POKHARA UNIVERSITY

Level: Bachelor                                  Semester: Spring                                   Year: 2023

Programme: BBA/BI/TT/BCIS/BHCM/BHM                                              Full Marks: 100

Course: Financial Accounting-I                                                                    Pass Marks: 45

Time: 3 hrs. 

                                                          Section "A"

                                            Very Short Answer Questions

Attempt all the questions. [10×2] 

1. What is financial accounting? 

2. What do you mean by GAAP?

3. Explain the accrual basis of accounting. 

4. What do you mean by source document?

5. What are the purposes of preparing a balance sheet?

6. What weaknesses do you see in a single step form of the income statement? 

7. SHREE corporation starts the year with a retained earning balance of Rs. 55,000. Net income for the year is Rs: 27,000. The ending balance in retained earnings is Rs. 70,000. What was the amount of dividend for the year?

8. A restaurant had Rs 8,000 supplies on hand at the beginning of April. During the month Rs 12,000 of supplies were purchased. At the end of the month a check of the supplies indicated that Rs 6,000 of supplies was on hand. Determine the amount of supplies used and journalize the adjusting entry.

9. The provision for tax during the year is Rs. 25,000. The tax payable in the balance sheet decreased by Rs. 10,000. Find the amount of tax paid during the year.

10. Record journal entry on 25th July 2022 for making payment of rent for three

months for June, July and August of Rs 4,000 each month.

                                                              Section "B"

                                                  Descriptive Answer Questions

Attempt any six questions. [6×10]

 11. What are the different group users of accounting information? Explain their needs for accounting information. 

12. What do you understand about the "Annual Report" of a company? Briefly explain the major elements of an annual report.

13. A Company was registered on 1 Jan. 2020 by a group of professionals to provide short term management training and business research services to all the small business homes in Kathmandu. Following transactions are taken:

Jan 1        Received contributions of Rs. 25000 from each of the six partners in exchange for    shares of stock.

Jan 4        Purchased a computer and printer for a total of Rs. 35000 with a down payment of Rs 15000 and the balance due on 10 of Feb.

Jan 9        Sign a two years promissory note at the bank and cash received Rs 900

Jan 10        Paid Rs. 400 for wages earned by employees for the first week of the month.

Jan 15        Collected Rs. 80,000 in cash for the credit analysis and management training.

Jan 18        Paid commission of Rs. 500 to the local agents.

Jan 22        Paid Rs 4000 rent for the month of January and Rs. 8000 the month of February  and March in advance.

Jan. 30       Billed Rs. 4000 to the local clients for providing consulting service. Clients are allowed to pay on 10th February.

Required:    Pass journal entries, prepare necessary T- accounts and draw up trial balance.              [4+4+2]

 

14. The following is the unadjusted trial balance for the year ended December 2022.

 

Account Titles	Debit (Rs)	Credit (Rs)
Cash	90.000
Capitall		1,00,000
Furniture	50,000
Notes Payable		30,000
Prepaid Insurance	4,500
Office Supplies	1,000
Account Payable		500
Account Receivable	5,000
Service Revenue		20,000
Advertisement Exp.	5,000
Utilities Expenses	5,000
Commision Income		10,000
Total	1,60,500	1,60,500

Adjustments:

i) Utilities expenses payable amounted to Rs 500.

ii) Supplies on hand Rs 200. 

iii) Prepaid Insurance expired to the extent of Rs 1,500.

iv) Billed to customer previously service performed Rs 2,000. 

v) Commission earned but not received Rs 3,000.

Required:

a) Adjusting entries. [4]

b) 10 column worksheet: [6]

15. The Trial Balance of Nepal Trade House Ltd. Is as follows.

                                                   Nepal Trade House Ltd.

                                                          Trial Balance

                                                 As on December 31, 2022

 

Account Titles	Debit(Rs)	Credit(Rs)
Cash and cash equivalents	5000
Receivables	2000
Inventories	3000
Prepaid expenses	1500
Property, Plant and Equipment	30000
Accumulated Depreciation: PPE		3,000
Brands Trademarks and Goodwill, net	20000
Other Assets	5000
Notes Payable		4,000
Account Payable		5,000
Accrued Payroll		3,000
Advance on sales (Deferred revenue)		6,000
Other current liabilities		5,000
Long term debt		10,500
Other non-current liabilities		9,500
Preferred Stock		5,000
Common Stock		10,000
Retained earnings (Dec 31, 2021)		6,000
Additional paid in capital		1,000
Net Sales		21,000
Cost of goods sold	15,000
Selling and administrative expenses	1,500
Interest expenses	2,000
Gain on sale of machine		1,000
Income tax	1,000
Cash dividend	4,000
Total:	90,000	90,000

Required:

a) Prepare a multi-step income statement. [5]

b) Prepare a classified balance sheet. [5]

16. The Bank statement for Development Bank Ltd. shows a balance of Rs. 15,907.45 on April 30,2020. On this date the balance as per book is Rs. 11,589.45. The following reconciling items are determined: 

a. Deposit in transit Rs. 2,201.40.

b. Outstanding cheques of Rs. 5,904.

c. A cheque of Rs. 1,226 correctly written by the company and was correctly paid by the bank. But the company recorded it for Rs. 1,262.

d. Bank debited NSF cheque for Rs. 425.60, bank charge of Rs.30 

e. Bank credited Note receivable for Rs 1,000 plus interest earned Rs. 50, less bank collection charge of Rs.15.

Required:

a) Bank reconciliation statement. [8]

b) How much cash balance should be reported on Development Bank's April 30, Balance sheet? [2]

17. Consider the following ledger balance of Three Star Corporation at the end of Dec 31, 2022.

 

Dividend paid                                                        Rs. 1,00,000

Rent expenses                                                      Rs.30,000

Utility expenses                                                     Rs.1,000

Commission earned                                              Rs.2,50,000

Services revenue                                                  Rs.5,50,000

Wages and salary expenses                                 Rs. 1,00,000

Advertising expenses                                            Rs.20,000

Required: Pass necessary closing entries.

                                                                 Section "C"

                                                              Case Analysis

18. Read the case situation given below and answer the questions that follow: [20]

Butwal Power Company has prepared an income statement and balance sheet on 31st December, 2021 as follows.

                                           Butwal Power Company 

                                              Income Statement

                              For the year ended 31 December, 2021

 

Particulars	Amounts
Sales revenue                                                        Cost of goods sold                                     Gross margin                                                           Depreciation expenses   Advertising expenses                                                Salary expenses                                                        Total operating expenses                                        Operating income                                                    Loss on sale of land                                                  Earning before tax                                                     Income tax expenses	89,000   57,000  32,000  6,500   3,200 12,00 21,700 10,300 2,500 7,800  2,600
Earning after tax	Rs.5,200

                                                      Butwal Power Company

                                                 Comparative Balance Sheet

 

Accounts Heads	December 31
	2021	2020
Cash	12,000	9,500
Accounts Receivable	22,000	18,400
Inventory	24,400	20,500
Prepaid Advertising	10,000	8,600
Total Current Assets	69,400	57,000
Land	1,20,000	80,000
Equipment	1,90,000	1,30,000
Less: Accumulated Depreciation	(70,000)	(63,500)
Total long-term assets	2,40,000	1,46,500
Total assets	3,09,400	2,03,000
Accounts Payable	15,300	12,100
Salary payable	14,000	16,400
Income tax Payable	1,200	700
Total current liabilities	30,500	29,200
Capital shock	2,00,000	1,00,000
Retained earning	78,900	74,300
Total stockholders’ equity	2,78,900	1,74,300
Total liabilities and equity	3,09,400	2,03,500

Additional information:

- Land was acquired during the year for Rs.70,000.

- An unimproved parcel of land was sold during the year for Rs.27,500 and its original cost was Rs.30,000.

- A specialized piece of equipment costing Rs. 60,000 was acquired in exchange for capital stock in the company.

- In addition to the capital stock issued in exchange for specialized equipment, some stocks were also sold for cash Rs. 40,000. 

- Dividends of Rs. 600 were paid. 

Required:

a) Cash flow statement for the year 2021 using direct method. [10] 

b) Re-compute cash flow under operating activity using indirect methods. [5]

c) The financial manager 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 not year end result satisfactory.[5]