Accountancy: Model Question Sets with Answer Keys

1. Office management is the task of planning, organising, directing, coordinating and controlling the work of an office so that its objectives are achieved efficiently and economically.

2. 26 April 1956 A.D. (13 Baisakh 2013 B.S.).

3. Value Added Tax.

4. The complete, organised and numbered list of all the account heads used to record transactions, grouped into assets, liabilities, capital, income and expenses.

5. A statement prepared on a date to explain and reconcile the difference between the balance of the bank column of the cash book and the balance of the passbook.

6. A mistake in applying an accounting rule, such as treating a capital expenditure as a revenue expense — for example, wages paid for installing a machine debited to the wages account.

7. Cost\ of\ goods\ sold = Opening\ stock + Purchases + Direct\ expenses - Closing\ stock.

8. The government's main fund, into which all revenue must be deposited and from which nothing may be withdrawn except under an appropriation made by law.

9. 14224.

10. Construction expenditure A/c Dr. (full bill); To Contractors' retention A/c (amount withheld); To Bank / DTCO A/c (net paid).

11. म.ले.प.फा.नं. २०९ (A.G.F. No. 209).

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 — the right stationery, furniture and staffing keep the cost per transaction low. (v) Goodwill — prompt and accurate replies win the confidence of customers and citizens. (Also: decision making, legal protection.)

2. Insurance is a contract in which the insurer, in return for a premium, agrees to pay the insured if a stated event happens. Principle: pooling of risk — many persons exposed to a similar risk each pay a small premium into a common fund, from which the few who suffer a loss are paid, so the loss of one is spread over the group; the conditions are many similar exposures, a loss measurable in money, and an insurable interest. Kinds: fire, marine, motor, health, accident, crop and livestock. (Any three.)

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

4. Net purchases = Rs. 1,80,000. Cost of goods sold = 30{,}000 + 1{,}80{,}000 + 8{,}000 + 22{,}000 - 40{,}000 = Rs.\ 2{,}00{,}000. Gross profit = 2{,}60{,}000 - 2{,}00{,}000 = Rs.\ 60{,}000. Indirect expenses = 20{,}000 + 10{,}000 + 6{,}000 = Rs.\ 36{,}000. Net profit = 60{,}000 + 5{,}000 - 36{,}000 = Rs.\ 29{,}000.

5.

6. (a) The purchases book undercast means the debit side is short: Purchases A/c Dr. 4,000; To Suspense A/c 4,000 — one-sided, the trial balance did not agree. (b) Ram A/c Dr. 5,400; To Suspense A/c 5,400 — one-sided. (c) Rent A/c Dr. 5,000; To Wages A/c 5,000 — two-sided, the trial balance agreed. The suspense account carries Rs. 9,400 on the credit side until it is cleared.

7. Expenditure accounting records what a government 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 and fixtures, 31131 vehicles).

8. 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. (Any five.)

1. Cost of goods sold = 50{,}000 + 2{,}50{,}000 + 10{,}000 + 30{,}000 - 65{,}000 = Rs.\ 2{,}75{,}000; gross profit = 3{,}60{,}000 - 2{,}75{,}000 = Rs.\ 85{,}000.

Trading account

Salary = 28{,}000 + 3{,}000 = Rs.\ 31{,}000; rent = 18{,}000 - 1{,}500 = Rs.\ 16{,}500; depreciation = 10\% \times 70{,}000 = Rs.\ 7{,}000; total expenses = 54{,}500; net profit = 85{,}000 + 6{,}000 - 54{,}500 = Rs.\ 36{,}500.

Profit and loss account

Balance sheet as on 31 Ashad 2082

Gross profit Rs. 85,000; net profit Rs. 36,500; balance sheet total Rs. 2,19,500.

2. Salary net = 2{,}00{,}000 - 24{,}000 - 4{,}000 = Rs.\ 1{,}72{,}000; excess on the computer bill = 68{,}000 - 60{,}000 = Rs.\ 8{,}000.

Closing balance Rs. 1,77,000 (debit).

Or, Appropriation = 6{,}00{,}000 + 30{,}000 + 80{,}000 = Rs.\ 7{,}10{,}000; expenditure to date = 2{,}40{,}000 + 10{,}000 + 26{,}000 = Rs.\ 2{,}76{,}000; of Bhadra = 40{,}000 + 1{,}800 + 6{,}000 = Rs.\ 47{,}800; available = 7{,}10{,}000 - 2{,}76{,}000 - 5{,}000 = Rs.\ 4{,}29{,}000.

3. What are final accounts (1). 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. Steps (3). Complete and agree the trial balance; bring in the closing entries for the trading account; prepare the trading account and find the gross profit; prepare the profit and loss account and find the net profit; add the net profit to capital and deduct drawings; prepare the balance sheet; check that the two sides agree. Any five adjustments (4). 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. Provision for doubtful debts — debited to the profit and loss account and deducted from debtors. (Any five, each with both effects.) Emphasise that a missing second effect is the commonest reason for a balance sheet not tallying. Or, Definition, need, causes and format as set out in answer 3.1 of chapter 4.

1. Office layout is the arrangement of furniture, machines, departments and staff within the available floor space so that work flows smoothly.

2. Any two of: accepting deposits; advancing loans; credit creation; collecting and paying on the customer's behalf; issuing drafts and pay orders; card and mobile banking; remittance; foreign exchange business.

3. Permanent Account Number; nine digits.

4. Assets = Liabilities + Capital.

5. Only in the passbook, until the trader enters it in the cash book.

6. A temporary account opened to hold the difference in the trial balance until the errors causing it are found and corrected.

7. Added to the salary in the profit and loss account and shown as a current liability in the balance sheet.

8. The cash basis.

9. Office materials 22311; furniture and fixtures 31121.

10. Money withheld from a payment due to a contractor, supplier or employee and held until a stated condition is satisfied; it is a liability, not revenue.

11. The Office of the Auditor General.

1. 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.)

2. A central bank is the apex financial institution, dealing with the government and the banks rather than the public; Nepal Rastra Bank, established 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. 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. Every registered dealer charges tax on his sales (output tax) and pays tax on his purchases (input tax), and deposits output tax minus input tax, so that tax falls only on the value he added and the total equals the VAT on the final price.

4. Closing stock — credited in the trading account, current asset. Outstanding salary — added to salary in the profit and loss account, current liability. Prepaid rent — deducted from rent, current asset. Depreciation — debited to the profit and loss account, deducted from the asset. Interest on capital — debited to the profit and loss account, added to capital. Goods taken by the proprietor — credited to purchases, deducted from capital as drawings. (Any five, each with both effects.)

5. Producer: output 13\% \times 2{,}00{,}000 = 26{,}000, input nil, deposit Rs. 26,000. Wholesaler: output 13\% \times 2{,}40{,}000 = 31{,}200, input 26,000, deposit Rs. 5,200. Retailer: output 13\% \times 2{,}60{,}000 = 33{,}800, input 31,200, deposit Rs. 2,600. Total = 26{,}000 + 5{,}200 + 2{,}600 = Rs.\ 33{,}800 = 13\% \times 2{,}60{,}000. ✔

6. The cash book shows an overdraft, so the additions and deductions are reversed.

7. Retention = 5\% \times 5{,}00{,}000 = Rs.\ 25{,}000; net paid = Rs.\ 4{,}75{,}000. When the bill is passed: Construction expenditure A/c Dr. 5,00,000; To Contractors' retention A/c 25,000; To Bank / DTCO A/c 4,75,000. When released: Contractors' retention A/c Dr. 25,000; To Bank A/c 25,000.

8. BMIS — budget preparation, release and transfer 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 of the FCGO; TSA — the Treasury Single Account through which the budget is released and spent, operated by the Treasury and Comptroller Offices; CGAS — activity-based accounting 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) and ITS (tax).

1. Cost of goods sold = 35{,}000 + 1{,}70{,}000 + 18{,}000 - 45{,}000 = Rs.\ 1{,}78{,}000; gross profit = 2{,}40{,}000 - 1{,}78{,}000 = Rs.\ 62{,}000.

Trading account

Debtors after bad debts = 44{,}000 - 1{,}500 = Rs.\ 42{,}500; provision = 5\% \times 42{,}500 = Rs.\ 2{,}125; depreciation = 10\% \times 50{,}000 = Rs.\ 5{,}000; total expenses = 26{,}000 + 14{,}000 + 1{,}500 + 2{,}125 + 5{,}000 = Rs.\ 48{,}625; net profit = 62{,}000 + 10{,}000 - 48{,}625 = Rs.\ 23{,}375.

Profit and loss account

Balance sheet as on 31 Chaitra 2082

Gross profit Rs. 62,000; net profit Rs. 23,375; balance sheet total Rs. 1,63,375.

2. (a) The sales book undercast means the credit side is short: Sales A/c Dr. 3,000; To Suspense A/c 3,000 — one-sided. (b) Ram's account was credited Rs. 800 instead of Rs. 8,000, short by Rs. 7,200 on the credit side: Suspense A/c Dr. 7,200; To Ram A/c 7,200 — one-sided. (c) Salary A/c Dr. 12,000; To Wages A/c 12,000 — two-sided, the trial balance agreed. (d) Computer A/c Dr. 40,000; To Purchases A/c 40,000 — an error of principle, two-sided, the trial balance agreed.

Suspense account

The credit column of the trial balance was short by Rs. 4,200 net (Rs. 7,200 − Rs. 3,000), which was sitting in the debit of the suspense account. Or, revenue statement: total collected = 1{,}80{,}000 + 90{,}000 + 1{,}50{,}000 + 40{,}000 = Rs.\ 4{,}60{,}000; undeposited = 40{,}000; deposited = Rs.\ 4{,}20{,}000. Show head by head, with the check 4{,}60{,}000 = 4{,}20{,}000 + 40{,}000.

3. Store accounting (1). The branch of government accounting that records the receipt, storage, issue and balance of goods held by a government office, in quantity and in value; goods are consumable (stationery, fuel, medicines) or durable (furniture, computers, vehicles). Objectives (2). To record every receipt and issue with evidence; to show the stock balance at any time; to prevent loss, misuse and theft; to provide audit evidence; to help budgeting. Importance (2). Public goods remain public property; every article is tied to a document and a person; the honest officer is protected; it supports the annual verification and the stock statement. Formats (3). जिन्सी दाखिला फाराम (goods received), जिन्सी निकासा फाराम (issue), the store ledger with a continuous balance, the bin card, the stock statement (जिन्सी मौज्दात फाँटबारी), the verification form (जिन्सी जाँच फाराम) and the accounting voucher. Or, Internal control (1). 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 (3). 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. Elements (4). Segregation of duties; authorisation and approval; documentation; physical control; reconciliation; supervision and review; rotation of duties and compulsory leave; internal audit; comparison with the budget.