on 31.12.2021
Employees = 9 x ` 1,32,000 = ` 11,88,000
Trainees = 2 x ` 63,000 = ` 1,26,000
Outstanding salaries ` 13,14,000
6. (a) In the Books of HariOm
Bank A/c Dr. 1,00,000
To Equity Share Application A/c 1,00,000
(Money received on application for 4,000 shares @ ` 25 per
share)
Equity Share Application A/c Dr. 1,00,000
To Equity Share Capital A/c 1,00,000
(Transfer of application money on 4,000 shares to share capital)
Equity Share Allotment A/c Dr. 1,20,000
(Amount due on the allotment of 4,000 shares @ ` 30 per share)
Bank A/c Dr. 1,20,000
To Equity Share Allotment A/c 1,20,000
(Allotment money received)
Equity Share First Call A/c Dr. 80,000
8

To Equity Share Capital A/c 80,000
(First call money due on 4,000 shares @ ` 20 per share)
Bank A/c Dr. 74,000
Calls-in-Arrears A/c Dr. 16,000
To Equity Share First Call A/c 80,000
To Calls-in-Advance A/c 10,000
(First call money received on 3,200 shares and calls-in-advance
on 400 shares @ ` 25 per share)
(b) Books of Sampati Ltd.

Journal Entries
Date Particulars L.F. Debit Credit
Amount Amount
(` Lakhs) (` Lakhs)
Bank A/c Dr. 15,000
To Debenture Application A/c 15,000
(Debentures application money received)
Debenture Application A/c Dr. 15,000
To 8% Debentures A/c 15,000
(Application money transferred to 8% debentures
account)
Debenture Allotment A/c Dr. 13,200
Loss on issue of debenture A/c Dr. 3,300
To 8% Debentures A/c 15,000
To Debenture redemption premium A/c 1,500
(Call made consequent upon allotment of
debentures issued at discount and redeemable at
premium)
Bank A/c Dr. 13,200
To Debenture Allotment A/c 13,200
(Allotment amount received)
Working Notes :
Loss on issue of debentures =
(Amount of discount on issue + Premium payable on redemption) x No. of Debentures
= (6% of `100 + 5% of ` 100) x 300 lakh
= (` 6 + ` 5) x 300 lakh
= ` 3,300 lakh
(c) Adam Ltd.
Bank Reconciliation Statement as on 31.3.2022
Particulars `
Balance as per cash book 6,00,000
Add : Cheque issued but not presented 3,40,000
9

Interest credited 7,500
9,47,500
Less: Bank charges (1,500)
Balance as per pass book 9,46,000
Or
(c) Objective and Advantages of Accounting Standards: An Accounting Standard is a selected set
of accounting policies or broad guidelines regarding the principles and methods to be chosen out
of several alternatives. The Accounting Standards Board formulates Accounting Standards to be
established by the Council of the Institute of Chartered Accountants of India.
The main objective of Accounting Standards is to establish standards which have to be complied
with to ensure that financial statements are prepared in accordance with generally accepted
accounting standards. Accounting Standards seek to suggest rules and criteria of accounting
measurements. These standards harmonize the diverse accounting policies and practices at
present in use in India.
The main advantage of setting accounting standards is that the adoption and application of
Accounting Standards ensure uniformity, comparability and qualitative improvement in the
preparation and presentation of financial statements.
The other advantages are as follows:
(i) Reduction in variations.
(ii) Disclosure beyond that required by law.
(iii) Facilities comparison.
10

MOCK TEST PAPER 1
FOUNDATION COURSE
PAPER 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING
SECTION A: BUSINESS LAWS
QUESTIONS
1. (a) Mr. Murti was travelling to Manali with his wife by bus of Himalya Travels Pvt. Ltd. Due to some
technical default in the bus, the driver has to stop the bus in a mid way in cold night. Driver advised
the passenger to get the shelter in nearest hotel which was at a distance of only one kilometre from
that place. The wife of Mr. Murti caught cold and fell ill due to being asked to get down and she
had to walk in cold night to reach hotel. Mr. Murti filed the suit against Himalya Travels Pvt. Ltd.
for damages for the personal inconvenience, hotel charges and medical treatment for his wife.
Explain, whether Mr. Murti would get compensation for which he filed the suit? (4 Marks)
(b) Rohan incorporated a "One Person Company". The memorandum of OPC indicates the name of
his brother Vinod as the nominee of OPC. However, Vinod is starting his new business in abroad
and needs to leave India permanently. Due to this fact, Vinod is withdrawing his consent of
nomination in the said One Person Company. Taking into considerations the provisions of the
Companies Act, 2013 answer the questions given below:-
I. If is it mandatory for Vinod to withdraw his nomination in the said OPC
II. Can Rohan make his 17 year old son as a nominee in such a case. (4 Marks)
(c) "A breach of condition can be treated as a breach of warranty". Explain this statement as per
relevant provisions of the Sale of Goods Act, 1930. (4 Marks)
2. (a) Explain the term Contingent Contract with reference to the Indian Contract Act, 1872 with the help
of an example. Also discuss the rules relating to enforcement of a contingent contract. (7 Marks)
(b) Limited Liability Partnership (LLP) gives the benefits of limited liability of a company on one hand
and the flexibility of a partnership on the other. Discuss. (5 Marks)
3. (a) Define partnership and name the essential elements for the existence of a partnership as per the
Indian Partnership Act, 1932. Explain any two such elements in detail. (3 + 3 = 6 Marks)
(b) Kapil went to a departmental store to purchase a steel pan. He asked the salesman about the area
in departmental store where steel pans are kept. The salesman indicated him the area with
instructions that with steel pans, other metal’s pans were also kept. Kapil wrongfully picked an
aluminium pan in place of steel pan. The salesman watched but said nothing to Kapil. Kapil reached
his house and found that pan was not a steel pan but actually an aluminium pan. Kapil filed a suit
against departmental store for fraud. Discuss, whether Kapil was eligible to file suit for fraud against
departmental store under Indian Contract Act, 1872? (6 Marks)
4. (a) Discuss the rights of an unpaid seller against the buyer under the Sales of Goods Act, 1930.
(6 Marks)
(b) Mr. M is one of the four partners in M/s XY Enterprises. He owes a sum of ` 6 crore to his friend
Mr. Z which he is unable to pay on due time. So, he wants to sell his share in the firm to Mr. Z for
settling the amount.

In the light of the provisions of the Indian Partnership Act, 1932, discuss each of the following:
(i) Can Mr. M validly transfer his interest in the firm by way of sale?
(ii) What would be the rights of the transferee (Mr. Z) in case Mr. M wants to retire from the firm
after a period of 6 months from the date of transfer? (6 Marks)
5. (a) Sohan is a trader in selling of wheat. Binod comes to his shop and ask Sohan to show him some
good quality wheat. Binod is satisfied with the quality of wheat. Sohan agrees to sell 100 bags of
wheat to Binod on 10 th June 2021.
The delivery of wheat and the payment was to be made in next three months i.e. by 10 th September
2021 by Binod. Before the goods are delivered to Binod, Sohan gets another customer Vikram in
his shop who is ready to pay higher price for the wheat. Sohan sells the goods of Binod (which
were already lying in his possession even after sale) to Vikram. Vikram has no knowledge that
Sohan is not the owner of goods. With reference to Sale of Goods Act,1930, discuss if such a sale
made by Sohan to Vikram is a valid sale? (6 Marks)
(b) ABC Limited was into sale and purchase of iron rods. This was the main object of the company
mentioned in the Memorandum of Association. The company entered into a contract with Mr. John
for some finance related work. Later on, the company repudiated the contract as being ultra vires.
With reference to the same, briefly explain the doctrine of “ultravires” under the Companies Act,
2013. What are the consequences of ultravires acts of the company? (6 Marks)
6. (a) Explain what is meant by 'Supervening Impossibility' as per the Indian Contract Act, 1872 with the
help of an example. What is the effect of such impossibility? (5 Marks)
(b) Subject to agreement by partners, state the rules that should be observed by the partners in settlin g
the accounts of the firm after dissolution under the provisions of the Indian Partnership Act, 1932.
(4 Marks)
(c) Mr. Raj formed a company with a capital of ` 50,000. He sold his business to another company for
` 40,000. For the payment of sale, he accepted shares worth ` 30,000 (3000 shares of ` 1 each).
The balance 10,000 was considered as loan and Mr. Raj secured the amount by issue of
debentures. His wife and three daughters took one share each. Owing to strike the company was
wound up. The assets of the company were valued at ` 6000. The debts due to unsecured creditors
were ` 8000.
Mr. Raj retained the entire sum of ` 6000 as part payment of loan. To this, the other creditors
objected. Their contention was that a man could not own any money to himself, and the entire sum
of ` 6000 should be paid to them.
Examine the rights of Mr. Raj and other creditors. Who will succeed? (3 Marks)

MOCK TEST PAPER 1
FOUNDATION COURSE
ANSWERS
1. (a) Section 73 of Indian Contract Act, 1872 provides that when a contract has been broken, the party
who suffers by such breach is entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which naturally arose in the usual
course of things from such breach, or which the parties knew, when they made the contract, to be
likely to result from the breach of it. But such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach.
In the instant case, Mr. Murti filed the suit against Himalya Travels Pvt. Ltd. for damages for the
personal inconvenience, hotel charges and medical treatment for his wife.
On the basis of above provisions and facts of the case, it can be said that Mr. Murti can claim
damages for the personal inconvenience and hotel charges but not for medical treatment for his
wife because it is a remote or indirect loss.
(b) (A) Yes, it is mandatory for Vinod to withdraw his nomination in the said OPC as he is leaving
India permanently as only a natural person who is an Indian citizen and resident in India or
otherwise and has stayed in India for a period of not less than 120 days during the immediately
preceding financial year shall be a nominee in OPC.
Since Vinod will not satisfy this condition, so he needs to withdraw his nomination.
(B) No, Rohan cannot make his 17 year old son as a nominee of his OPC as no minor shall
become member or nominee of the OPC or can hold beneficial interest.
(c) Section 13 of the Sale of Goods Act, 1930 specifies cases where a breach of condition be treated
as a breach of warranty. As a result of which the buyer loses his right to rescind the contract and
can claim damages only.
In the following cases, a contract is not avoided even on account of a breach of a condition:
(i) Where the buyer altogether waives the performance of the condition. A party may for his own
benefit, waive a stipulation. It should be a voluntary waiver by buyer.
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty. That is to
say, he may claim only damages instead of repudiating the contract. Here, the buyer has not
waived the condition but decided to treat it as a warranty.
(iii) Where the contract is non-severable and the buyer has accepted either the whole goods or
any part thereof. Acceptance means acceptance as envisaged in Section 72 of the Indian
Contract Act, 1872.
(iv) Where the fulfilment of any condition or warranty is excused by law by reason of impos sibility
or otherwise.

2. (a) Definition of ‘Contingent Contract’ (Section 31 of the Indian Contract Act, 1872): A contract
to do or not to do something, if some event, collateral to such contract, does or does not happen.
Example: A contracts to pay B Rs. 1,00,000 if B’s house is burnt. This is a contingent contract.
Rules Relating to Enforcement: The rules relating to enforcement of a contingent contract are
laid down in sections 32, 33, 34, 35 and 36 of the Act.
(i) Enforcement of contracts contingent on an event happening: Where a contract identifies
happening of a future contingent event, the contract cannot be enforced until and unless the
event ‘happens’. If the happening of the event becomes impossible, then the contingent
contract is void.
(ii) Enforcement of contracts contingent on an event not happening: Where a contingent
contract is made contingent on non-happening of an event, it can be enforced only when its
happening becomes impossible.
(iii) A contract would cease to be enforceable if it is contingent upon the conduct of a living
person when that living person does something to make the ‘event’ or ‘conduct’ as
impossible of happening.
(iv) Contingent on happening of specified event within the fixed time: Section 35 says that
Contingent contracts to do or not to do anything, if a specified uncertain event happens within
a fixed time, becomes void if, at the expiration of time fixed, such event has not happened, or
if, before the time fixed, such event becomes impossible.
(v) Contingent on specified event not happening within fixed time: Section 35 also says that
“Contingent contracts to do or not to do anything, if a specified uncertain even t does not
happen within a fixed time, may be enforced by law when the time fixed has expired, and such
event has not happened or before the time fixed has expired, if it becomes certain that such
event will not happen”.
(vi) Contingent on an impossible event (Section 36): Contingent agreements to do or not to
do anything, if an impossible event happens are void, whether the impossibility of the event
is known or not to the parties to the agreement at the time when it is made.
(b) LLP gives the benefits of limited liability of a company and the flexibility of a partnership
Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the agent of
the LLP, but not of other partners (Section 26 of the LLP Act, 2008). The liability of the partners
will be limited to their agreed contribution in the LLP, while the LLP itself will be liable for the full
extent of its assets.
Flexibility of a partnership: The LLP allows its members the flexibility of organizing their internal
structure as a partnership based on a mutually arrived agreement. The LLP form enables
entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific
and technical disciplines, to form commercially efficient vehicles suited to their requirements.
Owing to flexibility in its structure and operation, the LLP is a suitable vehicle for small enterprises
and for investment by venture capital.
3. (a) Definition of Partnership: 'Partnership' is the relation between persons who have agreed to share
the profits of a business carried on by all or any of them acting for all. (Section 4 of the Indian
Partnership Act, 1932)
The definition of the partnership contains the following five elements which must co -exist before a
partnership can come into existence:
1. Association of two or more persons
2. Agreement
3. Business
2

4. Agreement to share Profits
5. Business carried on by all or any of them acting for all
ELEMENTS OF PARTNERSHIP
The definition of the partnership contains the following five elements which must co -exist before a
partnership can come into existence:
1. Association of two or more persons: Partnership is an association of 2 or more persons.
Again, only persons recognized by law can enter into an agreement of partnership. Therefore,
a firm, since it is not a person recognized in the eyes of law cannot be a partner. Again, a
minor cannot be a partner in a firm, but with the consent of all the partners, may be admitted
to the benefits of partnership.
The Partnership Act is silent about the maximum number of partners but Section 464 of the
Companies Act, 2013 read with the relevant Rules has now put a limit of 50 partners in any
association / partnership firm.
2. Agreement: It may be observed that partnership must be the result of an agreement between
two or more persons. There must be an agreement entered into by all the persons concerned.
This element relates to voluntary contractual nature of partnership. Thus, the nature of the
partnership is voluntary and contractual. An agreement from which relationship of Partnership
arises may be express. It may also be implied from the act done by partners and from a
consistent course of conduct being followed, showing mutual understanding between them. It
may be oral or in writing.
3. Business: In this context, we will consider two propositions. First, there must exist a
business. For the purpose, the term 'business' includes every trade, occupation and
profession. The existence of business is essential. Secondly, the motive of the business is
the "acquisition of gains" which leads to the formation of partnership. The refore, there can be
no partnership where there is no intention to carry on the business and to share the profit
thereof.
4. Agreement to share profits: The sharing of profits is an essential feature of partnership.
There can be no partnership where only one of the partners is entitled to the whole of the
profits of the business. Partners must agree to share the profits in any manner they choose.
But an agreement to share losses is not an essential element. It is open to one or more
partners to agree to share all the losses. However, in the event of losses, unless agreed
otherwise, these must be borne in the profit-sharing ratio.
5. Business carried on by all or any of them acting for all: The business must be carried on
by all the partners or by anyone or more of the partners acting for all. This is the cardinal
principle of the partnership Law. In other words, there should be a binding contract of mutual
agency between the partners. An act of one partner in the course of the business of the firm
is in fact an act of all partners. Each partner carrying on the business is the principal as well
as the agent for all the other partners. He is an agent in so far as he can bind the other
partners by his acts and he is a principal to the extent that he is bound by the act of other
partners. It may be noted that the true test of partnership is mutual agency rather than sharing
of profits. If the element of mutual agency is absent, then there will be no partnership.
(b) Section 17 of Indian Contract Act, 1872 defines ‘Fraud’. According to section, “Fraud” means and
includes any of the following acts committed by a party to a contract or by his agent with intent to
deceive or to induce a person to enter into the contract:
(i) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(ii) the active concealment of a fact by one having knowledge or belief of the fact;

(iii) a promise made without any intention of performing it;
(iv) any other act fitted to deceive;
(v) any such act or omission as the law specially declares to be fraudulent.
It was also explained that mere silence is not fraud. Silence amounts to fraud where (a) there is a
duty to speak or (b) where silence is equivalent to speech.
On the basis of provisions of Section 17 and the facts given above, it was not the duty of salesman
to inform Mr. Kapil about his mistake. Hence, there was no fraud and Kapil was not eligible to file
suit for fraud against departmental store under Indian Contract Act, 1872.
4. (a) The right against the buyer are as follows:
1. Suit for price (Section 55 of the Sale of Goods Act, 1930)
(a) Where under a contract of sale, the property in the goods has passed to the buyer and
the buyer wrongfully neglects or refuses to pay for the goods according to the terms of
the contract, the seller may sue him for the price of the goods. [Section 55(1)]
(b) Where under a contract of sale, the price is payable on a certain day irrespective of
delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may
sue him for the price although the property in the goods has not passed and the goods
have not been appropriated to the contract. [Section 55(2)].
2. Suit for damages for non-acceptance (Section 56): Where the buyer wrongfully neglects
or refuses to accept and pay for the goods, the seller may sue him for damages for non -
acceptance.
3. Repudiation of contract before due date (Section 60): Where the buyer repudiates the
contract before the date of delivery, the seller may treat the contract as rescinded and sue
damages for the breach. This is known as the ‘rule of anticipatory breach of contract’.
4. Suit for interest [Section 61]: Where there is specific agreement between the seller and the
buyer as to interest on the price of the goods from the date on which payment becomes due,
the seller may recover interest from the buyer. If, however, there is no specific agreement to
this effect, the seller may charge interest on the price when it becomes due from such day as
he may notify to the buyer.
In the absence of a contract to the contrary, the Court may award interest to the seller in a
suit by him at such rate as it thinks fit on the amount of the price from the date of the tender
of the goods or from the date on which the price was payable.
(b) According to Section 29 of the Indian Partnership Act, 1932,
(1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the
creation by him of a charge on such interest, does not entitle the transferee, during the
continuance of the firm, to interfere in the conduct of business, or to require accounts, or to
inspect the books of the firm, but entitles the transferee only to receive the share of p rofits of
the transferring partner, and the transferee shall accept the account of profits agreed to by
the partners.
(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is
entitled as against the remaining partners to receive the share of the assets of the firm to
which the transferring partner is entitled, and, for the purpose of ascertaining that share, to
an account as from the date of the dissolution.
In the light of facts of the question and provision of law:
(i) Yes, Mr. M can validly transfer his interest in the firm by way of sale.

(ii) On the retirement of the transferring partner (Mr. M), the transferee (Mr. Z) will be entitled,
against the remaining partners:
(a) to receive the share of the assets of the firm to which the transferring partner was
entitled, and
(b) for the purpose of ascertaining the share,
he is entitled to an account as from the date of the dissolution.
So, in this case on Mr. M’s retirement, Mr. Z would be entitled to receive the value of Mr. M’s
share to the extent of Rs. 6 crore in the firm’s assets.
5. (a) The given question deals with the rule related to transfer of title of goods. Section 27 of the Sale
of Goods Act ,1930 specify the general rule " No man can sell the goods and give a good title
unless he is the owner of the goods". The latin maxim " NEMO DET QUOD NON HABET". However,
there are certain exceptions to this rule. One of the exceptions is given in Section 30 (1) of Sale of
Goods Act,1930 wherein the sale by seller in possession of goods even after sale is made , is held
to be valid. If the following conditions are satisfied, then it amounts to a valid sale although the
seller is no more the owner of goods after sale.
(i) A seller has possession of goods after sale
(ii) with the consent of the other party (i.e. buyer)
(iii) the seller sells goods (already sold) to a new buyer
(iv) the new buyer acts in good faith
(v) The new buyer has no knowledge that the seller has no authority to sell.
In the given question, the seller Sohan has agreed to sell the goods to Binod, but delivery of the
goods is still pending. Hence Sohan is in possession of the goods and this is with the consent of
buyer i.e. Binod. Now Sohan sell those goods to Vikram, the new buyer. Vikram is buying the goods
in good faith and also has no knowledge that Sohan is no longer the owner of goods.
Since all the above conditions given under Section 30 (1) of Sale of Goods Act, 1930 are satisfied,
therefore the sale made by Sohan to Vikram is a valid sale even if Sohan is no longer the owner of
goods.
(b) Doctrine of ultra vires: The meaning of the term ultra vires is simply “beyond (their) powers”. The
legal phrase “ultra vires” is applicable only to acts done in excess of the legal powers of the doers.
This presupposes that the powers in their nature are limited. It is a fundame ntal rule of Company
Law that the objects of a company as stated in its memorandum can be departed from only to the
extent permitted by the Act, thus far and no further. In consequence, any act done or a contract
made by the company which travels beyond the powers not only of the directors but also of the
company is wholly void and inoperative in law and is therefore not binding on the company. On this
account, a company can be restrained from employing its fund for purposes other than those
sanctioned by the memorandum. Likewise, it can be restrained from carrying on a trade different
from the one it is authorised to carry on.
The impact of the doctrine of ultra vires is that a company can neither be sued on an ultra vires
transaction, nor can it sue on it. Since the memorandum is a “public document”, it is open to public
inspection. Therefore, when one deals with a company one is deemed to know about the powers
of the company. If in spite of this you enter into a transaction which is ultra vires the company , you
cannot enforce it against the company.
An act which is ultra vires the company being void, cannot be ratified even by the unanimous
consent of all the shareholders of the company.
Hence in the given case, ABC Limited cannot enter into a contract outside the purview of its object
clause of memorandum of association as it becomes ultra vires and thus null and void.
5

6. (a) According to Section 56 of the Indian Contract Act, 1872, the impossibility of performance may be
of the two types, namely (a) initial impossibility, and (b) subsequent impossibility.
Subsequent impossibility is also known as Supervening impossibility i.e. becomes
impossible after entering into contract. When performance of promise become impossible or
illegal by occurrence of an unexpected event or a change of circumstances beyond the
contemplation of parties, the contract becomes void e.g. change in law etc. In other words,
sometimes, the performance of a contract is quite possible when it is made. But subsequently,
some event happens which renders the performance impossible or unlawful. Such impossibility is
called the subsequent or supervening. It is also called the post-contractual impossibility.
Example: ‘A’ and ‘B’ contracted to marry each other. Before the time fixed for the marriage, ‘A’
became mad. In this case, the contract becomes void due to subsequent impossibility, and thus
discharged.
Effect of impossibility: The effect of such impossibility is that it makes the contract void, and the
parties are discharged from further performance of the contract.
(b) Mode of Settlement of partnership accounts: As per Section 48 of the Indian Partnership Act,
1932, in settling the accounts of a firm after dissolution, the following rules shall, subject to
agreement by the partners, be observed:-
(i) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital,
and, lastly, if necessary, by the partners individually in the proportions in which they were
entitled to share profits;
(ii) The assets of the firm, including any sums contributed by the partners to make up deficiencies
of capital, must be applied in the following manner and order:
(a) in paying the debts of the firm to third parties;
(b) in paying to each partner rateably what is due to him from capital;
(c) in paying to each partner rateably what is due to him on account of capital; and
(d) the residue, if any, shall be divided among the partners in the proportions in which they
were entitled to share profits.
(c) Separate Legal Entity: Corporate Veil refers to a legal concept whereby the company is identified
separately from the members of the company.
The term Corporate Veil refers to the concept that members of a company are shielded from liability
connected to the company’s actions. If the company incurs any debts or contravenes any laws, the
corporate veil concept implies that members should not be liable for those errors. In other words,
they enjoy corporate insulation.
Thus, the shareholders are protected from the acts of the company. The leading case law of
Saloman Vs Saloman and Company Limited, laid the foundation of concept of corporate veil or
independent corporate personality. A company is a person distinct and separate from its members.
Based on the above discussion and provisions, Mr. Raj was entitled to the assets of the company
as he was a secured creditor of the company and the contention of the creditors that Mr. Raj and
the company are one and same person is wrong.

Test Series: June, 2022
MOCK TEST PAPER 2
FOUNDATION COURSE
QUESTIONS
1. (i) Mr. Joy owns two flats in a building. He wanted to sell flat no.101 to Mr. Roy. Mr. Joy offered to sell his
flat no. 101 to Mr. Roy, but Mr. Roy thought that Mr. Joy wanted to sell flat no. 102 and said yes for
the agreement. Considering the provisions of Indian Contract Act, 1872, discuss the validity of such a
contract. (4 Marks)
(ii) The paid-up capital of Ram Private Limited is ` 10 Crores in the form of 7,00,000 Equity Shares
of ` 100 each and 3,00,000 Preference Shares of ` 100 each. Lakhan Private Limited is holding
3,00,000 Equity Shares and 3,00,000 Preference Shares in Ram Private Limited. State with
reason, Whether Ram Private Limited is subsidiary of Lakhan Private Limited? (4 Marks)
(iii) Write any four exceptions to the doctrine of Caveat Emptor as per the Sale of Goods Act, 1930.
(4 Marks)
2. (i) “All contracts are agreements, but all agreements are not contracts”. Comment. (4 Marks)
(ii) Karan agreed to purchase wooden table for his study room from Mr. X. Table was in good
condition and was examined by Karan before purchasing. He found no defects in it and paid Rs.
20,000 for that table. Later on, it was found that one leg of table is broken and Mr. X has pasted
the wood and tried to hide the defects in the table. Can Karan return the table and claim the
amount back? Discuss the same with reference to Indian Contract Act, 1872? (3 Marks)
(iii) What do you mean by Designated Partner? Whether it is mandatory to appoint Designated
partner in a LLP? (5 Marks)
3. (i) Enumerate the differences between Partnership and Joint Stock Company. (6 Marks)
(ii) Rohan is running a grocery store in Delhi. He sells his grocery business, including goodwill worth
` 1,00,000 to Rohit for a sum of ` 5,00,000. After the sale of goodwill, Rohit made an agreement
with Rohan. As per this agreement, Rohan is not to open another grocery store (similar kind of
business) in the whole of India for next ten years. However, Rohan opens another store in the
same city two months later. What are the rights available with Rohit regarding the restriction
imposed on Rohan with reference to Indian Contract Act, 1872? (6 Marks)
4. (i) When can an unpaid seller of goods exercise his right of lien over the goods under the Sale of Goods
Act, 1930? Can he exercise his right of lien even if the property in goods has passed to the buyer?
When such a right is terminated? Can he exercise his right even after he has obtained a decree for
the price of goods from the court? (6 Marks)
(ii) Sohan, Rohan and Jay were partners in a firm. The firm is dealer in office furniture. They have
regular dealings with M/s AB and Co. for the supply of furniture for their business. On 30 th June
2020, one of the partners, Mr. Jay died in a road accident. The firm has ordered M/s AB and Co.
to supply the furniture for their business on 25th May 2020, when Jay was also alive.

Now Sohan and Rohan continue the business in the firm’s name after Jay’s death. The firm did
not give any notice about Jay’s death to the public or the persons dealing with the firm. M/s AB
and Co. delivered the furniture to the firm on 25th July 2020. The fact about Jay’s death was
known to them at the time of delivery of goods. Afterwards the firm became insolvent and failed
to pay the price of furniture to M/s AB and Co. Now M/s AB and Co. has filed a case against the
firm for recovery of the price of furniture. With reference to the provisions of Indian Partnership
Act, 1932, explain whether Jay’s private estate is also liable for the price of furniture purchased
by the firm? (6 Marks)
5. (i) Avyukt purchased 100 Kgs of wheat from Bhaskar at Rs. 30 per kg. Bhaskar says that wheat is in his
warehouse in the custody of Kishore, the warehouse keeper. Kishore confirmed Avyukt that he can
take the delivery of wheat from him and till then he is holding wheat on Avyukt’s behalf. Before Avyukt
picks the goods from warehouse, the whole wheat in the warehouse has flowed in flood. Now Avyukt
wants his price on the contention that no delivery has been done by seller. Whether Avyukt is right
with his views under the Sale of Goods Act, 1930. (6 Marks)
(ii) “The Memorandum of Association is a charter of a company”. Discuss. Also explain in brief the
contents of Memorandum of Association. (6 Marks)
6. (i) Explain the-term ‘Quasi Contracts’ and state their characteristics. (5 Marks)
(ii) When does dissolution of a partnership firm take place under the provisions of the Indian
Partnership Act, 1932? Explain. (4 Marks)
(iii) Five persons are the only members of a private company Flower Fans Limited. All of them go in a
boat on a pleasure trip into an open sea. The boat capsizes and all the 5 die being drowned.
(a) Is the private company Flower Fans Limited no longer in existence?
(b) Further is it correct to say that a company being an artificial person cannot own property
and cannot sue or be sued? Explain with reference to the provisions of Companies Act,
2013. (3 Marks)

MOCK TEST PAPER 2
FOUNDATION COURSE
ANSWERS
1. (i) Section 10 of Indian Contract Act, 1872 laid done the essential elements of a valid contract. One of
the essential elements of valid contract is free consent. Consent is an express willingness or giving
voluntary permission or agreeing to something. Section 13 further clarify" two or more persons are
said to consent when they agree upon the same thing in the same sense"
In the present case, both the parties have given a free consent b ut they are not consenting for
the same thing in the same sense. Mr. Joy wants to sell flat no. 101 and Mr. Roy has agreed the
contract thinking that it's flat no. 102.
Hence, the agreement would be invalidated at the inception (beginning) stage itself because both
the parties did not agree about a thing (sale of flat) in the same sense. Hence, both the parties
did not have mutual consent for the contract; therefore it is not a valid contract.
(ii) According to Section 2(87) of Companies Act, 2013 “subsidiary company” in relation to any other
company (that is to say the holding company), means a company in which the holding
company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies:
For the purposes of this section —
(i) the composition of a company’s Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the directors;
(ii) the expression “company” includes anybody corporate;
It is to be noted that Preference share capital will also be considered if preference shareholders
have same voting rights as equity shareholders.
In the instant case, Ram Private Limited is having paid-up capital of `10 Crores in the form of
7,00,000 Equity Shares of `100 each and 3,00,000 Preference Shares of `100 each. Lakhan
Private Limited is holding 3,00,000 Equity Shares and 3,00,000 Preference Shares in Ram
Private Limited.
As in the given problem it is not clear that whether Preference Shares ar e having voting rights or
not, it can be taken that there is no voting right with these shares. On the basis of provisions of
Section 2(87) and facts of the given problem, Lakhan Private Limited is holding 3,00,000 Equity
Shares of total equity paid up share capital of Ram Private Limited. Therefore, as Lakhan Private
Limited does not exercises or controls more than one-half of the total voting power in Ram
Private Limited, Ram Private Limited is not subsidiary of Lakhan Private Limited.
(iii) Caveat Emptor: In case of sale of goods, the doctrine ‘Caveat Emptor’ means ‘let the buyer
beware’. When sellers display their goods in the open market, it is for the buyers to make a
proper selection or choice of the goods. If the goods turn out to be defective, he c annot hold the
1

seller liable. The seller is in no way responsible for the bad selection of the buyer. The seller is
not bound to disclose the defects in the goods which he is selling.
The doctrine of Caveat Emptor is subject to the following exceptions:
1. Fitness as to quality or use: Where the buyer makes known to the seller the particular
purpose for which the goods are required, so as to show that he relies on the seller’s skill or
judgment and the goods are of a description which is in the course of seller’s business to
supply, it is the duty of the seller to supply such goods as are reasonably fit for that purpose
[Section 16 (1) of the Sale of Goods Act, 1930].
2. Goods purchased under patent or brand name: In case where the goods are purchased
under its patent name or brand name, there is no implied condition that the goods shall be
fit for any particular purpose [Section 16(1)].
3. Goods sold by description: Where the goods are sold by description there is an implied
condition that the goods shall correspond with the description [Section 15]. If it is not so,
then seller is responsible.
4. Goods of Merchantable Quality: Where the goods are bought by description from a seller
who deals in goods of that description there is an implied condition that the goods shall be
of merchantable quality. The rule of Caveat Emptor is not applicable. But where the buyer
has examined the goods, this rule shall apply if the defects were such which ought to have
not been revealed by ordinary examination [Section 16(2)].
5. Sale by sample: Where the goods are bought by sample, this rule of Caveat Emptor does
not apply if the bulk does not correspond with the sample [Section 17].
6. Goods by sample as well as description: Where the goods are bought by sample as well
as description, the rule of Caveat Emptor is not applicable in case the goods do not
correspond with both the sample and description or either of the condition [Section 15].
7. Trade Usage: An implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade and if the seller deviates from that, this rule
of Caveat Emptor is not applicable [Section 16(3)].
8. Seller actively conceals a defect or is guilty of fraud: Where the seller sells the goods by
making some misrepresentation or fraud and the buyer relies on it or when the seller
actively conceals some defect in the goods so that the same could not be discovered by the
buyer on a reasonable examination, then the rule of Caveat Emptor will not app ly. In such a
case the buyer has a right to avoid the contract and claim damages.
2. (i) (a) An agreement comes into existence when one party makes a proposal or offer to the other
party and that other party gives his acceptance to it. A contract is an agreement enforceable
by law. It means that to become a contract, an agreement must give rise to a legal
obligation i.e. duly enforceable by law. If an agreement is incapable of creating a duly
enforceable by law, it is not a contract. There can be agreements which are not enforceable
by law, such as social, moral or religious agreements. The agreement is a wider term than
the contract. All agreements need not necessarily become contracts but all contracts shall
always be agreements.
All agreements are not contracts: When there is an agreement between the parties and they
do not intend to create a legal relationship, it is not a contract.
All contracts are agreements: For a contract there must be two things (a) an agreement and
(b) enforceability by law. Thus, existence of an agreement is a pre -requisite existence of a
contract. Therefore, it is true to say that all contracts are agreements.

Thus, we can say that there can be an agreement without it becoming a contract, but we
can’t have a contract without an agreement.
(ii) As per Section 17 of Indian Contract Act, 1872 , “A false representation of material facts when
made intentionally to deceive the other party to induce him to enter into a contract is termed as a
fraud.” Section 17(2) further states about active concealment .When a party intentionally
conceals or hides some material facts from the other party and makes sure that the other party is
not able to know the truth, in fact makes the other party believe something which is false, then a
fraud is committed. In case a fraud is committed, the aggrieved party gets the right to rescind the
contract. (Section 19). If the aggrieved party has obtained some benefits in such a contract
(caused by fraud), then all such benefits should be restored or returned back. And if aggrieved
party has suffered any losses, it should be compensated by the other party.
On the basis of above provisions and facts of the case, in case a fraud is committed by one
party, the contract becomes voidable at the option of the aggrieved party. Hence, Karan can
rescind the contract and claim compensation for the loss suffered due to fraud done by Mr. X.
(iii) Designated Partner [Section 2(j)]: “Designated partner” means any partner designated as such
pursuant to section 7.
According to section 7 of the LLP Act, 2008:
(i) Every LLP shall have at least two designated partners who are individuals and at least one
of them shall be a resident in India.
(ii) If in LLP, all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such LLP or
nominees of such bodies corporate shall act as designated partners.
3. (i)
Basis Partnership Joint Stock Company
Legal status A firm is not legal entity i.e. it A company is a separate legal
has no legal personality entity distinct from its members
distinct from the personalities (Salomon v. Salomon).
of its constituent members.
Agency In a firm, every partner is an In a company, a member is not
agent of the other partners as an agent of the other members
well as of the firm. or of the company, his actions
do not bind either.
Distribution of profits The profits of the firm must be There is no such compulsion to
distributed among the partners distribute its profits among its
according to the terms of the members. Some portion of the
partnership deed. profits, but generally not the
entire profit, become
distributable among the
shareholders only when
dividends are declared.
Extent of liability In a partnership, the liability of In a company limited by shares,
the partners is unlimited. This the liability of a shareholder is
means that each partner is limited to the amount, if any,
liable for debts of a firm unpaid on his shares, but in the
incurred in the course of the case of a guarantee company,
business of the firm and these the liability is limited to the
debts can be recovered from amount for which he has agreed
3

his private property, if the joint to be liable. However, there may
estate is insufficient to meet be companies where the liability
them wholly. of members is unlimited.
Property The firm’s property is that In a company, its property is
which is the “joint estate” of all separate from that of its
the partners as distinguished members who can receive it
from the ‘separate’ estate of back only in the form of
any of them and it does not dividends or refund of capital.
belong to a body distinct in
law from its members.
Transfer of shares A share in a partnership In a company a shareholder may
cannot be transferred without transfer his shares, subject to
the consent of all the partners. the provisions contained in its
Articles. In the case of public
limited companies whose shares
are quoted on the stock
exchange, the transfer is usually
unrestricted.
Management In the absence of an express Members of a company are not
agreement to the contrary, all entitled to take part in the
the partners are entitled to management unless they are
participate in the appointed as directors, in which
management. case they may participate.
Members, however, enjoy the
right of attending general
meeting and voting where they
can decide certain questions
such as election of directors,
appointment of auditors, etc.
Registration Registration is not compulsory A company cannot come into
in the case of partnership. existence unless it is registered
under the Companies Act, 2013.
Winding up A partnership firm can be A company, being a legal person
dissolved at any time if all the is either wind up by the National
partners agree. Company Law Tribunal or its
name is struck of by the
Registrar of Companies.
Number of According to section 464 of A private company may have as
membership the Companies Act, 2013, the many as 200 members but not
number of partners in any less than two and a public
association shall not exceed company may have any number
100. of members but not less than
However, the Rule given seven. A private Company can
under the Companies also be formed by one person
(Miscellaneous) Rules, 2014 known as one person Company.
restrict the present limit to 50.
Duration of existence Unless there is a contract to A company enjoys a perpetual
the contrary, death, retirement succession.
or insolvency of a partner
results in the dissolution of the
firm.
4

(ii) Section 27 of the Indian Contract Act, 1872 provides that any agreement that restrains a person
from carrying on a lawful trade, profession or business is void agreement. However, there are
certain exceptions to this rule. One of the statutory exceptions includes sale of Goodwill. The
restraint as to sale of goodwill would be a valid restraint provided-
(i) Where the restraint is to refrain from carrying on a similar business
(ii) The restrain should be within the specified local limits
(iii) The restraint should be not to carry on the similar business after sale of goodwill to the
buyer for a price
(iv) The restriction should be reasonable. Reasonableness of restriction will depend upon
number of factors as considered by court.
In the given case, Rohan has sold the goodwill and there is restraint for not carrying on the same
business of grocery store. However the restriction imposed on Rohan is unreasonable as he
cannot carry similar business in whole of India for next 10 years. The restriction on restraint to
similar kind of trade should be reasonable to make it a valid agreement. Therefore, Rohit cannot
take any legal action against Rohan as the restriction is unreasonable as per Section 27 of Indian
Contract Act, 1872. Hence, the agreement made between Rohan and Rohit in restraint of trade is
void agreement.
4. (i) (a) A lien is a right to retain possession of goods until the payment of the price. It is available to the
unpaid seller of the goods who is in possession of them where-
(i) the goods have been sold without any stipulation as to credit;
(ii) the goods have been sold on credit, but the term of credit has expired;
(iii) the buyer becomes insolvent.
The unpaid seller can exercise ‘his right of lien even if the property in goods has passed on
to the buyer. He can exercise his right even if he is in possession of the goods as agent or
bailee for the buyer.
Termination of lien: An unpaid seller losses his right of lien thereon-
(i) When he delivers the goods to a carrier or other bailee for the purpose of transmission
to the buyer without reserving the right of disposal of the goods;
(ii) When the buyer or his agent lawfully obtains possession of the goods;
Yes, he can exercise his right of lien even after he has obtained a decree for the price of
goods from the court.
(ii) According to Section 35 of the Indian Partnership Act, 1932, where under a contract between the
partners, the firm is not dissolved by the death of a partner, the estate of a deceased partner is
not liable for any act of the firm done after his death.
Further, in order that the estate of the deceased partner may be absolved from liability for the
future obligations of the firm, it is not necessary to give any notice either to the public or the
persons having dealings with the firm.
In the light of the facts of the case and provisions of law, since the delivery of furniture was made
after Jay’s death, his estate would not be liable for the debt of the firm. A suit for goods sold and
delivered would not lie against the representatives of the deceased partner. This is because
there was no debt due in respect of the goods in Jay’s lifetime. He was already dead when the
delivery of goods was made to the firm and also it is not necessary to give any notice either to
the public or the persons having dealings with the firm on a death of a partner. So, the estate of
the deceased partner may be absolved from liability for the future obligations of the firm.
5

5. (i) As per the provisions of the Sale of Goods Act, 1930 there are three modes of delivery, i ) Actual
delivery, ii) Constructive delivery and iii) Symbolic delivery. When delivery is affected without any
change in the custody or actual possession of the things, it is called constructive delivery or
delivery by acknowledgement. Constructive delivery takes place when a person in possession of
goods belonging to seller acknowledges to the buyer that he is holding the goods on buyer’s
behalf.
In the instant case, Kishore acknowledges Avyukt that he is holding wheat on Avyukt’s behalf.
Before picking the wheat from warehouse by Avyukt, whole wheat was flowed in flood.
On the basis of above provisions and facts, it is clear that possession of the wheat has been
transferred through constructive delivery. Hence, Avyukt is not right. He cannot claim the pr ice
back.
(ii) The Memorandum of Association of company is in fact its charter; it defines its constitution and
the scope of the powers of the company with which it has been established under the Act. It is
the very foundation on which the whole edifice of the company is built.
Object of registering a memorandum of association:
⬥ It contains the object for which the company is formed and therefore identifies the possible
scope of its operations beyond which its actions cannot go.
⬥ It enables shareholders, creditors and all those who deal with company to know what its
powers are and what activities it can engage in.
A memorandum is a public document under Section 399 of the Companies Act, 2013.
Consequently, every person entering into a contract with the company is presumed to have
the knowledge of the conditions contained therein.
⬥ The shareholders must know the purposes for which his money can be used by the
company and what risks he is taking in making the investment.
A company cannot depart from the provisions contained in the memorandum however imperative
may be the necessity for the departure. It cannot enter into a contract or engage in any trade or
business, which is beyond the power confessed on it by the memorandum. If it does so, it woul d
be ultra vires the company and void.
Content of the memorandum: The memorandum of a company shall state—
(a) the name of the company (Name Clause) with the last word “Limited” in the case of a public
limited company, or the last words “Private Limited” in the case of a private limited
company. This clause is not applicable on the companies formed under section 8 of the Act.
(b) the State in which the registered office of the company (Registered Office clause) is to be
situated;
(c) the objects for which the company is proposed to be incorporated and any matter
considered necessary in furtherance thereof (Object clause);
(d) the liability of members of the company (Liability clause), whether limited or unlimited,
(e) the amount of authorized capital (Capital Clause) divided into share of fixed amounts and
the number of shares with the subscribers to the memorandum have agreed to take,
indicated opposite their names, which shall not be less than one share. A company not
having share capital need not have this clause.
(f) the desire of the subscribers to be formed into a company. The Memorandum shall conclude
with the association clause. Every subscriber to the Memorandum shall take atleast one
share, and shall write against his name, the number of shares taken by him.
6

6. (i) Quasi Contracts: Under certain special circumstances, obligation resembling those created by a
contract are imposed by law although the parties have never entered into a contract. Such
obligations imposed by law are referred to as ‘Quasi-contracts’. Such a contract resembles with a
contract so far as result or effect is concerned but it has little or no affinity with a contract in
respect of mode of creation. These contracts are based on the doctrine that a person shall not be
allowed to enrich himself unjustly at the expense of another. The salient features of a quasi -
contract are:
1. It does not arise from any agreement of the parties concerned but is imposed by law.
2. Duty and not promise is the basis of such contract.
3. The right under it is always a right to money and generally though not always to a liquidated
sum of money.
4. Such a right is available against specific person(s) and not against the whole world.
5. A suit for its breach may be filed in the same way as in case of a complete contract.
(ii) Dissolution of Firm: The Dissolution of Firm means the discontinuation of the jural relation
existing between all the partners of the Firm. But when only one of the partners retires or
becomes in capacitated from acting as a partner due to death, insolvency or insanity, the
partnership, i.e., the relationship between such a partner and other is dissolved, but the rest may
decide to continue. In such cases, there is in practice, no dissolution of the firm. The particula r
partner goes out, but the remaining partners carry on the business of the Firm. In the case of
dissolution of the firm, on the other hand, the whole firm is dissolved. The partnership terminates
as between each and every partner of the firm.
Dissolution of a Firm may take place (Section 39 - 44)
(a) as a result of any agreement between all the partners (i.e., dissolution by agreement);
(b) by the adjudication of all the partners, or of all the partners but one, as insolvent (i.e.,
compulsory dissolution);
(c) by the business of the Firm becoming unlawful (i.e., compulsory dissolution);
(d) subject to agreement between the parties, on the happening of certain contingencies, such
as: (i) effluence of time; (ii) completion of the venture for which it was entered into; (iii) death
of a partner; (iv) insolvency of a partner.
(e) by a partner giving notice of his intention to dissolve the firm, in case of partnership at will
and the firm being dissolved as from the date mentioned in the notice, or if no date is
mentioned, as from the date of the communication of the notice; and
(f) by intervention of court in case of: (i) a partner becoming the unsound mind; (ii) permanent
incapacity of a partner to perform his duties as such; (iii) Misconduct of a partner affecting
the business; (iv) willful or persistent breach of agreement by a partner; (v) transfer or sale
of the whole interest of a partner; (vi) improbability of the business being carried on save at
a loss; (vii) the court being satisfied on other equitable grounds that the firm should be
dissolved.
(iii) (a) Perpetual Succession – A company on incorporation becomes a separate legal entity. It is
an artificial legal person and have perpetual succession which means even if all the
members of a company die, the company still continues to exist. It has permanent
existence.
In the instant case, five persons who were the only members of private company and they
have died being drowned in the sea. The existence of a company is independent of the lives
of its members. It has a perpetual succession. In this problem, the company will conti nue as
7

a legal entity. The company's existence is in no way affected by the death of all its
members.
(b) The statement given is incorrect. A company is an artificial person as it is created by a
process other than natural birth. It is legal or judicial as it is created by law. It is a person
since it is clothed with all the rights of an individual. Further, the company being a separate
legal entity can own property, have banking account, raise loans, incur liabilities and enter
into contracts. Even members can contract with company, acquire right against it or incur
liability to it. It can sue and be sued in its own name. It can do everything which any natural
person can do except be sent to jail, take an oath, marry or practice a learned profession.
Hence, it is a legal person in its own sense.

Test Series: March 2022
MOCK TEST PAPER 1
FOUNDATION COURSE
PAPER 3: BUSINESS MATHEMATICS, LOGICAL REASONING AND STATISTICS
Time: 2 Hours Marks: 100
Part A: Business Mathematics and Logical Reasoning
1.
 ( )
Find the value of log10 25 - log10 23 + log10 ( 4 ) 
2

(a) x
(b) 10
(c) 1
(d) None
2. If A: B = 2:5, then (10A + 3B): (5A + 2B) is equal to
(a) 7:4
(b) 7:3
(c) 6:5
(d) 7:9
3. The ratio compounded of 4:5 and sub-duplicate of a:9 is 8:15. Then value of “a” is
(a) 2
(b) 3
(c) 4
(d) 5
4. If ½ , 1/3 ,1/5 and 1/x are in proportion , then the value of x will be
(a) 15/2
(b) 6/5
(c) 10/3
(d) 5/6
5. If P = x 1/3+ x -1/3 then find value of 3p 3 – 9p
(a) 3
(b) ½(x+1/x)
(c) (x+1/x))
(d) 2((x+1/x))
6. Fourth proportional to x, 2x, (x+1) is:
(a) (x+2)
(b) (x-2)
(c) (2x+2)
1
(d) (2x-2)
7. The value of
(3 n +1
+ 3n )
is equal to
(3 n +3
- 3n +1 )
(a) 1/5
(b) 1/6
(c) ¼
(d) 1/9
x2 − ( y − z) y2 − ( x − z ) z2 − ( x − y )
2 2 2
8. The value of + +
(x + z) ( x + y) ( y + z)
2 2 2
− y2 − z2 − x2
(a) 0
(b) 1
(c) -1
(d) 
1 1 1
9. If abc = 2 then the value of −1
+ + −1
is
1 + a + 2b 1
1+ b + c −1 1 + c + a
2
(a) 1
(b) 2
(c) 3
(d) 1/2
3x − 2
10. If is the duplicate ratio of 2/3 then the value of ‘x ‘ is
5x − 6
(a) 2
(b) 6
(c) 5
(d) 9
11. If α and β are the roots of the equation x2 + 7x + 12 = 0, then the equation whose roots ( α + β)2 and (α - β)2
will be:
(a) x2 – 14x + 49 = 0
(b) x2 – 24x + 144 = 0
(c) x2 – 50x + 49 = 0
(d) x2 – 19x + 144 = 0
12. Roots of the equation 2x2+3x+7 = 0 are α and β then the value of α β-1+ β α-1 is
(a) 2
(b) 3/7
(c) 7/2
(d) -19/14
2
13. On solving the inequalities 5x + y ≤ 100, x + y ≤ 60, x≥ 0, y≥ 0, we get the following situation:
(a) (0,0), (20,0), (10,50), & (0,60)
(b) (0,0), (60,0), (10,50), & (0,60)
(c) (0,0), (20,0), (0,100) & (10,50)
(d) none of these
14. The rules and regulations demand that the employer should employ not more than 5 experienced hands to 1
fresh one and this fact is represented by (Taking experienced person as x and fresh person as y)
x
(a) y
5
(b) 5y < x
(c) 5y > x
(d) none of these
15. In what time will be a sum of money doubles itself at 6.25% p.a simple interest ?
(a) 5 years
(b) 8 years
(c) 12 years
(d) 16 years
16. Mr. X invests ` 10,000 every year starting from today for next 10 years suppose interest rate is 8% per annum
compounded annually. Calculate future value of the annuity: (Given that (1+0.08)10 = 2.158925]
(a) ` 156454.88
(b) ` 144865.625
(c) ` 156554.88
(d) none of these
17. The difference between the simple and compound interest on a certain of 3 years at 5% p.a is
` 228.75. The compound interest on the sum of for 2 years at 5% per annum is
(a) ` 3175
(b) ` 3075
(c) ` 3275
(d) ` 2975
18. How much time would the simple interest on a certain sum be 0.125 times the principal at 10% per annum
1
(a) 1 years
4
3
(b) 1 years
4
1
(c) 2 years
4
3
(d) 2 years
4
3
19. The time in by which a sum of money is 8 times of itself if it doubles itself in 15 years interest compounded
annually.
(a) 42 years
(b) 43 years
(c) 45 years
(d) 46 years
20. Present value of a scooter is `7290, if its value decreases every year by 10% then the value before 3 years
is equal to
(a) 10,000
(b) 10,500
(c) 20,000
(d) 20,500
21. Find the effective rate of interest at 10% p.a when the interest is payable quarterly.
(a) 10.38%
(b) 5%
(c) 5.04%
(d) 4%
22. The difference between in simple interest on a sum invested of `1500 for 3 years is `18. The difference in
their rate is
(a) 0.4
(b) 0.6
(c) 0.8
(d) 0.10
23. What will be the population after 3 years . When the population increases at the rate 3 % in I year, 4 % in II
year and 5% in III year.
(a) 28,119
(b) 29,118
(c) 27,000
(c) 30,000
24. If `10,000 is invested at 8 % per annum, then compounded quarterly.Then value of investment after 2 years
is
(a) `11,716.59
(b) `10,716.59
(c) `12,715.59
(d) none of these
25. In how many years will a sum of money become double at 5% p.a compound interest
(a) 14 years
(b) 15 years
(c) 16 years
4
(d) 14.3 years
26. The future value of an annuity of ` 1,000 is made annually for 5 years at interest rate of 14% compounded
annually [Given that (1.14)5 = 1.92541] is _______
(a) ` 5610
(b) ` 6610
(c) ` 6160
(d) ` 5160
27. The number of ways of arranging 6 boys and 4 girls in a row so that all 4 girls are together is:
(a) 6!. 4!
(b) 2 (7! 4!)
(c) 7! 4!
(d) 2. (6! 4!)
28. 15C3r+15Cr+3 then ‘r’ is equal to
(a) 2
(b) 3
(c) 4
(d) 5
29. If nP4 = 20 (nP2) then the value of ‘n’ is _____
(a) -2
(b) 7
(c) -2 and 7 both
(d) None of these.
30. How many different words can be formed with the letters of the word “LIBERTY”
(a) 4050
(b) 5040
(c) 5400
(d) 4500
31. If x, y and z are the terms in G.P , then the term x2+y2 , xy + yz , y2+z2are in
(a) AP
(b) GP
(c) HP
(d) none of the above
32. In a GP .if fourth term is 3 then the product of first seven terms is
(a) 35
(b) 37
(c) 36
(d) 38
5
2 2
33. In a G.P. If the third term of a GP is and 6th term is , then the first term is
3 81
(a) 6
(b) 1/3
(c) 9
(d) 2
1 1 1 1 1
34. Sum upto infinity series + 2 + 3 + 4 + 5 + .....
2 3 2 3 2
(a) 19/24
(b) 24/19
(c) 5/24
(d) none of these
2+ x
35. If f(x) = , then f-1 (x) :
2− x
2 ( x − 1)
(a)
x +1
2 ( x + 1)
(b)
x −1
x +1
(c)
x −1
x −1
(d)
x +1
36. If f : R → R is a function, defined by f(x) = 2x; then f(x+y) is
(a) f(x) +f(y)
(b) f(x). f(y)
(c) f(x) ÷f(y)
(d) none
37. If f(x) = x+2, g(x) = 7x, than gof(x) = ____
(a) 7x.x+2.7x
(b) 7x+2
(c) 49(7x)
(d) none of these
dy
38. Given x = 2t + 5; y = t2-2, then is calculated as:
dx
(a) t
(b) 1/t
(c) -1/t
(d) none of these
6
39.  e (x )
+ 2x dx
x 2
(a) x2.ex+c
(b) x.ex+c
(c) -x.ex+c
(d) e-x+c
dy
40. if xy =1 then y 2 + =?
dx
(a) 1
(b) 0
(c) 2
(d) none of these
41. The missing term of the series 11, 10 __27, 66.5, 198.5
(a) 14
(b) 16
(c) 21
(d) 19
42. What comes at last place in R, U, X, A, D, ?
(a) E
(b) F
(c) G
(d) H
43. If Z = 52 and ACT = 48, then BAT will be equal to
(a) 39
(b) 41
(c) 44
(d) 46
44. If ROSE is coded as 6821, CHAIR is coded as 73456 and PREACH is coded as 961473, what will be the
code for SEARCH?
(a) 246173
(b) 214673
(c) 214763
(d) 216473
45. If E = 5 and READ is coded as 7, then what is the code of 'DEAR' ?
(a) 6
(b) 7
(c) 8
(d) 9
7
46. M is to the East of D, F is to the South of D and K is to the West of F. M is in which direction with respect to
K?
(a) South-West
(b) North-West
(c) North-East
(d) South-East
47. A cyclist goes 30 km to North and then turning to goes 40 km. Again he turns to his right and goes 20 km.
After this he turns to his right and goes 40 km. How far is the from his starting point?
(a) 0 km.
(b) 10 km.
(c) 25 km.
(d) 40 km.
48. A boy from his home, first walks 20 m in North-West direction then 20 m in South - West direction. Next, he
walks 20m South - East direction. Finally, he turns towards his house. In which direction is he moving?
(a) North - West
(b) North-East
(c) South – West
(d) South – East
49. Raju leaves his house and walks 12 km towards North. He turns right and walks another 12 km. He turns
right, walks 12 km more and turns left to walk 5 km. How far is he from his home and in which direction?
(a) 7 km east
(b) 10 km east
(c) 17 km east
(d) 24 km eas
50. A child goes 50 meter towards South and then turning to his right, he goes 50 meter. Then, turning to
his left, he goes 30 meter. Again he turns to his left and goes 50 meter. How far is he from his initial
position?
(a) 30 m
(b) 40 m
(c) 50 m
(d) 80 m
51. D is daughter of E . A is son of D . C is brother of A and B is sister of A . F is brother of D . How F is related
to B ?
(a) Father-in -Law
(b) Uncle
(c) Brother
(d) Mother-in-law
8
52. Introducing a boy a girl said, “He is the son of the daughter of the father of my uncle “. Who is the boy to the
girl ?
(a) Brother
(b) Nephew
(c) Uncle
(d) Son-in-law
53. It is given that “A is the mother of B; B is the sister of C; C is the father of D”. How is A related to D?
(a) Mother
(b) Grandmother
(c) Aunt
(d) Sister
54. Rita told Mani, "The girl I met yesterday at the beach was the youngest daughter of the brother -in-law
of my friend's mother." How is the girl related to Rita's friend ?
(a) Cousin
(b) Daughter
(c) Niece
(d) Aunt
55. Sanjay has three daughters, and each daughter has a brother. How many male members are there in the
family?
(a) 4
(b) 2
(c) 3
(d) 1
Directions (Q 56-57): Study the following information carefully and answer the questions given below.
I. P, Q, R, S, T, U and V are sitting on a wall and all of them are facing West.
II. S is on the immediate left of R.
III. T is at an extreme end and has Q as his neighbor.
IV. V is between Q and U.
V. S is sitting third from the north end.
56. Who is sitting to the left of S ?
(a) Q
(b) U
(c) T
(d) R
57. Which of the following pairs of people are sitting at the extreme ends ?
(a) QV
(b) PR
(c) TP
9
(d) ST
58. Five girls are sitting on a bench to be photographed. Seema is to the left of Rani and to the right of Bindu.
Mary is to the right of Rani. Reeta is between Rani and Mary. Who is sitting immediate right to Reeta ?
(a) Bindu
(b) Rani
(c) Mary
(d) Seema
(Directions 59-60) . Four ladies A, B, C and D and four gentlemen E, F, G and H are sitting in circle around
a table facing each other
(i) No two ladies or gentlemen are sitting side by side
(ii) C, who is sitting between G and E , facing D
(iii) F is between D and A and facing G
(iv) H is to the right of B
59. Who is immediate neighbor of B ?
(a) G and H
(b) E and F
(c) A and B
60. Who is sitting left of A
(a) F
(b) E
(c) C
(d) D
Part B: Statistics
61. Median of a distribution can be obtained from
(a) Frequency polygon
(b) Histogram
(c) ogives
(d) None of these.
62. Cost of sugar in a month under the heads raw Materials, labour, direct production and others were 12, 20, 35
and 23 units respectively. What is the difference between the central angles for the largest and smallest
components of the cost of sugar?
(a) 72o
(b) 48o
(c) 56o
(d) 92o
63. In a study relating to the labourers of a jute mill in West Bengal, the following information was collected.
‘Twenty per cent of the total employees were females and forty per cent of them were married. Thirty female
workers were not members of Trade Union. Compared to this, out of 600 male workers 500 were members
10
of Trade Union and fifty per cent of the male workers were married. The unmarried non-member male
employees were 60 which formed ten per cent of the total male employees. The unmarried non-members of
the employees were 80’. On the basis of this information, the ratio of married male non-members to the
married female non-members is
(a) 1: 3
(b) 3: 1
(c) 4: 1
(d) 5: 1
64. For the non-overlapping classes 0—19 , 20—39 , 40—59 the class mark of the class 0—19 is
(a) 0
(b) 19
(c) 9.5
(d) none of these
65. For open-end classification, which of the following is the best measure of central tendency?
(a) AM
(b) GM
(c) Median
(d) Mode
66. The quartiles of a variable are 45, 52 and 65 respectively. Its quartile deviation is
(a) 10
(b) 20
(c) 25
(d) 8.30
67. If x and y are related by y = 2x+ 5 and the SD and AM of x are known to be 5 and 10 respectively, then
the coefficient of variation is
(a) 25
(b) 30
(c) 40
(d) 20
68. For a moderately skewewd distribution, the median is twice the mean , then the mode is ____ times the
median.
(a) 3
(b) 2
2
(c)
3
3
(d)
2
11
69. If average marks for agroup of 30 girls is 80 , a group of boys is 70 and combined average is 76, then how
many boys are in the group ?
(a) 21
(b) 20
(c) 22
(d) 19
70. The median value of the set of observations 48, 36, 72, 87, 19, 66, 56 and 91
(a) 53
(b) 87
(c) 61
(d) 19
71. If two vriables a and b are related by c= ab then GM.of c =
(a) GM of a +GM of b
(b) GM of a×GM of b
(c) GM of a -GM of b
(d) GM of a /GM of b
72. If there are three obsewrvations 15, 20,25 then the sum of devation of the observations from their AM is.
(a) 0
(b) 5
(c) -5
(d) 10
73. The mean weight of 15 students is 110 kg. The mean weight of 5 of them is 100 kg. and of another five
students is 125 kg. then the mean weight of the remaining students is :
(a) 120
(b) 105
(c) 115
(d) None of these
74. If the Arithmetic mean between two numbers is 64 and the Geometric mean between them is 16. The
Harmonic Mean between them is ________.
(a) 64
(b) 4
(c) 16
(d) 40
75. The regression coefficients remain unchanged due to
(a) Shift to origin
(b) Shift to scale
(c) Always
(d) Never
12
76. If the plotted points in a scatter diagram lie from upper left to lower right, then the correlation is
(a) Positive
(b) Zero
(c) Negative
(d) none of these.
77. The covariance between two variables is
(a) Strictly positive
(b) Strictly negative
(c) Always 0
(d) Either positive or negative or zero.
78. If the coefficient of correlation between two variables is –0 9, then the coefficient of determination is
(a) 0.9
(b) 0.81
(c) 0.1
(d) 0.19.
79. For a probability of a random variable x is given below :
X: 1 2 4 5 6
P: 0.15 0.25 0.2 0.3 0.1
What is the Standrard deviation of x ?

(a) 1.49
(b) 1.56
(c) 1.69
(d) 1.72
80. Given that for two events A and B, P (A) = 3/5, P (B) = 2/3 and P (A) = 3/4, what is P (A/B)?
(a) 0.655
(b) 13/60
(c) 31/60
(d) 0.775
81. If 2x + 3y + 4 = 0 and V(x) = 6 then V(y) is
(a) 8/3
(b) 9
(c) 9
(d) 6
82. X and Y stand in a line with 6 other people. What is the probability that there are 3 persons between them?
(a) 1/5
(b) 1/6
(c) 1/7
13
(d) 1/3
83. Four unbiased coins are tossed simultaneously. The expected number of heads is :
X: 0 1 2 3 4
P(x) 1/16 4/16 6/16 4/16 1/16
(a) 1
(b) 2
(c) 3
(d) 4
84. Assume that the proabailityfor rain on a day is 0.4 . An umbrella salesman can earn ` 400 per day in case of
rain on that day will lose ` 100 per day if there is no rain . The expected eranings (in `) per day of the
salesman is
(a) 400
(b) 200
(c) 100
(d) 0
85. The covraince between two variables X and Y is 8.4 and their variances are 25 and 36 respectively .Calculate
karl Pearson’s coefficient of correlation between them.
(a) 0.82
(b) 0.28
(c) 0.01
(d) 0.09
86. What is the probability of getting 3 heads if 6 unbaised coins are tossed simultaneously ?
(a) 0.3125
(b) 0.25
(c) 0.6825
(d) 0.50
87. The mode of the binomial distribution for which the mean is 4 varaince 3 is equal to ?
(a) 4
(b) 4.5
(c) 4.25
(d) 4.1
88. For Poisson Distribution :
(a) Mean and Standard Deviation are equal
(b) Mean and Vraince are equal
(c) Standard Devaiation and Variance are equal
(d) Both (a) and (b) are equal
89. If avaraiate x has , mean>variance , then the distribution will be ____
(a) Binomial Distribution
14
(b) Poisson Distribution
(c) Normal Distribution
(d) T-Distribution
90. An example of a bi-parametric continuous probability distribution
(a) Binomial
(b) Poisson
(c) Normal
(d) Chi-square
91. For a poisson variate X, P(x=2) =3 P(x=4) , then the standard deviation of X is
(a) 2
(b) 4
(c) √2
(d) 3
92. What is the mean of X having the following density function ?
−
( x −10 )2
1
f(x) = e 32
for -  x  
4 2
(a) 10
(b) 4
(c) 40
(d) none of these
93. The divations are minimum when taken from
(a) Mean
(b) Median
(c) Mode
(d) GM
94. Histogram is useful to determine graphically the value of
(a) Arithmetic Mean
(b) Median
(c) Mode
(d) HM
95. If x and y are related as 3x-4y= 20 then the Quartile divation of x is 12 , then the Quartile deviation of y is :
(a) 14
(b) 15
(c) 16
(d) 9
15
96. The index number for the year 2012 taking 2011 as the base year from the data given below by using simple
average of price relative method is
Commodity A B C D E
Price in 2011 115 108 95 80 90
Price in 2012 125 117 108 95 95
(a) 112
(b) 117
(c) 120
(d) 111
97. Suppose a business executive was earning ` 2,050 in the base period. What should be his salary in the
current period if his standard of living is to remain the same? Given ∑ W = 25 and ∑ IW = 3544:
(a) ` 2096
(b) ` 2906
(c) ` 2106
(d) ` 2306
98. Find the Paasche’s Index number for prices from the following
Commodity Base year Current year

Price Commodity Price Commodity
A 1 6 3 5
B 3 5 8 5
C 4 8 10 6
(a) 261.36
(b) 265.48
(c) 274.32
(d) 282
99. Index numbers are not helpful in
(a) Framining Economic Policies
(b) Revealing Trend
(c) Forecasting
(d) Identifying errors
100. The weight average of price relatives of commodities when the weight is equal to the value of
commodities in base year yields _____index number
(a) Fisher’s Ideal
(b) Laspyres
(c) Paasches
(d) Marshall-Edgeworth
16
Paper 3: Business Mathematics, Logical Reasoning and Statistics
Key Part A: Business Mathematics and Logical Reasoning
1 (c) 2 (a) 3 (c) 4 (a) 5 (c)
6 (c) 7 (b) 8 (b) 9 (a) 10 (b)
11 (c) 12 (d) 13 (a) 14 (a) 15 (d)
16 (a) 17 (b) 18 (a) 19 (c) 20 (a)
21 (a) 22 (a) 23 (a) 24 (a) 25 (d)
26 (b) 27 (c) 28 (b) 29 (b) 30 (b)
31 (b) 32 (b) 33 (a) 34 (a) 35 (a)
36 (b) 37 (c) 38 (a) 39 (a) 40 (b)
41 (a) 42 (c) 43 (d) 44 (b) 45 (b)
46 (c) 47 (b) 48 (b) 49 (c) 50 (a)
51 (b) 52 (a) 53 (b) 54 (a) 55 (b)
56 (b) 57 (c) 58 (c) 59 (a) 60 (a)
Key Part B: Statistics

61 (c) 62 (d) 63 (c) 64 (c) 65 (c)
66 (a) 67 (c) 68 (b) 69 (b) 70 (c)
71 (b) 72 (a) 73 (b) 74 (b) 75 (a)
76 (c) 77 (d) 78 (b) 79 (c) 80 (d)
81 (a) 82 (c) 83 (b) 84 (c) 85 (b)
86 (a) 87 (a) 88 (b) 89 (a) 90 (c)
91 (c) 92 (a) 93 (b) 94 (c) 95 (d)
96 (d) 97 (b) 98 (a) 99 (d) 100 (b)

MOCK TEST PAPER II
FOUNDATION COURSE
PAPER 3: BUSINESS MATHEMATICS, LOGICAL REASONING AND STATISTICS
Time: 2 Hours Marks: 100
Part A: Business Mathematics and Logical Reasoning
1. If x: y = 2:3, then (5x+2y): (3x-y) =
(a) 19: 3
(b) 16:3
(c) 7:2
(d) 7:3
2. If (25)150 =(25x)50, then the value of x will be:
(a) 53
(b) 54
(c) 52
(d) 5
a 2 + ab + b 2 b 2 + bc + c 2 c 2 + ca + a 2
 ya   yb   yc 
3. The value of  b   c   a  is equal to
y  y  y 
(a) y
(b) -1
(c) 1
(d) None of these
4. If x = log 12,y = log 24, z = log 36 then xyz + 1=
24 36 48
(a) 2xy
(b) 2xz
(c) 2yz
(d) 2
5. A person has asset worth of ` 1,48,200. He wish to divide it amongst his wife, son and daughter in the
ratio 3:2:1respectively . From this assets share of his wife son will be :
(a) ` 24,700
(b) ` 49, 400
(c) ` 74,100
(d) ` 37,050

6. X, Y, Z together starts a business, if X invests 3 times as much as Y invests and Y invests two third of
what Z invests, then the ratio of capitals of X,Y, Z is
(a) 3:9:2
(b) 6:3:2
(c) 3:6:2
(d) 6:2:3
7. If the ratio of the roots of the equation 4x 2-6x+p=0 is 1:2 then the value of p is:
(a) 1
(b) 2
(c) -2
(d) -1
8. If roots of equation x 2+x+r= 0 are α and β and ∝3+β3= -6. Find the value of ‘r’
(a) -5/3
(b) 7/3
(c) -4/3
(d) 1
9. If 2x+y = 22x+y = √8 then the respective values of x and y are ___
(a) 1, ½
(b) ½, 1
(c) ½, ½
(d) None of these
1 1
10. If a2+ b2 = 45 and ab = 18, the + is:
a b
(a) ± 1/3
(b) ±2/3
(c) ±1/2
(d) None of these
11. The common region represented by the following in qualities
L1:x1+x2< 4: L2: 2x1-x2>6

(a) OABC
(b) outside of OAB
(c) Δ BCE
(d) Δ ABE
12. An employer recruits experienced (x) and fresh workmen(y) for his under the condition that he can not
employ more than 11 people and y can be related by the inequality.
(a) x+y ≠11
(b) x+y ≤ 11, x≥0, y≥0
(c) x+y ≥ 11, x≥0, y≥0
(d) none of these
13. 6x + y≥ 18, x + 4y≥ 12, 2x + y≥ 10 On solving the inequalities; we get:
(a) (0, 18), (12, 0), (4, 2) & (7, 6)
(b) (3, 0), (0, 3), (4, 2) & (7, 6)
(c) (5, 0), (0, 10), (4, 2) & (7, 6)
(d) (0, 18), (12, 0), (4, 2), (0, 0) & (7, 6)
14. Find the effective rate of interest if an amount of 30,000 deposited in a bank. For 1 year at the rate of
10% per annum compounded semi-annually.
(a) 10.05%
(b) 10.10%
(c) 10.20%
(d) 10.25%
15. The present population of a town is 25,000. If it grows at the rate of 4%, 5%, 8% during 1 st year, 2nd
year, 3rd year respectively. Then find the population after 3 years.
(a) 29,484
(b) 29,844
(c) 29,448
(d) 28,944
16. The present value of a scooter is ` 7290. The rate of depreciation is 10%. What was its value 3 years
ago?
(a) 10000
(b) 10010
(c) 9990
(d) 12000
17. The rate of interest for the first 2 year is 3% per annum, for next 3 years is 8% per annum and for the
period beyond 5 years, 10% per annum. If a man gets ` 1520 as a simple interest for 6 years; how much
money did he deposit?
(a) ` 3800

(b) ` 3000
(c) ` 4000
(d) None of these
18. Suppose your parent decides to open a PPF account in a bank towards your name with ` 10,000 every
year staring from today for next 15 years. When you receive and get 8.5% per annum interest rate
compounded annually. What is the present value of this annuity?
(a) 83,042
(b) 80,900
(c) 90,100
(d) None of these
19. In what rate % per annum will ` 1,000 amounts to ` 1331 in 3 years? The interest is compounded yearly
is:
(a) 10%
(b) 12%
(c) 11%
(d) None of these
20. The difference between simple interest and compound interest on a certain for 2 years at 10% p.a . is
` 10. Find the Sum
(a) ` 1010
(b) ` 1095
(c) ` 1000
(d) ` 990
21. The future value of an annuity of ` 5,000 is made annually for 8 years at interest rate of 9% compounded
annually [ Given that (1.09) =1.99256] is
(a) ` 55,142.22
(b) ` 65,142.22
(c) ` 65,532.22
(d) ` 57,425.22
22. In how many years will a sum of money becomes four times at 12% p.a. simple interest?
(a) 18 years
(b) 21 years
(c) 25 years
(d) 28 years
23. The effective rate of interest does not depend upon
(a) Amount of Principal
(b) Amount of Interest
(c) Number of Conversion periods
4

(d) None of these
24. Find the effective rate of interest at 10% p.a. When interest is payable quarterly.
(a) 10.38%
(b) 5%
(c) 5.04%
(d) 4%
25. In simple interest if the principle is ` 2,000 and the rate and time are roots of the equation
x2-11x+30 = 0
(a) ` 500
(b) ` 600
(c) ` 700
(d) ` 800
26. Determine the present value of perpetuity of ` 50,000 per month at the rate interest 12% per annum is
(a) ` 45,00,000
(b) ` 50,00,000
(c) ` 55,00,000
(d) ` 60,00,000
27. Find the number of even numbers greater than 100 that can be formed with the digits 0,1,2,3?
(a) 10
(b) 15
(c) 20
(d) None of these
28. In how many ways can the letters of the word “ALEGEBRA” be arranged without changing the relative
order of the vowels?
(a) 82
(b) 70
(c) 72
(d) None of these
29. In how many ways can the letters of the word “DIRECTOR” be arranged so that the three vowels are
never together?
(a) 180
(b) 18,000
(c) 18,002
(d) None of these
30. The first and fifth term of an A.P. of 40 terms are -29 and -15 respectively. Find the sum of all positive
terms of this A.P.
(a) 1605

(b) 1705
(c) 1805
(d) None of these
31. If the common difference of an AP equals to the first term, then the ratio of its m th term and n th term is:
(a) n:m
(b) m: n
(c) m2:n2
(d) None of these
32. Find the value of 1 + 2 + 3 + ----------------------- + 105
(a) 5000
(b) 5560
(c) 5565
(d) None of these
33. In a G. P sixth term is 729 and the common ratio is 3, then the first term of G.P is
(a) 2
(b) 3
(c) 4
(d) 7
34. The number ways in which 4 persons can occupy 9 vacant seats is
(a) 6048
(b) 3024
(c) 1512
(d) 4536
35. If A = {1, 2,3}, B = {3,4} and C = {4, 5,6} ,then A×(B∩C) =
(a) {(1,4), (2,4), (3,4)}
(b) {(4,4), (4,3), (4,1)}
(c) {(3, 4), (2, 4)}
(d) {(1, 2), (1, 4), (1, 6), (3, 4)}
36. Let R be a relation on N defined by x +2y = 8. The domain of R is:
(a) {2, 4, 8}
(b) {2, 4, 6, 8}
(c) {2, 4, 6}
(d) {1, 2, 3, 4}
x 2 + 3x + 5
37. The domain of the function f(x) = is:
x 2 - 5x + 4
(a) R
6

(b) R –{1, 4}
(c) R – {1}
(d) (1, 4)
dy
38. If y =xx, then is :
dx
(a) xx (2 + log x)
(b) xxlog(ex)
e
(c) xx.log  
 x
(d) None of these
1 dy
39. If y = x+ then 2x is
x dx
1
(a) x−
x
1
(b) x+
x
1
(c) x−
x
(d) None of these
40. Evaluate  2 x dx
x 2
2 x.x 2 x.2 x +1 2 x +1
(a) − + +c
( log 2 ) ( log 2 )
2 2
2
2 x.x3 x 2 .2 x +1 2 x +1
(b) − + +c
( log 2 ) ( log 3)
2 2
3
2 x.x 2 x3 .2 x 2 x +1
(c) − + +c
( log 2 )
3
3 3
(d) None of these

41. Find missing term of the series 2, 3,3,5, 10, 13, ? , 43, 172, 177
(a) 23
(b) 38
(c) 39
(d) 40
42. Find wring number of the series 1,5,5,9,7,11,11,15,12,17
(a) 11

(b) 12
(c) 17
(d) 15
43. Find missing term of the letter series A, CD, GHI, UVWXY
(a) LMNO
(b) MNO
(c) MNOP
(d) NOPQ
44. In a certain code TELEPHONE is written as ENOHPELET. How is ALIGATOR written in that code?
(a) ROTAGILA
(b) ROTAGAIL
(c) ROTAGILE
(d) ROTEGILA
45. In a certain Code, ‘CLOUD’ is written as ‘GTRKF’. How is ‘SIGHT’ written in that code?
(a) UGHHT
(b) UHJFW
(c) WFJGV
(d) WGJHV
46. Raju starts walking straight towards East. After walking 75 metres, he turns to the left and walks 25
metres straight. Again, he turns to the left, walks a distance of 40 metres straight, again he turns to the
left and walks a distance of 25 metres. How far is he from the starting point?
(a) 25 meters
(b) 50 meters
(c) 115 meters
(d) 35 meters
47. Ravi started from the house towards West. After walking a distance of 30 metres, he turned towards
right and walked 20 metres. He then turned left and moving a distance of 10 metres, turned to his left
again and walked 40 metres. He now turned to the left and walked 5 metres. Finally, he turned to his
left. In which direction was he walking now?
(a) North
(b) South
(c) East
(d) South-West
48. I am facing South. I turn right and walk 20 meters. Then I turn right again and walk 10 meters. Then I
turn left and walk 10 meters and then turning right walk 20 meters. Then I turn right again and walk 60
meters. Which direction am I facing now?
(a) North
(b) North-West

(c) East
(d) North-East
49. Going 50 m to the south of her house Radhika turns left and goes another 20 m. Then turning to the
North, she goes 30 m and then starts walking to her house. In which direction is she walking now?
(a) North-West
(b) North
(c) South-East
(d) East
50. A man is facing west. He turns 450 in the clockwise direction and then another 1800 in the same direction
and then 2700 in the anticlockwise direction. Which direction is he facing now?
(a) South
(b) North-West
(c) West
(d) South-West
51. E is the son of A. D is the son of B. E is married to C. C is B's daughter. How is D related to E ?
(a) Brother
(b) Uncle
(c) Brother-in-law
(d) Husband
52. Pointing towards a girl in the photograph, Pooja said. “She is the mother of Janaki whose father is my
son.” How is Pooja related to the girl in the photograph?
(a) Mother
(b) Cousin
(c) Aunt
(d) Mother-in-Law
53. Following questions are based on the information given below.
(i) ′P×Q′ means 'P is the father of Q'.
(ii) ′P−Q′ means 'P is the sister of Q'.
(iii) ′P+Q′ means 'P is the mother of Q'.
(iv) ′P÷Q′ means 'P is the brother of Q'.
In the expression B+D×M÷N, how M is related to B
(a) Granddaughter
(b) Son
(c) Grandson
(d) Granddaughter or Grandson

54. There are six children playing football namely A, B, C, D, E and F. A and E are brothers. F is the sister
of E. C is the only son of A's uncle. B and D are the daughters of the brother of C's father. How is C
related to F ?
(a) Cousin
(b) Brother
(c) Son
(d) Uncle
55. Mr. Vimlesh said, “This girl is the wife of the grandson of my mother.” How is the Mr. Vimlesh related to
the girl?
(a) Father
(b) Grand Father
(c) Husband
(d) Father–in–Law
56. Six students are sitting in row in an examination hall. K is sitting between V and R. V is sitting next to
M. M is sitting next to B. B is sitting extreme left and Q is sitting next to R . Who is sitting adjacent to V?
(a) M and R
(b) M and K
(c) K and R
(d) M and Q
(57-58) Read the following information carefully and answer the questions and answer the questions that follow.
There are 3 females A, B and E and 4 males C, D, F, and G standing in a straight line. No two females are
together. B is to right of C, F and D are not together as A is placed between them. G is not near B or E but E
and F are together. D is not to the right of B.
57. Who are in the extreme ends?
(a) G and B
(b) C and F
(c) B and D
(d) None of these
58. Who is exactly in the middle?
(a) A
(b) F
(c) E
(d) None of these
Study the following information carefully and answer the given Questions
Seven persons A, B, C, D, E, F and G are sitting in a straight line (not necessarily in the same order)
facing North.
I. Only two persons sit between F and G and G sits second to the left of B.
II. D sits third to the left of C
III. E sits exactly between G and B and B sits at the extreme right end of the row.
10

59. Who amongst the following sits at the extreme left of the line?
(a) F
(b) D
(c) C
(d) E
60. Who amongst the following sits exactly middle of the line?
(a) A
(b) C
(c) E
(d) G
Part B: Statistics
61. Histogram is used for finding:
(a) Mode
(b) Mean
(c) First Quartile
(d) None
62. Data are said to be _____________ if the investigator himself is responsible for the collection of data.
(a) Primary Data
(b) Secondary Data
(c) Mixed of Primary and Secondary Data
(d) None of these
63. The frequency of the Class 20-30 in the following data is;
Class 0-10 10-20 20-30 30-40 40-50
Cumulative Frequency 5 13 28 34 38
(a) 5
(b) 28
(c) 15
(d) 13
64. There were 200 employees in an office in which 150 were married. Total male employees were 160 out
of which 120 were married. What was the female unmarried employees?
(a) 30
(b) 10
(c) 40
(d) 50
65. The quartile deviation from the following observations is 10,18,20,28,15,17,22,25,29,32,34 is equal to:
(a) 8
11

(b) 6
(c) 10
(d) 5
66. SD of first five consecutive natural numbers is:
(a) 10
(b) 8
(c) 3
(d) 2
67. If the profit of a company remains same for the last 10 months then the SD of profit of the company
would be:
(a) Positive
(b) Negative
(c) Zero
(d) either (a) or (c)
68. A batsman in his 20 th innings makes a score of 120 and thereby increases his average by 5. What is h is
average after 20 th innings?
(a) 60
(b) 55
(c) 65
(d) 70
69. The sum of squares of the deviations of the given values from their ………………………. is minimum.
(a) Arithmetic Mean
(b) Median
(c) Mode
(d) None of these
70. When mean is 3.57 and mode is 2.13 then the value of median is
(a) 3.09
(b) 5.01
(c) 4.01
(d) None of these
71. The mean of first three terms is 14 and mean of next two terms is 18. The mean of all five terms is
(a) 14.5
(b) 15
(c) 14
12

(d) 15.6
72. The Standard deviation of a variable x is to be 10. The Standard deviation of 50+5x is
(a) 50
(b) 100
(c) 10
(d) 500
73. The Quartile deviation is
(a) 2/3 of SD
(b) 4/5 of SD
(c) 5/6 of SD
(d) None of these
74. The first Quartile is 142 and Semi-Inter Quartile Range is 18 , then the value of Median is:
(a) 151
(b) 160
(c) 178
(d) None of these
75. Geometric Mean of 8,4, 2 is
(a) 4
(b) 2
(c) 8
(d) none of these
76. If P(A) =
1
2
1 1
(
; P(B) = and P ( A  B ) = then the value of P AUB is:
3 4
)
1
(a)
4
3
(b)
4
2
(c)
5
(d) None of these
77. From the following probability distribution table, find E(x).
x: 1 2 3
f(x): 1 1 1
2 3 6
(a) 1
(b) 1.50
(c) 1.67
13

(d) None of these
78. A husband and a wife appear in an interview for two vacancies in the same post. The probability of
husband’s selection is 3/5 and that of wife’s selection is 1/5. Then the probability that only one of them
is selected is:
(a) 16/25
(b) 17/25
(c) 14/25
(d) None of these
79. A bag contains 5Red and 4 Black balls. A ball is drawn at random from the bag and put into another bag
contains 3 red and 7 black balls. A ball is drawn randomly from the second bag. Wha t is the probability
that it is red?
(a) 32/99
(b) 1/3
(c) 74/99
(d) None of these
80. If x be a poison variates with parameter 1; then find P(3<X<5). (Given e-1= 0.36783)
(a) 0.015326
(b) 0.15326
(c) 0.012326
(d) None of these
1
81. The probability that a student is not a swimmer is , then the probability that out of five students four
5
are swimmers is:
4
 4 1
(a)    
 5 5
4
1  4
(b) 5C
1   
5  5
4
 4 1
(c) 5C
4   
 5 5
(d) None of these
82. In a Binomial distribution n = 9 and P = 1/3. What is the value of Variance.
(a) 8
(b) 4
(c) 2
(d) 16
83. The variance of standard normal distribution is
(a) 1
(b) 0
14

(c) σ2
(d) 0
84. In a Poisson Distribution P(x=0) =P(x=2). Find E(x)
(a) √2
(b) 2
(c) -1
(d) 0
85. Name of the distribution which has Mean= Variance
(a) Binomial
(b) Poisson
(c) Normal
(d) (a) and (b)
86. If the difference between mean and mode is 33, then the difference between Mean and Median will be
_____
(a) 63
(b) 31.5
(c) 11
(d) None of the above
87. Relative frequency for a particular class lies between:
(a) 0 and 1
(b) 0 and 1, both inclusive
(c) -1 and 0
(d) -1 and 1
88. Less than type and more than type Ogives meet at a point known as:
(a) Mean
(b) Median
(c) Mode
(d) None
89. If mean and coefficient of variation of the marks of n students is 20 and 80 respectively. What will be
variance of them
(a) 256
(b) 16
(c) 25
(d) None of these
90. A non-leap year, the probability of getting 53 Sundays or 53 Tuesdays or 53 Thursdays is
(a) 4/7
(b) 2/7
(c) 3/7
15

(d) 1/7
91. In a bivariate distribution if the rank correlation coefficient r = 0.12; ΣD 2 =146; Then the no. of observed
pairs (N) is
(a) 9
(b) 8
(c) 7
(d) 10.
92. For 10 pairs of observations, number of concurrent deviations was found to be 4. What is the value of
the coefficient of concurrent deviation?
(a) 0.2
(b) 1/3
(c) -1/3
(d) - 0.2
93. Consider the two regression lines 3x + 2y = 26 & 6x + y = 31, Find the mean values of x and y.
(a) x = 4 and y = 7
(b) x = 7 and y = 4
(c) x = 5 and y = 6
(d) None of these
94. For a m×n two way or bivariate frequency table, the maximum number of marginal distributions is
coefficient
(a) 1
(b) 2
(c) m+n
(d) mn
95. If the regression line of Y on X is given by Y = X + 2 and Karl Pearson’s coefficient of correlation is 0.5
 y2
then = _______.
 x2
(a) 3
(b) 2
(c) 4
(d) None of these
96. The number of tests of Adequacy is
(a) 2
(b) 3
(c) 4
(d) 5
16

97. Fishers Ideal formula for calculating Index number satisfies the
(a) Unit Test
(b) Factor Reversal Test
(c) Time reversal Test
(d) both (b) and (d)
98. Purchasing power of money is
(a) Reciprocal of Price index number
(b) Equal to Price Index number
(c) Unequal to Price Index number
(d) None of these
99. The simple index number for the current year using simple aggressive me thod for the following data
Commodity base Base year Price (P 0) Current Year Price (P 1)
Wheat 80 100
Rice 100 150
Gram 120 250
Pulses 200 300
(a) 200
(b) 150
(c) 240
(d) 160
100. The cost-of-living index number in year 2015 and 2018 were 97.5 and 115 respectively. The salary of
CA Jitendra in 2015 was 195000. How much additional salary was required for him in 2018 to maintain
the same standard of living as in 2015?
(a) 30,000
(b) 40,000
(c) 35,000
(d) 45,000
17

Paper 3: Business Mathematics, Logical Reasoning and Statistics
Key Part A: Business Mathematics and Logical Reasoning
1 (b) 2 (b) 3 (c) 4 (c) 5 (b)

6 (b) 7 (a) 8 (a) 9 (a) 10 (c)
11 (d) 12 (b) 13 (a) 14 (d) 15 (a)
16 (a) 17 (a) 18 (c) 19 (a) 20 (c)
21 (a) 22 (c) 23 (a) 24 (a) 25 (b)
26 (b) 27 (c) 28 (c) 29 (b) 30 (b)
31 (b) 32 (c) 33 (b) 34 (b) 35 (a)
36 (c) 37 (b) 38 (b) 39 (b) 40 (a)
41 (c) 42 (b) 43 (c) 44 (a) 45 (d)
46 (d) 47 (a) 48 (d) 49 (a) 50 (d)
51 (c) 52 (d) 53 (c) 54 (a) 55 (b)
56 (b) 57 (a) 58 (b) 59 (b) 60 (b)
Key Part B: Statistics
61 (a) 62 (a) 63 (c) 64 (b) 65 (b)

66 (d) 67 (c) 68 (c) 69 (a) 70 (a)
71 (d) 72 (a) 73 (a) 74 (b) 75 (a)
76 (b) 77 (c) 78 (c) 79 (a) 80 (a)
81 (c) 82 (c) 83 (a) 84 (a) 85 (b)
86 (c) 87 (a) 88 (b) 89 (a) 90 (a)
91 (d) 92 (c) 93 (a) 94 (b) 95 (c)
96 (c) 97 (d) 98 (a) 99 (d) 100 (c)

MOCK TEST PAPER 1
FOUNDATION COURSE
PAPER 4: BUSINESS ECONOMICS AND BUSINESS AND COMMERCIAL KNOWLEDGE
PART- I: BUSINESS ECONOMICS
QUESTIONS
1. Which of the following are the characteristics of Business Economics:
(a) It is a normative Science
(b) It is inter disciplinary
(c) Pragmatic in Nature
(d) All of the above
2. Which branch of economic theory deals with allocation of resources:
(a) Macro economic
(b) Micro economic
(c) Economic Growth
(d) None of these
3. Under which system Freedom of choice is an advantage:-
(a) Capitalism
(b) Mixed economy
(c) Socialism
(d) None of these
4. Taxation involves which aspects of normative economics:
(a) Incidence
(b) Fairness
(c) Incentive to work
5. Suppose we are drawing a supply curve of a farmer which of the following will be held constant. :
(a) Price of Inputs
(b) Weather Conditions
(c) Technology
(d) The price of the Commodity under consideration
6. A fall in the price of a commodity where everything else is held constant is referred to as:
(a) An increase in quantity demand
(b) A decrease in demand
(c) An increase in demand
(d) None of these

7. For Giffen good the Engel curve is:
(a) Positive sloped
(b) Vertical
(c) horizontal
(d) Negative sloped
8. A theory is :
(a) An assumption
(b) A hypothesis
(c) A validated hypothesis
(d) None of these
9. The Coefficient of Price elasticity of demand between two points on a demand curve is _____
(a) Arc elasticity
(b) Point elasticity
(c) Price elasticity
(d) None of these
10. When the demand curve is a rectangular hyperbola an increase in the price of the commodity causes
the total expenditure of consumers of the commodity to:
(a) Remain unchanged
(b) Increase
(c) Decrease
(d) Any of the above
11. A movement along a curve rather than a shift in the curve can be measured by:-
(a) Cross elasticity of demand
(b) Income elasticity of demand
(c) Price elasticity of demand & Price elasticity of Supply
(d) None of these
12. The most important function of an entrepreneur is to _________
(a) Bear the sense of responsibility
(b) Finance
(c) Innovate
(d) None of these
13. How do the TVC curve behaves when the law of diminishing return begins to operate-
(a) Rise at a decreasing rate
(b) Fall at an increasing rate
(c) Fall at a decreasing rate
(d) Rise at an increasing rate
14. In the Short run level of output the firm at the optimum will be:
(a) Minimizing total losses

(b) Maximizing total profit
(c) Either maximizing total profit or minimizing total losses
(d) None of these
15. If both factor prices and quantity moves in the same direction then it is called _______
(a) Decreasing Cost Industry
(b) Increasing Cost Industry
(c) Constant Cost Industry
(d) None of these
16. If the monopolist incur losses in the short run then in the long run:
(a) It will stay in the business
(b) Go out of business
(c) Will break even
(d) Any of the above is possible
17. A cartel which is market sharing will reach the monopoly situation :
(a) Always when the product is homogenous
(b) Always when the product is differentiated
(c) Sometime
(d) None of these
18. The Substitution effect will be stronger when-
(a) The goods are closer substitutes
(b) There is lower cost of switching to the substitute good
(c) There is lower inconvenience while switching to the substitute good.
(d) All of these
19. Increasing return to scale applies to:
(a) Long run
(b) Short run
(c) Either (a) or (b)
(d) None of these
20. Isoquant are also called:
(a) Equal product curves
(b) Production Indifference curves
(c) ISO product curves
21. Who describes production function as the relationship between the maximum amount of output can b e
produced and the input required to make that output :
(a) Samuelson
(b) Malthas
(c) Hicks

(d) None of these
22. The concept of marginal cost is closely related with-
(a) Variable Cost
(b) Fixed Cost
(c) Opportunity Cost
(d) Economic Cost
23. When the average product of labour is maximized the marginal product of labour:
(a) Equal zero
(b) is maximized
(c) Equal APL
(d) None of these
24. ‘Time’ element in market was conceived by :
(a) Alfred Marshall
(b) Pigou
(c) Allen
(d) None of these
25. Cross elasticity of demand for the monopolist’s product or any other product is _______
(a) Zero
(b) Very small
(c) High
(d) Either (a) or (b)
26. In a monopolistically competitive market:
(a) Firm face a perfectly elastic demand for its product
(b) Does not face a perfectly elastic demand for its product
(c) Cannot be determined
(d) None of these
27. Price discrimination to be profitable elasticity of demand in different sub market will be _____
(a) Different
(b) Uniform
(c) Zero
(d) None of these
28. Supply Schedule in a purely competitive firm in the short run is determined by :
(a) Marginal revenue
(b) Average revenue
(c) Marginal cost curve
(d) None of these
29. The Turning point of business cycle is predicted by :
(a) Lagging Indictor
4

(b) Leading Indicator
(c) Coincident
30. Fluctuation in Economic activities are due to :
(a) Change in money supply
(b) Profitability
(c) Fluctuation in aggregate demand
(d) None of these
31. Between two perfect substitute the elasticity of Substitution is ______
(a) < Zero
(b) >Zero
(c) < Infinity
(d) Infinity
32. Variable that change after real output change are:
(a) Leading Indicator
(b) Lagging Indicator
(c) Concurrent Indicator
(d) None of these
33. Modern business activities are based on the anticipations of business community and are affected by
waves of optimism or pessimism is opined by___
(a) Pigou
(b) Keynes
(c) Hawtrey
(d) None of these
34. Businesses whose fortunes are closely linked to the rate of economic growth is referred to as :
(a) Cyclical
(b) Counter Cyclical
(c) Fiscal Policy
(d) None of these
35. The Concept of Price rigidity in market is explained in which form of market:
(a) Monopolistic Market
(b) Perfect Competition
(c) Oligopoly
(d) Monopoly
36. Globalization indicate rapid ___ between Countries :
(a) Competition
(b) Investment
(c) Integration

(d) None of these
37. “Supply creates its own demand” statement is given by ______
(a) Marshall
(b) J B Say
(c) Ricardo
(d) Kuznets
38. According to Hicks and Allen the demand curve slope downwards due to _____
(a) Law of diminishing marginal utility
(b) Income effect and substitution effect
(c) Either (a) or (b)
(d) None of these
39. A rise in price of a good:
(a) Reduce Consumer Surplus
(b) Increase in Consumer Surplus
(c) It will not change
(d) None of these
40. When two goods are perfect substitute for each other:
(a) Indifference curve for these two goods are straight parallel line with a constant slope along the
curve
(b) Indifference curve has a constant MRS
(c) Concave to the Origin
(d) Both (a) and (b)
41. Behavior of Supply depends upon:
(a) Phenomenon Considered
(b) Degree of possible adjustment in supply
(c) Time Period under Consideration
(d) All the above
42. What are the main assumption of Production Function:
(a) Relationship between inputs and output exists for a specific period of time
(b) There is a given state of the art in production Technology.
(c) Input consideration Included in a particular function output resulting from their utilization is at the
maximum level.
(d) All the above
43. A rational producer will always produce in which stage of law of variable proportion:
(a) Stage I
(b) Stage II
(c) Stage III
(d) None of these

44. The rising part of the long run average cost curve is due to:
(a) Increasing return
(b) Diseconomies of scale
(c) Increase in productivity due to Specialization
(d) None of these
45. The vertical difference between TVC and TC is _____
(a) Total Fixed Cost
(b) Marginal Cost
(c) Average Variable Cost
(d) None of these
46. The price elasticity for demand for monopolist’s product is :
(a) <1
(b) >1
(c) =0
(d) None of these
47. What are the determinant of Price elasticity of demand:
(a) Time Period
(b) Tied Demand
(c) Price range
(d) All the above
48. Contraction of demand is the result of _______
(a) Increase in the price of other goods
(b) Increase in the price of the good.
(c) Decrease in the income of purchases
(d) None of these
49. Full Capacity is utilized in the which market condition______
(a) Perfect Competition
(b) Monopoly
(c) Oligopoly
(d) None of these
50. If increasing railway fare increases revenue and decreasing then decrease revenue then the demand
for railway travel has a price elasticity of _____
(a) Greater than 1
(b) 1
(c) Greater than 0 but less than 1
(d) None of these

51. Which of the following statements is correct?
(a) In a two-good economy, the production possibilities frontier reflects the maximum amount of one
good that can be produced when a given amount of the other good is produced.
(b) Microeconomics is the study of the behavior of the economy as a whole.
(c) Positive economics focuses on welfare of the people of a society
52. Which of the following is not part of the opportunity cost of going on holiday?
(a) The money you spent on a theatre show
(b) The money you could have made if you had stayed at home and worked
(c) The money you spent on airline tickets
(d) The money you spent on food
53. Net domestic expenditure is consumption expenditure plus ______
(a) Net foreign investment
(b) Net foreign investment plus net domestic investment
(c) Net domestic investment
(d) Replacement expenditure
54. ‘No matter what the price of coffee is, Ram always spend a total of exactly 100 per week on coffee.’
The statement implies that;
(a) Ram is very fond coffee and therefore he has an inelastic demand for coffee
(b) Ram has elastic demand for coffee
(c) Ram’s demand for coffee is relatively less elastic
(d) Ram’s demand for coffee is unit elastic
55. After reaching the saturation point, consumption of additional units of the commodity cause:
(a) Total utility to fall and marginal utility to increase
(b) Total utility and marginal utility both to increase
(c) Total utility to full and marginal utility to become negative
(d) Total utility to become negative and marginal utility to fall
56. The law of variable proportions come into being when _______
(a) There are only two variable factors
(b) There is a fixed factor and a variable factor
(c) All factors are variable
(d) Variable factors yield less.
57. Demand for electricity is elastic because ______
(a) It is very expensive
(b) It has a number of close substitutes
(c) It has alternative uses

58. Elasticity of supply to the degree of responsiveness of supply of a good to changes in its;
(a) Demand
(b) Price
(c) Cost of production
(d) State of technology
59. Which of the following statements is false in respect of fixed cost of a firm?
(a) As the fixed inputs for a firm cannot to changed in the short run, the TFC are constant, except
when the prices of the fixed inputs change.
(b) TFC continue to exist even when production is stopped in the short run, but they exist in the long
run even when production is not stopped.
(c) Total Fixed Costs (TFC) can be defined as the total sum of the cost of all the fixed inputs
associated with production in the short run.
(d) In the short run, a firm’s fixed cost cannot be escaped even when production is stopped.
60. For a price taking firm:
(a) Marginal revenue is less than price
(b) Marginal revenue is equal to price
(c) Marginal revenue is great than price.
(d) The relationship between marginal revenue and price is indeterminate.

PAPER – 4 PART II: BUSINESS AND COMMERCIAL KNOWLEDGE
QUESTIONS Max. Marks: 40
61. Which among the following is an attribute of economic activity?
(a) They are driven by Altruism
(b) They are driven by Rationality
(c) They are driven by Sentimental Value Creation
(d) They are driven by Emotional Reasons
62. X-Mart stocks goods from various sellers in its huge store and charges money to advertise/sell specific
products. What can X-Mart be termed as?
(a) Market Share
(b) Aids to Trade
(c) Suppliers
(d) Intermediary
63. Which limited company has businesses in Hotels, FMCG and Information Technology?
(a) Wipro Ltd.
(b) ITC Ltd.
(c) Bajaj Ltd.
(d) Infosys Ltd.
64. For a business, Inflation as an indicator of policy shall be most detrimental if?
(a) It is Extremely Low
(b) It is Extremely high
(c) It is Moderate
(d) It is Rising
65. MRTP Act,1969 was replaced by?
(a) Companies Act, 2013
(b) SEBI Act, 1992
(c) Competition Act, 2002
(d) IRDA Act, 1999
66. Responsiveness in demand with changes its price is called?
(a) Price Skimming
(b) Price Sensitivity
(c) Price Elasticity of Demand
(d) Price Discrimination
67. Perpetual succession benefit is enjoyed by?
(a) HUF
(b) Company
(c) LLP
(d) Both Company and LLP
10

68. Environment scanning only helps to get a sense of market landscape. Basis this statement select the
correct option.
(a) False, as it helps in overall strategic decisions
(b) True, as it only identifies opportunities and threats
(c) False, as it is only for internal analysis of an organisation
(d) True, as it identifies competitors
69. Identify the Swiss transnational food and drink company?
(a) Larsen & Toubro
(b) Walmart
(c) Nestle
(d) Unilever
70. RBI, SEBI, IRDAI are part of which type of government policy?
(a) Restrictive Policy
(b) Regulatory Policy
(c) Protective Policy
(d) Facilitative Policy
71. NABARD ’s refinancing is available to all the below except which of the following?
(a) State cooperative banks
(b) Regional rural banks
(c) Commercial banks
(d) Private sector banks
72. The Profit and Loss account of Ganpati Agarbattis showed that the revenue was exactly equal to the
expenditures during the year. This position is termed as?
(a) Equilibrium
(b) Breakeven Point
(c) Double Entry Accounting Balance
(d) Elastic Losses
73. Maximum number of members in a Private limited company are:
(a) 50
(b) 200
(c) 20
(d) 500
74. Environmental analysis helps in:
(a) Providing input for strategic decision making
(b) Turning threats to firm’s advantage
(c) Anticipate opportunities and to take optimal responses
11

75. Which one of the following is not a foreign company?
(a) Dr. Reddy’s Laboratories Ltd.
(b) Walmart
(c) Nestle
(d) HP
76. Privatization may not be of conceptualized in form of:
(a) Divestment
(b) Disinvestment
(c) Dedication
(d) Displacement
77. Which one of the following is not a SEBI function as one body?
(a) Quasi-legislative
(b) Quasi-judicial
(c) Quasi-fiscal
(d) Quasi-executive
78. ADR stands for:
(a) American Deficit Record
(b) American Depository Receipt
(c) Asset Depreciation Record
(d) Asset Depository Receipt
79. Which of the following is not true about a Limited Liability Partnership (LLP)?
(a) Separate Legal Entity
(b) Incorporation not mandatory like normal partnership
(c) Designated Partners
(d) Hybrid Form of Business Organisation
80. Which of the following is not part of internal environment of a business organisation?
(a) Labor Unions
(b) Corporate Culture
(c) Customers
(d) Organisational Structure
81. Ministry of Petroleum and Natural Gas owns which of the following?
(a) Indian Oil Corporation Ltd.
(b) GAIL Ltd.
(c) Bharat Petroleum
(d) Reliance Industries Ltd.
82. Foreign brands were welcomed in India and were also allowed to use their foreign brand name. Which
of the following does use of foreign brand name relate to?
(a) Globalisation
12

(b) Privatisation
(c) Liberalisation
(d) Autonomy of Economy
83. Under which section of IRDAI Act can IRDAI function and impart its duties?
(a) Section 11 of IRDAI Act, 1999
(b) Section 21 of IRDAI Act, 1999
(c) Section 19 of IRDAI Act, 1999
(d) Section 14 of IRDAI Act, 1999
84. A company is said to undergo ______ when its assets are sold off piecemeal rather than one single
operating entity?
(a) Acquisition
(b) Merger
(c) Liquidation
(d) Sale off
85. Marketing, Finance, Operations, Human Behaviour, Law and Policy, Economics, all together derive
BCK. What does it tell us about BCK’s domains?
(a) BCK is Vast
(b) BCK is Expanding
(c) BCK is Eclectic
(d) BCK is Vague
86. Gain for one is a loss for someone else - this concept can be understood by which of the characteristics
of Business Environment?
(a) It is Dynamic
(b) It has far reaching impact
(c) It is multi-faceted
(d) It is complex
87. Bank of Madura was acquired by which of these?
(a) ICICI Bank Ltd
(b) State Bank of India
(c) Life Insurance Corporation of India (LIC)
(d) HDFC Bank Ltd
88. Policy Context has a core motive behind it, which is?
(a) Economic Welfare
(b) GDP Growth
(c) Holistic Development
(d) Social Welfare
89. Which of the following is not a function of RBI?
(a) Promotion of Banking
(b) Collection of Foreign Institutional Data
13

(c) Banker to Government
(d) Funding NABARD
90. Highest Price the buyer is willing to pay is called?
(a) Bid
(b) Ask
(c) Badla
(d) Beta
91. Stakeholders includes all of the below except which?
(a) Policy makers
(b) Investors
(c) Competitors
(d) Promoters
92. The corporate pressure to increase and improve diversity in the country’s workforce is an area of study
for the consumer businesses affecting which element of the environment?
(a) Demographic Environment
(b) Political-Legal Environment
(c) Socio-cultural Environment
(d) Cultural Environment
93. Specified areas where government supports business to enhance development and increase
employment are called?
(a) SEZ - Specified Economic Zone
(b) DTA - Domestic Tariff Area
(c) SEZ - Special Economic Zone
(d) FTWZ - Free Trade and Warehousing Zone
94. Goods and Service Tax (GST), is a form of?
(a) International Trade Policy
(b) Inclusive Policy
(c) Policy Reform
(d) Public Welfare Scheme
95. Which of the following does SEBI not cater to?
(a) Government Organizations
(b) Investors
(c) Intermediaries
(d) Security Issuing Companies
96. Token money paid in the early stages of Negotiation is called?
(a) Early Money Deposit
(b) Earning Money Deposit
(c) Token E-Cash
14

(d) Earnest Money Deposit
97. Which of the following is a not a part of BCK lexicon?
(a) Y2Z
(b) B2B
(c) B2C
(d) 24*7
98. Bears are the stock market players that have --------------expectations.
(a) Realistic
(b) Positive
(c) Optimistic
(d) Pessimistic
99. Which of the following is not a form of privatization?
(a) Delegation
(b) Divestment
(c) Departmentalization
(d) Disinvestment
100. In the first four decades post independence, for fuelling of Industrial development, special purpose
financial institutions were created. These institutions were called
(a) Commercial Banks
(b) Development Banks
(c) Regional Rural Banks
(d) Small Finance Banks
15

MOCK TEST PAPER 1
FOUNDATION COURSE
PART - I: BUSINESS ECONOMICS
ANSWERS
Answer Key
1 d 11 c 21 a 31 d 41 d 51 a
2 b 12 c 22 d 32 b 42 d 52 d
3 a 13 d 23 c 33 a 43 b 53 c
4 b 14 c 24 a 34 a 44 c 54 d
5 d 15 c 25 d 35 c 45 a 55 c
6 a 16 d 26 b 36 c 46 a 56 b
7 d 17 c 27 a 37 b 47 d 57 c
8 c 18 d 28 c 38 b 48 b 58 b
9 a 19 a 29 d 39 a 49 a 59 b
10 a 20 d 30 c 40 d 50 c 60 b

ANSWERS
61 62 63 64 65 66 67 68 69 70
(b) (d) (b) (a) (c) (c) (d) (a) (c) (b)
71 72 73 74 75 76 77 78 79 80
(d) (b) (b) (d) (a) (c) (c) (b) (b) (c)
81 82 83 84 85 86 87 88 89 90
(b) (c) (d) (c) (c) (c) (a) (c) (b) (a)
91 92 93 94 95 96 97 98 99 100
(c) (a) (c) (c) (a) (d) (a) (d) (c) (b)

MOCK TEST PAPER 2
FOUNDATION COURSE
PART- I: BUSINESS ECONOMICS
QUESTIONS
1. Most of the economic problems are of _____________ nature and are affected by ______________.
(a) Complex, Several forces
(b) Simple, Several forces
(c) Simple, single factor
(d) Complex, Single factor
2. The survival and success of any business depends on sound_________________.
(a) Mind
(b) Environment
(c) Decisions
(d) None of these
3. Management of the firm _______________ control over macro-economic factors.
(a) has
(b) has no
(c) has partial
(d) None of these
4. In a planned or command economy all the economic decisions are taken by the _________.
(a) Workers
(b) Consumers
(c) Voters
(d) Government
5. The regulatory mechanism of the market system is-
(a) Self interest
(b) Private property
(c) Competition
(d) Specialization
6. Which of the following statements is/are correct about mixed economic system?
(a) Mixed economic system depends on both markets and governments for allocation of resources
(b) Mixed economy is not always a golden path between capitalism and socialism.
(c) It is very difficult to maintain a proper balance between private and public sectors.

7. After reaching the saturation point, consumption of additional units of the commodity cause -.
(a) Total utility to fall and marginal utility to increase.
(b) Total and marginal utility both to increase.
(c) Total utility to fall and marginal utility to become negative.
(d) Marginal utility to fall and total utility to become negative.
8. The substitution effect works to encourage a consumer to purchase more of a product when the price
of that product is falling because-
(a) The consumer’s real income has increased.
(b) The consumer’s real income has decreased.
(c) The product is now relatively less expensive than before.
(d) Other products are now less expensive than before.
9. Which of the following statements is correct?
(a) When the slope of the demand curve is zero, demand is infinitely elastic and when the slope is
infinite, elasticity is zero.
(b) When the slope of the demand curve is zero, the elasticity is also zero and when the slope is
infinite, elasticity is also infinite.
(c) When the slope of the demand curve is zero, the elasticity is unity and also when the slope i s
infinite, elasticity is unity.
(d) None of these
10. Diminishing marginal utility implies that the
(a) marginal utility of a good diminishes over time.
(b) total utility is negative.
(c) last unit of a good consumed will contribute most to the consumer’s satisfaction.
(d) first unit of a good consumed will contribute most to the consumer’s satisfaction.
11. The law of diminishing marginal utility states that
(a) total utility is maximized when a consumer obtain the same amount of utility per unit o f each
product consumed
(b) beyond some point additional units of a product will yield less and less extra satisfaction to a
consumer.
(c) price must be lowered to induce firms to supply more of a product.
(d) it will take larger and larger amounts of resources beyond some point to produce successive
units of a product.
12. Marshallian theory of consumer’s behavior is based on
(a) Hypothesis of additive utilities.
(b) Hypothesis of independent utilities.
(c) Both (A) and (B)
(d) Weak ordering
13. Demand and ________ are the forces that make market economies work.
(a) Elasticity of demand
(b) Quantity demanded
2

(c) Supply
(d) Quantity supplied
14. Computers and computer software are______
(a) Substitute goods
(b) Complementary goods
(c) Independent goods
(d) Normal goods
15. Let slope of supply curve is 0.6, calculate elasticity of demand when initial price is $ 30 per unit and
initial quantity is 100 units of the commodity.
(a) 0.5
(b) 5.55
(c) (-) 0.5
(d) (-) 0.18
16. Demonstration effect, a term coined by _____________
(a) Adam Smith
(b) James Duesenberry
(c) Alfred Marshall
(d) None of these
17. Consider the following statements and select the correct answer from the given options.
Assertion (A): Demand curve is vertical when elasticity of demand is zero.
Reason (R): Marginal utility of a product is increasing
(a) Both (A) and (R) are true and (R) is the correct explanation of (A)
(b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
(c) (A) is true but (R) is false
(d) (A) is false but (R) is true
18. A rise in price of a good ___________________ consumer surplus.
(a) Reduces
(b) Increases
(c) Either (A) and (B)
(d) Doesn’t effect
19. A consumer is in equilibrium when s/he is deriving ____________ satisfaction from the goods.
(a) maximum
(b) possible
(c) maximum possible
(d) None of these
20. Which one of the following statements is true regarding Indifference Curve?
(a) Two ICs can never be parallel to each other
(b) Two ICs are always parallel to each other

(c) Two ICs may not intersect each other
(d) Two ICs may be parallel to each other
21. Law of Equi-marginal Utility can be expressed as-
(a) MUX/PX = QX
(b) PX QX = MUM
(c) MUX/PX = MUY/PY = MUM
(d) MUX = MUM
Assertion (A): Consumer surplus is the difference between the potential price and actual price.
Reason (R): There exists an inverse relationship between the price and consumer surplus.
23. For substitutes, cross elasticity of demand is-
(a) Positive
(b) Negative
(c) Zero
(d) Always less than one
24. The oldest approach to the theory of demand is _______________.
(a) the total utility approach
(b) the cardinal utility approach
(c) the ordinal utility approach
(d) None of these
25. “Returns to a factor” refers to the effect on total output of changes in
(a) One factor only
(b) Various inputs separately
(c) All the inputs simultaneously
26. A factor of production is said to be superior if its expenditure elasticity
(a) is negative
(b) lies in unit interval
(c) exceeds unity
(d) is zero
27. Which of the following is correct regarding long run cost?
1. It is least cost of producing each level of output
2. LAC curve is envelope of SAC curves.
3. LAC is U-shaped
4

(a) 1 & 2 only
(b) 2 & 3 only
(c) 1 & 3 only
(d) 1, 2 & 3
28. The law of diminishing returns only applies in cases where
(a) There is increasing scarcity of factors of production
(b) The price of extra unit of a factor is increasing
(c) There is atleast one fixed factor of production
(d) Capital is a variable input
29. Economies and diseconomies of scale explain why the
(a) short run average fixed cost curve declines so long as output increases.
(b) marginal cost curve must intersect the minimum point the firm’s average variable cost curve.
(c) long run average cost curve is typically U-shaped.
(d) short run average total cost curve is U-shaped.
30. Production function: Q = 4L 1/2k2/3 exhibits-
(a) increasing returns to scale
(b) decreasing returns to scale
(c) constant returns to scale
(d) increasing returns to a factor
31. Which of the following is correct regarding the slope of iso-cost line?
Slope of iso-cost line can change due to
1. Change in factor(s) price(s)
2. Change in total outlay or total cost.
(a) 1 only
(b) 2 only
(c) 1 & 2 both
(d) None of these
32. Which one of the following is not an internal economies of scale?
(a) Technical economies
(b) Financial economies
(c) Economies due to localization of industries
(d) Marketing economies
33. Isoquant word is made up of two words i.e., Iso & Quant. Where Iso means equal then Quant means-
(a) Quantity sold
(b) Output
(c) Quantity demanded
(d) Quantity supplied

34. Which one of the following cost curve is not in U-shape?
(a) AC
(b) MC
(c) AFC
(d) AVC
35. Given TC = 2000 + 15Q – 6Q2 + Q3, How much is TFC at Q = 2000?
(a) 2000
(b) 975
(c) 30,000
(d) Can’t be determined
36. Marginal Revenue of a monopoly firm is less than the price because
(a) Demand curve has a positive slope.
(b) Demand curve has a negative slope.
(c) Monopolist incurs losses.
(d) Monopolist is in equilibrium.
Assertion (A): Although a monopolist can charge any price he likes, but does not charge a higher price
than his equilibrium price.
Reason (R): Higher price means fall in total revenue.
38. The share of the tax borne by seller will be larger
(a) If the demand for the product is less elastic.
(b) If the demand for the product is inelastic.
(c) If the demand for the product has greater elasticity.
(d) If the elasticity of supply of the product is larger.
39. Oligopolistic industries
(a) are characterized by a relatively large number of small firms.
(b) may produce either standardized or differentiated products.
(c) always produce differentiated products.
(d) always produce stan products.
40. When total revenue is increasing
(a) Marginal revenue may be either positive or negative.
(b) The demand curve is relatively inelastic.
(c) Marginal revenue is positive.
(d) Marginal revenue is negative.
6

41. Total revenue along with Total cost helps to determine
(a) Profit maximizing output
(b) Profit/unit
(c) Price/unit
(d) Total revenue
42. In economics, we are concerned with
(a) Value in use only
(b) Exchange value only
(c) Both value in use and exchange value
43. Exchange value is determined in
(a) the monopoly market
(b) the oligopoly market
(c) in the market where exchange of goods and services takes place
(d) None of these
44. In economics, generally the classification of the markets is made on the basis of
(a) Time
(b) Geographic area
(c) Volume of business
(d) All of these
45. If a firm’s total revenue is not enough to make good even the ______________, it is better for firm to shut
down.
(a) Total fixed cost
(b) Marginal cost
(c) Average fixed cost
(d) Total variable cost
46. Price of goods express their
(a) Value in use
(b) Exchange value
(c) Economic value
(d) Both (B) and (C)
47. When demand increases and supply decreases,
(a) the equilibrium price and quantity both rise
(b) the equilibrium price and quantity both fall
(c) the equilibrium price rises but nothing certain can be said about the change in equilibrium
quantity.
(d) the equilibrium quantity rises but nothing certain can be said about the change in equilibrium
price.

48. Marginal revenue is equal to the price under
(a) Monopoly market structure
(b) Oligopoly form of market
(c) Monopolistically competitive market
(d) Perfect competition
49. The short run supply curve of a perfectly competitive firm is equal to
(a) That portion of the short run marginal cost curve that is above the average variable cost curve
(b) That portion of the short run marginal cost curve that is above the average total cost cu rve
(c) That portion of the short run average total cost curve that is above the average variable cost
curve
(d) None of the above is correct.
50. The market demand curve for a perfectly competitive industry is: Qd = 12 – 2P and the market supply
curve is: Qs = 3 + P. The market will be in equilibrium if
(a) P =6 and Q = 9
(b) P =5 and Q = 2
(c) P =4 and Q = 4
(d) P =3 and Q = 6
51. If the market demand curve for a commodity has a negative slope then the market structure must be:
(a) Perfect competition
(b) Monopoly
(c) Imperfect competition
(d) The market structure cannot be determined as the information is insufficient
52. Which of the following is a differentiated product?
(a) A hamburger
(b) A shirt
(c) An automobile
53. Which one of the following is not an internal cause of business cycles?
(a) Money supply
(b) Technology shocks
(c) Psychological factors
(d) Fluctuations in investment
54. Peak is the ____________ stage of expansion.
(a) Later
(b) Earlier
(c) Either (A) or (B)

55. Different business cycles _____________ in duration and intensity.
(a) differ
(b) similar
(c) consistent
(d) Can’t say
56. Repercussions of business cycles get _________________ felt on nearly all economic variables.
(a) alternatively
(b) simultaneously
(c) one by one
57. Nicholas Kaldor propounded _________________
(a) Nocholas theory
(b) Kaldor Theory
(c) Cobweb theory
(d) Cobb-douglas theory
58. During business cycles the opposite of a peak is _____________.
(a) an inflation
(b) a hyperinflation
(c) a trend
(d) a trough
59. Decrease in input demand ________________.
(a) Doesn’t affect inputs prices
(b) Pushes inputs prices up
(c) Pulls inputs prices down
(d) Either (B) or (C)
60. Which of the following statements is correct regarding business cycles?
(a) Business cycles are contagious and international in character.
(b) Business cycles begin in one country and spread to other countries through trade relations.
(c) Business cycles have serious consequences on well being of the societies.

QUESTIONS Max. Marks: 40
61. Usually, economics activities are driven by which of the following motives?
(a) Altruism
(b) Emotions
(c) Rationality
(d) Profitability
62. Understanding buying patterns are a part of study of which of the following elements of the business
environment?
(a) Customers
(b) Suppliers
(c) Intermediaries
(d) Competitors
63. Identify the global company which started its Indian operations in 1921 in Kolkata.
(a) American Express
(b) Goldman Sachs
(c) IBM Inc.
(d) HP Inc.
64. Which of the options is an incentive for exporters?
(a) Exchange Rate Moderate
(b) Exchange Range Stable
(c) Exchange Rate Increasing
(d) Exchange Rate Falling
65. Coexistence of large and small enterprises in harmony is a major objective of which of these institutions?
(a) RBI
(b) SEBI
(c) CCI
(d) IRDAI
66. Keeping extremely low prices to not let anyone grow as a competition is called?
(a) Price Skimming
(b) Pre-emptive Pricing
(c) Price Discrimination
(d) Price Sensitivity
67. Which of the following statements about Non-Economic Activities is True?
(a) Even Non-Economic activities have an economic dimension
(b) Even Consumption is a Non-Economic activity
(c) Non-Economic activities are Productive
(d) Unspent income comprises of Non-Economic capital
10

68. Which of the following is not part of internal environment of a business organisation?
(a) Labor Unions
(b) Corporate Culture
(c) Customers
(d) Organisational Structure
69. Where is India's largest SEZ?
(a) Hazira
(b) Dhamra
(c) Tehri
(d) Mundra
70. Foreign Exchange Management Act (FEMA), would fall under which of the following type of Public
Policy?
(a) Restrictive
(b) Regulatory
(c) Facilitating
(d) Advisory
71. Which of the following is not a Funding Institution?
(a) World Bank
(b) NABARD
(c) Reserve Bank of India
(d) International Monetary Fund
72. The marketing department of Go Now Pvt. Ltd. divided the consumers into different groups based on
their characteristics, like buying frequency, actuals spend, age and preferences. Which of the following
has the marketing department focused on?
(a) Market Segmentation
(b) Market Division
(c) Market Analysis
(d) Market Grouping
73. The maximum number of members of a public company is:
(a) 07
(b) 50
(c) No limit
(d) 200
74. What is the single word that can best describe today’s business?
(a) Technology
(b) Change
(c) Persistence
(d) Profit making
11

75. Who was the co-founder of Microsoft with Bill Gates?
(a) Paul Allen
(b) Melinda Gates
(c) Satya Nadella
(d) Lucci Hood
76. BRICS stands for:
(a) Belgium, Russia, Indonesia, China and Saudi Arabia
(b) Belgium, Russia, India, Cambodia and Saudi Arabia
(c) Brazil, Russia, India, China and South Africa
(d) Brazil, Romania, India, Cambodia and South Africa
77. Which one of the following is an Indian Regulatory Body that facilitates business organizations?
(a) EXIM Bank
(b) NABARD
(c) IRDA
(d) IFCI
78. When two or more companies come together to expand their business operations in a newly created
entity.
(a) Joint venture
(b) Acquisition
(c) Partnership
(d) Merger
79. With two shareholders and two directors which company will be incorporated
(a) Public company
(b) One Person Company
(c) Private company
(d) Public traded company
80. A successful business has to identify, appraise and respond to the various ----------- and -----------------in
its environment.
(a) Suppliers and customers
(b) Competitors and creditors
(c) Rules and regulations
(d) Opportunities and threats
81. Which of the following is the most recently incorporated company?
(a) Axis Bank Ltd.
(b) Adani Ports and Special Economic Zone Ltd.
(c) Bharti Airtel Ltd.
(d) Flipkart
12

82. FDI in sectors which required prior approval is identified as
(a) Institutional Route
(b) Automatic Route
(c) Government Route
(d) NRI Route
83. CCI consists of a chairman and --------------members appointed by the Central Government.
(a) Five
(b) Six
(c) Seven
(d) Four
84. --------------------put option means the stock price is above the strike price.
(a) In the money
(b) At the money
(c) Out of the money
(d) Call money
85. OPC (One Person Company) is a corporate form of which of the following?
(a) LLP
(b) Sole Proprietorship
(c) Partnership
(d) HUF
86. Labour Unions are part of?
(a) Micro Environment
(b) Macro Environment
(c) Internal Environment
(d) Organisational Environment
87. Which is the company in India to have equity stake in 1st Greenfield Airport at Cochi, India?
(a) Adani Ports SEZ Ltd.
(b) Bharat Petroleum Corporation Ltd.
(c) Tata Sons Pvt. Ltd.
(d) Larsen & Toubro Ltd.
88. Exchange Rate weakening is beneficial for _____ while a strengthening is beneficial for ______?
(a) Local Government and Foreign government
(b) State Government and Central Government
(c) RBI and SEBI
(d) Exporter and Importer
89. SEBI conducts investigation and enforcement action falls under its which function?
(a) Quasi-Executive Function
(b) Quasi-Legislative Function
13

(c) Quasi-Judicial Function
(d) Quasi-constitutional Function
90. Unpaid media coverage is achieved through?
(a) Popularity
(b) Publicity
(c) Social Media Marketing
(d) Promotion
91. We can get edible oils from the local shop in our locality, or through a big mall nearby, or from an online
marketplace or a 10 minutes delivery app. All these options portray to which of the below domains of
BCK?
(a) BCK is eclectic
(b) BCK is Vast
(c) BCK is multi-faceted
(d) BCK is complex
92. The wants and needs of the consumers fall under which of the following?
(a) Events
(b) Trends
(c) Expectations
(d) Issues
93. Find the largest exporter of three wheelers in India.
(a) APSEZ
(b) Bajaj Auto
(c) TVS Motor Company
(d) Maruti Suzuki
94. Privatisation refers to:
(a) Transferring Government ownership to private hands
(b) Disinvestment in public sector enterprise
(c) Opening those areas for private sector which are reserved for Government
95. Who is responsible for overall credit and monetary policy of Indian economy?
(a) RBI
(b) NABARD
(c) SEBI
(d) IDBI
96. Buying silver in Mumbai to take advantage of the price difference in Assam is an example of?
(a) Hedge
(b) Put Option
(c) Arbitrage
14

(d) Call Option
97. A HUF cannot comprise members of a:
(a) Hindu & Sikh family
(b) Jain family
(c) Buddhist family
(d) Muslim family
98. Who is the present chairman of Wipro Limited?
(a) Azim Premji
(b) Rishad Premji
(c) Thierry Delaporte
(d) and (b)
99. What is the constitution of Competition Commission of India?
(a) A chairperson and 6 members appointed by the Central Government.
(b) A chairperson and 5 members appointed by the Central Government.
(c) A chairperson and 5 members appointed by the RBI.
(d) A chairperson and 6 members appointed by the RBI.
100. A very large loan extended by a group of small banks to a single corporate borrower is called as which
of the following?
(a) Time Deposit
(b) Long term loan
(c) Annuities
(d) Syndicated loan
15

MOCK TEST PAPER 2
FOUNDATION COURSE
PART - I: BUSINESS ECONOMICS
ANSWERS
Answer Key
1 (a) 11 (b) 21 (c) 31 (c) 41 (a) 51 (d)

2 (c) 12 (c) 22 (a) 32 (c) 42 (b) 52 (d)
3 (b) 13 (c) 23 (a) 33 (b) 43 (c) 53 (b)
4 (d) 14 (b) 24 (b) 34 (c) 44 (d) 54 (a)
5 (c) 15 (a) 25 (a) 35 (a) 45 (d) 55 (a)
6 (d) 16 (b) 26 (c) 36 (b) 46 (d) 56 (b)
7 (c) 17 (c) 27 (d) 37 (a) 47 (c) 57 (c)
8 (c) 18 (a) 28 (c) 38 (c) 48 (d) 58 (d)
9 (a) 19 (c) 29 (c) 39 (b) 49 (a) 59 (c)
10 (d) 20 (d) 30 (a) 40 (c) 50 (d) 60 (d)

ANSWERS
61 62 63 64 65 66 67 68 69 70
(c) (a) (a) (d) (c) (b) (a) (c) (d) (b)
71 72 73 74 75 76 77 78 79 80
(c) (a) (c) (b) (a) (c) (c) (d) (c) (d)
81 82 83 84 85 86 87 88 89 90
(d) (c) (b) (c) (b) (c) (b) (d) (a) (b)
91 92 93 94 95 96 97 98 99 100
(b) (c) (b) (d) (a) (c) (d) (b) (a) (d)

PAPER – 1: PRINCIPLES & PRACTICE OF ACCOUNTING
QUESTIONS
True and False
1. State with reasons, whether the following statements are true or false:
(i) Gauri purchased goods worth `75,800 at 5% trade discount and she paid half of the
amount in cash. The amount appearing in the purchase book is `36,005.
(ii) All the personal & real accounts are recorded in P&L A/c.
(iii) Amount spent on the replacement of worn out part of machine is Capital
Expenditure.
(iv) When closing inventory is overstated, net income for the accounting period will be
understated.
(v) The additional commission to the consignee who agrees to bear the loss on account
of bad debts is called overriding commission.
(vi) Goodwill is intangible asset therefore it cannot be valued.
(vii) Interest on calls in arrears is payable by company to shareholders.
(viii) Outstanding salaries for the previous year shall be shown as liability in the current
year balance sheet.
(ix) Debenture holders enjoy the voting rights in the company.
Theoretical Framework
2. (a) Distinguish between Money measurement concept and matching concept.
(b) Change in accounting policy may have a material effect on the items of financial
statements.” Explain the statement with the help of an example.
Journal Entries
3. (a) (i) Employees had taken stock worth ` 25,000 (Cost price ` 22,500) on the eve of
Deepawali and the same was deducted from their salaries in the subsequent
month.
(ii) Wages paid for erection of Machinery ` 16,000.
(iii) Income tax liability of proprietor ` 3,400 was paid out of petty cash.
(iv) Purchase of goods from Naveen of the list price of ` 20,000. He allowed 10%
trade discount, ` 500 cash discount was also allowed for quick payment.

2 FOUNDATION EXAMINATION: MAY, 2021
Capital or Revenue Expenditure

(b) Classify each of the following transactions into capital or revenue transactions:
-- Inauguration expenses of a new manufacturing unit in an existing Business.
-- Installation of a new central heating system.
-- Repainting of a delivery van.
-- Providing drainage for a new piece of water-extraction equipment.
-- Legal fees on the acquisition of land.
-- Carriage costs on a replacement part for a piece of machinery.
Cash Book
4. (a) Prepare a Triple Column Cash Book from the following transactions and bring down
the balance for the start of next month:
2020 `
Sep. 1 Cash in hand 6,000
1 Cash at bank 24,000
2 Paid into bank 2,000
5 Bought furniture and issued cheque 3,000
8 Purchased goods for cash 1,000
12 Received cash from Mohan 1,960
Discount allowed to him 40
14 Cash sales 10,000
16 Paid to Amar by cheque 2,900
Discount received 100
19 Paid into Bank 1,000
23 Withdrawn from Bank for Private expenses 1,200
24 Received cheque from Parul 2,860
Allowed him discount 40
26 Deposited Parul’s cheque into Bank
28 Withdrew cash from Bank for Office use 4,000
30 Paid rent by cheque 1,600
Rectification of Errors
(b) Write out the Journal Entries to rectify the following errors, using a Suspense
Account.

PAPER – 1 : PRINCIPLES AND PRACTICE OF ACCOUNTING 3
(1) Goods of the value of `5,000 returned by Mr. Sharma were entered in the
Sales Day Book and posted therefrom to the credit of his account;
(2) An amount of `7,500 entered in the Sales Returns Book, has been posted to
the debit of Mr. Hari, who returned the goods;
(3) A sale of `20,000 made to Mr. Amit was correctly entered in the Sales Day
Book but wrongly posted to the debit of Mr. Sumit as ` 2,000;
(4) Bad Debts aggregating `15,000 were written off during the year in the Sales
ledger but were not adjusted in the General Ledger; and
(5) The total of “Discount Allowed” column in the Cash Book for the month of
September, 2020 amounting to `12,500 was not posted.
Bank Reconciliation Statement
5. From the following information (as on 31.3.2020), prepare a bank reconciliation
statement after making necessary adjustments in the cash book:
Particulars
Bank balances as per the cash book (Dr.) 32,50,000
Cheques deposited, but not yet credited 44,75,000
Cheques issued but not yet presented for payment 35,62,000
Bank charges debited by bank but not recorded in the cash-book 12,500
Dividend directly collected by the bank 1,25,000
Insurance premium paid by bank as per standing instruction not 15,900
intimated
Cash sales wrongly recorded in the Bank column of the cash-book 2,55,000
Customer’s cheque dishonoured by bank not recorded in the cash-book 1,30,000
Wrong credit given by the bank 1,50,000
Also show the bank balance that will appear in the trial balance as on 31.3.2020.
Valuation of Inventories
6. Closing stock is valued by Zebra Stores on generally accepted accounting principles.
Stock taking for the year ended 31st March, 2020 was completed by 10th April, 2020, the
valuation of which showed a stock figure of ` 5,02,500 at cost as on the completion
date. After the end of the accounting year and till the date of completion of stock taking,
sales for the next year were made for ` 20,625, profit margin being 33.33 percent on
cost. Purchases for the next year included in the stock amounted to ` 27,000 at cost
less trade discount 10 percent. During this period, goods were added to stock of the
mark up price of ` 900 in respect of sales returns. After stock taking it was found that
there were certain very old slow moving items costing ` 3,375 which should be taken at

` 1,575 to ensure disposal to an interested customer. Due to heavy floods, certain

goods costing ` 4,650 were received from the supplier beyond the delivery date of
customer. As a result, the customer refused to take delivery and net realizable value of
the goods was estimated to be ` 3,750 on 31st March, 2020.
You are required to calculate the value of stock for inclusion in the final accounts for the
year ended 31st March, 2020
Concept and Accounting of Depreciation
7. M/s Roxy purchased a brand new machinery on 1st January 2017 for ` 3,20,000 and also
incurred ` 80,000 on its installation. Another machinery was purchased on 1st July 2017
for ` 1,60,000. On 1st July 2019, the machinery purchased on 1st January 2017 was sold
for ` 2,50,000. Another machinery was purchased and installed on 30th September 2019
for ` 60,000.
Under existing practice, the company provides for depreciation @10% p.a. on Original
cost. However, from the year 2020 it decided to adapt WDV method and charge the
depreciation @ 15% p.a. You are required to show the Machinery Account for the years
2019 and 2020 considering the books of accounts are closed on 31 st December each
year.
Bills of Exchange
8. Prepare Journal entries for the following transactions in Samarth’s books.
(i) Samarth’s acceptance to Aarav for ` 1,250 discharged by a cash payment of ` 500
and a new bill for the balance plus ` 25 for interest.
(ii) G. Gupta’s acceptance for ` 4,000 which was endorsed by Samarth to Sahni was
dishonoured. Sahni paid ` 20 noting charges. Bill withdrawn against cheque.
(iii) Harshad retires a bill for ` 5,000 drawn on him by Samarth for ` 20 discount.
(iv) Samarth’s acceptance to Patel for ` 19,000 discharged by Sandeep Chadha’s
acceptance to Samarth for a similar amount.
Consignment
9. Mr. Divik of Jaipur purchased, 5,000 pieces of sarees at ` 500 per saree. Out of these
3,000 sarees were sent on consignment to Mr. Manoj of Pillani at the selling price of
` 600 per saree. The consignor paid ` 30,000 for packing and freight. Mr. Manoj sold
2,500 sarees at ` 625 per saree and incurred ` 10,000 for selling expenses and remitted
` 5,00,000 to Jaipur on account of Mr. Divik. Mr. Manoj is entitled to a commission of 5%
on total sales plus a further commission at 20% of surplus price realized over invoice
price.
You are required to prepare Consignment Account in the books of Mr. Divik and
Mr. Divik’s account in the books of agent Mr. Manoj.

Sales of goods on approval or return basis

10. Ms. Madhu has supplied goods on sale or return basis to customers, the particulars of
which are as under.
Date of dispatch Party’s name Amount Remarks
`
01.03.2020 M/s. Piya 20,000 Awaiting approval from customers as
on 31.03.2020
08.03.2020 M/s. Riya 25,000 Returned on 16.03.2020
15.03.2020 M/s. Ciya 24,000 Goods worth ` 4,000 returned on
20.03.2020
19.03.2020 M/s. Diya 22,500 Goods accepted on 24.03.2020
25.03.2020 M/s. Tiya 18,250 Good accepted on 28.03.2020
30.03.2020 M/s. Bhavya 23,000 Awaiting approval from customers as
on 31.03.2020
Goods are sent on the terms of 10 days return window from the date of dispatch, failing
which it will be treated as sales. The books of Madhu are closed on the 31st March,
2020.
Prepare the following accounts in the books of Madhu.
(a) Goods on “sales or return, sold and returned day books”.
(b) Goods on sales or return total account.
Average Due Date
11. From the following details calculate the average due date:
Date of Bill Amount (`) Usance of Bill
28th January, 2020 2,500 1 month
20th March, 2020 2,000 2 months
12th July, 2020 3,500 1 month
10th August, 2020 3,000 2 months
Account current
12. On 1st January, 2020, Kamal ’s account in Vimal’s ledger showed a debit balance of
` 15,000. The following transactions took place between Vimal and Kamal during the
quarter ended 31st March, 2020:

2020 `
Jan. 11 Vimal sold goods to Kamal 18,000
Jan. 24 Vimal received a promissory note from Kamal due 15,000
after 3 months
Feb. 01 Kamal sold goods to Vimal 30,000
Feb. 04 Vimal sold goods to Kamal 24,600
Feb. 07 Kamal returned goods to Vimal 3,000
March 01 Kamal sold goods to Vimal 16,800
March 18 Vimal sold goods to Kamal 27,600
March 23 Kamal sold goods to Vimal 12,000
Accounts were settled on 31st March, 2020 by means of a cheque. Prepare an Account
Current to be submitted by Vimal to Kamal as on 31st March, 2020, taking interest into
account @ 10% per annum. Calculate interest to the nearest multiple of a rupee.
Final accounts and Rectification of entries
13. The following is the trial balance of Manan as at 31st March 2020:
Dr. Cr.
` `
Manan’s capital account - 1,53,380
Stock 1st April, 2019 93,600 -
Sales - 7,79,200
Returns inward 17,200 -
Returns outward - 11,600
Carriage inwards 39,200 -
Rent & taxes 9,400 -
Salaries & wages 18,600 -
Bank loan @ 14% p.a. - 40,000
Bank interest 2,200 -
Printing and stationary expenses 28,800 -
Bank balance 16,000 -
Discount earned - 8,880

Furniture & fittings 10,000 -

Discount allowed 3,600 -
General expenses 22,900 -
Insurance 2,600 -
Postage & telegram expenses 4,660 -
Cash balance 760 -
Travelling expenses 1740 -
Drawings 60,000 _______
10,22,660 10,22,660
The following adjustments are to be made:
(1) Included amongst the debtors is ` 6,000 due from Rahul and included among the
creditors ` 2,000 due to him.
(2) Provision for bad and doubtful debts be created at 5% and for discount @ 2% on
sundry debtors.
(3) Depreciation on furniture & fittings @ 10% shall be written off.
(4) Personal purchases of Manan amounting to ` 1200 had been recorded in the
purchases day book.
(5) Interest on bank loan shall be provided for the whole year.
(6) A quarter of the amount of printing and stationary expenses is to be carried forward
to the next year.
(7) Credit purchase invoice amounting to ` 800 had been omitted from the books.
(8) Stock on 31st March 2020 was ` 1,57,200.
Prepare (i) Trading & profit and loss account for the year ended 31.3.2020 and (ii)
Balance sheet as on 31st March, 2020.
Partnership Accounts
Profit and Loss Appropriation Account
14. (a) Rose, Lilly and Lotus start business with capital of ` 2,00,000/-, ` 3,00,000/- and
`4,00,000 on 1st April 2019. Lotus is entitled to a salary of ` 50,000 per annum.
Interest is allowed on capitals at 12% p.a. and is charged on drawings at 12% per
annum. Profits are to be distributed in the ratio 1:2:3 after the above-mentioned
adjustments. Rose was given guarantee of minimum profit of ` 50,000 by Lotus.
Partners drawings during the year were Rose ` 40,000/-Lilly ` 30,000/- Lotus
` 20,000/-. Lotus had paid ` 10,000/- as tuition fees of his son on 31st March 2020,
which was wrongly debited to salaries account. The profit for the year 2019-20

before allowing interest on capital and charging interest on drawings and salary paid
to Lotus was `3,34,600/-. Assuming the capitals to be fixed, prepare the Profit and
Loss Appropriation Account and the Capital and Current Accounts relating to the
partners.
Calculation of Goodwill
(b) The profits and losses for the previous years are: 2017 Profit ` 5,000, 2018 Loss
` 8,500, 2019 Profit ` 25,000, 2020 Profit ` 37,500. The average Capital employed
in the business is ` 1,00,000. The rate of interest expected from capital invested is
10%. The remuneration from alternative employment of the proprietor ` 3,000 p.a.
Calculate the value of goodwill on the basis of 3 years’ purchases of Super Profits
based on the average of 4 years.
Admission of Partner
15 Ramu and Mamu were partners in a firm sharing profits and losses in the ratio 3:2
Their Balance Sheet as on 31st March, 2020 was as follows:
Capital : Land & Building 1,50,000
Ramu 2,10,000 Machinery 1,80,000
Mamu 1,90,000 Furniture 44,000
General Reserve 60,000 Trade Receivables 42,800
Loan from LFC bank 25,000 Inventory 65,200
Trade Payables 21,000 Bank 24,000
5,06,000 5,06,000
Damu was admitted as partner from 1st April, 2020 on the following terms:
1. He shall bring ` 1,50,000 as capital and goodwill.
2. He shall get 1/5th share in future profits, to be acquired equally from Ramu and
Mamu.
3. Goodwill of the firm to be valued at ` 2,50,000. It was agreed that goodwill shall not
appear in the books of accounts.
4. Land & Building is to be appreciated by 50% and inventory is revalued at
` 60,000
5. Machinery to be depreciated by 20%. Debtors of ` 2,800 are to be written off as bad
debts and a Reserve for doubtful debts should be created @ 5% of debtors.
6. Furniture to be reduced to `40,000.

7. After admission of Damu, capitals of the partners’ to be adjusted in their new profit
sharing ratio, taking Damu’s capital as base.
You are required to prepare:
1. Revaluation account
2. Partners’ capital accounts.
3. Cash and bank account.
4. Balance Sheet after admission
Financial Statements of Not for Profit Organizations
16. The following is the Receipts and payments account of Rotary Club for the year ended on
31st March, 2020
Dr Receipts and payments A/c for the year ended on 31st march 2020 Cr
Receipts Amount Payments Amount
(`) (`)
To balance b/d 8,450 By Salaries and wages 12,250
To Subscription 23,000 By Supply of refreshment 18,250
To Sale of refreshments 22,000 By Sports equipment 27,500
To Entrance fees 26,000 By Telephone Charges 2,800
To interest on investments @ 7% 4,550 By Electricity charges 15,600
By Honorarium charges 6,500
By balance c/d 1,100
84,000 84,000
Additional information:
1. Following are the assets and liabilities on 31st March, 2019:
Assets- Sports equipment- ` 32,000; Subscription in arrears- ` 7,600; furniture-
` 12,480
Liabilities- Outstanding Electricity charges- ` 5,400; Subscription in advance-
` 6,250
2. Following are the assets and liabilities on 31st March, 2020-
Assets- Sports equipment- ` 50,500; Subscription in arrears- ` 5,200; furniture-
` 11,180
Liabilities- Outstanding Electricity charges- ` 3,800; Subscription in advance-
` 4,850

3. 50% of the entrance fees to be capitalized.

4. Interest on the investments is being received in full, and the investments have been
made on 1.4.2018
You are required to prepare Income and Expenditure account and the Closing balance
sheet as of 31st March 2020 in the books of Rotary Club.
Issue and Forfeiture of Shares
17. Alankit Limited issued at par 2,00,000 Equity shares of ` 100 each payable ` 25 on
application; ` 30 on allotment; ` 20 on first call and balance on the final call. All the
shares were fully subscribed. Mr. Dhawan who held 40,000 shares paid full remaining
amount on first call itself. The final call which was made after 3 months from first call was
fully paid except a shareholder having 4,000 shares who paid his due amount after 2
months along with interest on calls in arrears. Company also paid interest on calls in
advance to Mr. Dhawan.
You are required to prepare journal entries to record these transactions.
18. Samuel who was the holder of 12,000 preference shares of ` 100 each, on which ` 75
per share has been called up could not pay his dues on Allotment and First call each at
` 25 per share. The Directors forfeited the above shares and reissued 10,000 of such
shares to Mr. Robort at ` 65 per share paid-up as `75 per share.
You are required to prepare journal entries to record the above forfeiture and re-issue in
the books of the company.
Issue of Debentures
19. Priya Ltd. issued 25,00,000, 12% debentures of ` 10 each at a discount of 10%
redeemable at par at the end of 10th year. Money was payable as follows :
` 4 on application
` 5 on allotment
Record necessary journal entries regarding issue of debenture.
20. Write short notes on:
(i) Fundamental Accounting Assumptions.
(ii) Retirement of bills of exchange.
(iii) Noting Charges.
(iv) Over-riding Commission.

SUGGESTED ANSWERS
1. (i) True: the trade discount is to be deducted from the total value of ` 75,800. The
amount paid in cash includes cash purchases and only the credit purchase
will be shown in the purchases book- 36,005 (72,010 x 50%).
(ii) False: All the personal & real account are recorded in balance sheet.
(iii) False: Amount spent for replacement of any worn out part of a machine is revenue
expense since it is a part of its maintenance cost.
(iv) False: When closing inventory is overstated, net income for the accounting period
will be overstated.
(v) False: The additional commission to the consignee who agrees to bear the loss on
account of bad debts is called del credere commission.
(vi) False: Even though Goodwill is intangible asset it can be valued in terms of money.
It can be measured in terms of physical units.
(vii) False: Interest on calls in arrears is payable by shareholders to company.
(viii) False: It shall be disclosed as a current liability in the opening balance sheet.
(ix) False: Debenture holder does not enjoy voting rights in company. He is only a
creditor of the company.
2. (a) (i) Distinction between Money measurement concept and matching concept
As per Money Measurement concept, only those transactions, which can be
measured in terms of money are recorded. Since money is the medium of
exchange and the standard of economic value, this concept requires that those
transactions alone that are capable of being measured in terms of money be
only to be recorded in the books of accounts. Transactions and events that
cannot be expressed in terms of money are not recorded in the business
books.
In Matching concept, all expenses matched with the revenue of that period
should only be taken into consideration. In the financial statements of the
organization if any revenue is recognized then expenses related to earn that
revenue should also be recognized.
statements. For example, cost formula used for inventory valuation is changed from
weighted average to FIFO. Unless the effect of such change in accounting policy is
quantified, the financial statements may not help the users of accounts.

3. (a)
Particulars Dr. Cr.
Amount Amount
(`) (`)
(i) Salaries A/c 22,500
To Purchase A/c 22,500
(Being entry made for stock taken by
employees)
(ii) Machinery A/c 16,000
To Cash A/c 16,000
(Being wages paid for erection of machinery)
(iii) Drawings A/c 3,400
To Petty Cash A/c 3,400
(Being the income tax of proprietor paid out of
business money)
(iv) Purchase A/c 18,000
To Cash A/c 17,500
To Discount Received A/c 500
(Being the goods purchased from Naveen for
` 20,000 @ 10% trade discount and cash
discount of ` 500)
(b) -- Inauguration expenses of new unit of existing business: revenue.
-- Installation of new heating system: capital.
-- Repainting van: revenue.
-- Drainage for new equipment: capital.
-- Legal fees on acquisition of land: capital
-- Carriage costs on replacement part: revenue.
4. (a) Triple Column Cash Book
Dr. Cr.
Date Particulars Discount Cash Bank Date Particulars Discount Cash Bank
2020 ` ` ` 2020 ` ` `
Sep. 1 To Balance − 6,000 24,000 Sep. 2 By Bank (C) 2,000
b/d
Sep. 2 To Cash (C) − 2,000 Sep. 5 By Furniture 3,000

A/c
Sep. 12 To Sapna 40 1,960 Sep. 8 By Purchase 1,000
A/c
Sep. 14 To Sales A/c 10,000 Sep. 16 By Amar 100 2,900
Sep. 19 To Cash (C) 1000 Sep. 19 By Bank (C) 1,000
Sep. 24 To Parul 40 2,860 Sep. 23 By Drawings 1,200
(Note 2) A/c
Sep. 26 To Cash (C) 2,860 Sep. 26 By Bank (C) 2,860
Sep. 28 To Bank (C) 4,000 Sep. 28 By Cash (C) 4,000
Sep. 30 By Rent A/c 1,600
____ _____ ______ Sep. 30 By Balance c/d ___
17,960 17,160
80 24,820 29,860 100 24,820 29,860
Oct. 1 To Balance 17,960 17,160
b/d
Note:
(1) Discount allowed and discount received ` 80 and ` 100 respectively should be
posted in respective Accounts in the ledger.
(2) When cheque is not promptly deposited into Bank, first it is entered in the
Cash Column and subsequently at the time of deposit, Bank Account is debited
and Cash Account is credited.
(b)
Particulars L.F. Dr. Cr.
` `
(1) Sales Account Dr. 5,000
Sales Returns Account Dr. 5,000
To Suspense Account 10,000
(The value of goods returned by Mr. Sharma
wrongly posted to Sales and omission of debit
to Sales Returns Account, now rectified)
(2) Suspense Account Dr. 15,000
To Mr. Hari 15,000
(Wrong debit to Mr. Hari for goods
returned by him, now rectified)
(3) Mr. Amit Dr. 20,000
To Mr. Sumit 2,000


(Omission of debit to Mr. Amit and wrong
credit to Mr. Sumit for sale of `20,000, now
rectified)
(4) Bad Debts Account Dr. 15,000
(The amount of Bad Debts written off not
adjusted in General Ledger, now rectified)
(5) Discount Account Dr. 12,500
(The total of Discount allowed during
September, 2020 not posted from the Cash
Book; error now rectified)
5. (i) Cash Book as on 31.3.2020
(After making necessary adjustments)
Dr. Cr.
Particulars Amount Particulars Amount
` `
To Balance b/d 32,50,000 By Bank charges 12,500
To Dividend 1,25,000 By Insurance premium 15,900
By Trade receivables (cheque 1,30,000
dishonoured)
By Cash A/c (wrongly recorded cash 2,55,000
sales)
By Balance c/d 29,61,600
33,75,000 33,75,000
Bank Reconciliation Statement as on 31.3.2020

Particulars Details Amount
`
Bank balance as per the cash book 29,61,600
Add: Cheques issued but not yet presented for 35,62,000
payment

Wrong credit given by bank 1,50,000 37,12,000

66,73,600
Less: Cheques deposited but not yet credited by (44,75,000)
bank
Balance as per the pass book 21,98,600
The bank balance of ` 29,61,600 will appear in the trial balance as on 31st March,
2020.
Note: Cash sales should have been recorded by passing the following entry:
Cash A/c Dr 2,55,000
To Sales A/c 2,55,000
But it has been wrongly debited to Bank A/c, so following rectification entry has
been passed:
Cash A/c Dr. 2,55,000
To Bank A/c 2,55,000

6. Statement showing the valuation of stock
as on 31st March, 2020
`
A Value of Stock as on 10th April, 2020 5,02,500
B Add: Cost of sales after 31st March, till stock taking
(` 20,625 – ` 5,156) 15,469
C Less: Purchases for the next period (net) (24,300)
D Less: Cost of Sales Returns (900-675) (675)
E Less: Loss on revaluation of slow moving inventories (1800)
F Less: Reduction in value on account of default (900)
G Value of Stock on 31st March, 2020 4,90,294
Note: Profit margin of 33.33 percent on cost means 25 percent on sale price.

7. In the books of M/s Roxy

Machinery A/c
Date Account (in `) Date Account (in `)
01.01.2019 To Balance b/d 4,56,000 01.07.2019 By Bank A/c 2,50,000
By P&L A/c – 50,000
Loss on Sale
30.09.2019 To Bank A/c 60,000 31.12.2019 By Depreciation 37,500
By Balance c/d 1,78,500
5,16,000 5,16,000
01.01.2020 To Balance b/d 31.12.2020 By Depreciation

1,78,500 26,775
31.12.2020 By Balance c/d
1,51,725
1,78,500 1,78,500
Working Note: Calculation of Book Value of Machines under SLM

Machine 1 Machine 2 Machine 3
(in `) (in `) (in `)
Date of Purchase 01.01.2017 01.07.2017 30.09.2019
Original Cost 4,00,000 1,60,000 60,000
Depreciation for 2017 (SLM) (40,000) (8,000)
WDV on 31.12.2017 3,60,000 1,52,000
Depreciation for 2018 (SLM) (40,000) (16,000)
WDV on 31.12.2018 3,20,000 1,36,000
Depreciation for 2019 (SLM) (20,000) (16,000) (1,500)
WDV on 31.12.2019 (30th June for 3,00,000 1,20,000 58,500
Machine1)
Sale Proceeds (2,50,000)
Loss on Sale 50,000
Depreciation for 2020 (WDV @ 15%) - (18,000) (8,775)
WDV on 31.12.2020 - 1,02,000 49,725

8. Books of S. Samarth
Journal Entries
Dr. Cr.
` `
(i) Bills Payable Account Dr. 1,250
Interest Account Dr. 25
To Cash A/c 500
To Bills Payable Account 775
(Bills Payable to Aarav discharged by cash payment of
` 500 and a new bill for `1,250 including ` 25 as
interest)
(ii) (a) G. Gupta Dr. 4,020
To Sahni 4,020
(G. Gupta’s acceptance for ` 4,000 endorsed to Sahni
dishonoured, ` 20 paid by Sahni as noting charges)
(b) Sahni Dr. 4,020
To Bank Account 4,020
(Payment to Sahni on withdrawal of bill earlier received
from Mr. G. Gupta)
(iii) Bank Account Dr. 4,980
Discount Account Dr. 20
To Bills Receivable Account 5,000
(Payment received from Harshad against his
acceptance for ` 5,000. Allowed him a discount of
` 20)
(iv) Bills Payable Account Dr. 19,000
(Bills Receivable from Patel endorsed to Sandeep in
settlement of bills payable issued to him earlier)
9. In the Books of Mr. Divik
Consignment A/c
` `
To Goods sent on 18,00,000 By Manoj’s A/c – Sales 15,62,500

Consignment A/c (2500 × ` 625)

(3,000 × ` 600)
To Bank A/c – Packing, Freight 30,000 By Goods sent on 3,00,000
charges Consignment A/c
To Manoj’s A/c – Selling 10,000 (3000 × ` 100)
expenses
To Manoj’s Account – By Consignment stock 3,05,000
Commission account
5% on ` 15,62,500= 78,125 (Refer working note)
20% on ` 62,500= 12,500 90,625
To Stock reserve A/c (500 × 50,000
` 100)
To Profit and Loss account 1,86,875
21,67,500 21,67,500
In the Book of Mr. Manoj

Mr. Divik’s Account
` `
To Bank – Selling expense 10,000 By Sales 15,62,500
To Commission 90,625
To Bank 5,00,000
To Balance c/d 9,61,875
15,62,500 15,62,500
Working Note:
Closing Stock valuation:
`
Cost price of 500 sarees (500 × 600) 3,00,000
Add: Proportionate expenses (30,000 × 500/3,000) 5,000
3,05,000

10. In the books of ‘Madhu’

Goods on sales or return, sold and returned day book.
Date Party to whom L.F Amount Date Sold Returned
2020 goods sent ` 2020 ` `
Mar 01 M/s. Priya 20,000 Mar 11 20,000 -
Mar 08 M/s. Riya 25,000 Mar. 16 - 25,000
Mar 15 M/s. Chiya 24,000 Mar. 20 20,000 4,000
Mar 19 M/s. Diya 22,500 Mar. 24 22,500 -
Mar 25 M/s. Tiya 18,250 Mar. 28 18,250 -
Mar 30 M/s. Bhavya 23,000 Pending
approval
1,32,750 80,750 29,000
Goods on Sales or Return Total Account

` `
2020 2020
Mar. 31 To Returns 29,000 Mar. 31 By Goods sent on
sales or return 1,32,750
To Sales 80,750
To Balance c/d 23,000
1,32,750 1,32,750
11. Calculation of Average Due Date
(Taking 3rd March, 2020 as base date)
Date of bill Term Due date 2020 Amount No. of days Product
2020 from the base
date i.e. 3rd
March,2020
(`) (`) (`)
28th January 1 month 3rd March 2,500 0 0
20th March 2 months 23rd May 2,000 81 1,62,000
12th July 1 month 14th Aug. 3,500 164 5,74,000
10th August 2 months 13th Oct. 3,000 224 6,72,000
11,000 14,08,000

Sum of Products
Average due date = Base date + Days equal to
Sum of Amounts
= 3rd March, 2020 +
= 3rd March, 2020 + 128 days = 9th July, 2020

Working Note:
Bill dated 12th July, 2020 has the maturity period of one month, due date (after adding 3
days of grace) falls on 15th August, 2020. 15th August being public holiday, due date
would be preceding date i.e. 14th August, 2020.
Note: 365 days are taken for calculation.
12. In the books of Vimal
Kamal in Account Current with Vimal
(Interest to 31st March, 2020 @ 10% p.a.)
2020 ` ` 2020 ` `
Jan.1 To Balance b/d 15,000 91 13,65,000 Jan.24 By Promissiory 15,000 (26) (3,90,000)
Note (due date
26th April)
Jan.11 To Sales 18,000 80 14,40,000 Feb. 1 By Purchases 30,000 59 17,70,000
Feb. 4 To Sales 24,600 56 13,77,600 Feb. 7 By Sales 3,000 53 1,59,000
Return
Mar.18 To Sales 27,600 13 3,55,800 Mar. 1 By Purchases 16,800 30 5,04,000
Mar.31 To Interest 442 Mar.23 By Purchases 12,000 8 96,000
Mar.31 By Balance of 23,99,400
Products
Mar.31 By Bank 8,842
85,642 45,38,400 85,642 45,38,400
Working Note:
Calculation of interest:
Interest = = 23,99,400/366 x 10/100 = `655.57 (approx.)
Note: 366 days are taken for calculation since year 2020 is a leap year.
13. Trading and Profit and Loss Account of Mr. Manan
for the year ended 31st March,2020
Particulars ` Amount ` Amount ` `
To Opening stock 93,600 By Sales 7,79,200

To Purchases 6,43,400 Less: Returns 17,200 7,62,000

Add: Omitted invoice 800 By Closing stock 1,57,200
6,44,200
Less: Returns 11,600
6,32,600
Less: Drawings 1,200 6,31,400
To Carriage 39,200
9,19,200 9,19,200
To Rent and taxes 9,400 By Gross profit b/d 1,55,000
To Salaries and wages 18,600 By Discount 8,880
To Bank interest 2,200
Add: Due 3,400 5,600
To Printing and stationary 28,800
Less: Prepaid (1/4) 7,200 21,600
To Discount allowed 3,600
To General expenses 22,900
To Insurance 2,600
To Postage & telegram 4,660
expenses
To Travelling expenses 1,740
To Provision for bad debts 2,300
[W.N.(2)]
To Provision for discount 874
on debtors [W.N.(2)]
To Depreciation on 1,000
furniture & fittings
To Net profit 69,006 ______
1,63,880 1,63,880
Balance Sheet of Manan as at 31st March,2020

Liabilities ` ` Assets ` `
Capital 1,53,380 Furniture & fittings 10,000
Add: Net profit 69,006 Less: Depreciation 1000 9,000
2,22,386 Sundry debtors (W.N.1) 46,000
Less: Drawings: Less: Provision for bad
Cash 60,000 & doubtful debts (W.N.2) 2,300

Goods 1,200 61,200 1,61186 43,700

Bank loan 40,000 Less: Provision for
Bank interest due 3,400 discount (W.N.2) 874 42,826
Sundry creditors (W.N.3) 28,400 Stock 1,57,200
Prepaid expenses:
Printing & stationary 7,200
Bank balance 16,000
_______ Cash balance 760
2,32,986 2,32,986
Working Notes:
(1) Sundry debtors
Balance as per trial balance 48,000
Less: Due to Rahul 2,000
46,000
(2) Provision for bad & doubtful debts:
@ 5% on ` 46,000 2,300
Provision for discount:
2% on ` 43,700 (46,000 -2,300) 874
(3) Sundry creditors
Balance as per trial balance 29,600
Less: Set off in respect of Rahul 2,000
27,600
Add: Purchase invoice omitted 800
28,400
14. (a) In the Books of Rose, Lilly and Lotus
Profit and Loss Appropriation A/c for the Year ended 31st March, 2020
Particulars ` Particulars `
To Salary to Lotus 50,000 By Net Profit b/d 3,34,600
To Interest on capital Add: Drawings of
Rose 24,000 Lotus wrongly debited
Lilly 36,000 as salaries 10,000 3,44,600
Lotus 48,000 1,08,000
By Interest on drawings
To Net Profit transferred to Rose 2,400

Rose 50,000 Lilly 1,800

Lilly 64,000 Lotus 1,200 5,400
Lotus 78,000 1,92,000
3,50,000 3,50,000
Partners’ Capital Accounts

Particulars Rose Lilly Lotus Particulars Rose Lilly Lotus
By Bank 2,00,000 3,00,000 4,00,000
To 2,00,000 3,00,000 4,00,000
Balance
c/d
2,00,000 3,00,000 4,00,000 2,00,000 3,00,000 4,00,000
By balance 2,00,000 3,00,000 4,00,000
b/d
Partners’ Current Accounts

Particulars Rose Lilly Lotus Particulars Rose Lilly Lotus
To Tuition 10,000 By Interest 24,000 36,000 48,000
fees on capital
To Drawings 40,000 30,000 20,000 By Salary 50,000
To Interest 2,400 1,800 1,200 By Net 50,000 64,000 78,000
on drawings Profit
To balance 31,600 68,200 1,44,800
c/d
74,000 1,00,000 1,76,000 74,000 1,00,000 1,76,000
By balance 31,600 68,200 1,44,800
b/d
(b) Total Profit for 4 years = ` 5000+ ` (8,500) +` 25,000+` 37,500= ` 59,000.
Average profits = Total Profit = ` 59,000 = `14,750
No of Years 4
Average Profits for Goodwill = ` 14,750 – Proprietor Remuneration
= ` 14,750 – ` 3,000 = ` 11,750
Normal Profit = Interest on Capital employed
= ` 10,000 (i.e. ` 1,00,000 x10/100) = ` 10,000
Super Profit = Average Profit-Normal Profit = ` 11,750 – ` 10,000 = ` 1,750
Goodwill = Super Profit x No of years purchases = ` 1,750 x 3 =` 5,250

15. In the books of Ramu, Mamu and Damu

Revaluation A/c
To machinery 36,000 By Building 75,000
To Bad debts 2,800
To Reserve for Bad debts 2,000
To Furniture 4,000
To Inventory 5,200
To Profit on revaluation
Ramu 15,000
Mamu 10,000 25,000
75,000 75,000
Partner’s Capital A/cs
Particulars Ramu Mamu Damu Particulars Ramu Mamu Damu
By Balance b/d 2,10,000 1,90,000
To Ramu, 50,000 By bank 1,50,000
Mamu
By Damu 25,000 25,000
To Bank (b/f) 36,000 99,000 By General 36,000 24,000
reserve
To balance c/d 2,50,000 1,50,000 1,00,000 By revaluation 15,000 10,000
(working note)
2,86,000 2,49,000 80,000 2,86,000 2,49,000 1,50,000
Bank A/c
To balance b/d 24,000 By Ramu’s capital 36,000
To Damu’s capital 1,50,000 By Mamu’s capital 99,000
By balance c/d 39,000
1,74,000 1,74,000

Balance Sheet as on 1st April, 2020 (after admission)

Capital Accounts: Land & Building 2,25,000
Ramu 2,50,000 Machinery 1,44,000
Mamu 1,50,000 Furniture 40,000
Damu 1,00,000 Trade Receivables 40000
Loan from HDFC bank 25,000 Reserve for Bad debts 2,000 38,000
Trade Payables 21,000 Inventory 60,000
Bank 39,000
5,46,000 5,46,000
Working Note:
Partner Old Share Sacrificed Share New Share
Ramu 3/5 - 1/10 = 5/10
Mamu 2/5 – 1/10 = 3/10
Damu – 2/10 (gain) = 2/10
Since the capitals of the old partners are adjusted on the basis of the incoming partners
share- The closing balances will be fixed first as follows-
Capital and goodwill brought in by Damu - ` 1,50,000
His share of goodwill- 2,50,000 x 1/5 ` (50,000)
Amount brought in as capital `1,00,000
Total capital of the firm based on his share 1,00,000 x 5 = ` 5,00,000
Remaining capital to be borne by Ramu and Mamu in their new profit sharing ratio
Closing capital of Ramu (5/10th share) = 5,00,000 x 5/10 = 2,50,000
Closing capital of Mamu (3/10th share) = 5,00,000 x 3/10 = 1,50,000
Based on the above closing balances- the cash will be either brought in or excess cash
will be withdrawn from the books
16. In the books of Rotary Club
Dr Income and expenditure Account for the year ended on 31st March, 2020 Cr
Expenditure Amount Income Amount
(`) (`)
To Salaries and wages 12,250 By Subscriptions (W.N. 4) 22,000

To Depreciation (W.N. 3) 10,300 By Net proceeds from 3,750

refreshments (22,000-18,250)
To Telephone Charges 2,800 By Entrance fees (50% x 13,000
26,000)
To Electricity charges 14,000 By Interest on investments 4,550
(W.N. 5)
To Honorarium charges 6,500 By Excess of expenditure over 2,550
income
45,850 45,850
Balance sheet as on 31st March, 2020
(`) (`)
Opening capital fund 1,13,880 Sports Equipment 50,500
Less: Deficit (2,550) 1,11,330 Furniture 11,180
Entrance fees 13,000 7% Investments 65,000
Outstanding electricity charges 3,800 Subscription in arrears 5,200
Subscription in advance 4,850 Cash 1,100
1,32,980 1,32,980
Working notes
1. Investments made- Income earned during the year = 4,550 = 65,000
Rate of interest 7%
2. Balance sheet as on 31st March, 2019
(`) (`)
Opening capital fund (B/f) 1,13,880 Sports Equipment 32,000
Accrued electricity charges 5,400 Furniture 12,480
Subscription in advance 6,250 7% Investments 65,000
Subscription Outstanding 7,600
Cash 8,450
Total 1,25,530 1,25,530

3. Computation of depreciation-
Sports equipment
Particulars Amt (Rs)
Sports equipment as on 31st, March 2019 32,000
Add: Purchases during the year 27,500
Less: Closing balance of equipment as on 31st, March 2020 (50,500)
Depreciation on sports equipment for the year ended 31st, March 2020 9,000
Furniture
Particulars Amt (`)
Furniture as on31st,
March 2019 12,480
Add: Purchases during the year -
Less: Closing balance of equipment as on 31st, March 2020 (11,180)
Depreciation on furniture for the year ended 31st, March 2020 1,300
Total Depreciation = ` 10,300 (9,000+1,300)
4. Subscription to be credited to income and expenditure account for the year 2020
Dr Subscription A/c (year ended on 31st March, 2020) Cr
Particulars Amount Particulars Amount
(`) (`)
To Outstanding at the 7,600 By Advance at the beginning 6,250
beginning (2019) (2019)
To Income and Expenditure 22,000 By Receipts and payments A/c 23,000
A/c
To Advance at the end 4,850 By Outstanding at the end 5,200
(2021) (2020)
34,450 34,450
5. Electricity charges to be debited to Income and expenditure Account-
Electricity charges paid for year 2020 15,600
Add: Outstanding charges for year 2020 3,800
Less: Outstanding charges for year 2019 5,400
Electricity charges to be debited to Income and Expenditure A/c 14,000

17. Book of Alankit Limited

Journal
Date Particulars L.F. Debit Credit
Amount Amount
(`) (`)
Bank A/c Dr. 50,00,000
(Money received on applications for
2,00,000 shares @` 25 per share)
(Transfer of application money on
2,00,000 shares to share capital)
(Amount due on the allotment of
2,00,000 shares @ ` 30 per share)
Bank A/c Dr. 60,00,000
(Allotment money received)
Equity Share First Call A/c Dr. 40,00,000
(Being first call made due on 2,00,000
shares at ` 20 per share)
Bank A/c Dr. 50,00,000
To Equity Share First Call A/c 40,00,000
To Calls in Advance A/c 10,00,000
(Being first call money received along
with calls in advance on 2,00,000
shares at `25 per share)
Equity Share Final Call A/c Dr. 50,00,000
To Equity Share capital A/c 50,00,000
(Being final call made due on 2,00,000
shares at `25 each)
Bank A/c Dr. 39,00,000
Calls in Advance A /C Dr. 10,00,000
Calls in Arrears A/c Dr. 1,00,000
(Being final call received for 1,56,000 50,00,000

shares and calls in advance for 40,000

shares adjusted)
Interest on Calls in Advance A/c Dr. 30,000
To shareholders A/c 30,000
Being interest made due on calls in
advance of `10,000,00 at the rate of
12% p.a.)
Shareholders A/c Dr. 30,000
To bank A/c 30,000
(Being payment of Interest made to
shareholders)
Shareholders A/c Dr. 1,667
To Interest on Calls in Arrears A/c 1,667
(Being interest on calls in arrears made
due at the rate of 10%)
Bank A/c Dr. 1,01,667
To Calls in Arrears A/c 1,00,000
To Shareholders A/c 1,667
(Being money received from
shareholder for calls in arrears and
interest thereupon)
18.
Particulars Dr. Cr.
` `
Preference Share Capital A/c (12,000 x `75) Dr. 9,00,000
To Preference Share Allotment A/c 3,00,000
To Preference Share First Call A/c 3,00,000
(Being the forfeiture of 12,000 preference shares `75
each being called up for non-payment of allotment and
first call money as per Board’s Resolution No....
dated.....)
Bank A/c (10,000 x `65) Dr. 6,50,000
Forfeited Shares A/c (10,000 x `10) Dr. 1,00,000
(Being re-issue of 10,000 shares at ` 65 per share
paid-up as ` 75 as per Board’s Resolution

No…..dated….)
To Capital Reserve A/c (Working Note) 1,50,000
(Being profit on re-issue transferred to
Capital/Reserve)
Working Note:
Forfeited amount per share =` 3,00,000/12,000 = ` 25
Loss on re-issue =` 75 – ` 65 = ` 10
19. Books of Priya Ltd.
Journal
Particulars L.F. Debit Credit
(`) (`)
Bank A/c Dr. 1,00,00,000
To Debenture Application A/c 1,00,00,000
(Debenture application money received)
Debenture Application A/c Dr. 1,00,00,000
To 12% Debentures A/c 1,00,00,000
(Application money transferred to 12%
debentures account consequent upon allotment)
Debenture allotment A/c Dr. 1,25,00,000
Discount on issue of debentures A/c Dr. 25,00,000
(Amount due on allotment)
Bank A/c Dr. 1,25,00,000
To Debenture Allotment A/c 125,00,000
(Money received consequent upon allotment)

20. (i) Fundamental Accounting Assumptions: Fundamental accounting assumptions

underline the preparation and presentation of financial statements. They are
usually not specifically stated because their acceptance and use are assumed.
Disclosure is necessary if they are not followed. The Institute of Chartered
Accountants of India issued Accounting Standard (AS-1) ‘Disclosure of Accounting
Policies’ according to which the following have been generally accepted as
fundamental accounting assumptions:
(i) Going Concern: The enterprise is normally viewed as a going concern, i.e., as
continuing operations for the foreseeable future. It is assumed that the
enterprise has neither the intention nor the necessity of liquidation or of
curtailing materially the scale of the operations.
(ii) Consistency: It is assumed that accounting policies are consistent from one
period to another.
(iii) Accrual: Revenues and costs are accrued, i.e. recognised as they are earned
or incurred (and not as money is received or paid) and recorded in the financial
statements of the periods to which they relate.
(ii) Retirement of bills of exchange: Sometimes, the acceptor of a bill of exchange
has spare funds much before the maturity date of the bill of exchange accepted by
him. He may, therefore, desire to pay the bill before the due date. In such a
circumstance, the acceptor shall ask the payee or the holder of the bill to accept
cash before the maturity date. If the payee agrees, the acceptor may be allowed a
rebate or discount on such early payment. This rebate is generally the interest at
an agreed rate for the period between the date of payment and date of maturity.
The interest/rebate/discount becomes the income of the acceptor and expense of
the payee. It is a consideration for premature payment. When a bill is paid before
due date, it is said to be retired under rebate.
(iii) Noting Charges: It is necessary that the fact of dishonour and the causes of
dishonour should be established. If there is a fear of dishonour, the bill will be given
to the public official known as “Notary Public”. These officials present the bill for
payment and if the money is received, they will hand over the money to the original
party. But, if the bill is dishonoured they will note the fact of dishonour, and the
reasons given and give the bill back to their client. For this service, they charge a
small fee. This fee is known as noting charges. The amount of noting charges is
recoverable from the party who is responsible for dishonour.
(iv) Over-riding Commission: In the case of consignment accounts, the consignor
pays a commission to the consignee in consideration of services rendered by the
latter for selling the goods consigned. This commission may be either normal
commission or special commission. Again, the special commission may be del-
credere commission or over riding commission.

Over-riding commission is an extra commission allowed to the consignee in addition

to the normal commission. Such additional commission is generally allowed:-
(i) To provide additional incentive to the consignee for the purpose of introducing
and creating a market for a new product.
(ii) To provide incentive for supervising the performance of other agents in a
particular area.
(iii) To provide incentive for ensuring that the goods are sold by the consignee at
the highest possible price.

QUESTIONS
True and False
(i) A tallied trial balance means that the books of accounts have been prepared as per
accepted accounting principles.
(ii) The rationale behind the opening of a suspense account is to tally the trial balance.
(iii) Reducing balance method of depreciation is followed to have a uniform charge for
depreciation and repairs and maintenance together.
(iv) A partnership firm can acquire fixed assets in the name of the firm.
(v) Outstanding salaries for the previous year shall be shown as liability in the current
year balance sheet.
(vi) The financial statement must disclose all the relevant and reliable information i n
accordance with the Full Disclosure Principle.
(vii) The debit notes issued are used to prepare Sales Return Book.
(viii) Bills receivable and bills payable books are type of subsidiary books.
(ix) The results and position disclosed by final accounts are not exact.
2. (a) Explain Cash and Mercantile system of accounting.
(b) State the advantages of setting Accounting Standards.
Journal Entries
3. (a) M/s Shyam Textiles & Co. find the following errors in their books of account before
preparation of Trial Balance. You are required to pass necessary journal entries:
(i) A purchase of ` 4,700 from M/s Timber & Co. was recorded in the accounts of
M/s Ginger & Co. as ` 7,400. Day Book entry has also been passed
incorrectly.
(ii) A sale of ` 9,500 to M/s Aman Bros. was recorded in M/s Manan Bros account
as ` 5,900. Day Book entry has also been incorrectly passed.
(iii) Discount allowed ` 230 (as per Cash Book) has been posted to Commission
Account. But the Cash Book total should be ` 320, because discount allowed
of ` 90 to M/s Aman Bros. has been omitted.
(iv) A cheque of ` 6,400 drawn by M/s Aman Bros. has been dishonoured, but
wrongly debited to M/s Manan Bros.
2 FOUNDATION EXAMINATION: NOVEMBER, 2021
How will the above errors impact trial balance?

(b) Classify each of the following transactions into capital or revenue transactions:
-- Legal fees on the acquisition of land.
-- Complete repaint of existing building.
-- Repainting of a delivery van.
-- Providing drainage for a new piece of water-extraction equipment.
-- Carriage costs on a replacement part for a piece of machinery.
Cash Book
4. (a) Prepare a Petty Cash Book on the Imprest System from the following:
2021 `
June 1 Received ` 1,00,000 for petty cash
“ 2 Paid taxi fare 2,000
“ 3 Paid cartage 10,000
“ 4 Paid for courier 2,000
“ 5 Paid wages 2,400
“ 5 Paid for stationery 1,600
“ 6 Paid for the repairs to machinery 6,000
“ 6 Auto fare 400
“ 7 cartage 1,600
“ 7 Paid for courier 2,800
“ 8 Cartage 12,000
“ 9 Stationery 8,000
“ 10 Sundry expenses 20,000
(b) Classify the following errors under the three categories – Errors of Omission, Errors
of Commission and Errors of Principle.
(i) Sale of furniture credited to Sales Account.
(ii) Machinery sold on credit to Mohan recorded in Journal Properly but omitted to
be posted.
(iii) Goods worth ` 5,000 purchased on credit from Ram recorded in the Purchase
Book as ` 500.
(iv) Purchase worth ` 4,500 from Mr. X not recorded in subsidiary books.
(v) Credit sale wrongly passed through the Purchase Book.
5. On 31st March, 2021 the pass-book of a trader showed a credit balance of ` 15,65,000
but the passbook balance was different for the following reasons from the cash book
balance:
Cheques issued to ‘X’ for ` 60,000 and to ‘Y’ for ` 3,84,000 were not yet presented for
payment.
Bank charged ` 350 for bank charges and ‘Z’ directly deposited ` 1,816 into the bank
account, which were not entered in the cash book.
Two cheques-one from ‘A’ for ` 5,15,000 and another from ‘B’ for ` 12,500 were
collected in the first week of April, 2021 although they were banked on 25.03.2021.
Interest allowed by bank ` 4,500.
Prepare a bank reconciliation statement as on 31st March, 2021.
6. Submarine Ltd. keeps no stock records but a physical inventory of stock is made half
yearly and the valuation is taken at cost. The company’s year ends on 31 st March, 2021
and their accounts have been prepared to that date. The stock valuatio n taken on 31 st
March, 2021 was however, misleading and you have been advised to value the closing
stocks as on 31st March, 2021 with the stock figure as on 30th September, 2020 and
some other information is available to you:
(i) The cost of stock on 30th September, 2020 as shown by the inventory sheet was
` 2,40,000.
(ii) On 30th September, stock sheet showed the following discrepancies:
(a) A page total of ` 15,000 had been carried to summary sheet as ` 16,000.
(b) The total of a page had been undercast by ` 600.
(iii) Invoice of purchases entered in the Purchase Book during the quarter from
October,2020 to March,2021 totaled ` 2,10,000. Out of this ` 9,000 related to
goods received prior to 30thSeptember, 2020. Invoices entered in April,2021
relating to goods received in March, 2021 totaled `12,000.
(iv) Sales invoiced to customers totaled `2,70,000 from September,2020 to March,
2021. Of this ` 15,000 related to goods dispatched before 30th September, 2020.
Goods dispatched to customers before 31 st March, 2021 but invoiced in April, 2021
totaled ` 12,000.
(v) During the final quarter, credit notes at invoiced value of ` 3,000 had been issued to
customers in respect of goods returned during that period. The gross margin
earned by the company is 25% of cost.
You are required to prepare a statement showing the amount of stock at cost as on
31st March, 2021.
7. The M/s Nishant Transport purchased 10 Buses at ` 15,00,000 each on 1st April 2017.
On October 1st, 2019, one of the Buses is involved in an accident and is completely
destroyed and ` 7,00,000 is received from the insurance in full settlement. On the same
date, another truck is purchased by the company for the sum of ` 18,00,000. The
company write off 10% on the original cost per annum. The company observe the
calendar year as its financial year.
You are required to prepare the buses account for two year ending 31 Dec, 2020.
Bills of Exchange
8. Prepare Journal entries for the following transactions in David’s books.
(i) David’s acceptance to Samuel for ` 5,000 discharged by a cash payment of ` 1,000
and a new bill for the balance plus ` 100 for interest.
(ii) Samantha’s acceptance for ` 8,000 which was endorsed by David to Flex was
dishonoured. Flex paid ` 50 noting charges. Bill withdrawn against cheque.
(iii) Simon retires a bill for ` 2,000 drawn on him by David for ` 20 discount.
(iv) David’s acceptance to Ralph for ` 20,000 discharged by Ralph’s Kent’s acceptance
to David for a similar amount.
Consignment
9. Shikha of Delhi consigned to Reema of Mumbai, goods to be sold at invoice price which
represents 125% of cost. Reema is entitled to a commission of 10% on sales at invoice
price and 25% of any excess realised over invoice price. The expenses on freight and
insurance incurred by Shikha were ` 45,000. The account sales received by Shikha
shows that Reema has effected sales amounting to ` 4,50,000 in respect of 75% of the
consignment. Her selling expenses to be reimbursed were ` 36,000. 10% of consignment
goods of the value of ` 56,250 were destroyed in fire at the Mumbai godown. Reema
remitted the balance in favour of Shika.
You are required to prepare consignment account in the books of Shikha along with the
necessary calculations.
10. On 31st December, 2020 goods sold at a sale price of ` 6,000 were lying with customer,
Sapna to whom these goods were sold on ‘sale or return basis’ were recorded as actual
sales. Since no consent has been received from Sapna, you are required to pass
adjustment entries presuming goods were sent on approval at a profit of cost plus 20%.
Present market price is 10% less than the cost price.
Average Due Date
11. Calculate average due date from the following information:
Date of bill Term Amount (`)
1st March, 2021 2 months 20,000
10th March, 2021 3 months 15,000
5th April, 2021 2 months 10,000
23rd April, 2021 1 months 18,750
10th May, 2021 2 months 25,000
Account current
12. Mr. P owed ` 12,000 on 1st January, 2021 to Mr. Q. The following transactions took
place between them. It is agreed between the parties that interest @ 10% p.a. is to be
calculated on all transactions.
`
15 January, 2021 Mr. Q sold goods to Mr. P 6,690
29 January, 2021 Mr. Q bought goods from Mr. P 3,600
10 February, 2021 Mr. P paid cash to Mr. Q 3,000
13 March, 2021 Mr. P accepted a bill drawn by Mr. Q for one 6,000
month
They agree to settle their complete accounts by one single payment on 15th March,
2021.
Prepare Mr. P in Account Current with Mr. Q and ascertain the amount to be paid. Ignore
days of grace.
13. The following are the balances as at 31st March, 2021 extracted from the books of
Mr. Satender.
` `
Plant and Machinery 78,200 Bad debts recovered 1800
Furniture and Fittings 41,000 Salaries 90,200
Bank Overdraft 3,20,000 Salaries payable 9,800
Capital Account 2,60,000 Prepaid rent 1,200
Drawings 32,000 Rent 17,200

Purchases 6,40,000 Carriage inward 4,500
Opening Stock 1,29,000 Carriage outward 5,400
Wages 48,660 Sales 8,61,200
Provision for doubtful debts 12,800 Advertisement Expenses 13,400
Provision for Discount on debtors 5,500 Printing and Stationery 5,000
Sundry Debtors 4,80,000 Cash in hand 5,800
Sundry Creditors 1,90,000 Cash at bank 12,500
Bad debts 4,400 Office Expenses 40,640
Interest paid on loan 12,000
Additional Information:
1. Purchases include sales return of ` 10,300 and sales include purchases return of
` 6,900.
2. Goods withdrawn by Mr. Satender for own consumption ` 14,000 included in
purchases.
3. Wages paid in the month of April for installation of plant and machinery amounting
to ` 1,800 were included in wages account.
4. Free samples distributed out of purchases for publicity costing ` 3,300.
5. Create a provision for doubtful debts @ 5% and provision for discount on debtors
@ 2.5%.
6. Depreciation is to be provided on plant and machinery @ 20% p.a. and on furniture
and fittings @ 10% p.a.
7. Bank overdraft is secured against hypothecation of stock. Bank overdraft
outstanding as on 31.3.2020 has been considered as 80% of real value of stock
(deducting 20% as margin) and after adjusting the marginal value 80% of the same
has been allowed to draw as an overdraft.
Prepare a Trading and Profit and Loss Account for the year ended 31st March, 2021, and
a Balance Sheet as on that date. Also show the rectification entries.
14. (a) X, Y and Z entered into partnership on 1.1.2020 to share profits and losses in the
ratio of 5:3:2. X personally guaranteed that Z’s share of profit after charging interest
on capitals at 6 % p.a. would not be less than ` 15,000 in any year. Capitals of X, Y
and Z were ` 1,60,000, ` 1,00,000 and ` 80,000 respectively.
Profits for the year ending 31.12.2020 before providing for interest on partners
capital was ` 79,500.
You are required to prepare the Profit and Loss Appropriation Account.
(b) Amar, Akbar and Anthony are in partnership sharing profit and losses at the ratio of
2:5:3. The Balance Sheet of the partnership as on 31.12.2020 was as follows:
Balance Sheet of M/s Amar, Akbar, Anthony
Capital A/cs Sundry fixed assets 10,00,000
Amar 1,70,000 Inventory 2,00,000
Akbar 6,30,000 Trade receivables 1,00,000
Anthony 4,50,000 Bank 10,000
Trade payables 60,000
13,10,000 13,10,000
The partnership earned profit ` 4,00,000 in 2020 and the partners withdrew `
3,00,000 during the year. Normal rate of return 30%.
You are required to calculate the value of goodwill on the basis of 3 years' purchase
of super profit. For this purpose calculate super profit using average capital
employed.
Death of Partner
15. The following is the Balance Sheet of M/s. TMR as at 31st March,2021 they share profit
equally:
Balance Sheet as at 31st March, 2021
Capital Tina 24,600 Machinery 30,000
Meena 24,600 Furniture 16,800
Rita 27,000 Fixture 12,600
General Reserve 9,000 Cash 9,000
Trade payables 14,100 Inventories 5,700
Trade receivables 27,000
Less: Provision for 1800 25,200
Doubtful debts
99,300 99,300
Rita died on 5th April, 2021 and the following agreement was to be put into effect.
(a) Assets were to be revalued: Machinery to ` 35,100; Furniture to ` 13,800; Inventory
to ` 4,500.
(b) Goodwill was valued at ` 18,000 and was to be credited with his share, without
using a Goodwill Account.
(c) ` 6,000 was to be paid away to the executors of the dead partner on 8th April,
2021.
(d) After death of Rita, Tina and Meena share profit equally.
Prepare Revaluation Account and Capital Accounts of the partners and also show
Journal Entry for Goodwill adjustment.
16. The Receipts and Payments account of Peppapig Club prepared on 31 st March, 2021 is
as follows:
Receipts and Payments Account
Receipts ` Amount Payments Amount`
`
To Balance b/d 900 By Expenses (including
Annual Income from Payment for sports
Subscription 9,180 material ` 5,400) 12,600
To Add: Outstanding of By Loss on Sale of 360
last year received Furniture (cost price
this year 360 ` 900)
9,540 By Balance c/d 1,80,900
Less: Prepaid of
last year 180 9,360
To Other fees 3,600
To Donation for 1,80,000
Building
1,93,860 1,93,860
Additional information:
Peppapig club had balances as on 1.4.2020 : -
Furniture ` 3,600; Investment at 5% ` 54,000;
Sports material ` 13,320;
Balance as on 31.3.2021 : Subscription Receivable ` 540;
Subscription received in advance ` 180;

Stock of sports material ` 3,600.
Do you agree with above Receipts and Payments account? If not, prepare correct
Receipts and Payments account and Income and Expenditure account for the year ended
31st March, 2021 and Balance Sheet on that date.
Issue of Shares
17. On 1st April, 2020, States Ltd. issued 1,80,000 shares of ` 10 each payable as follows:
` 2 on application, ` 3 on allotment, ` 2 on First call 1st October, 2020; and ` 3 on Final
call 1st February, 2021.
By 20th May, 1,50,000 shares were applied for and all applications were accepted.
Allotment was made on 1st June. All sums due on allotment were received on 15 th July;
those on 1st call were received on 20 th October. You are required to prepare the Journal
entries to record the transactions when accounts were closed on 31 st March, 2021.
Forfeiture of Shares
18. Mr. Samphat who was the holder of 12,000 preference shares of ` 100 each, on which
` 60 per share has been called up could not pay his dues on Allotment and First call
each at ` 20 per share. The Directors forfeited the above shares and reissued 10,000 of
such shares to Mr. Sushil at ` 50 per share paid-up as `60 per share.
You are required to prepare journal entries to record the above forfeiture and re-issue in
the books of the company.
Issue of Debentures
19. Avantika Ltd. purchased machinery worth `9,90,000 from Avneet Ltd. The payment was
made by issue of 10% debentures of `100 each. Pass the necessary journal entries for
the purchase of machinery and issue of debentures when: (i) Debentures are issued at
par; (ii) Debentures are issued at 20 % discount; and (iii) Debentures are issued at 20%
premium.
20. Write short notes on any three of the following:
(i) Double entry system.
(ii) Journal.
(iii) Importance of bank reconciliation to an industrial unit.
(iv) Bill of exchange and the various parties to it.
SUGGESTED ANSWERS
1. (i) False: Trial balance only checks the arithmetical accuracy of the books. Errors of
principle and errors of commission will not affect the agreement of the trial balance.
(ii) False: The rationale behind the opening of a suspense account is to avoid delay in
the preparation of financial statements.
(iii) True: In the early periods of useful life of a fixed asset, repairs and maintenance
expenses are relatively low because the asset is new. Whereas in later period, as
asset becomes old, repairs and maintenance expenses increase continuously.
Under written down value method, depreciation charged is higher in the initial period
and reduces continuously in the later periods. Thus depreciation and repair and
maintenance expenses become more or less uniform throughout the useful life of
the asset.
(iv) False: A partnership firm cannot acquire fixed assets in its name since it is not a
separate legal entity. It acquires fixed assets in the name of its partners.
(v) False: It shall be disclosed as a current liability in the opening balance sheet.
(vi) True: The financial statement must disclose all the relevant and reliable information
in accordance with the Full Disclosure Principle.
(vii) False: The debit notes issued are used to prepare purchases return book.
(viii) True: Yes, they are types of subsidiary books which is alternate to the journals.
(ix) True: They are prepared on the basis of assumptions, conventions, concepts and
personal judgements of the person who prepare them.
2. (a) Cash and mercantile system: Cash system of accounting is a system by which a
transaction is recognized only if cash is received or paid. In cash system of
accounting, entries are made only when cash is received or paid, no entry being
made when a payment or receipt is merely due. Cash system is normally followed
by professionals, educational institutions or non-profit making organizations.
On the other hand, mercantile system of accounting is a system of classifying and
summarizing transactions into assets, liabilities, equity (owner’s fund), costs,
revenues and recording thereof. A transaction is recognized when either a liability is
created/ impaired and an asset is created /impaired. A record is made on the basis
of amounts having become due for payment or receipt irrespective of the fact
whether payment is made or received actually.
Mercantile system of accounting is generally accepted accounting system by
business entities
(b) The main advantage of setting accounting standards is that the adoption and
application of accounting standards ensure uniformity, comparability and qualitative
improvement in the preparation and presentation of financial statements. The other
advantages are: Reduction in variations; Disclosures beyond that required by law
and Facilitates comparison.
3. (a) Journal Proper of Shyam Textiles & Co.
Rectification Entries
Particulars Dr. Cr.
Amount Amount
` `
(i) M/s Ginger & Co. A/c 7,400
To M/s Timber & Co. A/c 4,700
To Purchases A/c 2,700
(Rectification of purchase entry for ` 4,700
dated….as ` 7,400 in M/s Ginger & Co A/c in
place of M/s. Timber & Co.’s A/c).
(ii) M/s Aman Bros. A/c 9,500
To Sales A/c 5,900
To M/s Manan Bros. A/c 3,600
(Rectification of sale entry for ` 9,500 dated ….as
` 5,900 in M/s Manan Bros A/c in place of M/s
Aman Bros. A/c).
(iii) Discount Allowed A/c 320
To Commission A/c 230
To M/s Aman Bros. A/c 90
(Rectification of wrong posting of discount in
commission account and omission of discount
transaction dated….).
(iv) M/s Aman Bros. A/c 6,400
To Manan Bros A/c 6,400
(Wrong posting for the dishonoured cheque
dated…. is being rectified).
Since all the errors are two-sided in nature, Trial Balance will tally even if the
rectifications are not done.
(b) -- Legal fees on acquisition of land: capital

-- Complete repaint: revenue
-- Repainting van: revenue.
-- Drainage for new equipment: capital.
-- Carriage costs on replacement part: revenue.
4. (a) PETTY CASH BOOK
Receipts Date V. Particulars Total Con- Cartage Statio- Courier Wages Sundries
No. veyance nery `
` 2021 ` ` ` ` ` `
1,00,000 June1 To Cash
2 1 By Conveyance 2,000 2,000
3 2 By Cartage 10,000 10,000
4 3 By Courier 2,000 2,000
5 4 By Wages 2,400 2,400
5 5 By Stationery 1,600 1,600
6 6 By Repairs to 6,000 6,000
machine
6 7 By Conveyance 400 400
7 8 By Cartage 1,600 1,600
7 9 By Courier 2,800 2,800
8 10 By Cartage 12,000 12,000
10 12 By Sundry 20,000 20,000
Expenses
68,800 2,400 23,600 9,600 4,800 2400 26,000
By Balance c/d 31,200
1,00,000 1,00,000
31,200 To Balance b/d
68,800 11 To Cash
(b) (i) Error of Principle.

(ii) Error of Omission.
(iii) Error of Commission.
(iv) Error of Omission.
(v) Error of Commission
5. (i) Bank Reconciliation Statement as on 31st March, 2021

Particulars Details Amount
` ` `
Credit balance as per the pass book 15,65,000
Add: Cheques deposited into bank but A: 5,15,000
not yet collected
B: 12,500 5,27,500
Bank charges debited by the bank 350 5,27,850
Less: Cheques issued but not presented X: 60,000 20,92,850
for payment
Y: 3,84,000 4,44,000
Direct deposit of cash in bank by Z 1,816
Interest allowed by the bank 4,500 (4,50,316)
Debit balance as per the cash book 16,42,534
6. Valuation of Physical Stock as at March 31, 2021

`
Stock at cost on 30.09.2020 2,40,000
Add: (1) Undercasting of a page total 600
(2) Goods purchased and delivered during September
March, 2021
` (2,10,000 – 9,000 + 12,000) 2,13,000
(3) Cost of sales return ` (3,000 – 600) 2,400 2,16,000
4,56,000
Less:(1) Overcasting of a page total ` (16,000 – 15,000) 1,000
(2) Goods sold and dispatched during January –
March, 2021
` (2,70,000 – 15,000 +12,000) 2,67,000
Less: Profit margin  2,67,000  25  53,400
 125  2,13,600 2,14,600
Value of stock as on 31st March, 2021 2,41,400
Note: In the above solution, transfer of ownership is assumed to take place at t he time
of delivery of goods. If it is assumed that transfer of ownership takes place on the date
of invoice, then ` 1,20,000 goods delivered in March, 2021 for which invoice was
received in April, 2021, would be treated as purchases of the accounting year 2020-2021
and thus excluded. Similarly, goods dispatched in March, 2021 but invoiced in April,
2021 would be excluded and treated as sale of the year 2020-2021.
7. Buses A/c
2019 2019
Jan-01 To balance b/d 1,23,75,000 Oct-01 By bank A/c 7,00,000
Oct-01 To Bank A/c 18,00,000 Oct-01 By Depreciation
on lost assets 1,12,500
Oct-01 By Profit & Loss 4,25,000
A/c (Loss on
settlement of Bus)
Dec-31 By Depreciation 13,95,000
A/c
Dec-31 By balance c/d 1,15,42,500
1,41,75,000 1,41,75,000
2020 2020
Jan-01 To balance b/d 1,15,42,500 Dec-31 By Depreciation 15,30,000
A/c
Dec-31 By balance c/d 1,00,12,500
1,15,42,500 1,15,42,500
Working Note:
1. To find out loss/Profit on settlement of Bus `
Original cost as on 1.4.2017 15,00,000
Less: Depreciation for 2017 1,12,500
13,87,500
Less: Depreciation for 2018 1,50,000
12,37,500
Less: Depreciation for 2019 (9 months) 1,12,500
11,25,000
Less: Amount received from Insurance company 7,00,000
Loss on Settlement of Bus 4,25,000
8. Books of David
Journal Entries
Dr. Cr.
` `
(i) Bills Payable Account Dr. 5,000
Interest Account Dr. 100
To Cash A/c 1,000
To Bills Payable Account 4,100
(Bills Payable to Samuel discharged by cash payment
of ` 1,000 and a new bill for `4,100 including ` 100 as
interest)
(ii) (a) Samantha Dr. 8,050
To Flex 8,050
(Samantha’s acceptance for ` 8050 endorsed to Flex
dishonoured, ` 20 paid by Flex as noting charges)
(b) Flex Dr. 8,050
To Bank Account 8,050
(Payment to Flex on withdrawal of bill earlier received
from Mr. Samantha)
(iii) Bank Account Dr. 1,980
Discount Account Dr. 20
(Payment received from Simon against his acceptance
for ` 2,000. Allowed him a discount of ` 20)
(iv) Bills Payable Account Dr. 20,000
(Bills Receivable from Kent endorsed to Ralph in
settlement of bills payable issued to him earlier)
9. Consignment to Mumbai Account in the Books of Shikha
To Goods sent on 5,62,500 By Goods sent on 1,12,500
Consignment A/c Consignment A/c (loading)
To Cash A/c 45,000 By Abnormal Loss 49,500
To Reema(Expenses) 36,000 By Reema(Sales) 4,50,000
To Reema(Commission) 49,219 By Inventories on 91,125

Consignment A/c
To Inventories Reserve A/c 16,875 By General Profit & Loss A/c 6,469
7,09,594 7,09,594
Working Notes:
1. Calculation of value of goods sent on consignment:
Abnormal Loss at Invoice price = ` 56,250
Abnormal Loss as a percentage of total consignment = 10%.
Hence the value of goods sent on consignment = ` 56,250 X 100/ 10 = ` 5,62,500
Loading of goods sent on consignment = ` 5,62,500 X 25/125 = ` 1,12,500
2. Calculation of abnormal loss (10%):
Abnormal Loss at Invoice price = ` 56,250.
Abnormal Loss at cost = ` 56,250 X 100/125 = ` 45,000
Add: Proportionate expenses of Shikha (10 % of ` 45,000) = ` 4,500
` 49,500
3. Calculation of closing Inventories (15%):
Shikha’s Basic Invoice price of consignment = ` 5,62,500
Shikha’s expenses on consignment = ` 45,000
` 6,07,500
Value of closing Inventories = 15% of ` 6,07,500 = ` 91,125
Loading in closing Inventories = ` 1,12,500 x 15/100 = ` 16,875
Where ` 84,375 (15% of ` 5,62,500) is the basic invoice price of the goods sent on
consignment remaining unsold.
4. Calculation of commission:
Invoice price of the goods sold= 75% of ` 5,62,500 = ` 4,21875
Excess of selling price over invoice price = ` 28,125 ( ` 4,50,000 - ` 4,21,875)
Total commission = 10% of ` 4,21,875 + 25% of ` 28,125
= ` 42187.5 + ` 7,031.25 = ` 49218.75
10. Journal Entries

Date Particulars Dr. Cr.
2020 ` `
31st Sales A/c Dr. 6,000
Dec. To Sapna’s A/c 6,000
(Being cancellation of entry for sale of goods, not yet
approved)
Inventories with customers A/c (Refer W.N.) Dr. 4,500
To Trading A/c 4,500
(Being Inventories with customers recorded at
market price)
Working Note:
Calculation of cost and market price of Inventories with customer
Sale price of goods sent on approval `6,000
Less: Profit (6,000 x 20/120) ` 1,000
Cost of goods `5,000
Market price = 5,000 - (5,000 x 10%) = ` 4,500.
11. Calculation of Average Due Date
(Taking 4 th May, 2021 as the base date)
Date of bill Term Due date Amount No. of days from Product
` the base date i.e. `
May 4, 2021
2021 2021
1st March 2 months 4th May 20,000 0 0
10th March 3 months 13th June 15,000 40 6,00,000
5th April 2 months 8th June 10,000 35 3,50,000
23rd April 1 month 26th May 18,750 22 4,12,500
10th May 2 months 13th July 25,000 70 17,50,000
88,750 31,12,500
Total of products
Average due date = Base date+ Days equal to
Total amount
` 3,11,2500
= 4th May, 2021 + = 4th May, 2021 + 35 days = 8 th June, 2021
88,750
12. Mr. P in Account Current with Mr. Q

(Interest upto 15th March, 2021 @ 10% p.a.)
Dr. Cr.
2021 2021
Jan. To Balance b/d 12,000 74 8,88,000 Jan. By Purchase 3,600 45 1,62,000
01 29 account
Jan. To Sales account 6,690 59 3,94,710 Feb. By Cash 3,000 33 99.000
15 10 account
Mar. To Red Ink product Mar. By Bills
13 (` 6,000  29) 1,74,000 13 Receivabl
e account 6,000
Mar. To Interest account Mar. By Balance of
15 15 product 11,95,710
 11,95,710  10  1 
  328 By Balance
 100  365  c/d
(amount to
be paid) 6,418
19,018 14,56,710 19,018 14,56,710
13. Rectification Entries

Particulars Dr. Cr.
Amount Amount
` `
(i) Returns inward account Dr. 10,300
Sales account Dr. 6,900
To Purchases account 10,300
To Returns outward account 6,900
(Being sales return and purchases return
wrongly included in purchases and sales
respectively, now rectified)
(ii) Drawings account Dr. 14,000
(Being goods withdrawn for own consumption
included in purchases, now rectified)
(iii) Plant and machinery account Dr. 1,800
To Wages account 1,800
(Being wages paid for installation of plant and
machinery wrongly debited to wages, now
rectified)
(iv) Advertisement expenses account Dr. 3,300

(Being free samples distributed for publicity out
of purchases, now rectified)
Trading and Profit and Loss Account of Mr. Satendra
for the year ended 31st March, 2021
Dr. Cr.
Amount Amount
` ` ` `
To Opening stock 1,29,000 By Sales 8,54,300
To Purchases 6,12,400 Less: Sales return 10,300 8,44,000
Less: Purchases 6,900 6,05,500 By Closing stock
return
To Carriage inward 4,500 100 100 5,00,000
To Wages 46,860 ` 3,20,000  
80 80
13,44,000 13,44,000
To Salaries 90,200 By Gross profit b/d 5,58,140
To Rent 17,200 By Bad debts recovered 1800
To Advertisement expenses 16,700
To Printing and 5,000
stationery
To Bad debts 4,400
To Carriage outward 5,400
To Provision for doubtful debts
5% of ` 4,80,000 24,000
Less: Existing provision 12,800 11,200
To Provision for discount on
debtors
2.5% of ` 4,56,000 11,400
Less: Existing provision 5,500 5,900
To Depreciation:
Plant and machinery
16,000
Furniture and fittings 4,100 20,100
To Office expenses 40,640
To Interest on loan 12,000
To Net profit
(Transferred to capital
account) 3,31,200 _______
5,59,940 5,59,940
Balance Sheet of Mr. Satendra as on 31st March, 2021

Amount Amount
Liabilities ` ` Assets ` `
Capital account 2,60,000 Plant and machinery 80,000
Add: Net profit 3,31,200 Less: Depreciation 16,000 64,000
5,91,200 Furniture and fittings 41,000
Less: Drawings 46,000 5,45,200 Less: Depreciation 4,100 36,900
Bank overdraft 3,20,000 Closing stock 5,00,000
Sundry 1,90,000 Sundry debtors 4,80,000
creditors
Payable 9,800 Less: Provision for
salaries doubtful debts 35,400
4,44,600
Prepaid rent 1,200
Cash in hand 5800
_______ Cash at bank 12,500
10,65,000 10,65,000
14. (a) Profit and Loss Appropriation Account
for the year ended 31st December, 2020
Dr. Cr.
` ` `
To Interest on capital By Net profit b/d 79,500
X (6% of ` 1,60,000) 9,600
Y (6% of ` 1,00,000) 6,000
Z (6% of ` 80,000) 4,800 20,400
To Partners’ capital accounts:
[profit (` 79,500 –
` 20,400) transferred]
X
29,550
Less: Transferred to Z 3,180 26,370

Y
17,730
Z
11,820
Add: Transferred from X 3,180 15,000 _____
79,500 79,500
(b)
Valuation of Goodwill: `
(1) Average Capital Employed
Total Assets less Trade payables as on 31.12.2020 12,50,000
Add: 1/2 of the amount withdrawn by partners 1,50000
14,00,000
Less: 1/2 of the profit earned in 2020 (2,00,000)
12,00,000
(2) Super Profit :
Profit of M/s Amar, Akbar ,Anthony 4,00,000
Normal profit @ 30% on ` 12,00,000 3,60,000
Super Profit 40,000
(3) Value of Goodwill
3 Years' Purchase of Super profit (` 40,000 × 3) = ` 1,20,000
15. (i) Journal Entry in the books of the M/s TMR
Dr. Cr.
Date Particulars ` `
April,5 Tina’s Capital A/c Dr. 3,000
2021 Meena’s Capital A/c Dr. 3,000
To Rita’s Capital A/c 6,000
(Being the required adjustment for goodwill
through partner’s capital accounts)
(ii) Revaluation Account
Dr. Cr.
To Furniture A/c 3,000 By Machinery A/c 5,100
(` 16,800-13,800) (` 35,100 - 30,000)
To Inventory A/c 1,200

(` 5,700 – 4,500)
To Partners’ Capital A/cs 900
(Tina - ` 300, Meena - ` 300, Rita -
` 300)
5,100 5,100
Tina Meena Rita Tina Meena Rita
To Rita 3,000 3,000 – By Balance b/d 24,600 24,600 27,000
(Goodwill)
To Cash A/c – – 6,000 By General 3,000 3,000 3,000
Reserve A/c
To Executors – – 30,300 By Revaluation 300 300 300
A/c A/c (Profit)
To Balance c/d 24,900 24,900 – By Tina – – 3,000
(Goodwill)
By Meena – – 3,000
(Goodwill)
27,900 27,900 36,300 27,900 27,900 36,300
Working Note:
Statement showing the Required Adjustment for Goodwill
Particulars Tina Meena RIta
Right of goodwill before death 1/3 1/3 1/3
Right of goodwill after death 1/2 1/2 –
Gain / (Sacrifice) (+) 1/6 (+) 1/6 (-) 1/3
16. Corrected Receipts and Payments Account of Peppapig Club
Receipts ` Amount Payments Amount
` `
To Balance b/d 900 By Expenses
To Subscription (` 12,600 – 7,200
Annual Income 9,180 ` 5,400)
By Sports Material 5,400
Less: Receivable as on By Balance c/d 1,81,440

31.3.2020 540 (Cash in Hand
Add: Advance received and at Bank)
for the year 2020–2021 180
Add: Receivable as on
31.3.2020 360
Less: Advance received
as on 31.3.2020 180 9,000
To Other Fees 3,600
To Donation for Building 1,80,000
To Sale of Furniture 540
1,94,040 1,94,040
Income and Expenditure Account of Peppapig club
Expenditure Amount Income Amount
` `
To Sundry Expenses 7,200 By Subscription 9,180
To Sports Material By Other fees 3,600
Balance as on 13,320 By Interest on 2,700
1.4.2020 investment
Add: Purchases 5,400 (5% on ` 54,000)
Less: Balance as on By Deficit: Excess of
31.3.2021 3,600 15,120 Expenditure over 7,200
To Loss on sale of Income
Furniture 360
22,680 22,680
Balance Sheet of Peppapig club
as on 31st March, 2021
(`) ( `)
Capital Fund 72,000 Furniture 3,600
Less: Excess of Less: Sold 900 2,700
Expenditure 7,200 64,800 5% Investment 54,000
over Income
Building Fund 1,80,000 Interest Accrued
on Investment 2,700
Subscription Received 180 Sports Material 3,600
in Advance Subscription 540
Receivable
Cash in Hand and
_______ at Bank
1,81,440
2,44,980 2,44,980
Working Note:
Balance Sheet of Peppapig Club
as on 1st April, 2020
` `
Subscription Furniture 3,600
Received in Advance 180 Investment 54,000
Capital Fund 72,000 Sports Material 13,320
(Balancing Figure) Subscription Receivable 360
Cash in Hand and at Bank 900
72,180 72,180
17. States Ltd.
Journal
2020 Dr. Cr.
` `
May 20 Bank Account Dr. 3,00,000
To Share Application A/c 3,00,000
(Application money on 1,50,000 shares at ` 2
per share received.)
June 1 Share Application A/c Dr. 3,00,000
To Share Capital A/c 3,00,000
(The amount transferred to Capital Account
on 1,50,000 shares ` 2 on application.
Directors’ resolution no........ dated ......)
Share Allotment A/c Dr. 4,50,000
(Being share allotment made due at ` 3 per

share. Directors’ resolution no...... dated ......)
July 15 Bank Account Dr. 4,50,000
To Share Allotment A/c 4,50,000
(The sums due on allotment received.)
Oct. 1 Share First Call Account Dr. 3,00,000
To Share Capital Account 3,00,000
(Amount due from members in respect of first
call-on 1,50,000 shares at ` 2 as per
Directors, resolution no... dated...)
Oct. 20 Bank Account Dr. 3,00,000
To Share First Call Account 3,00,000
(Receipt of the amounts due on first call.)
2021
Feb. 1 Share Second and Final Call A/c Dr. 4,50,000
(Amount due on 1,50,000 share at ` 3 per
share on second and final call, as per
Directors resolution no... dated...)
March Bank Account Dr. 4,50,000
31
To Share Second & Final Call A/c 4,50,000
(Amount received against the final call on
1,50,000 shares at `3 per share.)
18. In the books of Company
Journal
Particulars Dr. Cr.
` `
Preference Share Capital A/c (12,000 x `60) Dr. 7,20,000
To Preference Share Allotment A/c 2,40,000
To Preference Share First Call A/c 2,40,000
(Being the forfeiture of 12,000 preference shares ` 60
each being called up for non-payment of allotment
and first call money as per Board’s Resolution No....

dated.....)
Bank A/c (10,000 x `50) Dr. 5,00,000
Forfeited Shares A/c (10,000 x `10) Dr. 1,00,000
(Being re-issue of 10,000 shares at ` 60 per share
paid-up as ` 70 as per Board’s Resolution
No…..dated….)
To Capital Reserve A/c (Note 1) 1,00,000
Capital Reserve)
Working Note:
Forfeited amount per share =` 2,40,000/1,20,000 = ` 20
Loss on re-issue =` 60 – ` 50 = ` 10
19. Books of Avantika Ltd.
Journal
Machinery A/c Dr. 9,90,000
To Avneet Ltd. 9,90,000
(Machinery purchased)
Case(i) When debentures are issued at par:
Avneet Ltd. Dr. 9,90,000
(10% Debentures issued to Avneet Ltd.)
Case(ii) When debentures are issued at 20% discount:
Discount on Issue of Debentures A/c Dr. 2,47,500
(10% Debentures issued to Avneet Ltd. at 20% discount)
Case(iii) When debentures are issued at 20% premium:

To Premium on Issue of Debentures A/c 1,65,000
(10% Debentures issued to Avneet Ltd. at 20% premium)
Workings:
(a) Number of debentures issued in case of 20% discount:
(`)
Face value 100
Less: Discount 20% 20
Value at which issued 80
` 9,90,000/80 = 12,375 Debentures
(b) Number of debentures issued in case of 20% premium:
(`)
Face value 100
Add: Premium 20% 20
Value at which issued 120
`9,90,000/ 120 = 8,250 Debentures
20. (i) Double entry system may be defined as that system which recognizes and records
both the aspects of a transaction.
Every transaction has two aspects and according to this system, both the aspects
are recorded. This system was developed in the 15 th century in Italy by Luca Pacioli.
It has proved to be systematic and has been found of great use for record ing the
financial affairs for all institutions requiring use of money.
This system offers the under mentioned advantages:
(a) By the use of this system, the accuracy of the accounting work can be
established through the device of trial balance.
(b) The profit earned or loss suffered during a period can be ascertained together
with details.
(c) The financial position of the firm or the institution concerned, can be
ascertained at the end of each period, through preparation of the balance
sheet.
(d) The system permits accounts to be kept in as much detail as necessary and
therefore, affords significant information for the purpose of control etc.

(e) Result of one year may be compared with those of previous years and reasons
for the change may be ascertained. It is because of these advantages that the
double entry system has been used extensively in all countries.
(ii) Transactions are first entered in a book called ‘Journal’ to show which account
should be debited and which should be credited. Journal creates preliminary
records and, is also called subsidiary book. All transactions are first recorded in the
journal as and when they occur, the record is chronological, otherwise it would be
difficult to maintain the records in an ordinary manner. Journal gives de tails
regarding any transaction. Thus journal tells the amounts to be debited and credited
and also the accounts involved.
(iii) Banks are essential to modern society, but for an industrial unit, it serves as a
necessary instrument in the commercial world. Most of the transactions of the
business are done through bank whether it is a receipt or payment. Rather, it is
legally necessary to operate the transactions through bank after a certain limit. All
the transactions, which have been operated through bank, if not verified properly,
the industrial unit may not be sure about its liquidity position in the bank on a
particular date. There may be some cheques which have been issued, but not
presented for payment, as well as there may be some deposits which has been
deposited in the bank, but not collected or credited so far. Some expenses might
have been debited or bills might have been dishonoured. It is not known to the
industrial unit in time, it may lead to wrong conclusions. The errors committed by
bank may not be known without preparing bank reconciliation statement.
Preparation of bank reconciliation statement prevents the chances of
embezzlement. Hence, bank reconciliation statement is very important and is a
necessity of an industrial unit as it plays a key role in the liquidity control of the
industry.
(iv) A bill of exchange is an instrument in writing containing an unconditional order,
signed by the maker, directing a certain person to pay a certain sum of money to or
to the order of certain person or to the bearer of the instrument. When such an
order is accepted by the drawee on the face of the order itself, it becomes a valid
bill of exchange.
There are three parties to a bill of exchange:
(i) The drawer, who draws the bill, that is, the creditor to whom the money is
owing;
(ii) The drawee, the person to whom the bill is addressed or on whom it is drawn
and who accepts the bill that is, the debtor; and
(iii) The payee, the person who is to receive the payment. The drawer in many
cases is also the payee.
QUESTIONS
True and False
(i) The gain from sale of capital assets need not be added to revenue to ascertain the
net profit of a business.
(ii) Sale of office furniture should be credited to Profit and Loss Account.
(iii) The additional commission to the consignee who agrees to bear the loss on account
of bad debts is called overriding commission.
(iv) A partnership firm can acquire fixed assets in the name of the firm.
(v) Debenture holders enjoy the voting rights in the company.
2. (a) Distinguish between fundamental accounting assumption and accounting policies.
statements.” Explain the statement with the help of an example.
Journal Entries
3. (a) You are required to pass necessary journal entries in the books of Kewal:
(i) Cheque amounting ` 9,000 from Hari Krishan in full settlement of his account
for ` 10,000.
(ii) Withdrawn for personal use: Goods (Sales Price ` 8,000, Cost ` 6,000), cash
`1,000
(iii) Goods costing ` 3,000 (Sale price `4,000) distributed as free samples.
(iv) Received commission ` 10,000, half of which does not relate of current year
and is received in advance.
(v) Purchased second hand machinery from Jawahar for `30,000 against a
cheque. Goods of ` 12,000 (Cost ` 9,000) used in repairs of this machinery
which is necessary to make it ready for working.
(b) Classify the following expenditures as capital or revenue expenditure:
(i) An extension of railway tracks in the factory area.
(ii) Amount spent on painting the factory.

(iii) Payment of wages for building a new office extension.

(iv) Amount paid for removal of stock to a new site.
(v) Rings and Pistons of an engine were changed to get full efficiency.
Cash Book
4. (a) Prepare a Petty Cash Book on the Imprest System from the following:
2021 `
April 1 Received ` 40,000 for petty cash
“ 2 Paid auto fare 1,000
“ 3 Paid cartage 5,000
“ 4 Paid for Courier 1,000
“ 5 Paid wages 1,200
“ 5 Paid for stationery 800
“ 6 Paid for the repairs to machinery 3,000
“ 6 Bus fare 200
“ 7 Cartage 800
“ 7 Courier 1,400
“ 8 Cartage 6,000
“ 9 Stationery 4,000
“ 10 Sundry expenses 10,000
(b) The books of accounts of Dime Ltd. for the year ending 31.3.2021 were closed with
a difference in books carried forward. The following errors were detected
subsequently:
(i) Return outward book was under cast by ` 100.
(ii) ` 1,500 being the total of discount column on the credit side of the cash book
was not posted.
(iii) ` 6,000 being the cost of purchase of office furniture was debited to Purchase
A/c.
(iv) A credit sale of ` 760 was wrongly posted as ` 670 to the customers’ A/c. in
the sales ledger.
(v) The Sales of ` 10,000 was omitted to be recorded.
Pass rectification entries in the next year.


5. From the following particulars of M/s Swapnil enterprises, prepare a Bank reconciliation
statement:
(1) Bank overdraft as per Pass Book as on 31st March, 2021 was ` 8,800
(2) Cheques deposited in Bank for ` 5,800 but only ` 2,000 were cleared till 31st
March.
(3) Cheques issued were ` 2,500, ` 3,800 and ` 2,000 during the month. The
cheque of ` 5,800 is still with supplier.
(4) Dividend collected by Bank ` 1,250 was wrongly entered as ` 1,520 in Cash
Book.
(5) Amount transferred from fixed deposit A/c into the current A/c ` 2,000
appeared only in Pass Book
(6) Interest on overdraft ` 930 was debited by Bank in Pass Book and the
information was received only on 3rd April 2021.
(7) Direct deposit by M/s Rajesh Trader ` 400 not entered in Cash Book.
(8) Corporation tax ` 1,200 paid by Bank as per standing instruction appears in
Pass Book only.
6. A trader prepared his accounts on 31st March, each year. Due to some unavoidable
reasons, no stock taking could be possible till 15 th April, 2021 on which date the total cost
of goods in his godown came to ` 1,50,000. The following facts were established
between 31st March and 15 th April, 2021.
(i) Sales ` 1,23,000 (including cash sales ` 30,000)
(ii) Purchases ` 15,102 (including cash purchases ` 5970)
(iii) Sales Return ` 3,000.
(iv) On 15th March, goods of the sale value of ` 30,000 were sent on sale or return
basis to a customer, the period of approval being four weeks. He returned 40% of
the goods on 10th April, approving the rest; the customer was billed on 16th April.
(v) The trader had also received goods costing ` 24,000 in March, for sale on
consignment basis; 20% of the goods had been sold by 31st March, and another
50% by the 15th April. These sales are not included in above sales.
Goods are sold by the trader at a profit of 20% on sales.
You are required to ascertain the value of Inventory as on 31st March, 2021.


7. M/s. Seven Seas purchased a second-hand machine on 1st April, 2017 for
` 1,60,000. Overhauling and erection charges amounted to ` 40,000.
Another machine was purchased for ` 80,000 on 1st Oct, 2017.
On 1st Oct, 2019, the machine installed on 1st April, 2017 was sold for ` 1,00,000.
Another machine for `30,000 was purchased and was installed on
31st December, 2019.
Under the existing practice the company provides depreciation @ 10% p.a. on original
cost. However, from 1st April,2020 it decided to adopt WDV method and to charge
depreciation @ 15% p.a. You are required to prepare Machinery account for the years
2017 to 2021.
Bills of Exchange
8. On 1st January 2021, Swapnil draws two bills of exchange for ` 32,000 and ` 50,000.
The bill of exchange for ` 32,000 is for two months while the bill of exchange for
` 50,000 is for three months. These bills are accepted by Vishal. On 4th March, 2021,
Vishal requests Swapnil to renew the first bill with interest at 15% p.a. for a period of two
months. Swapnil agreed to this proposal. On 25th March, 2021, Vishal retires the
acceptance for ` 50,000, the interest rebate i.e. discount being ` 500. Before the due
date of the renewed bill, Vishal becomes insolvent and only 50 paisa in a rupee could be
recovered from his estate.
Show the Journal Entries (with narrations) in the books of Swapnil.
Consignment
9. On 1.1.2021, Mr. Sam of Kerala consigned to Mr. Alex of Chennai goods for sale at
invoice price. Mr. Alex is entitled to a commission of 5% on sales at invoice price and
20% of any surplus price realized over and above the invoice price. Goods costing
` 5,00,000 were consigned to Chennai at the invoice price of ` 7,50,000. The direct
expenses of the consignor amounted to ` 50,000. On 31.3.2021, an account sales was
received by Mr. Sam from Mr. Alex showing that he had effected sales of ` 6,00,000 in
respect of 4/5th of the quantity of goods consigned to him. Mr. Alex’s direct expenses
were ` 15,000. Mr. Alex accepted a bill drawn by Mr. Sam for ` 5,00,000 and remitted
the balance due in cash.
You are required to prepare the consignment account and the account of Mr. Alex in the
books of Mr. Sam.
10. S Ltd. sells goods on Sale or Return basis. Customers having the choice of returning the
goods within 15 days. During April 2021, the following are the details of the goods sent:

Date of dispatch Party’s name Amount `

April 2 M/s G 20,000
4 M/s H 36,000
16 M/s I 50,000
20 M/s J 16,000
24 M/s K 42,000
28 M/s L 60,000
Within the stipulated time G and I returned the goods while H, J and K informed that they
have accepted the goods. Prepare the following in the books of ‘S’.
(i) Goods on “sales or return, sold and returned day books”.
(ii) Goods on sales or return total account.
Average Due Date
11. Sunder purchases goods on credit. His due dates for payments were as under:
Transaction Date ` Due Date
March 5 1,200 April 08
April 15 800 May 18
May 10 1,100 June 13
June 5 1,600 July 10
Calculate Average due date.
Account current
12. The following are the transactions that took place between X and Y during the period
from 1st October, 2020 to 31st March, 2021:
2020 `
Oct.1 Balance due to X by Y 3,000
Oct 18 Goods sold by X to Y 2,500
Nov. 16 Goods sold by Y to X (invoice dated November, 26) 4,000
Dec.7 Goods sold by Y to X (invoice dated December, 17) 3,500
2021 `
Jan. 3 Promissory note given by X to Y, at three months 5,000
Feb. 4 Cash paid by X to Y 1,000
Mar. 21 Goods sold by X to Y 4,300
Mar.28 Goods sold by Y to X (invoice dated April, 8) 2,700

Draw up an Account Current up to March 31 st, 2021 to be rendered by X to Y, charging

interest at 10% per annum. Interest is to be calculated to the nearest rupee.
13. Mr. Bansal submitted to you the following trial balance, which he has not been able to
agree. Rewrite the trial balance and prepare trading and profit and loss account for the
year ended 31.3.2021 and a balance sheet as on that date after giving effect to the
undermentioned adjustments:
Particulars Dr. Cr.
` `
Capital - 16,000
Opening stock 17,500 -
Closing stock - 18,790
Drawings 3,305 -
Returns inward - 550
Carriage inward 1,240 -
Deposit with X - 1,400
Returns outward 840 -
Carriage outward - 725
Rent paid 800 -
Rent outstanding 150 -
Purchases 13,000 -
Furniture 1,500 -
Sales - 29,000
Wages 850 -
Cash 1,370 -
Advertisement __950 _____
46,505 68,665
Adjustments:
1. Write off ` 600 as bad debt and make a provision for doubtful debts at 5% on
balance sundry debtors.
2. Stock valued at ` 2,000 was destroyed by fire on 25th March,2021, but insurance
company admitted a claim for ` 1,500 only and paid the sum in April,2021.

3. Depreciation to be provided on furniture at 10% per annum.

14. (a) A and B are partners in a firm sharing profits and losses equally. On 1st April, 20 20
the balance of their Capital Accounts were : A ` 50,000 and B ` 40,000. On that
date the balances of their Current Accounts were: A ` 10,000 (credit) and B `
3,000 (debit). Interest @ 5% p.a. is to be allowed on the balance of Capital
Accounts as on 1.4.2020. B is to get annual salary of ` 3,000 which had not been
withdrawn. Drawings of A and B during the year were ` 1,000 and ` 2,000
respectively. The profit for the year ended 31st March, 2021 before charging
interest on capital but after charging B’s salary was ` 70,000. It is decided to
transfer 10% of divisible profit to a Reserve Account. Prepare Profit & L oss
Appropriation Account for the year ended 31st March, 2021 and show Capital and
Current Accounts of the Partners for the year.
(b) Tina and Rita are partners in a firm. Their capitals are: Tina ` 6,00,000 and Rita
` 4,00,000. During the year ended 31st March, 2021 the firm earned a profit of
` 3,00,000. Assuming that the normal rate of return is 20%, calculate the value of
goodwill on the firm:
(i) By Capitalization Method; and
(ii) By Super Profit Method if the goodwill is valued at 3 years purchase of Super
Profit.
Admission and Retirement of Partner
15. Acme & Co. is a partnership firm with partners Mr. A, Mr. B and Mr. C, sharing profits and
losses in the ratio of 10:6:4. The balance sheet of the firm as at 31 st March, 2021 is as
under:
Capitals: Land 30,000
Mr. A 2,40,000 Buildings 6,00,000
Mr. B 60,000 Plant and machinery 3,90,000
Mr. C 90,000 3,90,000 Furniture 1,29,000
Reserves Investments 36,000
(un-appropriated profit) 60,000 Inventories 3,90,000
Long Term Debt 9,00,000 Trade receivables 4,17,000
Bank Overdraft 1,32,000

Trade payables 5,10,000

19,92,000 19,92,000
It was mutually agreed that Mr. B will retire from partnership and in his place Mr. F will be
admitted as a partner with effect from 1st April, 2021. For this purpose, the following
adjustments are to be made:
(a) Goodwill is to be valued at `3 lakh but the same will not appear as an asset in the
books of the reconstituted firm.
(b) Buildings and plant and machinery are to be depreciated by 5% and 20%
respectively. Investments are to be taken over by the retiring partner at ` 45,000.
Provision of 20% is to be made on Trade receivables to cover doubtful debts.
(c) In the reconstituted firm, the total capital will be ` 6 lakhs which will be contributed
by Mr. A, Mr. B and Mr. C in their new profit sharing ratio, which is 2:2:1.
(i) The surplus funds, if any, will be used for repaying bank overdraft.
(ii) The amount due to retiring partner shall be transferred to his loan account.
You are required to prepare
(a) Revaluation account;
(b) Partners capital accounts;
(c) Bank account; and
(d) Balance sheet of the reconstituted firm as on 1st April, 2021.
16. From the following receipts and payments account of Pune Club, prepare income and
expenditure account for the year ended 31.03.2021 and its balance sheet as on that
date:
Receipts ` Payments `
Cash in hand 4,000 Salary 2,000
Cash at bank 10,000 Repair expenses 500
Donations 5,000 Purchase of furniture 6,000
Subscriptions 12,000 Misc. expenses 500
Entrance fees 1,000 Purchase of investments 6,000
Interest received from bank 500 Insurance premium 200
Sale of old newspaper 150 Snooker table 8,000
Sale of drama tickets 1,050 Stationary 150
Drama expenses 500

Cash in hand (closing) 2,650

Cash at bank (closing) 7,200
33,700 33,700
The following adjustments are to be made while drawing up the accounts:
1. Subscriptions in arrear for year 2020-21 `900 and subscriptions in advance for
2021-22 ` 350.
2. Insurance premium outstanding ` 40 and Misc. expenses prepaid `90.
3. 50% of donation is to be capitalized.
4. Entrance fees are to be treated as revenue income.
5. 8% interest has accrued on investment for five months.
6. Snooker table costing ` 30,000 was purchased on 31st March,2020 and `22,000
were paid for it.
Issue of Shares
17. On 1st June, 2020, Suraj Ltd. issued 43,000 shares of ` 100 each payable as follows:
` 20 on application;
` 20 on allotment;
First call of ` 30 on 1st Dec, 2020; and
Second and final call of ` 30 on 1st March, 2021.
By 20th July, 40,000 shares were applied for and all applications were accepted.
Allotment was made on 1st Aug. All sums due on allotment were received on 15th Sept;
those on 1st call were received on 20th Dec.
You are required to journalise the transactions when accounts were closed on
31st March, 2021
Forfeiture of Shares
18. Delta Ltd. forfeited 600 shares of ` 10 each issued at a premium of 10% to W for non-
payment of first and final call money of ` 3 (including ` 1 premium). At different intervals
of time out of these 400 shares were re-issued to Z, credited as fully paid for ` 9 per
share and 100 shares were re-issued to X as ` 10 paid up for ` 11 per share. Record the
journal entries for forfeiture and reissue of shares.
Issue of Debentures
19. On 1st April 2020, XY Ltd. took over assets of `4,50,000 and liabilities of 60,000 of
Himalayan Ltd. for the purchase consideration of ` 4,40,000. It paid the purchase
consideration by issuing 8% debenture of ` 100 each at 10% premium on same date.

XY Ltd. issued another 3000, 8% debenture of ` 100 at discount of 10% redeemable at

premium of 5 % after 5 years. According to the terms of the issue ` 30 is payable on
application and the balance on the allotment on debentures. It has been decided to write
off the entire loss on issue of discount in the current year itself.
You are required to pass the journal entries in the books of XY Ltd. for the financial year
2020-21
20. Write short notes on:
(i) Noting Charges.
(ii) Objective of Accounting Standards.
(iii) Retirement of bills of exchange.
SUGGESTED ANSWERS
1. (i) True: The profit on sale of capital assets should not be added to revenue to
ascertain profit since it has not been earned due to normal business operations.
(ii) False: Sale of office furniture should be credited to Furniture account since it is a
capital receipt.
(iii) False: The additional commission to the consignee who agrees to bear the loss on
account of bad debts is called del-credere commission.
(iv) False: A partnership firm cannot acquire fixed assets in its name since it is not a
separate legal entity. It can acquire fixed assets in the name of its partners.
(v) False: Debenture holders do not enjoy voting rights in company.
2. (a)
Fundamental Accounting Assumption Accounting Policies
There are three fundamental accounting There is no single list of
assumptions viz. Going Concern, accounting policies which are
Consistency and Accrual. applied in all circumstances. As a
result, there may be different
accounting policies adopted by
different enterprises.
No disclosures is required if all the Disclosure is required if a
fundamental assumptions have been particular accounting policy has
followed. been followed.
If fundamental accounting assumption is If the policy is changed in
not followed, it is to be disclosed in the subsequent year, the effect of

financial statements together with the such change should be disclosed

reasons. in the financial statements.
There is no option to choose The firm has an option to select a
fundamental accounting assumptions. particular policy.
statements. For example, cost formula used for inventory valuation is changed from
weighted average to FIFO. Unless the effect of such change in accounting policy is
quantified, the financial statements may not help the users of accounts.
3. (a) In the books of Kewal
Journal entries
Particulars Dr. Cr.
Amount Amount
` `
(i) Bank A/c Dr. 9,000
Discount allowed A/c Dr. 1,000
To Hari Krishan A/c 10,000
(Amount received from Hari Krishan after allowing
discount of 1,000).
(ii) Drawings Dr. 7,000
To Cash A/c 1,000
(Goods and cash withdrawn for personal use).
(iii) Free Samples/Sales promotion A/c Dr. 3,000
(Being the goods distributes as free samples).
(iv) Bank A/c Dr. 10,000
To Commission A/c 10,000
(Commission received).
Commission A/c Dr. 5,000
To Commission received in Advance A/c 5,000
(Commission received in advance adjusted).
(v) Machinery A/c Dr. 30,000
To Bank A/c 30,000
(Machinery purchased from Jawahar)
Machinery A/c Dr. 9,000


(Goods used in repairs of Machinery).
(b) (i) Expenses incurred for extension of railway tracks in the factory area should be
treated as a Capital Expenditure because it will yield benefit for more than one
accounting period.
(ii) Painting of the factory should be treated as a Revenue Expenditure because it
has been incurred to maintain the factory building.
(iii) Payment of wages for building a new office extension should be treated as a
Capital Expenditure.
(iv) Amount paid for removal of stock to a new site is treated as a Revenue
Expenditure because it is not enhancing the value of any asset.
(v) Expenditure incurred for changing Rings and Pistons of an engine is a
Revenue Expenditure because, the change of rings and piston will restore the
efficiency of the engine only and it will not add anything to the capacity of the
engine.
4. (a) PETTY CASH BOOK
Receipts Date V. Particulars Total Con- Cartage Statio- Courier Wages Sundries
No. veyance nery
` 2021 ` ` ` ` ` ` `
40,000 April1 To Cash
2 1 By Conveyance
1,000
1,000
3 2 By Cartage 5,000 5,000
4 3 By Courier 1,000 1,000
5 4 By Wages 1,200 1,200
5 5 By Stationery 800 800
6 6 By Repairs to 3,000
3,000
machine
6 7 By Conveyance
200
200
7 8 By Cartage 800 800
7 9 By Courier 1,400 1,400
8 10 By Cartage 6,000 6,000
10 12 By Sundry 10,000
10,000
Expenses
34,400 1,200 11,800 4,800 2,400 1,200 13,000

40,000 40,000
5,600 To Balance b/d
28,800 11 To Cash
(b) In the Books of Dime Ltd.

Particulars Dr. Cr.
Amount Amount
2021 ` `
(i) Suspense A/c Dr. 100
To Profit & Loss Adjustment A/c 100
(Returns outward book was under cast now
rectified).
(ii) Suspense A/c Dr. 1,500
To Profit & Loss Adjustment A/c 1,500
(Discount received was not recorded, now
rectified)
(iii) Office Furniture A/c Dr. 6000
To Profit & Loss Adjustment A/c 6000
(Office furniture purchased wrongly debited to
Purchase A/c. now rectified.)
(iv) Debtors A/c Dr. 90
To Suspense A/c 90
(Debtors account was posted ` 670 in place of
760 now rectified.)
(v) Debtors A/c Dr. 10,000
To Profit & Loss Adjustment A/c 10,000
(Sales of `10,000 omitted to be recorded, now
rectified)
5. Bank Reconciliation Statement as on 31 st March, 2021
Particulars Amount
`
Overdraft as per Pass Book 8,800
Add: (i) Cheques issued but not presented till 31st March 5,800
(ii) Transfer from fixed deposit 2,000
(iii) Direct deposit by M/s Rajesh Trader 400 8,200
17,000

Less: (i) Cheques deposited but not cleared (5,800 - 2,000) 3,800
(ii) Dividend collected excess recorded in Cash Book (1,520-1,250) 270
(iii) Interest on overdraft debited in Pass Book only 930
(iv) Corporation tax paid appeared in Pass Book only 1200 6,200
Overdraft as per Cash Book 10,800

6. Statement of Valuation of Stock on 31st March, 2021
` `
Value of stock as on 15th April, 2021 1,50,000
Add: Cost of sales during the period from 31 st March, 2021
to 15th April, 2021
Sales (` 1,23,000 – ` 3,000) 1,20,000
Less: Gross Profit (20% of ` 1,20,000) 24,000 96,000
Cost of goods sent on approval basis
(80% of ` 18,000) 14,400
260400
Less: Purchases during the period from 31 st March, 2021 to
15th April, 2021 15,102
Unsold stock out of goods received on consignment
basis (30% of ` 24,000) 7,200 22,302
2,38,098
7. Machinery Account in the books of M/s. Seven Seas
` `
1.4.2017 To Bank A/c 1,60,000 31.03.2018 By Depreciation A/c 24,000
To Bank A/c 40,000 (` 20,000 + ` 4,000)
(Erection charges) 31.03.2018 By Balance c/d 2,56,000
1.10.2017 To Bank A/c 80,000 (` 1,80,000 + `76,000) _______
2,80,000 2,80,000
1.4.2018 To Balance 2,56,000 31.03.2019 By Depreciation A/c 28,000
b/d (` 20,000 + ` 8,000)
31.03.2019 By Balance c/d 2,28,000
(` 1,60,000 +` 68,000)
_______ _______
2,56,000 2,56,000
1.4.2019 To Balance 2,28,000 1.10.2019 By Bank A/c 1,00,000

b/d
31.12.2019 To Bank A/c 30,000 1.10.2019 By Profit and Loss A/c 50,000
(Loss on Sale –
W.N. 1)
31.03.2020 By Depreciation A/c 18,750
(` 10,000 + ` 8,000 +
` 750)
31.03.2020 By Balance c/d 89,250
_______ (` 60,000 + ` 29,250) _______
2,58,000 2,58,000
1.4.2020 To Balance 89,250 31.3.2021 By Depreciation A/c 13,387.5
b/d (` 9,000 + ` 4,387.5)
31.3.2021 By Balance c/d 75,862.5
______ (` 51,000 + ` ______
24,862.5)
89,250 89,250
Working Notes:
Book Value of machines (Straight line method)
Machine I Machine II Machine III
` ` `
Cost 2,00,000 80,000 30,000
Depreciation for 2017-18 20,000 4,000
Written down value as on 31.03.2018 1,80,000 76,000
Depreciation for 2018-19 20,000 8,000
Written down value as on 31.03.2019 1,60,000 68,000
Depreciation for 2019-20 (Mach I- 6 months) 10,000 8,000 750
Written down value as on 01.10.2019 1,50,000
Written down value as on 31.03.2020 60,000 29,250
Sale proceeds 1,00,000
Loss on sale 50,000
8. Journal Entries in the books of Swapnil
2021 Dr. Cr.
(`) (`)
Jan. 1 Bills receivable (No. 1) A/c Dr. 32,000
Bills receivable (No. 2) A/c Dr. 50,000

To Vishal A/c 82,000

(Being drawing of bills receivable No. 1
due for maturity on 4.3.2021 and bills
receivable No. 2 due for maturity on
4.4.2021)
March 4 Vishal’s A/c Dr. 32,000
To Bills receivable (No.1) A/c 32,000
(Being the reversal entry for bill No.1 on
renewal)
March 4 Bills receivable (No. 3) A/c Dr. 32,800
To Interest A/c 800
To Vishal ’s A/c 32,000
(Being the drawing of bill of exchange no. 3
due for maturity on 7.5.2021 together with
interest at 15%p.a. in lieu of the original
acceptance of Vishal)
March 25 Bank A/c Dr. 49,500
Discount A/c Dr. 500
To Bills receivable (No. 2) A/c 50,000
(Being the amount received on retirement
of bills No.2 before the due date)
May 7 Vishal’s A/c Dr. 32,800
To Bills receivable (No. 3) A/c 32,800
(Being the amount due from Vishal on
dishonour of his acceptance on
presentation on the due date)
May 7 Bank A/c Dr. 16,400
To Vishal’s A/c 16,400
(Being the amount received from official
assignee of Vishal at 50 paise per rupee
against dishonoured bill)
May 7 Bad debts A/c Dr. 16,400
To Vishal’s A/c 16,400
(Being the balance 50% debt in Vishal’s
Account arising out of dishonoured bill
written off as bad debts)

9. In the books of Mr. Sam

Consignment Account
Date Particulars Amount` Date Particulars Amount`
2021 2021
Jan. 1 To Goods sent on Jan. 1 By Goods sent on
Consignment A/c Consignment A/c
(Loading)
(Invoice price) 7,50,000 ` (7,50,000 – 5,00,000) 2,50,000
To Bank A/c – Mar.31 By Alex – Sales 6,00,000
Consignor’s 50,000 By Stock on Consignment
Expenses A/c
Mar.31 To Alex – Expenses 15,000 1/5  ` (7,50,000 + 1,63,000
– Commission* 50,000 + 15,000)
(0.05  30,000
` 6,00,000)
Mar.31 To Stock Reserve
A/c 50,000
(` 2,50,000 
1/5)
To Profit on
Consignment A/c
(transferred to
Profit and Loss
A/c) 1,18,000 _______
10,13,000 10,13,000
*Invoice price of goods sold: = 4/5 of ` 7,50,000 = ` 6,00,000.

The goods were sold for ` 6,00,000 and hence there was no surplus price. Therefore,
extra commission @ 20% will not be given to Mr. Alex.
Alex’s Account
Particulars Amount` Particulars ` Amount`
To Consignment A/c – By Consignment A/c:
Sales 6,00,000 Expenses 15,000
Commission 30,000 45,000
By Bills Receivable A/c 5,00,000
By Bank A/c (Balancing
figure) 55,000
6,00,000 6,00,000

10. (i) Goods on sales or return, sold and returned day book in the books of ‘S’
Date Party to whom L.F Amount Date Sold Returned
2021 goods sent ` 2021 ` `
Apr. 2 M/s G 20,000 Apr. 17 20,000
Apr. 4 M/s H 36,000 Apr. 19 36,000
Apr. 16 M/s I 50,000 May 1 50,000
Apr. 20 M/s J 16,000 May 5 16,000 -
Apr. 24 M/s K 42,000 May 9 42,000 -
Apr. 28 M/s L 60,000 May 13 _____ _____
2,24,000 94,000 70,000
In the books of S Ltd.
(ii) Goods on Sales or Return Total Account
Amount Amount
2021 ` 2021 `
Apr. To Customers for May. 31 By Goods sent on
Sale on Approval sales or return 20,000
A/c M/s G
2 Returned by G 20,000 M/s H 36,000
4 Sold to H 36,000 M/s I 50,000
16 Returned by I 50,000 M/s J 16,000
20 Sold to J 16,000 M/s K 42,000
24 Sold to K 42,000 M/s L 60,000
30 To bal c/d 60,000
2,24,000 2,24,000
11. Calculation of average due date (Base date: 8th April)
Due Date Amount No. of days from base date Product
` `
8th April 1,200 0 0
18th May 800 40 32,000
13th June 1,100 66 72,600
10th July 1,600 93 1,48,800
4,700 2,53,400

Total Product
Average due date = Base date +
Total Amount
= 8th April + 2,53,400/4,700
= 8th April + 54 days = 1st June
12. In the books of G
H in Account Current with G
(interest to 31st March,2021@10%p.a.)
Date Due Particulars No. of Amt. Product Date Due Particulars No. of Amt. Product
date days till date days till
31.3.21 31.3.21
2020 2020 ` ` 2020 2020 ` `
Oct 1, Oct 1, To Balance 182 3,000 5,46,000 Nov 16 Nov 26 By 125 4,000 5,00,000
b/d Purchases
Oct 18, Oct 18 To Sales 164 2,500 4,10,000 Dec 7 Dec. By 104 3,500 3,64,000
17 Purchases
2021 2021 2021 2021
Jan 3 Apr 6 To Bills (6) 5,000 (30,000) Mar 28 Apr 8 By (8) 2,700 (21,600)
payable Purchases
Feb 4 Feb 4 To Cash 55 1,000 55,000 Mar 31 Mar 31 By Balance 1,81,600
of product
Mar 21 Mar. To Sales 10 4,300 43,000 By Balance 5,650
21 c/d
Mar 31 Mar To Interest 50 -
31
15,850 10,24,000 15,850 10,24,000
1,81,600 x 10 x 1
Interest for the period = = ` 50 (approx.)
100 x 365
13. Redrafted Trial Balance of Mr. Bansal as on 31st March,2021
Particulars Dr. Cr.
` `
Capital - 16,000
Opening stock 17,500 -
Drawings 3,305 -
Returns inward 550 -
Carriage inward 1,240 -
Deposit with X 1,400 -
Returns outward - 840

Carriage outward 725 -

Rent paid 800 -
Rent outstanding - 150
Purchases 13,000 -
Furniture 1,500 -
Sales - 29,000
Wages 850 -
Cash 1,370 -
Advertisement ___950 ___-__
48,190 48,190
Trading and Profit and Loss Account of Mr. Bansal
for the year ended 31 st March,2021
Dr. Cr.
Particulars ` Amount` Particulars ` Amount`
To Opening stock 17,500 By Sales 29,000
To Purchases 13,000 Less: Returns (550) 28,450
inward
Less: Returns outward (840) 12,160 By Stock 2,000
destroyed by fire
To Wages 850 By Closing stock 18,790
To Carriage inward 1,240
To Gross profit 17,490 ______
49,240 49,240
To Carriage outward 725 By Gross profit 17,490
To Rent 800
To Advertisement 950
To Bad debts 600
To Provision for 220
doubtful debts (5% of
` 4,400)
To Loss of stock by fire 500

To Depreciation on furniture 150

(10% of `1,500)
To Net profit 13,545
17,490 17,490
Balance Sheet of Mr. Bansal
as at 31st March,2021
Capital 16,000
Add: Net profit 13,545 Furniture 1,500
29,545 Less: Depreciation 150 1,350
Less: Drawings 3,305 26,240 Deposit with X 1,400
Sundry creditors 2,200 Closing Stock 18,790
Outstanding rent 150 Sundry debtors 5,000
Less: Bad debts 600
4,400
Less: Provision for 220 4,180
Doubtful
Debts
Insurance claim receivable 1,500
______ Cash 1,370
28,590 28,590
14 (a) Profit and Loss Appropriation Account
` ` `
To Salary - B 3,000 By Net profit 73,000
To Interest on Capitals:
A 2,500
B 2,000 4,500
To Reserve (10% of 65,500) 6,550
To Partners’ current accounts:
A 29,475
B 29,475 58,950
73,000 73,000


Date A B Date A B
31.03.21 To Balance 50,000 40,000 01.04.20 By Balance b/d 50,000 40,000
c/d
50,000 40,000 50,000 40,000
Partners’ Current Accounts
Date A B Date A B
01.04.20 To Balance - 3,000 01.04.20 By Balance b/d 10,000
b/d
31.03.21 To 1,000 2,000 31.03.21 By Interest on Capital 2,500 2,000
Drawings
A/c
31.03.21 To Balance 40,975 29,475 31.03.21 By Salary 3,000
c/d
31.03.21 By Profit and Loss App 29,475 29,475
A/c
41,975 34,475 41,975 34,475
Note: Profit before charging interest on Capital and Salary to B = 70,000+3,000 =73,000
(b) (i) Capitalisation Method:
Total Capitalised Value of the firm
Average Profit × 100 ` 3,00,000×100
= = = ` 15,00,000
Normal Rate of Return 20
Goodwill = Total Capitalised Value of Business – Capital Employed
= ` 15,00,000 – ` 10,00,000 [i.e., ` 6,00,000 + ` 4,00,000]
Goodwill = ` 5,00,000
(ii) Super Profit Method:
Normal Profit = Capital Employed x 20/100 = ` 2,00,000
Average Profit = ` 3,00,000
Super Profit = Average profit – Normal Profit
=` 3,00,000 – ` 2,00,000 = ` 1,00,000
Goodwill = Super Profit x Number of years purchase
= `1,00,000 x 3 = ` 3,00,000

15. (a) Revaluation Account

To Buildings A/c 30,000 By Investments A/c 9,000
To Plant and Machinery A/c 78,000 By Loss to Partners:
To Provision for Doubtful Debts A/c 83,400 A 91,200
B 54,720
C 36,480 1,82,400
1,91,400 1,91,400
Partners’ Capital A/c
Particulars A B C F Particulars A B C F
` ` ` ` ` ` ` `
To Revaluation 91,200 54,720 36,480 - By Balance b/d 2,40,000 60,000 90,000 -
A/c
To Investments - 45,000 -- By Reserves 30,000 18,000 12,000 -
A/c A/c
To B’s Loan A/c - 68,280 -- By C and F’s 30,000 90,000 - -
Capital A/c
To A and B’s 60,000 60,000 By Bank A/c 31,200 - 2,34,480 1,80,000
Capital A/c (balancing
figure)
To Balance c/d 2,40,000 - 2,40,000 1,20,000
3,31,200 1.68,000 3,36,480 1,80,000 3,31,200 1,68,000 3,36,480 1,80,000
Bank Account
To A’s capital A/c 31,200 By Bank Overdraft A/c 1,32,000
To C’s capital A/c 2,34,480 By Balance c/d 3,13,680
To F’s capital A/c 1,80,000
4,45,680 4,45,680
Balance Sheet of Acme & Co.
as at 1st April, 2021
Capital Accounts: Land 30,000
A 2,40,000 Buildings 5,70,000
C 2,40,000 Plant and Machinery 3,12,000

F 1,20,000 6,00,000 Furniture 1,29,000

Long Term Debts 9,00,000 Inventories 3,90,000
Trade payables 5,10,000 Trade receivables 4,17,000
Q’s Loan Account 68,280 Less: Provision for
Doubtful Debts (83,400) 3,33,600
Balance at Bank 3,13,680
20,78,280 20,78,280
16. Income and Expenditure Account of Pune Club
for the year ended 31st March,2021
Dr. Cr.
Expenditure ` ` Income ` `
To Salary 2,000 By Donation 5,000
To Repair expenses 500 Less: Capitalised (50%) (2,500) 2,500
To Misc expenses 500 By Subscriptions (WN-2) 12,550
Less: Prepaid (90) 410 By Entrance fees 1,000
To Insurance 200 By Interest on investment 200
premium [8/100x6,000x5/12]
Add: Outstanding 40 240 By Interest received from 500
bank
To Stationary 150 By Sale of old newspapers 150
To Drama expenses 500 By Sale of drama tickets 1,050
To Surplus-excess of 14,150
income over
expenditure
17,950 17,950
Balance Sheet of Pune Club

as on 31st March,2021
Liabilities ` ` Assets `
Capital fund (WN-1) Snooker table 30,000
Opening balance 36,000 Furniture 6,000
Add: Surplus 14,150 Investments 6,000
Donations 2,500 52,650 Interest accrued 200

Outstanding insurance premium 40 Prepaid Misc. expenses 90

Subscription received in advance 350 Subscriptions receivable 900
Cash in hand 2,650
______ Cash at bank 7,200
53,040 53,040
Working Note:
1. Balance Sheet of Pune Club
as on 31st March,2020
Capital fund (balancing figure) 36,000 Snooker table 30,000
Creditors for Snooker table 8,000 Cash in hand 4,000
Cash at bank 10,000
44,000 44,000
2. Subscriptions `
Subscription as per Receipt and Payment A/c 12,000
Add: Outstanding for year 2020-21 900
12,900
Less: Advance for year 2021-22 (350)
12,550
17. In the books of Suraj Ltd.
Journal Entries
2020 Dr. Cr.
` `
July 20 Bank Account Dr. 8,00,000
To Share Application A/c 8,00,000
(Application money on 40,000 shares
at ` 20 per share received.)
Aug 1 Share Application A/c Dr. 8,00,000
(The amount transferred to Capital
Account on 40,000 shares ` 20 on
application. Directors’ resolution
no........ dated ......)

Share Allotment A/c Dr. 8,00,000

(Being share allotment made due at
` 20 per share. Directors’ resolution
no...... dated ......)
Sept 15 Bank Account Dr. 8,00,000
To Share Allotment A/c 8,00,000
(The sums due on allotment received.)
Dec. 1 Share First Call Account Dr. 12,00,000
To Share Capital Account 12,00,000
(Amount due from members in respect
of first call-on 80,000 shares at ` 30
as per Directors, resolution no...
dated...)
Dec. 20 Bank Account Dr. 12,00,000
To Share First Call Account 12,00,000
(Receipt of the amounts due on first
call.)
2021
March 1 Share Second and Final Call A/c Dr. 12,00,000
(Amount due on 40,000 share at ` 30
per share on second and final call, as
per Directors resolution no... dated...)
March 31 Bank Account Dr. 12,00,000
To Share Second & Final Call A/c 12,00,000
(Amount received against the final call
on
40,000 shares at ` 30 per share.)
18. In the Books of Delta Ltd.
Journal Entries
Date Particulars L.F. Dr. (`) Cr. (`)
1. Share capital A/c (600 × ` 10) Dr. 6,000
Securities Premium A/c (600 × ` 1) Dr. 600
To Calls-in-arrears A/c (600 × ` 3) 1,800

To forfeited Shares A/c (600 × ` 8) 4,800

(Being 600 shares forfeited for non-payment of
call money)
2. Bank A/c (400 × ` 9) Dr. 3,600
Forfeited Shares A/c (400 × ` 1) Dr. 400
To Share Capital A/c ( 400 × ` 10) 4,000
(Being 400 shares re-issued as fully paid-up for
` 9 per share)
3. Forfeited Shares A/c Dr. 2,800
To Capital Reserve A/c 2,800
(Being the transfer of profit on re-issue of 400
shares to Z)
4. Bank A/c (100 × ` 11) Dr. 1,100
To Share Capital A/c (100 × ` 10) 1,000
To Securities Premium A/c (100 × ` 1) 100
(Being 100 shares re-issued to X as fully paid-up
for ` 11 per share)
5. Forfeited Shares A/c (` 4,800 × 100/600) Dr. 800
To Capital Reserve A/c 800
(Being the transfer of profit on re-issue of 100
shares to X)
19. Journal Entries
Date Particular L.F Dr. Cr.
2020 Sundry Assets A/c Dr. 4,50,000
April Goodwill A/c (Bal. fig) Dr. 50,000
To Himalayan Ltd. A/c 4,40,000
To Sundry Liabilities A/c 60,000
(Being Assets and liabilities taken over for a
net consideration of ` 4,40,000)
Himalyan Ltd. A/c Dr. 4,40,000
To Securities Premium A/c 40,000
(Being 4000; 8% Debenture of ` 100 each
issued at a premium of 10%)

Bank A/c Dr. 90,000

To Debenture Application A/c 90,000
(Being the application money received for
3000, 8% Debenture)
Debenture Application A/c Dr. 90,000
To 8% Debenture A/c 90,000
(Being 3000; 8% Debenture allotted)
Debentures allotment A/c Dr. 1,80,000
Loss on issue of debenture A/c Dr. 45,000
To Premium on redemption of debentures 15,000
A/c
(Being allotment money due on 3000; 8%
Debentures at 10% discount and redeemable
at 5% premium)
Bank A/c Dr. 1,80,000
To Debentures Allotment A/c 1,80,000
(Being the allotment money received)
2021
Mar,31 Profit and Loss A/c Dr. 45,000
To Loss on issue of Debenture A/c 45,000
(Being the Loss on issue of debenture written
off)
20. (i) Noting Charges: It is necessary that the fact of dishonour and the causes of
dishonour should be established. If there is a fear of dishonour, the bill will be given
to the public official known as “Notary Public”. These officials present the bill for
payment and if the money is received, they will hand over the money to the original
party. But, if the bill is dishonoured they will note the fact of dishonour, and the
reasons given and give the bill back to their client. For this service, they charge a
small fee. This fee is known as noting charges. The amount of noting charges is
recoverable from the party who is responsible for dishonour.
(ii) Accounting Standards are selected set of accounting policies or broad guidelines
regarding the principles and methods to be chosen out of several alternatives. The
main objective of Accounting Standards is to establish standards which have to be
complied with, to ensure that financial statements are prepared in accordance with
generally accepted accounting principles. Accounting Standards seek to suggest

rules and criteria of accounting measurements. These standards harmonize the

diverse accounting policies and practices at present in use in India.
(iii) Retirement of bills of exchange: Sometimes, the acceptor of a bill of exchange
due date, it is said to be retired under rebate.
particular area.

QUESTIONS
True and False
(a) The financial statement must disclose all the relevant and reliable information in
accordance with the Full Disclosure Principle.
(b) The debit notes issued are used to prepare Sales Return Book.
(c) Bank reconciliation statement is prepared to arrive at the bank balance.
(d) If Closing Stock appears in the Trial Balance then the closing inventory is not
entered in Trading Account. It is shown only in the balance sheet.
(e) Depreciation is a non-cash expense and does not result in any cash outflow.
(f) Discount at the time of retirement of a bill is a gain for the drawee.
(g) In case the due date of a bill falls after the date of closing the account, the interest
from the date of closing to such due date is known as Red-Ink interest.
(h) A withdrawal of cash from the business by the proprietor should be charged to profit
and loss account as an expense.
(i) Partners can share profits or losses in their capital ratio, when there is no
agreement.
(j) Fees received for Life Membership is a revenue receipt as it is of recurring nature .
(k) Debenture interest is payable after the payment of preference dividend but before
the payment of equity dividend.
2. (a) Explain Cash and Mercantile system of accounting.
(b) Define revenue receipts and give examples. How are these receipts treated?
Explain.
Journal Entries
3. (a) Prepare Journal Entries for the following transactions in the books of Honey Singh
(i) Employees had taken stock worth ` 10,000 (Cost price ` 7,500) on the eve of
Gurupuarb and the same was deducted from their salaries in the subsequent
month.
(ii) Income tax liability of proprietor ` 8,500 was paid out of petty cash.
(iii) Goods costing `10,000 distributed as free samples (Sale Price ` 1,2000)

(iv) Purchase of goods from Sunny of the list price of ` 15,000. He allowed 10%
trade discount, ` 200 cash discount was also allowed for quick payment.
Capital or revenue expenditure
(b) Classify the following expenditures as capital or revenue expenditure:
(i) Expenses incurred to keep the machine in working condition.
(ii) Registration fees paid at the time of purchase of a building.
(iii) Expenses incurred for advertisement in newspaper.
(iv) Amount spent on renewal fee of patent rights.
(v) Cost of repairs on second-hand car purchased to bring it into working
condition.
Cash book
4. (a) From the following transactions, prepare the Purchases Returns Book of Sulpher &
Co. and post them to ledger :
Date Debit Particulars
Note No.
04.06.2022 101 Returned to Samuel Mills, Surat – 5 Calculator @
` 100.
09.06.2022 James Mills, Kota – accepted the return of calculator
(which were purchased for cash) – 5 Kota Calculator
@ ` 40.
16.06.2022 102 Returned to David Mills, Bangalore –5 Calculator @
` 260.
30.06.2022 Returned one printer (being defective) @ ` 3,500 to
Lucas & co.
Rectification of errors
(b) Give journal entries (with narrations) to rectify the following errors located in the
books of a Trader after preparing the Trial Balance:
(i) ` 35,000 paid for purchase of Air conditioner for the personal use of proprietor
debited to Machinery A/c.
(ii) Goods returned by customer for ` 5,000. The same have been taken into
stock but no entry passed in the books of accounts.
(iii) An amount of ` 4,500 received on account of Interest was credited to
Commission account.
(iv) A sale of ` 2,760 was posted from Sales Book to the Debit of M/s Sobha
Traders at ` 2,670


5. The Cash-book of M/s Rajat shows ` 1,10,280 as the balance at Bank as on 31 st March,
2022. But this does not agree with balance as per the Bank Statement. On scrutiny
following discrepancies were found:
(i) Subsidy ` 41,000 received from the government directly by the bank, but not
advised to the company.
(ii) On 15th March,2022 the payments side of the Cash-book was under cast by ` 1400.
(iii) On 20th March,2022 the debit balance of ` 8624 as on the previous day, was
brought forward as credit balance in Cash-book.
(iv) A customer of the M/s Rajat, who received a cash discount of 5% on his account of
` 80,000, paid to M/s Rajat a cheque on 24 th March,2022. The cashier erroneously
entered the gross amount in the Cash-Book.
(v) On 10th March,2022 a bill for ` 22,800 was discounted from the bank, entered in
Cash-book, but proceeds credited in Bank Statement amounted to ` 22,000 only.
(vi) A cheque issued amounting to ` 6,900 returned marked ‘out of date’. No entry made
in Cash-book.
(vii) Insurance premium ` 3,024 paid directly by bank under a standing order. No entry
made in cash-book.
(viii) A bill receivable for `6,120 discounted for ` 6,000 with the bank had been
dishonoured on 30 th March,2022, but advice was received on 1 st April,2022.
(ix) Bank recorded a Cash deposit of ` 6,550 as ` 6,505.
Prepare Bank Reconciliation Statement on 31 st March,2022.
Inventories
6. A trader prepared his accounts on 31st March, each year. Due to some unavoidable
reasons, no stock taking could be possible till 15 th April,2022 on which date the total cost
of goods in his godown came to ` 2,50,000. The following facts were established
between 31 st March and 15 th April,2022.
(i) Sales ` 2,05,000 (including cash sales ` 50,000)
(ii) Purchases ` 25,170 (including cash purchases ` 9,950)
(iii) Sales Return ` 5,000
(iv) On 15th March, goods of the sale value of ` 50,000 were sent on sale or return
basis to a customer, the period of approval being four weeks. He returned 40% of
the goods on 10th April, approving the rest; the customer was billed on 1 6th April.

(v) The trader had also received goods costing ` 40,000 in March, for sale on
consignment basis; 20% of the goods had been sold by 31st March, and another
50% by the 15 th April. These sales are not included in above sales.
Goods are sold by the trader at a profit of 20% on sales.
You are required to ascertain the value of Inventory as on 31st March, 2022.
7. A Firm purchased an old Machinery for ` 37,000 on 1 st January,2019 and spent ` 3,000
on its overhauling. On 1 st July 2020, another machine was purchased for ` 10,000. On
1st July 2021, the machinery which was purchased on 1st January 2019, was sold for
` 28,000 and the same day a new machinery costing ` 25,000 was purchased. On
1st July,2022, the machine which was purchased on 1 st July,2020 was sold for ` 2,000.
Depreciation is charged @ 10% per annum on straight line method. The firm changed
the method and adopted diminishing balance method with effect from 1 st January,2020
and the rate was increased to 15% per annum. The books are closed on 31 st December
every year.
Prepare Machinery account for four years from 1st January,2019
Bill of exchange
8. Mr. Tanu accepted a bill for ` 1,00,000 drawn on him by Mr. Manu on 1st August,2021 for
3 months. This was for the amount which Tanu owed to Manu. On the same date
Mr. Manu got the bill discounted at his bank for ` 98,000.
On the due date, Tanu approached Manu for renewal of the bill. Mr. Manu agreed on
condition that ` 20,000 be paid immediately along with interest on the remaining amount
at 12% p.a. for 3 months and that for the remaining balance Tanu should accept a new
bill for 3 months. These arrangements were carried through. On 31 st December,2021,
Tanu became insolvent and his estate paid 40%.
Prepare Journal Entries in the books of Mr. Manu.
Consignment
9. Sahu of Shimla consigned 30,000 kgs of Shampoo at ` 30 per kg to his agent Harsh at
Ooty. He spent ` 5 per kg as freight and insurance for sending the Shampoo at Ooty. On
the way 200 kgs. of Shampoo lost (which is to be treated as normal loss) and 800 kgs. of
Shampoo was destroyed in transit. ` 18000 was paid to consignor directly by the
Insurance company as Insurance claim.
Harsh sold 15,000 kgs. at ` 60 per kg. He spent ` 33,000 on advertisement and recurring
expenses.
(i) The amount of abnormal loss

(ii) Value of stock at the end and

(iii) Prepare Consignment account showing profit or loss on consignment, if Harsh is
entitled to 5% commission on sales.
10 Mr. Jai sends out goods on approval to few customers and includes the same in the
Sales Account. On 31.03.2022, the Trade Receivables balance stood at
` 1,50,000 which included ` 13,000 goods sent on approval against which no intimation
was received during the year. These goods were sent out at 30% over and above cost
price and were sent to-
Mr. Narayan ` 7,800 and Mr. Ram ` 5,200.
Mr. Narayan sent intimation of acceptance on 25 th April,2022 and Mr. Ram returned the
goods on 15 th April, 2022.
Make the adjustment entries and show how these items will appear in the Balance Sheet
as on 31st March,2022. Show also the entries to be made during April,2022. Value of
Closing Inventories as on 31 st March,2022 was ` 1,00,000.
Average Due Date
11. Karan purchased goods from Arjun, the average due date for payment in cash is
10.08.2021 and the total amount due is ` 1,75,800. How much amount should be paid by
Karan to Arjun, if total payment is made on following dates and interest is to be
considered at the rate of 15% p.a.
(i) On average due due
(ii) On 28th August,2021
(iii) On 29th July,2021
Account current
12. X has a Current Account with Partnership firm. He had a debit balance of
` 85,000 as on 01-07-2021. He has further deposited the following amounts:
Date Amount (`)
14-07-2021 1,23,000
18-08-2021 21,000
He withdrew the following amounts:
Date Amount (`)
29-07-2021 92,000
09-09-2021 11,500

Show X’s A/c in the books of the firm. Interest is to be calculated at 10% on debit
balance and 8% on credit balance. You are required to prepare current account as on
30th September,2021 by means of product of balances method.
13. The following is the Trial Balance of Mr. T on 31st March,2022:
Dr. Cr.
` `
Capital - 18,00,000
Drawings 2,10,000 -
Fixed Assets (Opening) 4,20,000 -
Fixed Assets (Additions 01.10.2022) 6,00,000 -
Opening Stock 1,80,000 -
Purchases Returns - 2,07,000
Sales - 66,00,000
Sales Returns 2,97,000 -
Debtors 7,50,000 -
Creditors - 6,60,000
Expenses 1,50,000 -
Fixed Deposit with Bank 6,00,000 -
Interest on Fixed Deposit - 60,000
Cash - 24,000
Suspense A/c - 6,000
Depreciation 42,000 -
Rent (17 months upto 31.8.2022) 51,000 -
Investments 12% (01.8.2021) 7,50,000 -
Bank Balance 5,07,000 -
93,57,000 93,57,000
Stock on 31 st March,2022 was valued at ` 3,00,000. Depreciation is to be provided at
10% per annum on fixed assets purchased during the year. A scrutiny of the books of
account revealed the following matters:
(i) ` 60,000 drawn from bank was debited to Drawings account, but out of this amount
withdrawn ` 36,000 was used in the business for day-to-day expenses.

(ii) Purchase of goods worth ` 48,000 was not recorded in the books of account upto
31.03.2022, but the goods were included in stock.
(iii) Purchase returns of ` 3,000 was recorded in Sales Return Journal and the amount
was correctly posted to the Party’s A/c on the correct side.
(iv) Expenses include ` 18,000 in respect of the period after 31 st March,2022.
Give the necessary Journal Entries in respect of (i) to (iv) and prepare the Final Accounts
for the year ended 31 st March,2022.
14. (a) A, B and C entered into partnership on 1.1.2021 to share profits and losses in the
ratio of 5 : 3 : 2. A personally guaranteed that C’s share of profit after charging
interest on capitals at 5% p.a. would not be less than ` 90,000 in any year. Capitals
of A, B and C were ` 9,60,000, ` 6,00,000 and ` 4,80,000 respectively.
Profits for the year ending 31.12.2021 before providing for interest on partners
capital was ` 4,77,000.
You are required to prepare the Profit and Loss Appropriation Account.
(b) Ashu and Suhan are partners in a firm. Their capital are Ashu ` 15,00,000 and
Suhan ` 10,00,000. During the year ended 31st March,2022 the firm earned a profit
of ` 7,50,000. Assuming that the normal rate of return is 20%, calculate the value of
goodwill on the firm:
(i) By Capitalization Method; and
(ii) By Super Profit Method if the goodwill is valued at 5 years’ purchase of Super
Profit.
Retirement of partner
15 On 31st March,2022, the Balance Sheet of Aadi, Arnav and Aarush sharing profits and
losses in proportion to their Capital stood as below:
Capital Account: Land and Building 1,20,000
Mr. Aadi 80,000 Plant and Machinery 80,000
Mr. Arnav 1,20,000 Stock of goods 48,000
Mr. Aarush 80,000 Sundry debtors 44,000
Sundry Creditors 40,000 Cash and Bank Balances 28,000
3,20,000 3,20,000

On 1st April, 2022, Aadi desired to retire from the firm and remaining partners decided to
carry on the business. It was agreed to revalue the assets and liabilities on that date on
the following basis:
(i) Land and Building be appreciated by 20%. Plant and Machinery be depreciated by
30%.
(ii) Stock of goods to be valued at `40,000. Old credit balances of Sundry creditors,
`8,000 to be written back.
(iii) Provisions for bad debts should be provided at 5%. Joint life policy of the partners
surrendered and cash obtained ` 30,200.
(iv) Goodwill of the entire firm is valued at `56,000 and Aadi’s share of the goodwill is
adjusted in the A/cs of Arnav and Aarush, who would share the future profits
equally. No goodwill account being raised.
(v) The total capital of the firm is to be the same as before retirement. Individual capital
is in their profit sharing ratio.
(vi) Amount due to Mr. Aadi is to be settled on the following basis: @ 50% on retirement
and the balance 50% within one year.
Prepare (a) Revaluation Account, (b) Capital Accounts of the partners, (c) Cash and
Bank Account and (d) Balance Sheet of the new firm M/s Arnav & Aarush as on
1.04.2022.
Financial statements of Not for Profit Organizations
16. From the following information supplied by ABC. Club, prepare Receipts and Payments
Account and Income and Expenditure Account for the year ended 31st March 2022.
01.04.2021 31.03.2022
` `
Outstanding subscription 8,40,000 12,00,000
Advance subscription 1,50,000 1,80,000
Outstanding salaries 90,000 1,08,000
Cash in Hand and at Bank 6,60,000 ?
10% Investment 8,40,000 4,20,000
Furniture 1,68,000 84000
Machinery 60,000 120000
Sports goods 90,000 150000
Subscription for the year amount to ` 18,00,000/-. Salaries paid ` 3,60,000. Face value
of the Investment was ` 10,50,000, 50% of the Investment was sold at 80% of Face
Value. Interest on investments was received ` 84,000. Furniture was sold for ` 48,000

at the beginning of the year. Machinery and Sports Goods purchased and put to use at
the last date of the year. Charge depreciation @ 15% p.a. on Machinery and Sports
goods and @10% p.a. on Furniture.
Following Expenses were made during the year:
Sports Expenses: ` 3,00,000
Rent: ` 1,44,000 out of which ` 12,000 outstanding
Misc. Expenses: ` 30,000
Issue and Forfeiture of Shares
17. Radha Ltd. invited applications for issuing 2,00,000 equity shares of ` 10 each.
The amounts were payable as follows:
On application - ` 3 per share
On allotment - ` 5 per share
On first and final call - ` 2 per share
Applications were received for 3,00,000 shares and pro-rata allotment was made to all
the applicants. Money overpaid on application was adjusted towards allotment money. B,
who was allotted 3,000 shares, failed to pay the first and final call money. His shares
were forfeited. Out of the forfeited shares, 2,500 shares were reissued as fully paid-up @
` 6 per share.
Pass necessary Journal entries to record the above transactions in the books of Radha Ltd.
Issue of Debentures
18. Pure Ltd. issues 5,00,000 12% Debentures of ` 10 each at ` 9.40 on 1st January,2022.
Under the terms of issue, the Debentures are redeemable at the end of 5 years from the
date of issue.
Calculate the amount of discount to be written-off in each of the 5 years.
Short Notes
19. Write short notes on the following:
(i) Going Concern concept.
(ii) Objectives of preparing Trial Balance.
(iii) Retirement of bills of exchange.
(v) Trade bill vs. Accommodation bill.

SUGGESTED ANSWERS
1. (a) True: The financial statement must disclose all the relevant and reliable information
in accordance with the Full Disclosure Principle.
(b) False: The debit notes issued are used to prepare purchases return book.
(c) False: Bank reconciliation statement is prepared to reconcile and explain the
causes of differences between bank balance as per cash book and the same as per
bank statement as on a particular date.
(d) True: The closing stock appears in the trial balance only when it is adjusted against
purchases by passing the entry (in which Closing Stock A/c is debited and
Purchases A/c is credited). In this case, closing stock is not entered in Trading
Account and is shown only in Balance sheet.
(e) True: Depreciation is a non-cash expense and unlike other normal expenditure (e.g.
wages, rent, etc.) does not result in any cash outflow. Therefore depreciation is a
non-cash expense and does not result in any cash outflow.
(f) True: Discount at the time of retirement of a bill is a gain for the drawee and loss for
the drawer.
(g) True: In case the due date of a bill falls after the date of closing the account, then
no interest is allowed for that. However, interest from the date of closing to such
due date is written in “Red-Ink” in the appropriate side of the ‘Account current’. This
interest is called Red-Ink interest.
(h) False: Cash withdrawal by the proprietor from his business should be treated as his
drawings and not a business expense chargeable to profit and loss account. Such
drawings should be deducted from the proprietors capital.
(i) False: According to Partnership Act, in the absence of any agreement to the
contrary profits and losses are to be shared equally among partners.
(j) False: Life Membership Fee received for life membership is a capital receipt as it is
of non-recurring nature. It is directly added to capital fund or general fund.
(k) False: Debenture interest is payable before the payment of any dividend on
shares.
2. (a) Cash and mercantile system: Cash system of accounting is a system by which a
transaction is recognized only if cash is received or paid. In cash system of
accounting, entries are made only when cash is received or paid, no entry being
made when a payment or receipt is merely due. Cash system is normally followed
by professionals, educational institutions or non-profit making organizations.

On the other hand, mercantile system of accounting is a system of classifying and

summarizing transactions into assets, liabilities, equity (owner’s fund), costs,
revenues and recording thereof. A transaction is recognized when either a liability is
created/ impaired and an asset is created /impaired. A record is made on the basis
of amounts having become due for payment or receipt irrespective of the fact
whether payment is made or received actually.
Mercantile system of accounting is generally accepted accounting system by
business entities.
(b) Receipts which are obtained in course of normal business activities are revenue
receipts (e.g. receipts from sale of goods or services, interest income etc.).
Revenue receipts should not be equated with the actual cash receipts. Revenue
receipts are credited to the Profit and Loss Account.
3. (a) Journal Entries in the books of Honey Singh
Particulars Dr. Cr.
Amount (`) Amount
(`)
(i) Salaries A/c 7,500

To Purchase A/c 7,500
(Being entry made for stock taken by
employees)
(ii) Drawings A/c 8,500
To Petty Cash A/c 8,500
(Being the income tax of proprietor paid out of
business money)
(iii) Sales Promotion A/c 10,000
(Being the goods costing ` 10,000 distributed
as free Samples)
(iv) Purchase A/c 13,500
To Bank A/c 13,300
To Discount Received A/c 200
(Being the goods purchased from Sunny for
` 15,000 @ 10% trade discount and cash
discount of ` 200)

(b) (i) Revenue Expenditure.

(ii) Capital Expenditure.
(iii) Revenue Expenditure.
(iv) Revenue Expenditure.
(v) Capital Expenditure.
4. (a) Purchase Returns Book
Date Debit Name of supplier L.F. Amount
Note No.
2022
Jun. 4 101 Samuel Mills, Surat 500
Jun. 16 102 David Mills, Bangalore 1,300
Jun. 30 Purchases Returns Account (Cr.) 1,800
(b)
S. Debit Credit
No. (`) (`)
(i) Drawings A/c Dr. 35,000
To Machinery A/c 35,000
(Correction of wrong debit to machinery account for
purchase of air-conditioner for personal use)
(ii) Return Inward A/c Dr. 5,000
To Debtors (Personal) A/c 5,000
(Correction of omission to record return of goods by
customers)
(iii) Commission A/c Dr. 4,500
To Interest Received 4,500
(Correcting wrong entry of interest received into
commission account)
(iv) M/s Sobha Traders A/c Dr. 90
To Suspense A/c 90
(Being credit sale of ` 2,760 posted as ` 2,670 i.e.
debiting M/s Sobha Traders A/c less by 90, now
rectified)

5. Bank Reconciliation Statement on 31 st March,2022 `

Bank Balance as per Cash Book 1,10,280
Add: (i) Subsidy from government received directly by the 41,000
bank not recorded in the Cash Book
(iii) Debit balance of `8624 brought forward as credit
balance on 20 th March, 2022 in the Cash Book 17,248
(vi) Cheque issued returned marked ‘out of date’ 6,900 65,148
1,75,428
Less: (ii) Cash Book under cast on 15th March, 2022 1,400
(iv) Discount allowed to a customer, however entry made
at gross amount in the Cash Book 400
(v) Commission charged by bank on discounting of bill,
not considered in Cash Book 800
(vii) Insurance Premium paid directly by bank under
standing instructions 3,024
(viii) Discounted B/R dishonoured; not entered in Cash 6,120
Book
(ix) Bank recorded short cash deposit 45 11,789
Balance as per Bank Statement 1,63,639
6. Statement of Valuation of Stock on 31 st March, 2022
` `
Value of stock as on 15th April, 2022 2,50,000
Add: Cost of sales during the period from 31 st March,2022 to
15th April, 2022
Sales (` 2,05,000-5,000) 2,00,000
Less: Gross Profit (20% of ` 2,00,000) 40,000 1,60,000
Cost of goods sent on approval basis
(80% of ` 30,000) 24,000
4,34,000
Less: Purchases during the period from 31st March,2022 to
15th April, 2022 25,170
Unsold stock out of goods received on consignment
basis (30% of ` 40,000) 12,000 37,170
3,96,830

7. In the books of Firm

Machinery Account
` `
1.1.2019 To Bank A/c 37,000 31.12.2019 By Depreciation A/c 4,000
To Bank A/c 3,000 31.12.2019 By Balance c/d 36,000
(overhauling
charges) _______ _______
40,000 40,000
1.1.2020 To Balance b/d 36,000 31.12.2020 By Depreciation A/c 6,150
(` 5,400 + ` 750)
1.7.2020 To Bank A/c 10,000 31.12.2020 By Balance c/d 39,850
_______ (` 30,600 + ` 9,250) _______
46,000 46,000
1.1.2021 To Balance b/d 39,850 1.7.2021 By Bank A/c(sale) 28,000
1.7.2021 To Bank A/c 25,000 1.7.2021 By Profit and Loss A/c 305
(Loss on Sale –
W.N. 1)
(` 2,295 + ` 1,388 +
` 1,875)
_______ (` 7,862 + ` 23,125) _______
64,850 64,850
1.1.2022 To Balance b/d 30,987 1.7.2022 By Bank A/c (sale) 2,000
1.7.2022 By Profit and Loss A/c 5,272
(Loss on Sale –
W.N. 1)
(` 590 + ` 3,469)
_______ 31.12.2022 By Balance c/d 19,656
30,987 30,987

Working Note:
Book Value of machines
Machine Machine Machine
I II III
` ` `
Cost of all machinery 40,000 10,000 25,000
(Machinery cost for 2019)
Depreciation for 2019 4,000
Written down value as on 31.12.2019 36,000
Purchase 1.7.2020 (6 months) 10,000
Depreciation for 2020 5,400 750
Depreciation for 6 months (2021) 2,295
Sale proceeds 28,000
Loss on sale 305
Purchase 1.7.2021 25,000
Depreciation for 2021 (6 months) 1,388 1,875
Depreciation for 6 months in 2022 590
Sale proceeds 2,000
Loss on sale 5,272
Depreciation for 2022 3,469
8. Journal Entries in the Books of Mr. Manu
Date Particulars L.F. Dr. Cr.
Amount ` Amount `
2021
Aug. 1 Bills Receivable A/c Dr. 1,00,000
To Tanu 1,00,000
(Being the acceptance received from
Tanu to settle his account)
Aug. 1 Bank A/c Dr. 98,000
Discount A/c Dr. 2000

To Bills Receivable 1,00,000

(Being the bill discounted for ` 98,000
from bank)
Nov. 4 Tanu Dr. 1,00,000
To Bank A/c 1,00,000
(Being the Tanu’s acceptance is to be
renewed)
Nov. 4 Tanu’s A/c Dr. 2400
To Interest A/c 2400
(Being the interest due from Tanu for 3
months i.e., 80,000x3/12 12%=240)
Nov. 4 Bank A/c Dr. 22,400
Bills Receivable A/c Dr. 80,000
To Tanu A/c 1,02,400
(Being amount and acceptance of new bill
received from Tanu)
Dec. 31 Tanu A/c Dr. 80,000
To Bills Receivable A/c 80,000
(Being Tanu became insolvent)
Dec. 31 Bank A/c Dr. 32,000
Bad debts A/c Dr. 48,000
To Tanu 80,000
(Being the amount received and written
off on Tanu’s insolvency)
9. Consignment Account
` `
To Goods sent on 9,00000 By Consignee’s A/c-Sales 9,00,000
consignment A/c (30,000 kg (15000 kg x ` 60)
x ` 30)
To Cash A/c 1,50,000 By Abnormal Loss A/c
(Expenses 30,000 kg x (Insurance claim - WN) 18,000
` 5)
To Consignee’s A/c: Add: Abnormal Loss (WN) 10,000 28,000
Advertisement & Recurring 33,000 (Profit and Loss Account)
expenses
Commission @ 5% on 45,000 By Consignment Stock A/c 4,93,380
` 90,0000

To Profit and loss A/c 2,93,380

(Profit on Consignment) _______
14,21,380 14,21,380
Working Notes:
1. Abnormal Loss:
Cost of goods lost: 800 kg
Total cost (800 x ` 30) 24,000
Add: expenses incurred by the consignor @ ` 5 per kg 4,000
Gross Amount of abnormal loss 28,000
Less: Insurance claim (18,000)
Net abnormal loss 10,000
2. Valuation of Inventories
Quantity (Kgs) Amount (`)
Total Cost (30,000 kg x `30) 30,000 9,00,000
Add: Expenses incurred by the consignor 1,50,000
Less: Value of Abnormal Loss – 800 kgs (WN 1) (800) (28,000)
29,200 10,22,000
Less: Normal Loss (200)
29,000 10,22,000
Less: Quantity of Sampoo sold (15,000)
Quantity of Closing Stock 14,000
Value of 14,000 kgs – (10,22,000/29,000) x 4,93,380
14,000
10.
Date Particulars L.F. ` `
2021 Sales A/c Dr. 13,000
March 31 To Trade receivables A/c 13,000
(Being the cancellation of original entry for
sale in respect of goods lying with
customers awaiting approval)
March 31 Inventories with Customers on Sale or Dr. 10,000
Return A/c

(Being the adjustment for cost of goods

lying with customers awaiting approval)
April 25 Trade receivables A/c Dr. 7,800
To Sales A/c 7,800
(Being goods costing worth ` 7800 sent to
Mr. Narayan on sale or return basis has
been accepted by him)
Balance Sheet of Mr. Jain as on 31st March, 2022 (Extracts)
Liabilities ` Assets ` `
Trade receivables (1,50,000-13,000) 1,37,000
Inventories-in-trade 1,00,000
Add: Inventories with customers on
Sale or Return 10,000 1,10,000
2,47,000
Notes:
(1) Cost of goods lying with customers = 100/130 x ` 13,000 = ` 10,000
(2) No entry is required on 15 th April, 2022 for goods returned by Mr. Ram. Goods
should be included physically in the Inventories.
11.
A B C D=B C
Principal Interest from Average Due Date to Actual Total amount
Amount date of Payment to be paid
(i) Payment on average due date
` 1,75,800 ` 1,75,800 x 15/100 x 0/365 =0 ` 1,75,800
(ii) Payment on 28 th Aug. 2021
` 1,75,800 ` 1,75,800 x 15/100 x 18/365 = 1,300
Interest to be charged for period of 18 days ` 1,77,100
from 10th August 2021 to 28th Aug. 2021
(iii) Payment on 29 th July, 2021
` 1,75,800 ` 1,75,800 x 15/100 x (12)/365= (867)
Rebate has been allowed for unexpired credit ` 1,74,933
period of 12 days from 29.7.2021 to 10.8.2021

12. X’s Current Account with Partnership firm (as on 30.9.2021)

Date Particulars Dr. Cr. Balance Dr. or Days Dr. Cr.
(`) (`) (`) Cr. Product Product
(`) (`)
01.07.21 To Bal b/d 85,000 85,000 Dr. 14 11,90,000
14.07.21 By Cash A/c 1,23,000 38,000 Cr. 15 5,70,000
29.07.21 To Self 92,000 54,000 Dr. 20 10,80,000
18.08.21 By Cash A/c 21,000 33,000 Dr. 22 7,26,000
09.09.21 To Self 11,500 44,500 Dr. 22 9,79,000
30.09.21 To Interest 941
A/c
30.09.21 By Bal. c/d 45,441 45,441 Dr.
1,89,441 1,89,441 39,75,000 5,70,000
Interest Calculation:
On` 39,75,000 x 10% x 1/365 = 1,089
On ` 5,70,000 x 8% x 1/365 = ` 125
Net interest to be debited = 1,214
13. Journal Entries
Particulars Dr. (`) Cr. (`)
(i) Expenses A/c Dr. 36,000
To Drawings 36,000
(Entry for the amount wrongly debited to the latter
A/c, now corrected)
(ii) Purchase A/c Dr. 48,000
To Creditors 48,000
(Entry for purchases not recorded)
(iii) Suspense A/c Dr. 6,000
To Purchase Returns A/c 3,000
To Sales Returns A/c 3,000
(Rectification entry for amount wrongly entered in
Sales Journal)
(iv) Prepaid Expenses A/c Dr. 18,000
To Expenses A/c 18,000
(Prepaid expenses adjusted)

Trading, Profit and Loss Account of Mr. T

for the year ending 31 st March, 2022
Dr. Cr.
` `
To Opening Stock 1,80,000 By Sales 66,00,000
To Purchases 48,00,000 Less: Sales Return
Add: Amount not 48,000 (2,97,000– 3,000) 2,94,000 63,06,000
recorded
48,48,000 By Closing Stock 3,00,000
Less: Purchases
Returns
(2,07,000+3,000) 210,000 46,38,000
To Gross Profit c/f 17,88,000
66,06,000 66,06,000
To Expenses 1,68,000 By Gross Profit 17,88,000
(1,50,000 – 18,000 +
36,000)
To Rent (51,000 – 36,000 By Interest on Fixed 60,000
15,000) Deposit
To Depreciation 42,000 By Interest on 60,000
Add: Further 30,000 72,000 Investments
Depreciation 12 8
(7,50,000 × × )
10 6 100 12
(6,00,000× × )
100 12
To Net Profit 16,32,000
19,08,000 19,08,000
Balance Sheet as on 31 st March, 2022

Capital 18,00,000 Fixed Assets 4,20,000
Add: Net Profit 16,32,000 Additions 6,00,000
Less: Drawings 10,20,000
(2,10,000–36,000) 1,74,000 32,58,000 Less: Depreciation 30,000 9,90,000
Creditors 6,60,000 Stock 3,00,000
Add: Purchases 48,000 Debtors 7,50,000
not recorded 7,08,000 Investments 7,50,000
Overdraft 24,000 Interest accrued 60,000
Bank fixed deposit 6,00,000

Prepaid Expenses 33,000

(18,000+15,000)
Bank 5,07,000
39,90,000 39,90,000
14. (a) Profit and Loss Appropriation Account

for the year ended 31st December, 2021
Dr. Cr.
` ` `
To Interest on capital By Net profit 4,77,000
b/d
A (5% of ` 9,60,000) 48,000
B (5% of ` 6,00,000) 30,000
C (5% of ` 4,80,000) 24,000
1,02,000
To Partners’ capital
accounts:
[profit transferred
(`4,77,000 - 1,02,000)
5
A( of ` 3,75,000)
10 187,500
Less: Transferred to C 15,000 1,72,500
3
B( of ` 3,75,000)
10 1,12,500
2
C( of ` 3,75,000)
10 75,000
Add: Transferred from A 15,000 90,000 _______
4,77,000 4,77,000
(b) (i) Capitalisation Method:

Total Capitalised Value of the firm
AverageProfit  100 7,50,000  100
= = = ` 37,50,000
Normal Rate of Return 20
Goodwill = Total Capitalised Value of Business – Capital Employed
= ` 37,50,000 – ` 25,00,000 [i.e., ` 15,00,000+10,00,000]

Goodwill = ` 12,50,000
(ii) Super Profit Method:
Normal Profit = Capital Employed x 20/100=25,00,000 x 20/100= ` 5,00,000
Average Profit = ` 7,50,000
Super Profit = Average profit – Normal Profit
=7,50,000-5,00,000=2,50,000
Goodwill = Super Profit x Number of years’ purchase
= ` 50,000 x 5 = ` 12,50,000
15. Revaluation Account
Date Particulars ` Date Particulars `
2022 2022
April To Plant & Machinery 24,000 April By Land and building 24,000
To Stock of goods 8,000 By Sundry creditors 8,000
To Provision for bad and 2,200 By Cash & Bank - 30,200
doubtful debts Joint life Policy
surrendered
To Capital accounts (profit
on revaluation
transferred)
Mr. Aadi (2/7) 8,000
Mr. Arnav(3/7) 12,000
Mr. Aarush (2/7) 8,000 28,000
62,200 62,200
(b) Partners’ Capital Accounts
Dr. Cr.
Particulars Aadi Arnav Aarush Particulars Aadi Arnav Aarush
(`) (`) (`) (`) (`) (`)
To Aadi’s Capital - 4,000 12,000 By Balance b/d 80,000 1,20,000 80,000
A/c - goodwill
To Cash & bank 52,000 - - By Revaluation 8,000 12,000 8,000
A/c - (50% A/c
dues paid)

To Aadi’s Loan 52,000 - - By Arnav & 16,000 - -

A/c - (50% Aarush’s
transfer) Capital A/cs -
goodwill
To Balance c/d - 140,000 1,40,000 By Cash & bank - 12,000 64,000
A/c - amount
brought in
(Balancing
figures)
1,04,000 1,44,000 1,52,000 1,04,000 1,44,000 1,52,000
(c) Cash and Bank Account

To Balance b/d 28,000 By Aadi’s Capital A/c - 50% dues 52,000
paid
To Revaluation A/c – By Balance c/d 82,200
surrender value of
joint life policy 30,200
To Arnav’s Capital A/c 12,000
To Aarush’s Capital
A/c 64,000
1,34,200 1,34,200
(d) Balance Sheet of M/s Arnav & Aarush as on 01.04.2022

Partners’ Capital Land and Building 1,20,000
account
Mr. Arnav 1,40,000 Add: Appreciation 20%
24,000 1,44,000
Mr. Aarush 1,40,000 2,80,000 Plant & Machinery 80,000
Mr. Aadi’s Loan 52,000 Less: Depreciation 30% 24,000 56,000
account
Sundry Creditors 32,000 Stock of goods 48,000
Less: revalued 8,000 40,000
Sundry Debtors 44,000
Less: Provision for
bad debts 5% 2,200 41,800
Cash & Bank balances
82,200
3,64,000 3,64,000

Working Notes:
Adjustment for Goodwill:
Goodwill of the firm 56,000
Mr. Aadi’s Share (2/7) 16,000
Gaining ratio of Arnav & Aarush;
Arnav = ½ - 3/7 = 1/14
Aarush = ½ - 2/7 = 3/14
Arnav: Aarush = 1:3
Therefore, Arnav will bear – ¼  16000 or `4,000
Aarush will bear = ¾  16000 or `12,000
16. Receipts and Payments Account for the year ended 31-03-2022
Receipts ` Payments `
To balance b/d By Salaries 3,60,000
Cash and bank 6,60,000 By Purchase of sports goods 60,000
To Subscription received (W.N.1) 14,70,000 ` (1,50,000-90,000)
To Sale of investments (W.N.2) 4,20,000 By Purchase of machinery 60,000
To Interest received on investment 84,000 ` (1,20,000-60,000)
To Sale of furniture 48,000 By Sports expenses 3,00,000
By Rent paid 1,32,000
` (1,44,000-12,000)
By Miscellaneous expenses 30,000
By Balance c/d
Cash and bank 17,40,000
26,82,000 26,82,000
Income and Expenditure account for the year ended 31-03-2022

Expenditure ` ` Income ` `
To Salaries 3,60,000 By Subscription 18,00,000
Add: Outstanding for 2022 1,08,000 By Interest on
4,68,000 Investment
Received 84,000
Less: Outstanding for 2022 (90,000) 3,78,000 Accrued 21,000 1,05,000
(W.N.5)
To Sports expenses 3,00,000

To Rent 1,44,000
To Miscellaneous exp. 30,000
To Loss on sale of 36,000
furniture (W.N.3)
To Depreciation (W.N.4)
Furniture 8,400
Machinery 9,000
Sports goods 13,500 30,900
To Surplus 9,86,100
19,05,000 19,05,000
Working Notes:
1. Calculation of Subscription received during the year 2021-22
`
Subscription due for 2021-22 18,00,000
Add: Outstanding of 2021 8,40,000
Less: Outstanding of 2022 (12,00,000)
Add: Subscription of 2022 received in advance 1,80,000
Less: Subscription of 2021 received in advance (1,50,000)
14,70,000
2. Calculation of Sale price and profit on sale of investment
Face value of investment sold: ` 10,50,000 × 50% = ` 5,25,000
Sales price: ` 5,25,000 × 80% = ` 4,20,000
Cost price of investment sold: ` 8,40,000 × 50% = `4,20,000
Profit/loss on sale of investment: ` 4,20,000 - ` 4,20,000 = NIL
3. Loss on sale of furniture
`
Value of furniture as on 01-04-2021 1,68,000
Value of furniture as on 31-03-2022 84,000
Value of furniture sold at the beginning of the year 84,000
Less: Sales price of furniture (48,000)
Loss on sale of furniture 36,000

4. Depreciation
Furniture - ` 84,000 × 10% = 8,400
Machinery - ` 60,000 × 15% = 9,000
Sports goods – ` 90,000 × 15% = 13500
5. Interest accrued on investment
`
Face value of investment on 01-04-2021 10,50,000
Interest @ 10% 1,05,000
Less: Interest received during the year (84,000)
Interest accrued during the year 21,000
Note: It is assumed that the sale of investment has taken place at the end of the year.
17. In the books of Radha Ltd.
Journal Entries
Dr. Cr.
` `
Bank A/c Dr. 9,00,000
(Being the application money received for 3,00,000
shares at ` 3 per share)
To Equity Share Capital A/c (2,00,000 x ` 3) 6,00,000
To Share allotment A/c 3,00,000
(Being share allotment made for 2,00,000 shares
and excess adjusted towards allotment)
(Being allotment amount due on 2,00,000 equity
shares at ` 5 per share as per Directors’ resolution
no... dated...)
Bank A/c Dr. 7,00,000

(Being balance allotment money received for

2,00,000 shares at ` 5 per share.)
Equity Share first and final call A/c Dr. 4,00,000
(Being first and final call amount due on 2,00,000
equity shares at ` 2 per share as per Directors’
resolution no... dated...)
Bank A/c Dr. 3,94,000
Calls in arrears A/c 6,000
To Equity Share first and final call A/c 4,00,000
(Being final call received on 1,97,000 shares)
Share capital A/c (3,000 x ` 10) Dr. 30,000
To Forfeited share A/c (3,000 x ` 8) 24,000
To Calls in arrears A/c (3,000 x ` 2) 6,000
(Being forfeiture of 3,000 shares of ` 10 each fully
called-up for non payment of first and final call @
` 2 as per Directors’ resolution no... dated..)
Bank A/c (2,500 x `6) . Dr. 15,000
Forfeited share A/c (2,500 x `4) 10,000
To Equity Share Capital A/c (2,500 x ` 10) 25,000
(Being re-issue of 2,500 shares @ 6)
Forfeited share A/c (2,500 x ` 4) 10,000

To capital reserve A/c (2,500 x ` 4) 10,000
capital reserve)
Working Note:
Calculation of amount to be transferred to Capital reserve A/c `
Forfeited amount per share = 24,000/3,000 = 8
Loss on re issue (8-4) 4
Surplus per share 4
Transfer to capital reserve 4 x 2,500 = ` 10,000

18. Total amount of discount comes to ` 3,00,000 (` 0.6 X 5, 00,000). The amount of
discount to be written-off in each year is calculated as under:
Year end Debentures Ratio in which discount Amount of discount to be
Outstanding to be written-off written-off
1st ` 50, 00,000 1/5th of ` 3,00,000 = ` 60,000
2nd ` 50, 00,000 1/5th of ` 3,00,000 = ` 60,000
3rd ` 50, 00,000 1/5th of ` 3,00,000 = ` 60,000
4th ` 50, 00,000 1/5th of ` 3,00,000 = ` 60,000
5th ` 50, 00,000 1/5th of ` 3,00,000 = ` 60,000
19. (i) Going Concern concept: The financial statements are normally prepared on the
assumption that an enterprise is a going concern and will continue in operation for
the foreseeable future. Hence, it is assumed that the enterprise has neither the
intention nor the need to liquidate or curtail materially the scale of its operations; if
such an intention or need exists, the financial statements may have to be prepared
on a different basis and, if so, the basis used is disclosed.
(ii) Objectives of preparing Trial Balance
The preparation of trial balance has the following objectives:
1 Checking of the arithmetical accuracy of the accounting entries: Trial Balance
enables one to establish whether the posting and other accounting processes
have been carried out without committing arithmetical errors. In other words,
the trial balance helps to establish the arithmetical accuracy of the books.
2. Basis for preparation of financial statements: Trial Balance forms the basis for
preparing financial statements such as the Income Statement and the Balance
Sheet. The Trial Balance represents all transactions relating to different
accounts in a summarized form for a particular period. In case, the Trial
Balance is not prepared, it will be almost impossible to prepare the financial
statements to know the profit or loss made by the business during a particular
period or its financial position on a particular date.
3. Summarized ledger: Trial Balance contains the ledger balances on a particular
date. Thus, the entire ledger is summarized in the form of a Trial Balance. The
position of a particular account can be judged simply by looking at the Trial
Balance. The ledger may be seen only when details regarding the accounts
are required.
(iii) Retirement of bills of exchange: Sometimes, the acceptor of a bill of exchange

due date, it is said to be retired under rebate
particular area.
(v) Distinction between Trade bill and Accommodation bill
(a) Trade bills are usually drawn to facilitate trade transmission, that is, these bills
are meant to finance actual purchase and sale of goods. On the other hand, an
accommodation bill is one which is drawn, accepted or endorsed for the
purpose of arranging financial accommodation for one or more interested
parties.
(b) On discount of a trade bill, full amount is retained by the drawer. In an
accommodation bill however, the amount may be shared by the drawer and the
drawee in an agreed ratio.
(c) Trade bill is drawn for some consideration while accommodation bill is drawn
and accepted without any consideration.
(d) Trade bill acts as an evidence of indebtedness while accommodation bill acts
as a source of finance.
(e) In order to recover the debt, the drawer can initiate legal action on a trade bill.
In accommodation bill, legal remedy for the recovery of amount may not be
available for immediate parties.

PAPER – 2: BUSINESS LAWS & BUSINESS CORRESPONDENCE AND REPORTING
PAPER 2A: BUSINESS LAWS
Part I
For May 2021 examinations for Paper 2A: Business Laws, the significant amendments made in
the respective subject upto 31st October, 2020 are relevant and applicable.
Students are advised to refer study material of October, 2020 edition which contains all the
amendments upto 31 st October, 2020.
Part II: Questions and Answers
Questions
The Indian Contract Act, 1872
1. Explain the type of contracts in the following agreements under the Indian Contract Act,
1872:
(i) X promise to sell his scooter to Y for ` 1 Lac. However, the consent of X has been
procured by Y at a gun point.
(ii) A bought goods from B in 2015. But no payment was made till 2019.
(iii) G agrees to give tuitions to H, a pre-engineering student, from the next month and H
in consideration promises to pay G ` 5,000 per month.
2. “To form a valid contract, consideration must be adequate”. Comment.
3. Mr. SHYAM owned a motor car. He approached Mr. HARISH and offered to sell his motor
car for ` 3,00,000. Mr. SHYAM told Mr. HARISH that the motor car is running at the rate
of 20 KMs per litre of petrol. Both the fuel meter and the speed meter of the car were
working perfectly. Mr. HARISH agreed with the proposal of Mr. SHYAM and took delivery
of the car by paying ` 3,00,000/- to Mr. SHYAM. After 10 days, Mr. HARISH came back
with the car and stated that the claim made by Mr. SHYAM regarding fuel efficiency was
not correct and therefore there was a case of misrepresentation. Referring to the provisions
of the Indian Contract Act, 1872, decide and write whether Mr. HARISH can rescind the
contract on the above ground.
4. Mr. S, aged 58 years was employed in a Government department. He was going to retire
after two years. Mr. D made a proposal to Mr. S, to apply for voluntary retirement from his
post so that Mr. D can be appointed in his place. Mr. D offered a sum of ` 10 Lakhs as
consideration to Mr. S in order to induce him to retire.
Mr. S refused at first instance but when he evaluated the amount offered as consideration
is just double of his cumulative remuneration to be received during the tenure of two years

of employment, he agreed to receive the consideration and accepted the above agreement
to receive money to retire from his office.
Whether the above agreement is valid? Explain with reference to provision of the Indian
Contract Act, 1872?
5. What will be rights with the promisor in following cases? Explain with reasons:
(a) Mr. X promised to bring back Mr. Y to life again.
(b) A agreed to sell 50 kgs of apple to B. The loaded truck left for delivery on 15 th March
but due to riots in between reached B on 19th March.
(c) An artist promised to paint on the fixed date for a fixed amount of remuneration but
met with an accident and lost his both hands.
(d) Abhishek entered into contract of import of toys from China. But due to disturbance
in the relation of both the countries, the imports from China were banned.
6. “Liquidated damage is a genuine pre-estimate of compensation of damages for certain
anticipated breach of contract whereas Penalty on the other hand is an extravagant amount
stipulated and is clearly unconscionable and has no comparison to the loss suffered by the
parties”. Explain.
7. In light of provisions of the Indian Contract Act, 1872 answer the following:
(i) Mr. S and Mr. R made contract wherein Mr. S agreed to deliver paper cup
manufacture machine to Mr. R and to receive payment on delivery. On the delivery
date, Mr. R didn’t pay the agreed price. Decide whether Mr. S is bound to fulfil his
promise at the time of delivery?
(ii) Mr. Y has given loan to Mr. G of ` 30,00,000. Mr. G defaulted the loan on due date
and debt became time barred. After the time barred debt, Mr. G agreed to settle the
full amount to Mr. Y. Whether acceptance of time barred debt contract is enforceable
in law?
(iii) A & B entered into a contract to supply unique item, alternate of which is not available
in the market. A refused to supply the agreed unique item to B. What directions could
be given by the court for breach of such contract?
The Sale of Goods Act, 1930
8. Mrs. G bought a tweed coat from P. When she used the coat, she got rashes on her skin
as her skin was abnormally sensitive. But she did not make this fact known to the seller
i.e. P. Mrs. G filled a case against the seller to recover damages. Can she recover damages
under the Sale of Goods Act, 1930?

PAPER – 2 : BUSINESS LAWS & BUSINESS CORRESPONDENCE AND REPORTING 3
9. What are the differences between a ‘Condition’ and ‘Warranty’ in a contract of sale? Also
explain, when shall a ‘breach of condition’ be treated as ‘breach of warranty’ under the
provisions of the Sale of Goods Act, 1930?
10. Ms. R owns a two Wheeler which she handed over to her friend Ms. K on sale or return
basis. Even after a week, Ms. K neither returned the vehicle nor made payment for it. She
instead pledged the vehicle to Mr. A to obtain a loan. Ms. R now wants to claim the two
Wheeler from Mr. A. Will she succeed?
(i) Examine with reference to the provisions of the Sale of Goods Act, 1930, what
recourse is available to Ms. R?
(ii) Would your answer be different if it had been expressly provided that the vehicle
would remain the property of Ms. R until the price has been paid?
11. Mr. T was a retailer trader of fans of various kinds. Mr. M came to his shop and asked for
an exhaust fan for kitchen. Mr. T showed him different brands and Mr. M approved of a
particular brand and paid for it. Fan was delivered at Mr. M’s house; at the time of opening
the packet he found that it was a table fan. He informed Mr. T about the delivery of the
wrong fan. Mr. T refused to exchange the same, saying that the contract was complete
after the delivery of the fan and payment of price.
(i) Discuss whether Mr. T is right in refusing to exchange as per provisions of th e Sale
of Goods Act, 1930?
(ii) What is the remedy available to Mr. M?
12. State briefly the essential element of a contract of sale under the Sale of Goods Act, 1930.
The Indian Partnership Act, 1932
13. Explain in detail the circumstances which lead to liability of firm for misapplication by
partners as per provisions of the Indian Partnership Act, 1932.
14. M, N and P were partners in a firm. The firm ordered JR Limited to supply the furniture. P
dies, and M and N continues the business in the firm’s name. the firm did not give any
notice about P’s death to the public or the persons dealing with the firm. The furniture was
delivered to the firm after P’s death, fact about his death was known to them at the time of
delivery. Afterwards the firm became insolvent and failed to pay the price of furniture to JR
Limited.
Explain with reasons:
(i) Whether P’s private estate is liable for the price of furniture purchased by the firm?

(ii) Whether does it make any difference if JR Limited supplied the furniture to the firm
believing that all the three partners are alive?
15. Mr. A (transferor) transfer his share in a partnership firm to Mr. B (transferee). Mr. B is not
entitled for few rights and privileges as Mr. A (transferor) is entitled therefor. Discuss in
brief the points for which Mr. B is not entitled during continuance of partnership?
16. “Indian Partnership Act does not make the registration of firms compulsory nor does it
impose any penalty for non-registration.” In light of the given statement, discuss the
consequences of non-registration of the partnership firms in India?
The Limited Liability Partnership Act, 2008
17. What do you mean by Designated Partner? Whether it is mandatory to appoint Designated
partner in a LLP?
The Companies Act, 2013
18. ABC Limited has allotted equity shares with voting rights to XYZ Limited worth ` 15 Crores
and issued Non-Convertible Debentures worth ` 40 Crores during the Financial Year
2019-20. After that total Paid-up Equity Share Capital of the company is ` 100 Crores and
Non-Convertible Debentures stands at ` 120 Crores.
Define the Meaning of Associate Company and comment on whether ABC Limited and
XYZ Limited would be called Associate Company as per the provisions of the Companies
Act, 2013?
19. SK Infrastructure Limited has a paid up share capital divided into 6,00,000 equity shares
of ` 100 each. 2,00,000 equity shares of the company are held by Central Government
and 1,20,000 equity shares are held by Government of Maharashtra. Explain with
reference to relevant provisions of the Companies Act, 2013, whether SK Infrastructure
Limited can be treated as Government Company.
20. Mr. Anil formed a One Person Company (OPC) on 16th April, 2018 for manufacturing
electric cars. The turnover of the OPC for the financial year ended 31st March, 2019 was
about ` 2.25 Crores. His friend Sunil wanted to invest in his OPC, so they decided to
convert it voluntarily into a private limited company. Can Anil do so?
SUGGESTED ANSWERS/HINTS
1. (i) In the instant case, X is an aggrieved party and the contract is voidable at his option
but not at the option of Y. It means if X accepts the contract, the contract becomes a
valid contract then Y has no option of rescinding the contract.

(ii) B cannot sue A for the payment in 2019 as it has crossed three years and barred by
Limitation Act. A good debt becomes unenforceable after the period of three years as
barred by Limitation Act.
(iii) Where, G agrees to give tuitions to H, a pre-engineering student, from the next month
and H in consideration promises to pay G ` 5,000 per month, the contract is executory
because it is yet to be carried out.
2. The law provides that a contract should be supported by consideration. So long as
consideration exists, the Courts are not concerned to its adequacy, provided it is of some
value. The adequacy of the consideration is for the parties to consider at the time of
making the agreement, not for the Court when it is sought to be enforced (Bolton v.
Modden). Consideration must however, be something to which the law attaches value
though it need not be equivalent in value to the promise made.
According to Explanation 2 to Section 25 of the Indian Contract Act, 1872, an agreement
to which the consent of the promisor is freely given is not void merely because the
consideration is inadequate but the inadequacy of the consideration may be taken into
account by the Court in determining the question whether the consent of the promisor was
freely given.
3. As per the provisions of Section 19 of the Indian Contract Act, 1872, when consent to an
agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract
voidable at the option of the party whose consent was so caused.
A party to contract, whose consent was caused by fraud or misrepresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall be put in the position
in which he would have been if the representations made had been true.
Exception: If such consent was caused by misrepresentation or by silence, fraudulent
within the meaning of section 17, the contract, nevertheless, is not voidable if the party
whose consent was so caused had the means of discovering the truth with ordinary
diligence.
In the situation given in the question, both the fuel meter and the speed meter of the car
were working perfectly, Mr. HARISH had the means of discovering the truth with ordinary
diligence. Therefore, the contract is not voidable. Hence, Mr. HARISH cannot rescind the
contract on the above ground.
4. Section 10 of the Indian Contract Act, 1872 provides for the legality of consideration and
objects thereto. Section 23 of the said Act also states that every agreement of which the
object or consideration is unlawful is void.

The given problem talks about entering into an agreement for sale of public office, which
is opposed to public policy. Public policy requires that there should be no money
consideration for the appointment to an office in which the public is interested. Such
consideration paid, being opposed to public policy, is unlawful.
In the given case, Mr. S, who was going to be retired after two years was proposed by Mr.
D, to apply for voluntary retirement from his post, in order that he can be appointed in his
place. In lieu of that, Mr. D offered Mr. S a sum of ` 10 lakh as consideration. Mr. S refused
initially but later accepted the said agreement to receive money to retire from his office.
Here, Mr. S’s promise to sale for Mr. D, an employment in the public services i s the
consideration for Mr. D’s promise to pay `10 lakh. Therefore, in terms of the above
provisions of the Indian Contract Act, the said agreement is not valid. It is void, as the
consideration being opposed to public policy, is unlawful.
5. (a) The contract is void because of its initial impossibility of performance.
(b) Time is essence of this contract. As by the time apples reached B, they were already
rotten. The contract is discharged due to destruction of subject matter of contract.
(c) Such contract is of personal nature and hence cannot be performed due to occurrence
of an event resulting in impossibility of performance of contract.
(d) Such contract is discharged without performance because of subsequent illegality
nature of the contract.
6. Liquidated damage is a genuine pre-estimate of compensation of damages for certain
anticipated breach of contract. This estimate is agreed to between parties to avoid at a
later date detailed calculation and the necessity to convince outside parties.
Penalty on the other hand is an extravagant amount stipulated and is clearly
unconscionable and has no comparison to the loss suffered by the parties.
In terms of Section 74 of the Act “where a contract has been broken, if a sum is named in
the contract as the amount to be paid in case of such breach, or if the contract contains
any other stipulation by way of penalty, the party complaining of the breach is entitled,
whether or not actual damages or loss is proved to have been caused thereby, to receive
from the other party who has broken the contract, a reasonable compensation not
exceeding the amount so named, or as the case may be the penalty stipulated for.
Explanation to Section 74
A stipulation for increased interest from the date of default may be a stipulation by way of
penalty.

In terms of Section 74, courts are empowered to reduce the sum payable on breach
whether it is ‘penalty’ or “liquidated damages” provided the sum appears to be
unreasonably high.
Sri ChunniLal vs. Mehta & Sons Ltd (Supreme Court)
Supreme Court laid down the ratio that the aggrieved party should not be allowed to claim
a sum greater than what is specific in the written agreement. But even then, the court has
powers to reduce the amount if it considers it reasonable to reduc e.
7. (i) As per Section 51 of the Indian Contract Act, 1872, when a contract consists of
reciprocal promises to be simultaneously performed, no promisor needs to perform
his promise unless the promisee is ready and willing to perform his reciprocal
promise. Such promises constitute concurrent conditions and the performance of one
of the promise is conditional on the performance of the other. If one of the promises
is not performed, the other too need not be performed.
Referring to the above provisions, in the given case, Mr. S is not bound to deliver
goods to Mr. R since payment was not made by him at the time of delivery of goods.
(ii) Promise to pay time-barred debts - Section 25 (3): Where there is an agreement,
made in writing and signed by the debtor or by his agent, to pay wholly or in part a
time barred debt, the agreement is valid and binding even though there is no
consideration.
In the given case, the loan given by Mr. Y to Mr. G has become time barred.
Thereafter, G agreed to make payment of full amount to Mr. Y.
Referring to above provisions of the Indian Contract Act, 1872 contract entered
between parties post time barred debt is valid so, Mr. G is bound to pay the agreed
amount to Mr. Y provided the above mentioned conditions of section 25 (3) are
fulfilled.
(iii) Where there is a breach of contract for supply of a unique item, mere monetary
damages may not be an adequate remedy for the other party. In such a case the court
may give order for specific performance and direct the party in breach to carry out his
promise according to the terms of contract. Here, in this case, the court may direct A
to supply the item to B because the refusal to supply the agreed unique item cannot
be compensated through money.
8. According to Section 16(1) of Sales of Goods Act, 1930, normally in a contract of sale there
is no implied condition or warranty as to quality or fitness for any particular purpose of
goods supplied. The general rule is that of “Caveat Emptor” that is “let the buyer beware”.
But where the buyer expressly or impliedly makes known to the seller the particular

purpose for which the goods are required and also relies on the seller’s skill and judgement
and that this is the business of the seller to sell such goods in the ordinary course of his
business, the buyer can make the seller responsible.
In the given case, Mrs. G purchased the tweed coat without informing the seller i.e. P about
the sensitive nature of her skin. Therefore, she cannot make the seller responsible on the
ground that the tweed coat was not suitable for her skin. Mrs. G cannot treat it as a breach
of implied condition as to fitness and quality and has no right to recover damages from the
seller.
9. Difference between conditions and warranties:
The following are important differences between conditions and warranties.
Point of differences Condition Warranty
Meaning A condition is essential to It is only collateral to the
the main purpose of the main purpose of the
contract. contract.
Right in case of The aggrieved party can The aggrieved party can
breach repudiate the contract or claim only damages in case
claim damages or both in the of breach of warranty.
case of breach of condition.
Conversion of A breach of condition may A breach of warranty
stipulations be treated as a breach of cannot be treated as a
warranty. breach of condition.
Breach of condition be treated as a breach of warranty

Section 13 of the Sales of Goods Act, 1930, specifies cases where a breach of condition
be treated as a breach of warranty. As a result of which the buyer loses his right to rescind
the contract and can claim for damages only.
In the following cases, a contract is not avoided even on account of a breach of a condition:
(i) Where the buyer altogether waives the performance of the condition. A party may for
his own benefit, waive a stipulation.
(ii) Where the buyer elects to treat the breach of the conditions, as one of a warranty.
That is to say, he may claim only damages instead of repudiating the contract.
(iii) Where the contract is non-severable and the buyer has accepted either the whole
goods or any part thereof.

(iv) Where the fulfilment of any condition or warranty is excused by law by reason of
impossibility or otherwise.
10. As per the provisions of Section 24 of the Sale of Goods Act, 1930, when goods are
delivered to the buyer on approval or “on sale or return" or other similar terms, the property
therein passes to the buyer-
(a) when the buyer signifies his approval or acceptance to the seller or does any other
act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but retains the goods
without giving notice of rejection, then, if a time has been fixed for the return of th e
goods, on the expiration of such time, and, if no time has been fixed, on the expiration
of a reasonable time; or
(c) he does something to the good which is equivalent to accepting the goods e.g. he
pledges or sells the goods.
Referring to the above provisions, we can analyse the situation given in the question:
(i) In the instant case, Ms. K, who had taken delivery of the two wheeler on Sale or
Return basis pledged the two wheeler to Mr. A, has attracted the third condition that
she has done something to the good which is equivalent to accepting the goods e.g.
she pledges or sells the goods. Therefore, the property therein (two wheeler) passes
to Mr. A. Now in this situation, Ms. R cannot claim back her two wheeler from Mr. A,
but she can claim the price of the two wheeler from Ms. K only.
(ii) It may be noted that where the goods have been delivered by a person on “sale or
return” on the terms that the goods were to remain the property of the seller till they
are paid for, the property therein does not pass to the buyer until the terms are
complied with, i.e., price is paid for.
Hence, in this case, it is held that at the time of pledge, the ownership was not
transferred to Ms. K. Thus, the pledge was not valid and Ms. R could recover the two
wheeler from Mr. A.
11. According to Section 15 of the Sale of Goods Act, 1930, where the goods are sold by
sample as well as by description, the implied condition is that the goods supplied shall
correspond to both with the sample and the description. In case, the goods do not
correspond with the sample or with description or vice versa or both, the buyer can
repudiate the contract.
Further, as per Section 16(1) of the Sales of Goods Act, 1930, when the buyer makes
known to the seller the particular purpose for which the goods are required and he relies

on the judgment or skill of the seller, it is the duty of the seller to supply such goods as are
reasonably fit for that purpose.
(i) In the given case, Mr. M had revealed Mr. T that he wanted the exhaust fan for th e
kitchen. Since the table fan delivered by Mr. T was unfit for the purpose for which Mr.
M wanted the fan, therefore, T cannot refuse to exchange the fan.
(ii) When one party does not fulfill his obligation according to the agreed terms, the other
party may treat the contract as repudiated or can insist for performance as per the
original contract. Accordingly, the remedy available to Mr. M is that he can either
rescind the contract or claim refund of the price paid by him or he may require Mr. T
to replace it with the fan he wanted.
12. Essentials of Contract of Sale
The following elements must co-exist so as to constitute a contract of sale of goods under
the Sale of Goods Act, 1930.
(i) There must be at least two parties.
(ii) The subject matter of the contract must necessarily be goods.
(iii) A price in money (not in kind) should be paid or promised.
(iv) A transfer of property in goods from seller to the buyer must take place.
(v) A contract of sale must be absolute or conditional [section 4(2)].
(vi) All other essential elements of a valid contract must be present in the contract of sale.
13. Liability of Firm for Misapplication by Partners (Section 27 of Indian Partnership Act,
1932): Where-
(a) a partner acting within his apparent authority receives money or property from a third
party and misapplies it, or
(b) a firm in the course of its business receives money or property from a third party, and
the money or property is misapplied by any of the partners while it is in the custody
of the firm, the firm is liable to make good the loss.
Analysis of section 27:
It may be observed that the workings of the two clauses of Section 27 are designed to
bring out clearly an important point of distinction between the two categories of cases of
misapplication of money by partners.
Clause (a) covers the case where a partner acts within his authority and due to his authority
as a partner, he receives money or property belonging to a third party and misapplies that

money or property. For this provision to be attracted, it is not necessary that the money
should have actually come into the custody of the firm.
On the other hand, the provision of clause (b) would be attracted when such money or
property has come into the custody of the firm and it is misapplied by any of the partners.
The firm would be liable in both the cases.
14. According to section 35 of the Indian Partnership Act, 1932, where under a contract
between the partners the firm is not dissolved by the death of a partner, the estate of a
deceased partner is not liable for any act of the firm done after his death.
Further, in order that the estate of the deceased partner may be absolved from liability for
the future obligations of the firm, it is not necessary to give any notice either to the public
or the persons having dealings with the firm.
In the given question, JR Limited has supplied furniture to the partnership firm, after P’s
death. The firm did not give notice about P’s death to public or people dealing with the firm.
Afterwards, the firm became insolvent and could not pay JR Limited.
In the light of the facts of the case and provisions of law:
(i) Since the delivery of furniture was made after P’s death, his estate would not be liable
for the debt of the firm. A suit for goods sold and delivered would not lie against the
representatives of the deceased partner. This is because there was no debt due in
respect of the goods in P’s lifetime.
(ii) It will not make any difference even if JR Limited supplied furniture to the firm
believing that all the three partners are alive, as it is not necessary to give any notice
either to the public or the persons having dealings with the firm, so the estate of the
deceased partner may be absolved from liability for the future obligations of the firm.
15. As per Section 29 of Indian Partnership Act, 1932, a transfer by a partner of his interest in
the firm, either absolute or by mortgage, or by the creation by him of a charge on such
interest, does not entitle the transferee, during the continuance of th e firm, to interfere in
the conduct of business, or to require accounts, or to inspect the books of the firm, but
entitles the transferee only to receive the share of profits of the transferring partner, and
the transferee shall accept the account of profits agreed to by the partners.
In the given case during the continuance of partnership, such transferee Mr. B is not
entitled:
• to interfere with the conduct of the business.
• to require accounts.

• to inspect books of the firm.

However, Mr. B is only entitled to receive the share of the profits of the transferring
partner and he is bound to accept the profits as agreed to by the partners, i.e. he
cannot challenge the accounts.
16. It is true to say that Indian Partnership Act, 1932 does not make the registra tion of firms
compulsory nor does it impose any penalty for non-registration.
Following are consequences of Non-registration of Partnership Firms in India:
The Indian Partnership Act, 1932 does not make the registration of firms compulsory nor
does it impose any penalty for non-registration. However, under Section 69, non-
registration of partnership gives rise to a number of disabilities which we shall presently
discuss. Although registration of firms is not compulsory, yet the consequences or
disabilities of non-registration have a persuasive pressure for their registration. These
disabilities briefly are as follows:
(i) No suit in a civil court by firm or other co-partners against third party: The firm
or any other person on its behalf cannot bring an action against the third party for
breach of contract entered into by the firm, unless the firm is registered and the
persons suing are or have been shown in the register of firms as partners in the firm.
In other words, a registered firm can only file a suit against a third party and the
persons suing have been in the register of firms as partners in the firm.
(ii) No relief to partners for set-off of claim: If an action is brought against the firm by
a third party, then neither the firm nor the partner can claim any set-off, if the suit be
valued for more than ` 100 or pursue other proceedings to enforce the rights arising
from any contract.
(iii) Aggrieved partner cannot bring legal action against other partner or the firm: A
partner of an unregistered firm (or any other person on his behalf) is precluded from
bringing legal action against the firm or any person alleged to be or to have been a
partner in the firm. But, such a person may sue for dissolution of the firm or for
accounts and realization of his share in the firm’s property where the firm is dissolved.
(iv) Third party can sue the firm: In case of an unregistered firm, an action can be
brought against the firm by a third party.
17. Designated Partner [Section 2(j) of the LLP Act, 2008]: “Designated partner” means
any partner designated as such pursuant to section 7.
According to section 7 of the LLP Act, 2008:

(i) Every LLP shall have at least two designated partners who are individuals and at
least one of them shall be a resident in India.
(ii) If in LLP, all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such
LLP or nominees of such bodies corporate shall act as designated partners.
(iii) Resident in India: For the purposes of this section, the term “resident in India” means
a person who has stayed in India for a period of not less than 182 days during the
immediately preceding one year.
18. As per Section 2(6) of the Companies Act, 2013, an Associate Company in relation to
another company, means a company in which that other company has a significant
influence, but which is not a subsidiary company of the company having such influence
and includes a joint venture company.
The term “significant influence” means control of at least 20% of total share capital, or
control of business decisions under an agreement.
The term “Total Share Capital”, means the aggregate of the -
(a) Paid-up equity share capital; and
(b) Convertible preference share capital.
In the given case, as ABC Ltd. has allotted equity shares with voting rights to XYZ Limited
of ` 15 cr, which is less than requisite control of 20% of total share capital (i.e 100 cr) to
have a significant influence of XYZ Ltd. Since the said requirement is not complied,
therefore ABC Ltd. and XYZ Ltd. are not associate companies as per the Companies Act,
2013. Holding/allotment of non-convertible debentures has no relevance for ascertaining
significant influence.
19. Government Company [Section 2(45) of the Companies Act, 2013]: Government
Company means any company in which not less than 51% of the paid-up share capital is
held by-
(i) the Central Government, or
(ii) by any State Government or Governments, or
(iii) partly by the Central Government and partly by one or more State Governments,
and the section includes a company which is a subsidiary company of such a Government
company.
In the instant case, paid up share capital of SK Infrastructure Limited is 6,00,000 equity
shares of ` 100 each. 200,000 equity shares are held by Central government and 1,20,000

equity shares are held by Government of Maharashtra. The holding of equity shares by
both government is 3,20,000 which is more than 51% of total paid up equity shares.
Hence, SK Infrastructure Limited is a Government company.
20. As per the provisions of Sub-Rule (7) of Rule 3 of the Companies (Incorporation) Rules,
2014, an OPC cannot convert voluntarily into any kind of company unless two years have
expired from the date of its incorporation, except threshold limit (paid up share capital) is
increased beyond fifty lakh rupees or its average annual turnover during the relevant period
exceeds two crore rupees.
In the instant case, Mr. Anil formed an OPC on 16th April, 2018 and its turnover for the
financial year ended 31st March, 2019 was ` 2.25 Crores. Even though two years have
not expired from the date of its incorporation, since its average annual turnover durin g the
period starting from 16th April, 2018 to 31st March, 2019 has exceeded ` 2 Crores,
Mr. Anil can convert the OPC into a private limited company along with Sunil.

PAPER – 2: BUSINESS LAWS AND BUSINESS CORRESPONDENCE AND REPORTING
1. A enters into a contract with B that he (A) sells his house for ` 10,00,000 to B. Further they
both signed an agreement that if B uses the house for gambling purposes, then B shall pay
A ` 50,000 for it. B agreed to this, however after a year of sale, B started gambling business
in that house. Can A claim ` 50,000 from B? Discuss with reference to the provisions of
Indian Contract Act, 1872.
2. Seema was running a boutique in New Delhi. She has to deliver some cloth to her friend
Kiran who was putting up an exhibition at Mumbai. Seema delivered the sewing machine
and some cloth to a railway company to be delivered at a place where the exhibition was
to be held. Seema expected to earn an exceptional profit from the sales made at this
exhibition however she did not bring this fact to the notice of the railway’s authorities. The
goods were delivered at the place after the conclusion of the exhibition. On account of
such breach of contract by railways authorities, can Seema recover the loss of profits under
the Indian Contract Act, 1872?
3. Chandan was suffering from some disease and was in great pain. He went to Dr.
Jhunjhunwala whose consultation fee was ` 300. The doctor agreed to treat him but on
the condition that Chandan had to sign a promissory note of ` 5000 payable to doctor.
Chandan signed the promissory note and gave it to doctor. On recovering from the disease,
Chandan refused to honour the promissory note. State with reasons, can doctor recov er
the amount of promissory note under the provisions of the Indian Contract Act, 1872?
4. Mr. Aseem is a learned advocate. His car was stolen from his house. He gave an
advertisement in newspaper that he will give the reward of ` 10,000 who will give the
information about his car. Mr. Vikram reads the advertisement and on making some efforts
got the stolen car and informed Mr. Aseem. Mr. Aseem found his car but denied giving
reward of ` 10,000 to Mr. Vikram with the words, “An advertisement in newspaper is just
an invitation to make offer and not an offer. Hence, he is not liable to make the rew ard.”
State with reasons whether under Indian Contract Act, 1872, Mr. Vikram can claim the
reward of ` 10,000.
5. Mr. Singhania entered into a contract with Mr. Sonu to sing in his hotel for six weeks on
every Saturday and Sunday. Mr. Singhania promised to pay ` 20,000 for every
performance. Mr. Sonu performed for two weeks but on third week his health condition was
very bad, so he did not come to sing. Mr. Singhania terminated the contract. State in the
light of provisions of the Indian Contract Act, 1872:-

(a) Can Mr. Singhania terminate the contract with Mr. Sonu?
(b) What would be your answer in case Mr. Sonu turns up in fourth week and
Mr. Singhania allows him to perform without saying anything?
(c) What would be your answer in case Mr. Sonu sends Mr. Mika on his place in third
week and Mr. Singhania allows him to perform without saying anything?
6. “An anticipatory breach of contract is a breach of contract occurring before the time fixed
for performance has arrived”. Discuss stating also the effect of anticipatory breach on
contracts.
7. AB Cloth House, a firm dealing with the wholesale and retail buying and selling of various
kinds of clothes, customized as per the requirement of the customers. They dealt with Silk,
Organdie, cotton, khadi, chiffon and many other different varieties of cloth.
Mrs. Reema, a customer came to the shop and asked for specific type of cloth suitable for
making a saree for her daughter’s wedding. She specifically mentioned that she required
cotton silk cloth which is best suited for the purpose.
The Shop owner agreed and arranged the cloth pieces cut into as per the buyers’
requirements.
When Reema went to the tailor for getting the saree stitched, she found that seller has
supplied her cotton organdie material, cloth was not suitable for the said purpose. It has
heavily starched and not suitable for making the saree that Reema desired for. The Tailor
asked Reema to return the cotton organdie cloth as it would not meet his requirements.
The Shop owner refused to return the cloth on the plea that it was cut to specific
requirements of Mrs. Reema and hence could not be resold.
With reference to the doctrine of "Caveat Emptor' explain the duty of the buyer as well as
the seller. Also explain whether Mrs. Reema would be able to get the money back or the
right kind of cloth as per the requirement?
8. A went to B’s shop and selected some jewellery. He falsely represented himself to be a
man of credit and thereby persuaded B to take the payment by cheque. He further
requested him to hand over the particular type of ring immediately. On the due date, when
the seller, B presented the cheque for payment, the cheque was found to be dishonoured.
Before B could avoid the contract on the ground of fraud by A, he had sold the ring to C.
C had taken the ring in good faith and without any notice of the fact that the goods with A
were under a voidable contract. Discuss if such a sale made by non-owner is valid or not
as per the provisions of Sale of Goods Act, 1930?

9. Classify the following transactions according to the types of goods they are:
(i) A wholesaler of cotton has 100 bales in his godown. He agrees to sell 50 bales and
these bales were selected and set aside.
(ii) A agrees to sell to B one packet of sugar out of the lot of one hundred packets lying
in his shop.
(iii) T agrees to sell to S all the apples which will be produced in his garden this year.
10. Certain goods were sold by sample by A to B, who in turn sold the same goods by sample
to C and C by sample sold the goods to D. The goods were not according to the sample.
Therefore, D who found the deviation of the goods from the sample rejected the goods and
gave a notice to C. C sued B and B sued A. Advise B and C under the Sale of Goods Act,
1930.
11. Sohan, Rohan and Jay were partners in a firm. The firm is dealer in office furniture. They
have regular dealings with M/s AB and Co. for the supply of furniture for their business. On
30th June 2018, one of the partners, Mr. Jay died in a road accident. The firm has ordered
M/s AB and Co. to supply the furniture for their business on 25 May 2018, when Jay was
also alive.
Now Sohan and Rohan continue the business in the firm’s name after Jay’s death. The
firm did not give any notice about Jay’s death to the public or the persons dealing with the
firm. M/s AB and Co. delivered the furniture to the firm on 25 July 2018. The fact about
Jay’s death was known to them at the time of delivery of goods. Afterwards the firm became
insolvent and failed to pay the price of furniture to M/s AB and Co. Now M/s AB and Co .
has filed a case against the firm for recovery of the price of furniture. With re ference to the
provisions of Indian Partnership Act, 1932, explain whether Jay’s private estate is also
liable for the price of furniture purchased by the firm?
12. Moni and Tony were partners in the firm M/s MOTO & Company. They admitted Sony as
partner in the firm and he is actively engaged in day-to-day activities of the firm. There is
a tradition in the firm that all active partners will get a monthly remuneration of ` 20,000
but no express agreement was there. After admission of Sony in the firm, Moni and Tony
were continuing getting salary from the firm but no salary was given to Sony from the firm.
Sony claimed his remuneration but denied by existing partners by sayin g that there was
no express agreement for that. Whether under the Indian Partnership Act, 1932, Sony can
claim remuneration from the firm?
13. M/s XYZ & Company is a partnership firm. The firm is an unregistered firm. The firm has
purchased some iron rods from another partnership firm M/s LMN & Company which is
also an unregistered firm. M/s XYZ & Company could not pay the price within the time as

decided. M/s LMN & Company has filed the suit against M/s XYZ & Company for recovery
of price. State under the provisions of the Indian Partnership Act, 1932;
(a) Whether M/s LMN & Company can file the suit against M/s XYZ & Company?
(b) What would be your answer, in case M/s XYZ & Company is a registered firm while
M/s LMN & Company is an unregistered firm?
(c) What would be your answer, in case M/s XYZ & Company is an unregistered firm
while M/s LMN & Company is a registered firm?
14. “LLP is an alternative corporate business form that gives the benefits of limited liability of
a company and the flexibility of a partnership”. Explain.
15. Jagannath Oils Limited is a public company and having 220 members. Of which 25
members were employee in the company during the period 1 st April 2006 to 28 th June 2016.
They were allotted shares in Jagannath Oils Limited first time on 1 st July 2007 which were
sold by them on 1st August 2016. After some time, on 1 st December 2016, each of those
25 members acquired shares in Jagannath Oils Limited which they are holding till date.
Now company wants to convert itself into a private company. State with reasons:
(a) Whether Jagannath Oils Limited is required to reduce the number of members.
(b) Would your answer be different if above 25 members were the employee in Jagannath
Oils Limited for the period from 1 st April 2006 to 28 th June 2017?
16. A, B and C has decided to set up a new club with name of ABC club having objects to
promote welfare of Christian society. They planned to do charitable work or social activity
for promoting the art work of economically weaker section of Christian society. The
company obtained the status of section 8 company and started operating from 1 st April,
2017 onwards.
However, on 30th September 2019, it was observed that ABC club was violating the objects
of its objective clause due to which it was granted the status of section 8 Company under
the Companies Act 2013.
Discuss what powers can be exercised by the central government against ABC club, in
such a case?
17. An employee Mr. Karan signed a contract with his employer company ABC Limited that he
will not solicit the customers after leaving the employment from the company.
But after Mr. Karan left ABC Limited, he started up his own company PQR Limited and he
started soliciting the customers of ABC Limited for his own business purposes.

ABC Limited filed a case against Mr. Karan for breach of the employment contract and for
soliciting their customers for own business. Mr. Karan contended that there is corporate
veil between him, and his company and he should not be personally held liable for this.
In this context, the company ABC Limited seek your advice as to the meaning of corporate
veil and when the veil can be lifted to make the owners liable for the acts done by a
company?
SUGGESTED ANSWERS
1. According to Section 24 of the Indian Contract Act, 1872, in an agreement, where some
part of the object is legal and the other part is illegal, the question arises about the validity
and enforceability of such agreements. Where the legal and illegal part can be severed
and divided, and separated, lawful part of object is enforceable, and the unlawful part of
the object is void.
In the given case, A sells the house to B, is a valid transaction as the sale of house and
consideration paid for the same i.e. `10,00,000 is valid and enforceable. However, the
agreement to pay ` 50,000 for gambling done in the house is illegal and thus void.
Hence, in the instant case, sale of house agreement is valid agreement and gambling
agreement is illegal and not enforceable by law.
2. As per Section 73 to 75 of Indian Contract Act, 1872, Damage means a sum of money
claimed or awarded in compensation for a loss or an injury. Whenever a party commits a
breach, the aggrieved party can claim the compensation for the loss so suffered by him.
General damages are those which arise naturally in the usual course of things from the
breach itself. (Hadley Vs Baxendale). Therefore, when breach is committed by a party, the
defendant shall be held liable for all such losses that naturally arise in the usual course of
business. Such damages are called ordinary damages. However, special damages are
those which arise in unusual circumstances affecting the aggrieved party and such
damages are recoverable only when the special circumstances were brought to the
knowledge of the defendant. If no special notice is given, then the aggrieved party can only
claim the ordinary damages.
In the given case, Seema was to earn an exceptional profit out of the sales made at the
exhibition, however she never informed about it to the railway authorities. Since the goods
were delivered after the conclusion of the exhibition, therefore Seema can recover only the
losses arising in the ordinary course of business. Since no notice about special
circumstances was given to railways authorities, she could not recover the loss of profits.

3. Section 16 of Indian Contract Act, 1872 provides that a contract is said to be induced by
“undue influence” where the relations subsisting between the parties are such that one of
the parties is in a position to dominate the will of the other and uses that position to obtain
an unfair advantage over the other.
Further, a person is deemed to be in a position to dominate the will of another —
(a) where he holds a real or apparent authority over the other, or
(b) where he stands in a fiduciary relation to the other; or
(c) where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
Section 19A provides that when consent to an agreement is caused by undue influence,
the agreement is a contract voidable at the option of the party whose consent was so
caused. Any such contract may be set aside either absolutely or, if the party who was
entitled to avoid it has received any benefit thereunder, upon such terms and conditions
as to the Court may seem just.
From the facts of the case, Chandan signed the promissory note under undue influence
applied by doctor. Hence, Dr. Jhunjhunwala cannot recover the amount of promissory note
but can claim his normal consultation fee from Chandan.
4. An invitation to offer is different from offer. Quotations, menu cards, price tags,
advertisements in newspaper for sale are not offer. These are merely invitations to public
to make an offer. An invitation to offer is an act precedent to making an offer. Acceptance
of an invitation to an offer does not result in the contract and only an offer emerges in the
process of negotiation. But there is an exception to above provisions. When advertisement
in newspaper is made for reward, it is the general offer to public.
On the basis of above provisions and facts, it can be said that as advertisement made by
Mr. Aseem to find lost car is an offer, he is liable to pay ` 10,000 to Mr. Vikram.
5. According to Section 40 of the Indian Contract Act, 1872, if it appears from the nature of
the case that it was the intention of the parties to any contract that any promise contained
in it should be performed by the promisor himself, such promise must be performed by the
promisor. Section 41 provides that when a promisee accepts performance of the promise
from a third person, he cannot afterwards enforce it against the promisor.
Therefore, in the instant case,
(a) As Mr. Sonu could not perform as per the contract, Mr. Singhania can repudiate the
contract.

(b) In the second situation, as Mr. Singhania allowed Mr. Sonu to perform in the fourth
week without saying anything, by conduct, Mr. Singhania had given his assent to
continue the contract. Mr. Singhania cannot terminate the contract however he can
claim damages from Mr. Sonu.
(c) In case Mr. Singhania allows Mr. Mika to perform in the third week without saying
anything, by conduct, Mr. Singhania had given his assent for performance b y third
party. Now Mr. Singhania cannot terminate the contract nor can claim any damages
from Mr. Sonu.
6. An anticipatory breach of contract is a breach of contract occurring before the time fixed
for performance has arrived. When the promisor refuses altogether to perform his promise
and signifies his unwillingness even before the time for performance has arrived, it is called
Anticipatory Breach. The law in this regard has very well summed up in Frost v. Knight and
Hochster v. DelaTour:
Section 39 of the Indian Contract Act, 1872 deals with anticipatory breach of contract and
provides as follows: “When a party to a contract has refused to perform or disable himself
from performing, his promise in its entirety, the promisee may put an end to the contr act,
unless he has signified, but words or conduct, his acquiescence in its continuance.”
Effect of anticipatory breach: The promisee is excused from performance or from further
performance. Further he gets an option:
(1) To either treat the contract as “rescinded and sue the other party for damages from
breach of contract immediately without waiting until the due date of performance; or
(2) He may elect not to rescind but to treat the contract as still operative and wait for the
time of performance and then hold the other party responsible for the consequences
of non-performance. But in this case, he will keep the contract alive for the benef it of
the other party as well as his own, and the guilty party, if he so decides on re -
consideration, may still perform his part of the contract and can also take advantage
of any supervening impossibility which may have the effect of discharging the
contract.
7. Duty of the buyer according to the doctrine of “Caveat Emptor”: In case of sale of
goods, the doctrine ‘Caveat Emptor’ means ‘let the buyer beware’. When sellers display
their goods in the open market, it is for the buyers to make a proper selecti on or choice of
the goods. If the goods turn out to be defective, he cannot hold the seller liable. The seller
is in no way responsible for the bad selection of the buyer. The seller is not bound to
disclose the defects in the goods which he is selling.
Duty of the seller according to the doctrine of “Caveat Emptor”: The following
exceptions to the Caveat Emptor are the duties of the seller:

(i) Fitness as to quality or use

(ii) Goods purchased under patent or brand name
(iii) Goods sold by description
(iv) Goods of Merchantable Quality
(v) Sale by sample
(vi) Goods by sample as well as description
(vii) Trade usage
(viii) Seller actively conceals a defect or is guilty of fraud
Based on the above provision and facts given in the question, it can be co ncluded that
Mrs. Reema is entitled to get the money back or the right kind of cloth as required serving
her purpose. It is the duty of the seller to supply such goods as are reasonably fit for the
purpose mentioned by buyer. [Section 16(1) of the Sale of Goods Act, 1930].
8. Section 27 of Sale of Goods Act, 1930 states that no man can sell the goods and give a
good title unless he is the owner of the goods. However, there are certain exceptions to
this rule of transfer of title of goods.
One of the exceptions is sale by person in possession under a voidable contract (Section
29 of Sale of Goods Act, 1930)
1. If a person has possession of goods under a voidable contract.
2. The contract has not been rescinded or avoided so far
3. The person having possession sells it to a buyer
4. The buyer acts in good faith
5. The buyer has no knowledge that the seller has no right to sell.
Then, such a sale by a person who has possession of goods under a voidable contract
shall amount to a valid sale and the buyer gets the better title.
Based on the provisions, Mr. A is in possession of the ring under a voidable contract as
per provisions of Indian Contract Act, 1872. Also, B has not rescinded or avoided the
contract, Mr. A is in possession of the ring and he sells it new buyer Mr. C who acts in
good faith and has no knowledge that A is not the real owner. Since all the conditions of
Section 29 of Sale of Goods Act, 1930 are fulfilled, therefore sale of ring made by Mr. A to
Mr. C is a valid sale.

9. (i) A wholesaler of cotton has 100 bales in his godown. So, the goods are existing goods.
He agrees to sell 50 bales and these bales were selected and set aside. On selection,
the goods become ascertained. In this case, the contract is for the sale of ascertained
goods, as the cotton bales to be sold are identified and agreed after the formation of
the contract.
(ii) If A agrees to sell to B one packet of sugar out of the lot of one hundred packets lying
in his shop, it is a sale of existing but unascertained goods because it is not known
which packet is to be delivered.
(iii) T agrees to sell to S all the apples which will be produced in his garden this year. It
is contract of sale of future goods, amounting to 'an agreement to sell.'
10. In the instant case, D who noticed the deviation of goods from the sample can reject the
goods and treat it as a breach of implied condition as to sample which provides that when
the goods are sold by sample the goods must correspond to the sample in quality and the
buyer should be given reasonable time and opportunity of comparing the bulk with the
sample. Whereas C can recover only damages from B and B can recover damages from
A. For C and B it will not be treated as a breach of implied condition as to sample as they
have accepted and sold the goods according to Section 13(2) of the Sales of Goods Act,
1930.
11. According to Section 35 of the Indian Partnership Act, 1932, where under a contract
between the partners the firm is not dissolved by the death of a partner, the e state of a
deceased partner is not liable for any act of the firm done after his death.
Further, in order that the estate of the deceased partner may be absolved from liability for
the future obligations of the firm, it is not necessary to give any notice either to the public
or the persons having dealings with the firm.
In the light of the facts of the case and provisions of law, since the delivery of furniture was
made after Jay’s death, his estate would not be liable for the debt of the firm. A suit for
goods sold and delivered would not lie against the representatives of the deceased partner.
This is because there was no debt due in respect of the goods in Jay’s lifetime. He was
already dead when the delivery of goods was made to the firm and also it is not necessary
to give any notice either to the public or the persons having dealings with the firm on a
death of a partner (Section 35). So, the estate of the deceased partner may be absolved
from liability for the future obligations of the firm.
12. By virtue of provisions of Section 13(a) of the Indian Partnership Act, 1932 a partner is not
entitled to receive remuneration for taking part in the conduct of the business. But this rule
can always be varied by an express agreement, or by a course of dealings, in which event
the partner will be entitled to remuneration. Thus, a partner can claim remuneration even

in the absence of a contract, when such remuneration is payable under the continued
usage of the firm. In other words, where it is customary to pay remuneration to a partner
for conducting the business of the firm, he can claim it even in the absence of a contract
for the payment of the same.
In the given problem, existing partners are getting regularly a monthly remuneration from
firm customarily being working partners of the firm. As Sony also admitted as working
partner of the firm, he is entitled to get remuneration like other partners.
13. According to provisions of Section 69 of the Indian Partnership Act, 1932 an unregistered
firm cannot file a suit against a third party to enforce any right arising from contract, e.g.,
for the recovery of the price of goods supplied. But this section does not prohibit a third
party to file suit against the unregistered firm or its partners.
(a) On the basis of above, M/s LMN & Company cannot file the suit against M/s XYZ &
Company as M/s LMN & Company is an unregistered firm.
(b) In case M/s XYZ & Company is a registered firm while M/s LMN & Company is an
unregistered firm, the answer would remain same as in point a) above.
(c) In case M/s LMN & Company is a registered firm, it can file the suit against M/s XYZ
& Company.
14. LLP is an alternative corporate business form that gives the benefits of limited liability of a
company and the flexibility of a partnership
Limited Liability: Every partner of a LLP is, for the purpose of the business of LLP, the
agent of the LLP, but not of other partners (Section 26 of the LLP Act, 2008). The liability
of the partners will be limited to their agreed contribution in the LLP, while the LLP it self
will be liable for the full extent of its assets.
Flexibility of a partnership: The LLP allows its members the flexibility of organizing their
internal structure as a partnership based on a mutually arrived agreement. The LLP form
enables entrepreneurs, professionals and enterprises providing services of any kind or
engaged in scientific and technical disciplines, to form commercially efficient vehicles
suited to their requirements. Owing to flexibility in its structure and operation, the LLP is a
suitable vehicle for small enterprises and for investment by venture capital.
15. According to Section 2(68) of Companies Act, 2013, “Private company” means a company
having a minimum paid-up share capital as may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two
hundred:

Provided that where two or more persons hold one or more shares in a company
jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were
members of the company while in that employment and have continued to be
members after the employment ceased,
shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
(a) Following the provisions of Section 2(68), 25 members were employees of the
company but not during present membership which was started from 1st
December 2016 i.e. after the date on which these 25 members were ceased to
the employee in Jagannath Oils Limited. Hence, they will be considered as
members for the purpose of the limit of 200 members. The company is required
to reduce the number of members before converting it into a private company.
(b) On the other hand, if those 25 members were ceased to be employee on
28th June 2017, they were employee at the time of getting present membership.
Hence, they will not be counted as members for the purpose of the limit of 200
members and the total number of members for the purpose of this sub-section
will be 195. Therefore, Jagannath Oils Limited is not required to reduce the
number of members before converting it into a private company.
16. Section 8 of the Companies Act, 2013 deals with the formation of companies which are
formed to promote the charitable objects of commerce, art, science, education, sports etc.
Such company intends to apply its profit in promoting its objects. Section 8 companies are
registered by the Registrar only when a license is issued by the Central Government to
them.
Since ABC Club was a Section 8 company and it was observed on 30 th September, 2019
that it had started violating the objects of its objective clause. Hence in such a situation
the following powers can be exercised by the Central Government:
(i) The Central Government may by order revoke the licence of the company where the
company contravenes any of the requirements or the conditions of this sections
subject to which a licence is issued or where the affairs of the company are conducted
fraudulently, or violative of the objects of the company or prejudicial to public interest,
and on revocation the Registrar shall put ‘Limited’ or ‘Private Limited’ against the
company’s name in the register. But before such revocation, the Central Government

must give it a written notice of its intention to revoke the licence and opportunity to
be heard in the matter.
(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied
that it is essential in the public interest, direct that the company be wound up under
this Act or amalgamated with another company registered under this section.
However, no such order shall be made unless the company is given a reasonable
opportunity of being heard.
(iii) Where a licence is revoked and where the Central Government is satisfied that it is
essential in the public interest that the company registered under this section should
be amalgamated with another company registered under this section and having
similar objects, then, notwithstanding anything to the contrary contained in this Act,
the Central Government may, by order, provide for such amalgamation to form a
single company with such constitution, properties, powers, rights, interest, authorities
and privileges and with such liabilities, duties and obligations as may be specified in
the order.
17. Corporate Veil: Corporate Veil refers to a legal concept whereby the company is identified
separately from the members of the company.
The term Corporate Veil refers to the concept that members of a c ompany are shielded
from liability connected to the company’s actions. If the company incurs any debts or
contravenes any laws, the corporate veil concept implies that members should not be liable
for those errors. In other words, they enjoy corporate insulation.
Thus, the shareholders are protected from the acts of the company.
However, under certain exceptional circumstances the courts lift or pierce the corporate
veil by ignoring the separate entity of the company and the promoters and other persons
who have managed and controlled the affairs of the company. Thus, when the corporate
veil is lifted by the courts, the promoters and persons exercising control over the affairs of
the company are held personally liable for the acts and debts of the company.
The following are the cases where company law disregards the principle of corporate
personality or the principle that the company is a legal entity distinct and separate from its
shareholders or members:
(i) To determine the character of the company i.e. to find out whether co-enemy or friend.
(ii) To protect revenue/tax
(iii) To avoid a legal obligation
(iv) Formation of subsidiaries to act as agents

(v) Company formed for fraud/improper conduct or to defeat law

Based on the above provisions and leading case law of Gilford Motor Co. Vs Horne, the
company PQR Limited was created to avoid the legal obligation arising out of the contract,
therefore that employee Mr. Karan and the company PQR Limited created by him sh ould
be treated as one and thus veil between the company and that person shall be lifted. Karan
has formed the only for fraud/improper conduct or to defeat the law. Hence, he shall be
personally held liable for the acts of the company.

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Test Series: March, 2022

MOCK TEST PAPER 1

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Liabilities Amount Assets Amount

Amal Kamal Tamal

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© The Institute of Chartered Accountants of India

(b) Subscription for the year ended 31.3.2021

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(iii) Balance Sheet of New Partnership Firm

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(ii) Advance from Customers A/c

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© The Institute of Chartered Accountants of India

(b) Books of Sampati Ltd.

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

MOCK TEST PAPER 1

PAPER 3: BUSINESS MATHEMATICS, LOGICAL REASONING AND STATISTICS

Time: 2 Hours Marks: 100

Part A: Business Mathematics and Logical Reasoning

What is the Standrard deviation of x ?

Commodity Base year Current year

Key Part B: Statistics

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