Financial Accounting I || Spring, 2015 || BBA/BBA-BI/BBA-TT/BCIS

Financial Accounting I || Spring, 2015 || BBA/BBA-BI/BBA-TT/BCIS

Financial Accounting I

This is the question set along with answers Financial Accounting I Spring 2015, which was taken by the Pokhara University.

Pokhara University – Financial Accounting I Spring 2015


Level:  Bachelor Semester –Spring  Year: 2015
Program: BBA/BBA-BI/BBA-TT/BCIS  Full Marks: 100
Course: Financial Accounting I   Pass Marks: 45
     Time:  3hrs.

Section “A”

Very Short Answer Questions

Attempt all the questions.

1. Explain the business entity concept.
2. List out the external users of accounting information.
3. What do you mean by source document? Write some examples.
4. What is the major weakness of the single-step income statement?
5. What is accrued Income? Give some examples.
6. What do you mean by current Assets? Explain with its examples.
7. What do you mean by accruals basis of accounting?
8. A company earned a net income of Rs 25,000 during the year. Last year’s profit was retained Rs 10,000. If the company has Rs 20,000 retained earnings at the end of the year then find the amount of dividend distributed during the year.
9. Following data shows the partial balance sheet of Ram & Company
Financial Accounting I

10. London Corporation was organized on January 2, 2009, with the investment of Rs 100,000 by each of its two stockholders. Net income for its first year of business was Rs 85,200. The company earned a net income of Rs 125,320 during 2010 and Rs 145,480 in 2011. London paid Rs 20,000 in dividends to each of the two stockholders in each of the three years.
Required: Prepare a statement of Retained Earnings for the year-end Dec 31, 2011.


Section “B”

Descriptive Answer Questions

Attempt any six questions

11. Define GAAP. Explain the principles of GAAP.
12. What is the annual report? Explain the major component of the annual report.
13. Clear-vision Service Incorporation was established on May 1, 2013, by two founding directors. The corporation will provide consultancy services to small businesses. The following transactions took place during the month of May.
May 1: Received contribution Rs. 20,000 from each of the two directors in exchange for shares.
May 4: Signed two years promissory notes at the bank and received cash of Rs. 7,500.
May 6: Purchased office supplies on account for Rs. 500 payment due in 30 days.
May 10: Billed a client Rs. 2,000 for consultancy services. According to an agreement between two companies, the client to pay 25% of the bill upon its receipt and the remaining balance within 30 days.
May 15: Paid Rs. 1000 bill to the local newspaper for advertising for the month of May.
May 20: Received 25% of the amount billed on May 10.
May 24: Received cash of Rs. 4,000 for rendering services to the clients.
May 31: Paid Rs. 700 for electricity and water bills.
a) Journalize the above transactions.[4]
b) Show the recording of transactions in T accounts.[4]
c) Prepare a trial balance.[2]

14. Sulav&Suvam started a consulting firm, Boston Consulting, on May 1, 2015. The trial balance on May 31, 2015, is as follows.

Other data:
a. Supplies consumed during the period Rs. 800.
b. The insurance policy is for a year.
c. Rs. 3,900 of unearned service revenue has been earned at the end of the month.
d. Salaries of Rs. 1,250 are accrued on May 31.
e. The office equipment has a 5 years life with no salvage value.
f. Invoice representing Rs. 3,500 services performed during the month has not been recorded as of May 31.
i. Prepare Work Sheet [7]
ii. Necessary closing entries [3]

15.The trail balance of Samsung Mobile House as of 31, December 2015 is shown below.

Samsung Mobile House
Trail Balance
31, December 2015


  1. Prepare Samsung Mobile House’s Income Statement for the year ended 31, December 2015, using a multiple-step format.[4]
  2. Statement of Retained earnings [1]
  3. Prepare Samsung Mobile House’s classified Balance Sheet as of 31, December 2015. [5]

16. The December 31st bank statement for ABC Company showed a balance of Rs. 6873.40. On this date, the cash account in the company’s ledger was Rs.2994.70
Your review reveals:
a. Cheques under collection on December 31st, Rs.298.7
b. Outstanding Cheques for Rs.1718.00
c. A cheque for Rs.2194.90 issued to a supplier was recorded by the bank as Rs.2914.90
d. A bill receivable of Rs.5000 and interest of Rs.300 collected by the bank has not been recorded in the company’s account.
e. A cheque for Rs. 730.60 received from the customer was returned by the bank owing to lack of funds with the bank
f. Bank service charge Rs. 90
g. In accordance with the company’s standing instruction on December 31, the bank paid an insurance premium of Rs. 1300 for the company’s car. The Accountant did not record the transaction.

a. Bank reconciliation statement for the month of
b. Necessary journal entries. [3]

17. Prepare to adjust entries in December,31from the following information
a. The company’s inventory of office supplies on December 1 was Rs. 2,850. The company bought supplies costing Rs. 4,710 in December. The inventory of office supplies on December 31 totaled Rs. 1,930.
b. The company paid rent for six months at Rs. 2,500 per month in advance on December 1 and charged it to Prepaid Rent.
c. The company had not paid the December salary of Rs. 4,900 at the month-end.
d. On 9 December, a customer paid an advance of Rs. 9,300 for future services. The company provided services worth Rs. 7,100 to the customer in December.
e. The company made a three-year bank deposit of Rs. 20,000 on December 1. The deposit carried interest at 12 percent per annum.
f. The company bought equipment costing Rs. 13,000 on November 1. The equipment had an estimated useful life of 10 years at the end of which it was expected to have a salvage value of Rs. 1,000.
g. Income tax payable for the year is estimated to be Rs. 2,100.

18.World Wide Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2007. An income statement for the year and comparative balance sheets as follows:

Income Statement
For the year ended June 30, 2007

Balance Sheet
On June 30

Dividends of Rs. 5,000 were declared and paid during the year. New plant assets were purchased for Rs. 1,25,000in cash during the year. Also, the land was sold for cash at its book value. Plant assets were sold during 2007 for Rs. 20,000 in cash. The original cost of the assets sold was Rs. 50,000, and their book value was Rs. 30,000. A portion of the bank loan was repaid.


  1. Prepare a statement of Cash Flow for 2007, using the direct method in the operating activities section. [10] [10]
  2. Prepare indirect method of operating activities. [5] [5]

Explain why cash balance has been decreased in the balance sheet in such a profitable year showing in the income statement. [5]

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