Practice Questions for AFB
ACCOUNTING CONCEPTS:
Which accounting concepts, principals or conventions have been applied or violated in the
following situations?
1. Your company buys machinery and records it as a long-term assets at its cost price.
2. Your valuation of your raw material/ stock, you follow the method of ‘FIFO (first in first out)’
for 2 years and then use the method of ‘LIFO (last in first out)’.
3. Your business sold books to a customer on credit (i.e. without receiving cash) and recorded
the sale value of Rs. 10,000 in books of accounts.
4. You took out cash of Rs. 60,000 for your personal use from the bank account of your business,
and showed it as an expense of business.
5. You had a quarrel with one of your business workers, who then later resigned. You did not
record this in the books of accounts.
6. Cost of 1 eraser was omitted to be recorded in the books of accounts.
ACCOUNTING EQUATION:
Determine the effect on Accounting Equation works due to the following financial transactions:
1. You (the owner) invested Rs. 10,00,000 into the educational institute business.
2. The institute borrowed Rs. 5,00,000 from Axis Bank.
3. The institute purchased a building to establish the institute, at Rs. 8,00,000.
4. The institute purchased computers for the IT Lab from Mohan computers Ltd. worth Rs.
60,000 on credit.
5. The institute purchased books for the library, worth Rs. 50,000, but paid Rs. 40,000 only
to the supplier named Shyam Books Ltd. The remaining amount was promised to be paid
next year.
6. The institute deposited Rs. 2,00,000 of cash in hand to its bank account.
Sahara Pvt Ltd has furnished following transaction for the month of July 2024. Show the effect
of these transactions on the accounting equation:
i. Started business by investing Rs.5,00,000 as follows: Rs.45,000 in cash; Rs.95,000 in
furniture; Rs.135,000 in machinery; and balance in office building.
ii. Received an order for goods worth Rs.40,000 from a HeroCorp Ltd. (customer), and
delivered that order. Received cash of Rs.10,000 against this order.
iii. Purchased raw material from M/s Chandru Brothers at Rs.20,000 by paying cash to
fulfill the order mentioned in (ii) above.
iv. Machine work on the raw material was carried out by spending Rs.4,000 and some
other finishing was done at Rs.1,000.
v. Rs.2,000 gifts were given away to the staff on the occasion of wedding of the owner’s
son.
vi. Received the remaining due amount from HeroCorp (customer) as stated in (ii)
above.
COGS:
I. ABC ltd., a smartphone trader, has a stock of 100 smartphones at the beginning of year, at Rs.
9000 each. It purchases 50 more smartphones for resale, at Rs. 9000 each. The transportation
costs are Rs. 5000. At the end of the year, it is left with 70 units of smartphones, with 80 units
being sold.
What is the COGS for the business?
II. A smartphone manufacturing company in India provided the following details for the month
of July 2024:
Opening stock of raw material comprising metal, glass and silicon: Rs. 50,000
Purchases of raw material: Rs. 1,30,000
Raw materials returned due to defects: Rs. 10,000
Freight in for raw materials: ₹10,000
Closing stock of raw materials: ₹30,000
Opening stock of partially assembled smartphones: ₹20,000
Beginning inventory of fully manufactured phones: ₹40,000
Direct labour wages associated with producing finished goods: ₹70,000
Closing stock of partially assembled smartphones: ₹15,000
Closing stock of fully manufactured phones: ₹25,000
Calculate the following:
1. Cost of Materials Consumed (COMC)
2. Cost of Goods Sold (COGS)
STATEMENT OF PROFIT AND LOSS
I. Shoemart Pvt. Ltd. has the following items and account balances for the year ended 31st March
2024.
Accounts for Statement of Profit and Loss Amount (Rs.)
Sales revenue 10,20,000
Sales returns and allowances 20,500
Cash discounts 15,000
Purchases of stock-in-trade (gross) 5,00,000
Purchase returns and allowances 13,000
Purchase discounts 4,500
Opening inventory of stock 1,05,000
Closing inventory of stock 2,00,000
Freight in 34,000
Freight out 55,100
Electricity costs for office 18,000
Depreciation 1,85,000
Office salaries 71,000
Employee Remuneration 1,42,000
Office rent 18,000
Finance cost 16,000
Advertisement expenses 2,000
Interest received from investments 16,200
Taxes paid 11,800
Bad debts 37,900
As the financial manager of the company, you are required to do the following:
1. Prepare a functional Statement of Profit and Loss of Shoemart Pvt. Ltd. While doing so,
calculate the COGS, Gross Profit, EBITDA, EBIT and PAT of the firm.
2. Recommend possible areas for improvement in the income statement of Shoemart Pvt. Ltd.
II. Sahara Pvt. Ltd. has the following items and account balances for the year ended 31st March
2024.
Accounts for Statement of Profit and Amount (Rs.)
Loss
Purchase returns and allowances 12,000
Purchase discounts 4,200
Opening inventory of stock in trade 2,25,000
Value of Sales 10,20,000
Cash discounts 35,500
Purchases of stock-in-trade 5,00,000
Fuel and gas for office 1,000
Employee salaries 1,42,000
Office rent 19,200
Closing inventory of stock in trade 2,00,000
Freight in 24,500
Freight out 55,100
Electricity costs for office 4600
Depreciation 1,48,000
Income from sale of company’s car 12,400
Interest paid on long term borrowings 6,000
Promotion expenses 6,000
Taxes paid 19,400
Bad debts 39,900
You are required to do the following:
1. Prepare a functional Statement of Profit and Loss of Sahara Pvt. Ltd. While doing so,
calculate the COGS, Gross Profit, EBIT and PAT of the firm.
2. Recommend possible areas for improvement in the income statement of Sahara Pvt. Ltd.
