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## MGT101 – Financial Accounting

In MGT101 Financial Accounting we have you covered with Digitized Past Papers From Fall of Mid Term and Final Term.

## MGT101 – Final Chapter Wise Quiz 43 to 45

FINAL TERM

MID TERM

##### POSTED DATE:27-01-2019                     GDB IDEA SOLUTION

Q1: Depreciation on 31st December 2016:

Solution: Annual depreciation under straight line method=machine cost-Residual

Value/useful Life = 120000-0/5=24000 annual depreciation

Depreciation on 31st December 2016 = 24000*9/12= 18000 till 31st December 2016

Q1: b) Accumulated Depreciation at the time of disposal:

Solution: Accumulated Depreciation on 31st December 2017 is 18000 + 24000 = 42000

Q1: c) Loss on disposal of machinery:

Machine Value on 31st December 2017 = 120000 – 42000 = 78000

Disposal Amount = 65000

Loss on Disposal = 78000 – 65000 = 13000

Question 2: Effect on profit and loss if method changes to written down:

Solution: With Written down method loss on disposal will be 16600 and it will be debited to profit

And loss account Hence profit and loss account will be decreased by 16600 and remains

40000 -16600=23400

## MGT101 – Financial Accounting – Quiz 3

Question No: 56    ( Marks: 5 )

Write down the five advantages of Limited Company.

1. It is a legal entity created by law and hence has its own recognition, good will and brand equity etc.
2. It is a wide form of business and hence a formal approach for various partners/investors to come and work for the same objectives in an organized form.
3. Liability limited to company assets only. Investors/partners do not personally liable for any loss or in state of bankrupty.
4. Being a legal entity, easy to get loans or gather funds from public (for public limited companies only) or financial institutes.
5. Being a legal entity, it can enjoy more opportunities for mega projects and trade/operations opportunities in international markets on its on behalf.

Question No: 57    ( Marks: 5 )

ABC Company purchased goods of Rs.150,000 on credit from which goods of Rs.20,000 were defected and returned. Company received 2% discount at the time of payment from the supplier.

Required:

What will be the amount of discount received by the company? Also show the journal entries

Solution:

(A)

Discount Received= (150,000-20,000) x (2/100) = 2600

(B)

Particulars                       Dr.                  Cr.

Entry for Purchase

Goods                           150,000

A/P                                                        150,000

Entry for Return

A/P                                  20,000

Goods                                                      20,000

While making Payment (@ 2% discount = 2600)

A/P                                 130,000

Discount income                                       2,600

Cash                                                     127,400

Question No: 58    ( Marks: 10 )

State clearly how you will deal with Bad Debts Account, Provision for Bad Debts Account, Profit & Loss account and Balance Sheet in the following case:

The items appearing in the trial balance are bad debts Rs. 300, provision for bad debts Rs. 350 and sundry debtors Rs. 12,000. It is required to increase the provision for bad debts to 5% on sundry debtors.

Question No: 55    ( Marks: 3 )

If the capitals of the partners are fixed, Pass Journal Entries for the following:

• Excess drawn amount is returned by partner
• Profit distribution among partner

Partner’s Current A/c Dr.

Cash/Bank A/c Cr.

Cash/Bank Dr.

Partner’s Current A/c Cr.

Profit & Loss A/c Dr.

Partner’s Current A/c Cr.

Question No: 56    ( Marks: 5 )

ABC Company purchased goods of Rs.150,000 on credit from which goods of Rs.20,000 were defected and returned. Company received 2% discount at the time of payment from the supplier.

Required:

What will be the amount of discount received by the company?

Also show the journal entries

Purchases A/c 150,000

Creditor A/c 150,000

Goods are being purchased

Creditor A/c 20,000

Purchases A/c 20,000

Goods returned to supplier

Creditor A/c 130,000

Cash/Bank A/c 127400

Question No: 58    ( Marks: 10 )

On 01-01-2007, the provision for doubtful debts a/c stood at Rs. 12,000 (credit balance). In 2007, the bad debts are amounted to Rs. 10,000. The debtors on 31-12-2007 are amounted to Rs. 3, 20,000 and a provision for doubtful debt to be maintained @ 5%.

Required:

Show Journal entries and also show how the items will appear in Profit and Loss account and Balance sheet. (Show complete working where it is necessary)

Question No: 59    ( Marks: 10 )

The accounting staff of ABC, Inc., has assembled the following information for the year ended December 31, 2007:

 Cash and cash equivalents, Jan. 1 Rs.35,800 Cash and cash equivalents, Dec. 31 74,800 Cash paid to acquire plant assets 21,000 Proceeds from short-term borrowings 10,000 Loan made to borrowers 5,000 Collection on loans (excluding interest) 4,000 Interest and dividends received 27,000 Cash received from customers 795,000 Proceeds from sale of plant assets 9,000 Dividends paid 55,000 Cash paid to suppliers and employees 635,000 Interest paid 19,000 Income taxes paid 71,000

Using this information, prepare a statement of cash flows. Include a proper heading for the financial statement, and classify the given information into the categories of operating, investing and financing activities.

Question No: 55    ( Marks: 3 )

Mr. Hassan is a partner in a partnership firm. His capital on July 1, 2001 was Rs. 400,000. He invested further capital of Rs. 150,000 on March 01, 2002. Markup rate is @6%p.a. The financial year of such a business  is from 1st July to 30th June.

Required: You are required to calculate his markup on Capital at the end of 30th June 2002.

1. a) Capital invested on july 1 2001 = 400,000

Markup rate on 400,000 = 6% of 40,000 = 24,000

1. b) Further capital introduced / invested = 150000 on March 1, 2002

Markup rate = 6% of 150000 = 9000 x 4/12 = 3000

Total mark up rate = a + b = 24000 + 3000 = 27000

Question No: 57    ( Marks: 5 )

X and Y were partners in a business sharing profits in the ratio of 3:1. Their capital were Rs.30,000 and Rs.10,000 respectively. They earned a net profit of Rs. 160,000. Mr. Y was entitled to a salary of Rs.200 p.m. Prepare Profit Distribution Account of X & Y Partnership.

X AND Y ARE SHARED WITH  the ratio 3:1

X capital = 30000

Y capital = 10000

Net profit = 160,000

Mr. Y salary is = 200 p.m entitled

Total investment = X + Y capital = 30000 +10000 = 40000

X profit distribution = 30,000/40000 x 160000 = 120,000

Y profit distrubtion = 10,000/40000 x 160000 x 40000 = 40000

Question No: 56    ( Marks: 5 )

Calculate cost of goods sold with he help of given data.

 Particulars Rs. Purchases 418,000 Carriage inwards 7,900 Discount Allowed 750 debtors 16,000 Sales man commission 2,000 Office expenses 2,000 Carriage outwards 1,700 Salaries 13,000 Direct labor 3,825 FOH 2,100 Plant & Machinery 53,000 Buildings 35,000 Tools 8,650

Helping data:

1. Plant & Machinery depreciate @ 10% and charged to FOH
2. Buildings depreciate @ 5% and 40% charged to Administrative expenses and balance to FOH

40% of salaries will be charge to office and balance to Selling expenses.

Question No: 54    ( Marks: 10 )

What is the difference between public and private company?

Private Limited Company

• Number of members in a private limited company varies from 2 to 50.
• Any 2 members can subscribe their names in memorandum and articles of association along with other requirements of the companies’ ordinance 1984. They can also apply to security exchange commission for company’s registration.
• The shareholders of the private limited company elect two members of the company as Directors. These directors form a board of directors to run the affairs of the company.
• The head of board of directors is called chief executive.
• Private limited company can not offer its shares to general public.
• In case a investor decides to sell his/her/her shares, his/her shares are first offered to existing shareholders. If all existing shareholders decide not to buy these shares, then an outsider investor can buy.
• Words and digression “(Private) Limited” are added at the end of the name of a private limited company.

Public Limited Company

• Least number of members in a public limited company is 7with no upper limit in number of members.
• Any 7members can subscribe their names in memorandum and articles of association along with other requirements of the companies’ ordinance 1984. They can also apply to security exchange commission for company’s registration.
• The shareholders of the public limited company elect seven members of the company as Directors and these directors form a board of directors to run the daily affairs.
• The head of board of directors is called Chief Executive.
• Public limited company can offer its shares to general public at large.
• Word “Limited” is added at the end of the name of a public limited company.
• Each subscriber of the memorandum shall write opposite to his name, the number of shares held by him/her.

On top of that there are two types of public limited company:

1. Listed Company
2. Non Listed Company

LISTED COMPANY

Listed company is the one whose shares are quoted and traded on stock exchange. It is also called quoted company.

NON LISTED COMPANY

Non listed company is the one whose shares are not quoted or traded.

Question No: 52    ( Marks: 10 )

Briefly explain the financial statements prepared by the organization. Why these are important for manufacturing concern?

ANSWER: The financial statements prepared by any organization are as follows:

1. Profit and loss account: It shows the performance of the business in a given period.It shows the profitability of business which shows the success or failure of the business.
2. Balance sheet: Balance sheet shows the position of business at a given point. It shows the resources available by the business and the resources invested by the owner and other loans.
3. Cash flow statements: Cash flow statements show the generation of cash and its usage over a given period.

IMPORTANCE OF FINANCIAL STATEMENTS FOR MANUFACTURING CONCERN:  These financial statements are important for manufacturing concern organization as they provide information related to financial affairs of the organization. The profitability and liquidity, the resources available to the company and the generation of cash and its usage over a given period which provides reasonable information to the management to take decisions.

Question No: 52    ( Marks: 10 )

Write down the at least ten distinguishing features of a limited company which differentiate it from sole proprietor business

The basic difference between a partnership and a limited company is the concept of limited liability.

1. If a partnership business runs into losses and is unable to pay it’s liabilities, its partners will have to pay the liabilities from their own wealth.
2. In case of limited company the shareholders don’t lose anything more than the amount of capital they have contributed in the company. It points that personal wealth is not at stake and their liability is limited to the amount of share capital they have contributed.
3. The concept of limited company is to mobilize the resources of a large number of people for a project, which they would not be able to afford independently and then get it managed by experts.
4. Listed Company have more than twenty partners, so problem of extra capital is reduced to minimum.
5. The liabilities of the members of a company is limited to the extent of capital invested by them in the company
6. There are certain tax benefits to the company, which a partnership firm can not enjoy
7. In Pakistan, affairs of limited companies are controlled by “Companies Ordinance” issued in 1984

The formation of a company and other matters related to companies are governed by “Securities and Exchange Commission of Pakistan (SECP)

Question No: 52    ( Marks: 10 )

Write a note on legal documents required for the formation of company.

In Pakistan when someone wants to form a company. He will contact with SECP, its abbreviation for Securities and Exchange Commission of Pakistan. it came in 1984 in law of Pakistan which is called companies ordinance. It controls all affairs of limited companies. For making of private limited company 2 members can submit their names in memorandum and articles of association along with other requirements of company ordinance 1984. while for public limited company seven members will sent their names. By this way they can apply and make registration of the company.

Question No: 51    ( Marks: 5 )

Financial year decided by partnership agreement is 1st July to 30th June. Mr. Ali is partner and having a capital of Rs. 1,500,000 on July 1st 2007 and he introduced more capital on August 1st 2007 Rs. 10,000  on April 1st   2008, Rs.500,000   and  on June 1st  2008 ,  Rs. 5,000. Mark up rate is 10% p.a.

Capital = 1500000     mark up=  1500000

2nd capital= 10000    markup=    1000

3rd capital= 500000   markup=  50000

4th capital= 5000       markup=  500

Total markup=  Rs.  201500

Calculate mark up on Mr. Ali’s capital for the year ending on 31th June 2008.

Question No: 53    ( Marks: 10 )

What is the difference between public and private company?

The main difference between public and private company is that in public limited companies there is no restriction on number of persons to be its members. There is one restriction. That there should be a minimum of three members to form a public limited company. Public limited company can offer its shares to general public.

While in private company two to fifty persons can form a company. Minimum two members are elected to form a board of directors. This board is given the responsibility to run day to day business of the company. Private limited company cannot offer its share to general public.

Question No: 54    ( Marks: 10 )

The following discrepancies were noted on comparing Cash Book with Pass Book.

1. Balance as per Cash Book (Cr) is Rs. 19,000.
2. Cheque for Rs. 5,000 paid into the bank for collection on 20thMarch, 2008 has not yet been collected.
3. Cheques for Rs. 15,000 Issued on 24thMarch, 2008, out of which Cheques for Rs. 10,000 presented during March, 2008
4. An amount of Rs. 1,000 for interest on overdraft was debited in the Pass Book but was intimated to Mr. David on 4thApril, 2008.
5. David paid into his bank account an amount of Rs. 3,000 but it was wrongly credited to Mr. Denial’s Account.
6. On 20th March, 2008 the bank received dividend of Rs. 10,000 from a company where Mr. David’s has invested his money, the same had been recorded in Cash Book on 31st March, 2008.
7. Cheque of Rs. 2,500 was shown in Pass Book as dishonored.

Required: Prepare a Bank Reconciliation Statement as on 31st March, 2008

Balance as per Cash Book  Cr  19000

Unpresented cheques         Dr   5000

Uncredited cheque             Dr   10000

Interest by bank                 Dr.  1000

Question No: 41    ( Marks: 10 )

Record the following transactions in the General Journal.

 Date: Transactions Jan 1, 2007 Mr. Asghar started business with cash Rs. 1, 00,000. Jan 2, 2007 Opened bank account with amount Rs. 50,000. Jan 4, 2007 Purchased goods for cash Rs. 15,000. Jan 9, 2007 Payment made to Karachi store (Creditor) Rs. 15,000 by cheque. Jan14, 2007 Goods returned to Karachi store worth Rs. 1,500. Jan22, 2007 Goods sold for cash Rs. 2,000.

DR

Bank account  50,000

Purchased goods for cash Rs. 15,000

Payment made to Karachi store (Creditor) Rs. 15,000 by cheque

Goods returned to Karachi store worth Rs. 1,500

Credit balance 20500

Cr

Mr. Asghar started business with cash Rs. 1, 00,000

Goods sold for cash Rs. 2,000.

Question No: 51    ( Marks: 5 )

What is the Purpose of Control Accounts?

A business needs to have accounts created for individual creditors and debtors in its general ledger. Creditors are people/entity to whom company owes money and debtors are entities/people who owe money to the business.  But when a business grows then the number of creditors and debtors also grows. We know that trial balance can give us the mathematical accuracy of accounts and if there is any difference in trial balance we can know it from the general ledger by actually checking each and every transaction for the year. But it is a very time consuming job to check each and every transaction if the business of the company is huge because it will have many many transaction to check. So in this control accounts are maintained in general one for total creditors and one for total debtors. Debtor’s account is called debtor’s control account and creditor’s account is called creditor’s control account.  These accounts will not get hit by individual purchase, purchase returns, payments to creditor in case of creditor’s control account and by sales, sales return, receipts in case of debtor’s control account. Periodically this summarized data will be posted from individual ledgers which will be created for each type of transaction e.g a sales subsidiary ledger, purchase subsidiary ledger etc which will contain actual details of transactions with invoice number and periodically the amounts will be summarized from these subsidiary ledgers and posted to the control accounts at a single time. This way the transactions in general ledger will decrease and will become easy to manage and can be easily checked against creditor’s or debtor’s details in total creditor’s ledger and total debtor’s ledger for accuracy.

Question No: 52    ( Marks: 10 )

What is the effect of given adjustments on Trading & Profit & Loss account and Balance Sheet?

1. Accrued Expenses or Outstanding Expenses
2. Prepaid Expenses or Unexpired Expenses
3. Accrued Revenue or Revenue Receivable
5. Depreciation of Asset

1. Accrued Expenses or Outstanding Expenses

Trading and profit and loss account effect

These expenses will be shown in profit and loss account under administrative expenses and will and be deducted from gross profit. They will be used to calculate net profit

Balance sheet effect

These expenses will be shown as expense payable or accrued expenses in balance sheet as current liabilities and will be shown under current liabilities section of liabilities as they have to be paid by business..

1. Prepaid Expenses or Unexpired Expenses

Trading and profit and loss account effect

These will be deducted from relevant expense account to get the actual expenses for the period and that actual amount of expense will be deducted from gross profit to arrive at net profit. This amount of prepaid expenses will not be included in profit and loss account as an expense itself but its effect will be on current expenses for the period for which profit and loss is being calculated.

Balance sheet effect

These prepaid expenses will be show and current assets in balance sheet and will be shown under the section of current assets in balance sheet.

1. Accrued Revenue or Revenue Receivable

Trading and profit and loss account effect

These will be added to sales in trading account in profit and loss statement and will be treated as a revenue in the calculation of gross profit by subtracting cost of goods sold from net sales. This will affect gross profit in trading account.

Balance sheet effect

In balance sheet this revenue will be shown under current assets as receivables from debtors and will be shown under the section of current assets of the business.

Trading and profit and loss account effect

This will not be added to the sales as sales is recognized when the actual services have been provided or when goods have been shipped irrespective of whether payment has been received or not. So this will not affect profit and loss account as it is still not recognized as sales/revenue.

Balance sheet effect

This is a liability for the company because the company has to give goods or services to the buyer for the advance payment done by the buyer and will be shown as a liability in the balance sheet under the current liability section of balance sheet. Also the same amount will be shown in the bank or cash as current asset to offset the liability because the cash or cheque has been received for goods not given or services not rendered yet.

1. Depreciation of Asset

Trading and profit and loss account effect

The depreciation of asset is an operating expense for the business and will affect profit and loss account. It will be added to the administrative expense and will be appear in the administrative expense section of profit and loss account and will be deducted from gross profits to arrive at net profits along with other expenses.

Balance sheet effect

In balance sheet it will appear as deduction from the fixed asset as the fixed assets in balance sheet will be shown at written down value. So this will be added to previous balance of accumulated depreciation and will be deducted from the total cost of the fixed assets and will appear in the assets section under the heading of fixed asset. It might appear in notes as sometimes in balance sheet summarized figure of fixed asset at WDV will be shown. In any case it is deducted from fixed asset in balance sheet and affects the total assets side.