Financial Accounting I – Fall, 2016

This is the question set along with answers Financial Accounting I Fall 2016, which was taken by the Pokhara University.

Pokhara University – Financial Accounting I Fall 2016

Section “A”

Very Short Answer Questions

Attempt all the questions.

1. Describe any four basic features of a public limited company.
2. Write any two objectives of trial balance.
3. What does the going concern principle mean?
4. What do you mean by source documents?
5. Why do closing entries require?
6. What is the business transaction which (one each):
   i. Decreases assets and decreases liability?
   ii. Decreases equity and increases liability?
7. Travel Smith Nepal started the year with Rs. 100,000 in assets and Rs. 80,000 in liabilities. It earned Rs. 25,000 during the year and no dividends are distributed. How much is the owner’s equity at the end of the year?
8. Prepare accounting equation. On 25 July 2015 paid rent for three months (June, July, and August) Rs.3000 each.
9. Flower shop signed a 10 month, 10% promissory note for Rs. 60,000 on July 1, 2014. Shop uses a calendar year-end. Pass the adjusting entries needed on December 31, 2014, to recognize interest expenses.
10. Ralph Corp. starts the year with a retained earning balance of Rs. 55,000. Net income for the year is Rs. 2,70,00. The ending balance of retained earnings is Rs. 70,000, which was the number of dividends for the years.
11. Describe the role of IFRS (International Financial Reporting Standards) and NAS (Nepal Accounting Standards) for regulating accounting and auditing.
12. a) “Sources documents are the roots of financial accounting”, why?
    Also, give 5 examples of source documents.
    b) How do you get advantages from using computers in financial accounting?
13. Presented below the Trial Balance of Adhikari and Brothers Inc. as of December 31, 2015.
    PICTURES
    Required:
    a) Prepare a multiple-step income statement of Adhikari and Brothers for the period ended December 31, 2015.
    b) Prepare a classified balance sheet of Adhikari and Brothers as of December 31, 2015.
14. The Himal Trading house opened for business on March 1, 2014. The trial balance before adjustment as of March 31, 2014, has been given below:
    PICTURE
    Month-end transactions:
    a) Prepaid insurance was paid for six months starting from March.
    b) Physical count of inventory of supplies showed Rs. 1,900 unused supplies on March 31, 2014.
    c) Building was purchased on 1st March 2014 for Rs. 84,000. It has a life of 35 years with zero salvage value.
    d) The interest on mortgage loans is 9% per annum. The mortgage was taken out on March 1, 2014.
    e) Unearned rent of Rs. 1,300 has been earned.
    Required:
    Prepare a 10-column worksheet as of March 31, 2014.
15. What are the qualitative characteristics of accounting information? Briefly explain with suitable examples.
16. Dharan Architects incorporated as licensed architects on January 1, 2014. During the first month of its operation, the following transaction occurred:
    January 2: filed articles of incorporation with the state, and issued 100,000 shares of capital stock. Cash of Rs.100,000 is received from the new owners for the share.
    January 3: Purchased a warehouse and land for Rs.80,000 in cash. An appraiser values the land Rs.20,000 and the warehouse at Rs.60,000.
    January 4: Signed a three-year promissory note at the Third State Bank in the amount of Rs.50,000.
    January 15: Performed services on account that amounted to Rs.15,900 during the month.
    January 31: Established an open account at a local service station at the beginning of the month. Purchases of gas and oil during January amounted to Rs.3,230. Dharan has until the 10th of the following month to pay its bill. Required:
    Journalize the transaction, post to respective T accounts, and then prepare the trial balance of Dharan Architects dated January 31, 2014.
17. The following information has been assembled for the purpose of preparing the December 31, 2015 bank reconciliation statement of ABC Company.
    a) The balance of the December 30 bank statement was Rs 12,700, the cash account showed aRs 5,920 balance on the same date.
    b) Cheques under collection on December 31, Rs 1100.
    c) Outstanding cheques, Rs 6,800.
    d) A customer’s cheques for Rs 900 were returned with the bank statement marked ‘ NSF’.
    e) Bank service charged for Rs 120.
    f) Bill receivables collected by bank Rs 2,000.
    g) Interest on the preceding bill Rs 100.
    Required:
    i. Bank reconciliation statement of ABC Company for December 31, 2015.
    ii. What is the cash balance that is shown on the balance sheet?Section “C”

     

    Case Analysis

18. TS and VS Company has prepared an income statement and balance sheet on 31st December 2015 as follows.

TS and VS company
Income Statement
For the year ended 31 December 2015

PICTURE

TS and VS Company
Comparative Balance Sheet

PICTURE

Additional information:
a) Land was acquired during the year for Rs.70,000.
b) An unimproved parcel of land was sold during the year for Rs.27,500. Its original cost to TS and VS Company was Rs.30,000.
c) A specialized piece of equipment costing Rs.60,000 was acquired in exchange for capital stock in the company.
d) In addition to the capital stock issued in exchange for specialized equipment, some stocks were also sold for cash of Rs.40,000.
e) Dividends of Rs.600 were paid
Required:
i. Prepare cash flow statement for the year 2015 using the direct method for cash flow for operating activity.
ii. Re-compute cash flow under operating activity using the indirect method.
iii. The president of the company asked you a question about the year-end result. He is curious to know that the Rs. 5200 net profit for the year is satisfactory. Write a memo to the president to explain why or why not year-end result satisfactory.