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been lost and not all text may have been recognized. To remove this note, right-click and select "Delete table". All Rights Reserved THE ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA FOUNDATION EXAMINATION - DECEMBER 2010 (50) BASIC ACCOUNTING Time: 03 hours • Instructions to candidates (1) This paper consists of three (03) Sections A, B & C. (2) Five (05) questions should be answered as follows: • Question No.01 of Section A • Both questions of Section B • Any two (02) questions from Section C (3) Answers should be in one language, in the medium applied for, in the booklets provided. (4) Submit all workings and calculations. State clearly assumptions made by you, if any. (5) Use of calculators is permitted. (6) 100 Marks. SECTION - A Multiple Choice Questions All questions of this Section should be answered. 30 marks 01. Select from (1), (2), (3), (4) the most correct answer to each of the following questions. Write the number of the selected answer in your answer booklet with the English letter assigned to the question. (A) Select from the following, the most correct statement: (1) Financial accounting provides information only to internal parties of an entity. (2) Cost accounting aims at providing information to parties external to an entity. (3) Financial accounting focuses primarily on past transactions and events. (4) Both statements (2) and (3) above are correct. (B) Of the following, accounting inputs include: (1) Income statement & Balance sheet. (2) Transactions & events. (3) Ledgers, journals and cash book. (4) (2) and (3) of the above. (C) Which of the following statements is true with regard to cash discounts? (1) Cash discounts are offered when reducing the invoice price below the listed price. (2) Cash discounts are offered to induce debtors for prompt settlement. (3) Cash discounts are disregarded in accounting. (4) None of the above. 22-01-2011 Morning 9.00 – 12.00 No. of Pages: 09 No. of Questions: 06 (D) It has not been possible to identify reasons for a difference of Rs.35,000/- in the credit column of a trial balance. Assuming prudence the Book-keeper has shown this as a liability in the balance sheet. As a student which of the following statements, do you agree? (1) I agree with the treatment by the Book-keeper, as it is a prudent assumption. (2) I do not agree with the treatment by the Book-keeper, as the difference could be a result of a number of errors. (3) I do not agree with the treatment by the Book-keeper, because it should have been shown as an income. (4) I do not agree with any of the above treatments. (E) Depreciation of depreciable assets is recognized as a charge in the income statement. This treatment is based on the concept of: (1) Going concern. (2) Matching. (3) Materiality. (4) Periodicity. (F) Overhead cost comprises of: (1) All expenses charged to Manufacturing Account. (2) All Indirect Expenses. (3) All Variable Costs. (4) Prime Cost. (G) Details of the trading account of a company engaged in buying and selling of commodities for a month is as follows: Rs.’000 Sales 3,000 Opening stock 25 In arriving at the above gross profit, which of the following accounting concepts has not been complied with by the company? (1) Prudence concept. (2) Accrual concept. (3) Matching concept. (4) Consistency concept. (H) Salaries paid to factory foremen and office executives should be categorized as: (1) Direct wages. (2) Indirect wages. (3) Variable cost. (4) Semi variable cost. Purchases 2,000 Closing stock 35 Gross profit 1,000 2 (I) Accounts Receivable balance as at 31st March 2010 of AB Ltd. was Rs.136,000/- and the Provision for Doubtful Debts as at 01st April 2009 was Rs.2,720/-. One of the debtors, Peter was declared bankrupt in March 2010 and it was decided to write off Rs.17,000/- due from him. No entries have been passed in the books of accounts to record the above write-off. In addition to the above, a sum of Rs.25,000/- written off prior to 01st April 2009 as a bad debt was recovered in January 2010. It is the policy of the company to make a provision for doubtful debts at 2% of the outstanding debtors balance. The provision for doubtful debts of AB Ltd. as at 31st March 2010 accordingly is: (1) Rs.2,720/-. (2) Rs.2,380/-. (3) Rs.1,880/-. (4) None of the above. (J) Goods Received Note (GRN) is raised: (1) to certify that goods are of good quality. (2) by the production Manager to request materials from stores. (3) to accept the goods into the stores. (4) to record goods returned to the supplier. (K) Select from the following, the group which consists examples for non-production overheads: (1) Factory Rent and Rates. (2) Depreciation of Plant & Machinery. (3) Rent and insurance of office premises. (4) Salaries paid to factory Supervisors and Foremen. (L) Given below is the information pertaining to Ajith’s milk business: Rs. January 01st Opening inventory 30 liters at Rs.30/- 900/- January 05th Purchased 60 liters at Rs.36/- 2,160/- Sales during the month were 200 liters at Rs.40/-. The value of the closing stock under First-In, First-Out (FIFO) method is: (1) Rs.900/-. (2) Rs.1,200/-. (3) Rs.240/-. (4) Rs.1,500/-. (M) Which of following graphs describe the behavior of variable cost? ABCtsoClatoT tsoCtinU Activity level (1) A only. (2) A and B only. (3) C only. (4) B and C only. tsoClatoT Activity level Activity level January 15th Purchased 70 liters at Rs.34/- 2,380/- January 25th Purchased 70 liters at Rs.40/- 2,800/- 3 LiL (N) Golden company made a loss on disposal of a depreciable asset. The proceeds received from the disposal of this asset is: (1) More than the cost of the asset. (2) Less than the cost of the asset but more than the written down value of the asset. (3) Less than the written down value of the asset. (4) Equal to written down value of the asset. (O) Factory overhead costs do not include: (1) Direct labour and direct material cost. (2) Royalties paid on each unit produced. (3) Royalties paid on each unit sold. (4) All of the above. (02 marks each, Total 30 marks) SECTION - B Compulsory Questions Answer both questions of this Section 50 marks 02. Mallika started a retail shop on 01st January 2010, depositing Rs.10,000/- into a bank account. Rs.60,000/- worth of furniture and equipment were brought to the business by Mallika on the same day. The following information was extracted from her records for the three month period ended 31st March 2010: Rs. Cash payments (made from daily collection) Electricity 4,000 Transport 7,000 Cheque payments Cash deposited in bank 210,000 Loan from Lalani (cash) 25,000 Sundry expenses 3,000 Suppliers 40,000 Expenses on Business opening day 5,000 Suppliers 120,000 Motor bicycle (could use for 3 years and can be sold for Rs.12,000/- after 3 years) 36,000 Rent (2,000 per month) 24,000 Settlement of part of the loan - Lalani 12,000 Painting work of the shop 4,000 4 The following additional information is provided: (1) All sales were on cash basis, Mallika has deposited receipts from sales keeping a cash in hand balance of Rs.5,000/-. She has started to withdraw Rs.500/- each daily from the collection (for private use) with effect from 01st March to 31st March 2010. (2) Furniture and equipment should be replaced after 4 years, the saleable value of these assets after 4 years would be Rs.12,000/-. (3) The trade payables as at 31st March 2010 were Rs. 13,000/-. (4) The stock on 31st March 2010 was valued at Rs.23,000/-. (5) Outstanding bills payable as at 31st March 2010 were: Electricity Rs.2,000/- Water Rs.1,000/- You are required to prepare: (a) Trading, Profit/Loss account for the three months period ended 31st March 2010, (15 marks) (b) Balance Sheet as at 31st March 2010, (10 marks) of the business of Mallika. (Total 25 marks) 03. (a) You are given the cash book and bank statement of Udara & Company for the month of December 2010. Udara & Company Cash Book for the month of December 2010 Date Description Amount Rs. Date Description Amount Rs. 01.12.2010 Balance B/f 34,200 02.12.2010 Silva Ltd. 68003 6,400 04.12.2010 Ajith Ltd. 56308 105,000 05.12.2010 Electricity 68004 14,000 08.12.2010 Cash 25,000 08.12.2010 Sheela 77613 43,000 17.12.2010 Cash 50,000 10.12.2010 Peter 68005 20,000 17.12.2010 Cecil Ltd. 453015 61,000 15.12.2010 26.12.2010 Daya Ltd. 242156 76,000 17.12.2010 Rent 68006 60,000 27.12.2010 Basil Ltd. 71303 47,300 26.12.2010 Computer 68007 64,000 398,500 398,500 5 31.12.2010 C/d 91,100 Transfer to savings account 00016015 100,000 Balance (Rs.) 01.12.2010 Balance - - 48,100 02.12.2010 Withdrawal cheque No. 68001 10,000 - 38,100 08.12.2010 Deposits - 25,000 63,100 10.12.2010 Deposit cheque No. 77613 - 43,000 106,100 10.12.2010 Withdrawal cheque No. 68002 3,900 - 102,200 10.12.2010 Withdrawal cheque No. 68004 14,000 - 88,200 13.12.2010 Deposit cheque No. 56308 - 105,000 193,200 15.12.2010 Transfer to Savings Account No.00016015 100,000 - 93,200 17.12.2010 Deposit cheque No. 453015 - 61,000 154,200 17.12.2010 Deposits - 50,000 204,200 22.12.2010 Standing order 5,000 - 199,200 Assume that the Bank has recorded all entries correctly. You are required to Prepare, (i) Adjusted cash book. (ii) Bank reconciliation statement for the month of December 2010. (10 marks) (b) The information given below was extracted at the end of December 2010 from the books of a trading company. Debtor Balance Cash 01.12.2010 Sales during the month received from debtors during the Rs. Rs. month Rs. Sales returns Discounts during the allowed month Rs. Rs. Sylvester 4,000 4,000 400 5,000 250 Rahula 3,000 5,000 300 3,000 150 Swarnamali 2,000 6,000 0 1,000 50 Anthony 1,000 7,000 0 5,000 400 Total 10,000 22,000 700 14,000 850 Bank Statement for the month of December 2010 Date Description Dr. (Rs.) You are required to prepare, (i) The Debtors (Accounts Receivables) Ledger Control Account as it would appear in the general ledger. (ii) Individual ledger accounts of each debtor as they would appear in the subsidiary ledger. (07 marks) 6 Cr. (Rs.) You are required to, identify possible transactions that causes impact of item 2 to 8 above. Example relating to Item 1 is given below: Transaction: Cash sales of Rs.5,000/- of goods costing for Rs.3,000/-. (08 marks) (Total 25 marks) SECTION - C Answer any two (02) questions from this Section 20 marks 04. (a) The Trial Balance extracted from the books of Belta Company reflects that the debit side total is greater than the total in the credit side, thereby creating a suspense account. Subsequent investigations have revealed the following: Reference No. Error 1 The debit side of salaries account was over-cast by Rs.3,000/-. 2 Discount received of Rs.500/- was debited to discounts allowed account. (c) Impact of some of the transactions in the accounts of Silva Bake House are given below: Item Cash Inventories Receivables Capital Assets Fixed Revenue Expenses 1 + 5,000 - 3,000 - - - + 5,000 + 3,000 2 + 3,000 - - + 6,000 + 3,000 - - You are required to prepare, Journal Entries to correct the above errors. (07½ marks) (b) What are the advantages of WAC (Weighted Average Cost) pricing method for issuing inventories? (02½ marks) (Total 10 marks) 3 - - 500 - - + 500 - - 4 - - 4,000 - - 4,000 - - - 5 - - - + 300 - - + 300 6 - - - - - 700 - + 700 7 + 1,000 - 3,000 + 3,000 - - + 4,000 + 3,000 8 + 2,000 - - 2,100 - - - + 100 3 4 5 6 7 A cash sale of Rs.4,000/- was not recorded in the sales account, but debited to cash book. A purchase of Rs.12,000/- was taken to purchase account as Rs.21,000/-, while the credit entry was recorded correctly. A sale of Rs.3,000/- was credited to debtors account as Rs.3,300/-, but the sales account was correctly recorded. A credit sale of Rs.2,700/- to Rukshan was debited to Rukmal but the sales account was credited as Rs. 1,700/-. Interest expense of Rs.1,350/- was credited to interest income account, but the bank account was correctly recorded. 7 05. (a) The information on Property, Plant and Equipment given below relates to a company that started its business on 01st April 2009. Asset Expected residual value Rs.’000 Plant (expected output = 3 million units) 3,000 01.07.2009 300 Air conditioning machine (expected to use for 10,400 hours) Cost Rs.’000 Date acquired 400 01.10.2009 50 The company produced 600,000 units up to 31st March 2010. The air conditioning machine was used continuously over 5 days a week, 8 hours a day. The building should be depreciated at 5% per annum on cost. A Lorry was acquired on 01st January 2010 for Rs.3,000,000/-, expecting to be used for five years and then to be sold at Rs.1,000,000/-. However, it was used only for two months and sold at Rs.2,800,000/-. You are required to, (i) Prepare the provision for depreciation account as at 31st March 2010. (ii) Prepare the depreciation expense account for the year ended 31st March 2010. (iii) Indicate the written down value of each asset as at 31st March 2010. (07½ marks) (b) Briefly explain with an example for each of the following: (i) Production Overheads. (ii) Non production Overheads. (02½ marks) (Total 10 marks) 06. (a) Tikiri is involved in the buying and selling business of domestic water tanks. At the physical verification of stock carried out on 10th January 2010, it was found that 74 numbers of tanks were in good condition in the yard. The stock movements for the period from 01st January 2010 to 10th January 2010 were as follows: Nos. Sales (Rs.2,000/- each) 16 Purchases 20 Building 4,000 01.04.2009 - Cost of a tank was Rs.1,000/- during the year 2009, however, it was Rs.1,100/- in the year 2010. The damaged tanks had been purchased in 2009. You are required to, Assess the value of the stock at cost to be included in the balance sheet as at 31st December 2009. (03 marks) Returns in good condition (out of December 2009 sales) 6 Damaged in the yard due to an accident (with zero scrap value) 2 8 (b) The following particulars have been obtained from the books of business of Anura. Rs.’000 Trade Receivables (Debtors) control account: Balance as at 01.01.2010 (Dr) 80 Based on the above particulars, you are required to prepare, Trading Account of business of Anura for the year ended 31st December 2010. (4½ marks) (c) Indicate three documents used in recording of labour cost, and briefly explain any one of them. (02½ marks) (Total 10 marks) - o0o - Trade Payables (Creditors) control account: Inventories: Transactions during the year: Balance as at 31.12.2010 (Dr) 108 Balance as at 01.01.2010 (Cr) 45 Balance as at 31.12.2010 (Cr) 51 Balance as at 01.01.2010 40 Balance as at 31.12.2010 35 Cash sales 210 Cash received from debtors 350 Cash paid to creditors 290 9