Accountancy: Unit-wise Group B Question Bank

1. (i) Speed of work — a laid-out office with a written procedure clears a file quickly. (ii) Accuracy of records — systematic recording answers any question about a past transaction. (iii) Coordination — every department works from the same information. (iv) Cost control — right stationery, furniture and staffing keep the cost per transaction low. (v) Goodwill — prompt, accurate replies win the confidence of customers and citizens. (Also: decision making, legal protection.)

2. Layout is the arrangement of furniture, machines, departments and staff in the available space so that work flows smoothly. Open: advantages — cheap, easy supervision, quick paper movement; disadvantages — noise, no privacy, distraction. Closed: advantages — privacy and quiet, confidential work protected, status; disadvantages — high rent and furniture cost, weak supervision, longer paper travel, more lighting.

3. Filing is the systematic arrangement and storage of documents so that any document can be traced and produced when needed. Features: simplicity; prompt location; economy; flexibility; safety; accessibility; compactness; cross-reference. (Any five explained.)

1. Financial institutions collect savings and lend or invest them, and provide financial services. Five functions: (i) mobilising savings; (ii) supplying credit to trade, industry, agriculture and households; (iii) providing the payment system — cheques, drafts, cards, clearing; (iv) transforming maturity — short-term deposits into long-term loans; (v) bearing and pooling risk. Add the banking/non-banking division and one example of each.

2. A central bank is the apex financial institution, dealing with the government and the banks rather than the public; Nepal Rastra Bank, 26 April 1956 A.D. (2013 B.S.). Five functions: currency issue; banker to the government; banker's bank and clearing house; lender of last resort; monetary policy. (Also foreign exchange management, supervision of banks, promotion of the financial sector.)

3. Insurance is a contract in which the insurer, in return for a premium, pays the insured on the happening of a stated event. Principle: pooling of risk — many pay a small premium into one fund from which the few who suffer a loss are paid, so the loss of one is spread over the group; the three conditions are many similar exposures, a loss measurable in money, and an insurable interest. Kinds: life (whole-life, endowment, money-back, term); fire; marine; motor; health; accident; crop and livestock. (Any three described.)

1. A tax is a compulsory contribution imposed by the government on persons, goods, services and transactions to meet public expenditure, without a direct and proportionate return. Principles: equality (ability to pay); certainty (the taxpayer knows how much, when and where to pay); convenience (collection suited to the taxpayer — VAT at the point of sale, income tax at source); economy (low collection cost). Add simplicity, flexibility and neutrality.

2. Direct: levied on income or property; borne by the person legally liable; cannot be shifted; collected directly; examples income tax, house and land tax, capital gains tax. Indirect: levied on goods, services and transactions; collected by the seller and paid over; the burden is shifted to the final consumer; raises the price; examples VAT, excise duty, customs duty. State that the test is who bears the burden, not who hands over the money.

3. VAT is an indirect tax on the value added at each stage of production and distribution; in Nepal from 1 Mangsir 2054 B.S., under the VAT Act 2052 and Rules 2053, at a single rate of 13 per cent. Method: every registered dealer charges tax on sales (output tax) and pays tax on purchases (input tax), and deposits output tax minus input tax. Because each dealer gets credit for the tax already paid by his supplier, no tax falls twice on the same value, and the total collected equals the VAT on the final price, borne by the consumer.

1. To keep a systematic, evidence-based record of every transaction; to find the profit or loss of a period; to show the financial position on a date; to give the owner information for control and decision; to satisfy the tax office, the auditor and the courts; to attract investors and lenders.

2. Internal: owners/shareholders (profit and the value of their investment), management (cost, product-wise profit, cash position), employees (wages, bonus, job security). External: banks and lenders (ability to repay, security), suppliers and creditors (ability to pay in time), the government and tax authority (correct income tax and VAT), investors (earnings and risk), auditors (evidence), the public (fair price and continuity). (Any five, with what each wants.)

3. The chart of accounts is the numbered list of all account heads. Structure: five groups — assets (1), liabilities (2), capital (3), income (4), expenses (5) — then sub-groups and individual accounts, the code being hierarchical so the first digit names the group. Importance: one name and one code for every head, so different clerks record alike; easy sorting and totalling; makes computerised accounting possible; and in government a uniform chart of accounts lets the accounts of all offices be consolidated.

1. Definition: a statement prepared on a date to explain and reconcile the difference between the bank column of the cash book and the passbook. Causes: cheques issued but not presented (cash book lower); cheques deposited but not collected (cash book higher); items recorded by the bank only — bank charges, interest, dividend collected, direct deposits, standing instructions, dishonoured cheques; and errors in either book.

2.

3. (a) Cheque issued — cash book decreases at once; the passbook is unaffected until the cheque is presented. (b) Cheque deposited — cash book increases at once; the passbook is unaffected until it is collected. (c) Bank charges — no effect on the cash book until known; the passbook decreases at once. (d) Direct deposit by a customer — no effect on the cash book until known; the passbook increases at once. (e) Dishonour of a cheque deposited — the passbook decreases when the bank returns it; the cash book must then be corrected.

1. An accounting error is a mistake in recording, posting, casting, carrying forward or summarising a transaction or in applying an accounting principle. Causes: carelessness; ignorance of principle; wrong classification; wrong side; omission (complete or partial); compensating mistakes; faulty arithmetic; the wrong account of the same class.

2. Detected — one-sided errors: casting and balancing errors, posting to the wrong side, a wrong amount posted in one account only, partial omission; these change one side of the trial balance. Not detected — two-sided errors: errors of principle, complete omission, compensating errors, the wrong account of the same class, a transaction entered twice in both accounts; these leave the trial balance in agreement while the books are still wrong.

3. (a) Rent A/c Dr. 6,000; To Wages A/c 6,000 — two-sided, the trial balance agreed. (b) Hari A/c Dr. 9,000; To Gopal A/c 9,000 — two-sided, agreed. (c) Computer A/c Dr. 50,000; To Purchases A/c 50,000 — error of principle, two-sided, agreed. (d) Purchases A/c Dr. 4,000; To Shyam A/c 4,000 — complete omission, two-sided, agreed.

1. Final accounts are the statements prepared at the end of the accounting period from the trial balance after adjustments, to show the profit or loss of the period and the financial position on the closing date. Objectives: to find the gross profit or loss; to find the net profit or loss; to show the financial position; to make comparison possible; to provide the basis for tax and audit; to help the owner decide. (Any five explained.)

2. Closing stock — credited in the trading account and shown as a current asset. Outstanding salary — added to salary in the profit and loss account and shown as a current liability. Prepaid rent — deducted from rent and shown as a current asset. Depreciation — debited to the profit and loss account and deducted from the asset. Interest on capital — debited to the profit and loss account and added to capital. Goods taken by the proprietor — credited to purchases and deducted from capital as drawings. State clearly that every adjustment has two effects.

3. Net sales = 2{,}20{,}000 - 10{,}000 = Rs.\ 2{,}10{,}000. Net purchases = 1{,}50{,}000 - 5{,}000 = Rs.\ 1{,}45{,}000. Cost of goods sold = 25{,}000 + 1{,}45{,}000 + 5{,}000 + 20{,}000 - 35{,}000 = Rs.\ 1{,}60{,}000. Gross profit = 2{,}10{,}000 - 1{,}60{,}000 = Rs.\ 50{,}000. Indirect expenses = 18{,}000 + 12{,}000 = Rs.\ 30{,}000. Net profit = 50{,}000 + 4{,}000 - 30{,}000 = Rs.\ 24{,}000.

1. Government accounting is the system by which a government records, classifies, summarises and reports its revenue, expenditure and financial position for accountability to the legislature and the public. Bases: legal basis (Financial Procedures and Fiscal Responsibility Act 2076 and Rules 2077); cash basis; double-entry system; fund basis; uniformity of forms and chart of accounts. (Also budget classification, two levels of accounting, banking arrangement, external audit.)

2. Objective — profit against accountability; basis — accrual against cash; ownership — private owners against the public; the budget — a plan against a law; funds — one general fund against several prescribed funds; statements — trading, profit and loss account and balance sheet against statements of revenue, expenditure and financial position; performance — profit against economy, efficiency and compliance; audit — a private auditor against the Office of the Auditor General.

3. The consolidated fund is the government's main account: all revenue is paid into it and nothing may be withdrawn except under an appropriation made by law. Provisions: all government receipts credited to it; no payment without an appropriation act; use only for the approved purpose; unforeseen expenditure from the contingency fund, later regularised; managed by the Ministry of Finance and accounted for by the FCGO, the money kept with Nepal Rastra Bank; reported to the legislature and audited by the Auditor General; drawn only by the authorised officer within the release.

1. Revenue accounting records the collection of government revenue, its deposit into the consolidated fund through the bank and its reporting. Objectives: to record every rupee with evidence; to deposit the whole collection into the consolidated fund; to compare collection head by head with the estimate; to detect leakage; to supply the government's annual financial statement and the audit; to keep the revenue account public.

2. Each office has one designated bank account under the single account fund; all revenue is deposited into the consolidated fund through Nepal Rastra Bank or a commercial bank; the deposit is made the same day as the collection, or on the first working day with the reason recorded; the office may not pay any expense out of its collection; the bank reconciliation is prepared monthly; and the Treasury and Comptroller Office watches every office's deposits against its reported collection.

3.

Check: 4{,}55{,}300 = 4{,}20{,}200 + 35{,}100. ✔

1. Expenditure accounting records what an office spends against its approved budget head, the advances it gives and recovers, the deductions it holds and its bank balance. Codes: the organisational classification says who spends; the economic classification says what — 2 recurrent (21111 remuneration, 21112 allowances, 21121 office materials, 22111 uniform, 22311 travelling expenses, 22612 fuel, 22711 miscellaneous) and 3 capital (31111 machinery and equipment, 31121 furniture, 31131 vehicles).

2. A payment order is the document by which the office authorises the Treasury and Comptroller Office to pay a stated amount to a stated person against a stated head. Kinds: final (the bill has been received and checked) and advance (money needed before the bill). Clearing an advance: the advance is paid by payment order and entered in the advance register and the bank cash book; the officer later submits the bill with vouchers and any unspent balance; if the bill equals the advance it is cleared against the expenditure head; if larger, the excess is paid by a further payment order; if smaller, the unspent cash is refunded; any advance uncleared at the year end is deducted from the available balance.

3.

1. Store accounting records the receipt, storage, issue and balance of goods held by a government office, in quantity and in value; the goods are consumable (stationery, fuel, medicines) or durable (furniture, computers, vehicles). Objectives: to record every receipt and issue; to show the balance at any time; to prevent loss and misuse; to provide audit evidence; to help budgeting. Importance: public goods remain public property; each article is tied to a document and a person; the honest officer is protected; the annual verification rests on it.

2. जिन्सी दाखिला फाराम — goods received, with specification, quantity, value, supplier and purchase voucher; जिन्सी निकासा फाराम — goods issued, with the requisition and the receiver's signature; store ledger — one account per article with receipts, issues and balance; bin card — the same record kept at the shelf; जिन्सी मौज्दात फाँटबारी — the periodic stock statement; जिन्सी जाँच फाराम — the physical verification record; the voucher that brings the store figures into the accounts.

3. Use: the storekeeper reads it to know what to requisition; the accounts section to value the goods and enter them in the accounts; the auditor to trace an article from the purchase bill to the store ledger, to the bin card and to the shelf. Verification: an annual physical count by a committee of at least two officers, one unconnected with the store; the count is compared with the ledger and the bin card; differences are recorded in the verification form; an excess is brought into account, a shortage is recovered from the person responsible or written off with approval, and unserviceable goods are written off and disposed of in the prescribed manner.

1. A fund is a separate pool of money set aside for a specified purpose and accounted for separately. Need: to obey the law that creates each fund; to prevent money of one fund being used for another purpose; to make control by the legislature and the auditor possible; to keep trust money such as retention, provident fund and tax deducted out of revenue; and to plan a project fund by showing what has accumulated and what is still needed.

2. Revenue sharing is the distribution of the divisible fund — the federal taxes to be shared, principally VAT, income tax and royalties — between the provinces and the local levels on the recommendation of the National Natural Resources and Fiscal Commission and under a formula based on population, area, development and revenue effort. Importance: it gives the lower tiers the money for their constitutional work although the main taxes are collected federally; it reduces inequality between regions; it strengthens federalism; it rewards local revenue effort; and it keeps the tax system uniform.

3. Retention = 5\% \times 4{,}00{,}000 = Rs.\ 20{,}000; net paid = Rs.\ 3{,}80{,}000. When the bill is passed: Construction expenditure A/c Dr. 4,00,000; To Contractors' retention A/c 20,000; To Bank / DTCO A/c 3,80,000. When released: Contractors' retention A/c Dr. 20,000; To Bank A/c 20,000.

1. Internal control is the whole system of policies, procedures, records and checks by which an organisation keeps its work accurate, efficient, lawful and honest and protects its assets. Objectives: to safeguard assets; to keep the records accurate and complete; to secure efficiency; to ensure compliance with the law and the budget; to prevent and detect fraud and error; to make an audit possible.

2. Internal audit: conducted by an employee; continuous through the year; reports to the management or the audit committee; its main object is to test internal control; independence is limited; interim reports with recommendations. Final audit: conducted by an independent external auditor; after the year end; reports to the owners or the legislature; its main object is to express an opinion on the truth and fairness of the accounts; independence is full; one statutory report with an opinion.

3. The Office of the Auditor General (महालेखापरीक्षकको कार्यालय), a constitutional body headed by the Auditor General, appointed by the President on the recommendation of the Constitutional Council and removable only in the manner provided for a Supreme Court judge. It audits the federal ministries, departments and offices; the provinces and local levels; the constitutional bodies and courts; government corporations and grant-receiving offices; foreign loans and grants; and the stores and assets as well as the money. Its report is submitted to the President, laid before Parliament and examined by the Public Accounts Committee, which calls the officials concerned and directs the action to be taken.

1. Agencies: Ministry of Finance; National Planning Commission; Financial Comptroller General Office; Treasury and Comptroller Offices; the spending offices; Office of the Auditor General; Public Accounts Committee; Nepal Rastra Bank. Explain any four: Ministry of Finance — budget, fiscal policy, consolidated fund, loans and grants, expenditure control; FCGO — release, central accounts, consolidation, formats and systems; DTCO — payments, operating level accounts, single account fund, reporting; Office of the Auditor General — audit of all government accounts and stores and report to the President and Parliament.

2. The FCGO is the office under the Ministry of Finance that runs the government accounting system. Functions: releasing the budget to spending offices against the appropriation; keeping the central accounts; supervising and guiding the Treasury and Comptroller Offices; consolidating the accounts of all offices and preparing the annual financial statement and periodical reports; maintaining the uniform chart of accounts and the prescribed formats; and operating the computerised systems (FMIS, CGAS, TSA, SUTRA).

3. One designated bank account per office under the single account fund; the release credited directly to it; payment by cheque or electronic transfer on a payment order, not in cash except for allowed petty expenses; revenue deposited the same day and never spent; every entry in the bank cash book and a monthly bank reconciliation sent with the statement of expenditure; no overdraft and no idle balances; strict custody of cheque books. The arrangement makes the government's cash position knowable, keeps expenditure within the budget and makes reconciliation possible.

1. Information technology is the whole set of devices, software, networks and methods by which information is collected, stored, processed and communicated. Components: hardware (CPU, monitor, keyboard, printer, scanner), software (operating system and application packages), network (LAN, internet), data, people and procedures. Office packages: word processor for letters and reports; spreadsheet for salary sheets, budgets and registers; presentation package for slides; database for large records; accounting package for double entry. (Any three explained.)

2. Advantages: speed, accuracy, storage and retrieval, automatic posting, instant reporting, cheap communication, less paper, better control through user rights and audit trails, and consistency. Disadvantages: high cost; dependence on the system; risk of total data loss without backup; electronic fraud and hacking; training; reduction of routine clerical jobs; health effects; garbage in garbage out; loss of the signed paper trail unless an audit trail is kept; and quick obsolescence.

3. BMIS — budget preparation, release and transfer, used in the Ministry of Finance; LMBIS — budget formulation and implementation by every ministry, department and office, with PLMBIS in the provinces; FMIS — the integrated national financial reporting system operated by the FCGO; TSA — the Treasury Single Account through which the budget is released and spent, operated by the Treasury and Comptroller Offices; CGAS — the activity-based accounting system linked to LMBIS, under the FCGO; SUTRA — the integrated system for local levels covering budget, execution, accounting and reporting; and others such as PAMS (public assets), PMIS (pensions), E-GP (electronic procurement), ITS (tax) and RAS (revenue administration).