Vision Academy 03326214660
5418 Past Papers Solved By.03326214660
Q.1 For each of the following separate cases,
prepare adjusting entries required of financial
statements for the year ended on December 31,
2018. (Assume that prepaid expenses are initially
recorded in asset accounts and that fees collected in
advance of work are initially recorded as liabilities.)
b Wages of Rs.9,000 are eamed by workers but not
paid as of December 31, 2018
1 The company has earned (but not recorded) Rs.750
of interest from investments in CDs for the year ended
December 31, 2018. The interest revenue will be
received on January 10, 2019
One-third of the work related to Rs.30,000 cash
received in advance is performed this period.
Depreciation on the company's equipment for 2018 is
Rs. 19,127.
The Office Supplies account had a Rs.480 debit
balance on December 31, 2017. During 2018, Rs.5,349
of office supplies are purchased. A physical count of
supplies at December 31, 2018, shows Rs.587 of
supplies available.
Ans
Here are the adjusting journal entries as of December
31, 2018, for each case:
(b) Accrued Wages
Wages of Rs. 9,000 earned but not paid:
Dr. Wages Expense Rs. 9,000
Cr. Wages Payable Rs. 9,000
(1) Accrued Interest Revenue
Interest of Rs. 750 earned but not yet received:
Dr. Interest Receivable Rs. 750
Cr. Interest Revenue Rs. 750
Unearned Revenue Adjustment
One-third of Rs. 30,000 = Rs. 10,000 earned:
Dr. Unearned Revenue Rs. 10,000
Cr. Service Revenue Rs. 10,000
Depreciation Expense
Depreciation on equipment:
Dr. Depreciation Expense Rs. 19,127
Cr. Accumulated Depreciation Rs. 19,127
Supplies Adjustment
• Opening Balance: Rs. 480
• Purchases: Rs. 5,349
• Ending Inventory: Rs. 587
• Used = Rs. 5,829 – Rs. 587 = Rs. 5,242
Dr. Supplies Expense Rs. 5,242
Cr. Office Supplies Rs. 5,242
Q.2 On April 1, 2018, Angel Corporation issued Rs.
8,000,000 in 12 percent, five-year bonds at 98. The
semiannual interest payment dates are April 1 and
October 1. Prepare joumal entries to record the issue
of the bonds by Angel on April 1, 2018, and the first
two interest payments on October 1, 2018, and April
1, 2019. Use the straight-line method and ignore year-
end accruals.
Ans
Here's how to record the journal entries using the
straight-line method and ignoring year-end accruals:
1. April 1, 2018 – Bond Issuance
• Face value of bonds: Rs. 8,000,000
• Issue price: 98% of Rs. 8,000,000 = Rs. 7,840,000
• Discount on bonds: Rs. 160,000
• Bond term: 5 years = 10 semiannual periods
• Amortization per period: Rs. 160,000 ÷ 10 = Rs.
16,000
Journal Entry:
Dr. Cash Rs. 7,840,000
Dr. Discount on Bonds Payable Rs. 160,000
Cr. Bonds Payable Rs. 8,000,000
2. October 1, 2018 – First Interest Payment
• Semiannual interest = 12% × Rs. 8,000,000 × 6/12 =
Rs. 480,000
• Add amortization of discount = Rs. 16,000
Journal Entry:
Dr. Interest Expense Rs. 496,000
Cr. Discount on Bonds Payable Rs. 16,000
Cr. Cash Rs. 480,000
3. April 1, 2019 – Second Interest Payment
(Same as October 1, 2018)
Journal Entry:
Dr. Interest Expense Rs. 496,000
Cr. Discount on Bonds Payable Rs. 16,000
Cr. Cash Rs. 480,000
Q.3 Define and describe the revenue, expenses,
assets, liabilities, and equity in detail.
Ans
Here's a detailed definition and description of the five
core elements of accounting: revenue, expenses,
assets, liabilities, and equity.
1. Revenue
Definition:
Revenue is the total amount of income generated by
the sale of goods or services related to the
company's primary operations.
Description:
• It is often referred to as sales, turnover, or top line.
• Revenue is recorded when it is earned,
regardless of when the cash is received (accrual
accounting).
• It is the starting point of a company’s income
statement.
• Examples include sales revenue, service revenue,
interest income, and rental income.
2. Expenses
Definition:
Expenses are the costs incurred in the process of
earning revenue.
Description:
• They are necessary outflows or using up of assets
that help a business generate revenue.
• Common types include cost of goods sold
(COGS), salaries, rent, utilities, depreciation, and
interest.
• They are shown on the income statement and
deducted from revenue to calculate profit or
loss.
3. Assets
Definition:
Assets are resources owned or controlled by a
company that are expected to provide future
economic benefits.
Description:
• Assets can be tangible (like machinery, buildings,
cash) or intangible (like patents, trademarks).
• They are classified as:
o Current assets (used within a year): cash,
inventory, accounts receivable.
o Non-current assets (used over many years):
land, equipment, buildings.
• They appear on the company’s balance sheet.
4. Liabilities
Definition:
Liabilities are the company’s legal obligations or
debts owed to others arising from past transactions.
Description:
• These obligations must be settled over time
through the transfer of money, goods, or services.
• Liabilities are classified as:
o Current liabilities (due within a year):
accounts payable, short-term loans.
o Non-current liabilities (due after a year):
long-term debt, bonds payable.
• They appear on the balance sheet.
5. Equity
Definition:
Equity represents the owner’s residual interest in the
company after all liabilities are deducted from assets.
Description:
• Also known as owner’s equity or shareholders’
equity.
• It includes:
o Capital contributed by owners (common
stock).
o Retained earnings (profits kept in the
business).
• Formula: Equity = Assets – Liabilities
• It reflects the net worth of a business.
Would you like a diagram or table summarizing these
terms?
Q. 4. Times Printing owned a piece of equipment that
cost Rs. 36,400 and on which it had recorded Rs.
18,000 of accumulated depreciation. The company
disposed of the equipment on January 2, the first day
of business of the current year.
Calculate the carrying value of the equipment
Calculate the gain or loss on the disposal under each
of the following assumptions:
A The equipment was sold for Rs. 6,000 cash.
B. The equipment was discarded as having no vajue
c. The equipment was sold for Rs. 20,000 cash
Ans
Let’s break it down step by step:
1. Calculate the carrying value (book value):
Cost of Equipment: Rs. 36,400
Less: Accumulated Depreciation: Rs. 18,000
Carrying Value = 36,400 – 18,000 = Rs. 18,400
2. Gain or Loss on Disposal:
A. Equipment sold for Rs. 6,000
Proceeds: Rs. 6,000
Carrying Value: Rs. 18,400
Loss = 18,400 – 6,000 = Rs. 12,400 → Loss of Rs. 12,400
B. Equipment discarded (no value)
Proceeds: Rs. 0
Carrying Value: Rs. 18,400
Loss = 18,400 – 0 = Rs. 18,400 → Loss of Rs. 18,400
C. Equipment sold for Rs. 20,000
Proceeds: Rs. 20,000
Carrying Value: Rs. 18,400
Gain = 20,000 – 18,400 = Rs. 1,600 → Gain of Rs. 1,600
Q.5 Deline cash and cash equivalents and explain
how to report them. Also, describe the use of
documentation and verification to control cash
disbursements.
Answer:
Cash and Cash Equivalents:
Cash refers to the physical currency (coins and
notes), demand deposits, and funds readily available
for use. Cash equivalents are short-term, highly liquid
investments that are easily convertible to known
amounts of cash and are subject to insignificant risk
of changes in value. Examples include Treasury bills,
commercial papers, and money market funds with a
maturity of three months or less.
Reporting of Cash and Cash Equivalents:
Cash and cash equivalents are reported on the
balance sheet under current assets. They are
typically presented as a single line item labeled
"Cash and Cash Equivalents." In the notes to the
financial statements, companies often provide a
breakdown and description of the components
included in this line item.
Control of Cash Disbursements Using Documentation
and Verification:
To ensure proper control over cash disbursements,
businesses implement the following procedures:
1. Documentation: All cash payments must be
supported by appropriate documentation such
as invoices, receipts, purchase orders, and
vouchers. This ensures that payments are
legitimate and authorized.
2. Verification: Before disbursing cash, the
documentation should be reviewed and verified
by responsible personnel. This includes checking
the accuracy of the amount, verifying the
identity of the payee, and confirming that goods
or services have been received.
These controls help prevent fraud, errors, and
unauthorized use of company funds, promoting
accountability and transparency in financial
transactions.
