Questions and Answers of Financial Accounting Theory

Operating profit earned by M/s Arora & Sachdeva in 2005-06 was Rs.17,00,000. Its non-operating incomes were Rs.1,50,000 and non-operating expenses were Rs.3,75,000. Calculate the amount of net profit
The following are the extracts from the trial balance of M/s Bhola & Sons as on March 31, 2005Closing Stock as on date was valued at Rs.3,00,000.You are required to record the necessary journal
Prepare trading and profit and loss account and balance sheet as on March 31, 2005 :Closing stock as on March 31, 2005 Rs.22,400 Account Title Machinery Sundry debtors Drawings Purchases Wages Sundry
The following trial balance is extracted from the books of M/s Ram on March 31, 2005. You are required to prepare trading and profit and loss account and the balance sheet as on date : Account title
The following is the trial balance of Manju Chawla on March 31, 2005. You are required to prepare trading and profit and loss account and a balance sheet as on date :Closing stock Rs. 2,000. Account
The following is the trial balance of Mr. Deepak as on March 31, 2005. You are required to prepare trading account, profit and loss account and a balance sheet as on date :Closing stock Rs. 35,000.
Prepare trading and profit and loss account and balance sheet from the following particulars as on March 31, 2005.Closing stock Rs. 30,000. Account Title Purchases and Sales Return inwards and Return
From the following trial balance of Mr. A. Lal, prepare trading, profit and loss account and balance sheet as on March 31, 2005Closing stock Rs. 15,000. Account Title Stock as on April 01, 2005
Prepare trading and profit and loss account and balance sheet of M/s Royal Traders from the following balances as on March 31, 2005.Closing stock Rs.8,000 Debit balances Stock Cash Bank Carriage on
Prepare trading and profit and loss account from the following particulars of M/s Neema Traders as on March 31, 2005.Stock on March 31, 2005 Rs.16,000. Account Title Buildings Plant Carriage inwards
From the following balances of M/s Nilu Sarees as on March 31, 2005. Prepare trading and profit and loss account and balance sheet as on date.Closing stock as on March 31, 2005 Rs.22,000. Account
Prepare trading and profit and loss account of M/s Sports Equipments for the year ended March 31, 2006 and balance sheet as on that date :Closing stock as on March 31, 2006 Rs.2,500 Account Title
From the following balances, prepare the trading and profit and loss account and balance sheet as on March 31, 2005.Adjustments 1. Closing stock Rs. 70,000 2. Create a reserve for bad and doubtful
The following were the balances extracted from the books of Yogita as on March 31, 2005:Taking into account the following adjustments prepare trading and profit and loss account and balance sheet as
The following balances were extracted from the books of Shri R. Lal on March 31, 2005Prepare the trading and profit and loss account and a balance sheet as on March 31, 2005 after keeping in view the
Prepare the trading profit and loss account of M/s Mohit Traders as on 31 March 2006 and draw necessary Journal entries and balance sheet as on that date :Adjustments Debit Balances Opening stock
The following information has been extracted from the trial balance of M/s Randhir Transport Corporation.Adjustments 1. Closing stock for the year was Rs. 35,500.2. Depreciation charged on plant and
From the following balances of M/s Keshav Bros. You are required to prepare trading and profit and loss account and a balance sheet of March 31, 2005.Adjustment (i) Provision for bad debts @ 5% and
The following information have been taken from the trial balance of M/s Fair Brothers Ltd.You are required to prepare the trading and profit and loss account and a balance sheet as at March 31,
From the following balance extracted from the books of of M/s Hariharan Brother, you are require to prepare the trading and profit and loss account and a balance sheet as on December 31,
The following balances have been extracted from the trial balance of M/s Kolkata Ltd. You are required to prepare the trading and profit and loss account on dated March 31, 2006.Also prepare balance
Prepare the trading and profit and loss account of M/s Roni Plastic Ltd. from the following trial balance and a balance sheet as at March 31, 2006.Adjustments 1. Depreciation on land and building at
From the following balances extracted from the books of M/s Rohit Traders, prepare the profit and loss account and balance sheet in the vertical form as on March 31, 2006.Adjustments Closing stock
Why is it necessary to record the adjusting entries in the preparation of final accounts?
What is meant by closing stock? Show its treatment in final accounts?
State the meaning of:(a) Outstanding expenses(b) Prepaid expenses(c) Income received in advance(d) Accrued income
Give the Performa of income statement and balance in vertical form.
Why is it necessary to create a provision for doubtful debts at the time of preparation of final accounts?
What adjusting entries would you record for the following :(a) Depreciation(b) Discount on debtors(c) Interest on capital(d) Manager’s commission
What is meant by provision for discount on debtors?
Give the journal entries for the following adjustments :(a) Outstanding salary Rs. 3,500.(b) Rent unpaid for one month at Rs. 6,000 per annum.(c) Insurance prepaid for a quarter at Rs. 16,000 per
What are adjusting entries? Why are they necessary for preparing final accounts?
What is meant by provision for doubtful debts? How are the relevant accounts prepared and what journal entries are recorded in final accounts? How is the amount for provision for doubtful debts
Show the treatment of prepaid expenses depreciation, closing stock at the time of preparation of final accounts when:(a) When given inside the trial balance?(b) When given outside the trial balance?
Prepare a trading and profit and loss account for the year ending December 31, 2005. from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet at the end of the year.Adjustments 1.
Prepare a trading and profit and loss account of M/s Green Club Ltd. for the year ending December 31, 2005. from the following figures taken from his trial balance :Adjustments 1. Depreciation
The following balances has been extracted from the trial of M/s Runway Shine Ltd. Prepare a trading and profit and loss account and a balance sheet as on December 31, 2005.Adjustments 1. Further bad
The following balances have been extracted from the trial of M/s Haryana Chemical Ltd. You are required to prepare a trading and profit and loss account and balance sheet as on December 31, 2005 from
From the following information prepare trading and profit and loss account of M/s Indian sports house for the year ending December 31, 2005.Adjustments 1. Closing stock was Rs.45,000.2. Provision
Prepare the trading and profit and loss account and a balance sheet of M/s Shine Ltd. from the following particulars.Adjustments 1. Closing stock was valued Rs. 35,000.2. Depreciation charged on
Following balances have been extracted from the trial balance of M/s Keshav Electronics Ltd. You are required to prepare the trading and profit and loss account and a balance sheet as on December 31,
From the following balances extracted from the books of Raga Ltd. prepare a trading and profit and loss account for the year ended December 31, 2005 and a balance sheet as on that date.The additional
From the following balances of M/s Jyoti Exports, prepare trading and profit and loss account for the year ended March 31, 2006 and balance sheet as on this date.Closing stock Rs.10,000.1. To
The following balances have been extracted from the books of M/s Green House for the year ended December 31, 2005, prepare trading and profit and loss account and balance sheet as on this
From the following balances extracted from the book of M/s Manju Chawla on March 31, 2005. You are requested to prepare the trading and profit and loss account and a balance sheet as on this
The following balances were extracted from the books of M/s Panchsheel Garments on December 31, 2005.Prepare the trading and profit and loss account for the year ended December, 31 and a balance
Prepare the trading and profit and loss account and balance sheet of M/s Control Device India on December 31, 2006 from the following balance as on that date.Closing stock was valued Rs. 20,000.(a)
The following balances apperead in the trial balance of M/s Kapil Traders as on March 31, 2006The partners of the firm agreed to records the following adjustments in the books of the Firm: Further
Prepare the bad debts account, provision for account, profit and loss account and balance sheet from the following information as on December 31, 2005Adjustments :Bad debts Rs.500 Provision on
Mr. Mehta started his readymade garments business on April 1, 2004 with a capital of Rs. 50,000. He did not maintain his books according to double entry system. During the year he introduced fresh
Mrs. Vandana runs a small printing firm. She was maintaining only some records, which she thought, were sufficient to run the business. On April 01, 2004, available information from her records
Compute the amount of total purchases and total sales of Mr. Amit from the following information for the year ending on March 31,2005. Total debtors as on April 01, 2004 Total creditors as on April
From the following information supplied by Ms. Sudha, calculate the amount of ‘Net Sales’ Debtors on April 01, 2005 Debtors on March 31, 2006 Opening balance of bills receivable as on April 01,
State the meaning of incomplete records?
What are the possible reasons for keeping incomplete records?
Distinguish between statement of affairs and balance sheet.
What practical difficulties are encountered by a trader due to incompleteness of accounting records?
What is meant by a ‘statement of affairs’? How can the profit or loss of a trader be ascertained with the help of a statement of affairs?
‘Is it possible to prepare the profit and loss account and the balance sheet from the incomplete book of accounts kept by a trader’? Do you agree? Explain.
Explain how the following may be ascertained from incomplete records:(a) Opening capital and closing capital(b) Credit sales and credit purchases(c) Payments to creditors and collection from
XYl Ltd. is an owner-managed retail grocery store that went public on January 1, 2018. Afterward, Tom Jones, the fun-loving owner-manager, held 40 percent of the common stock and remained the chief
Refer to Theory in Practice 12.2 concerning Mark's Work Wearhouse, Ltd. As noted there, Mark's did not publish an earnings forecast for 1992, a year for which it was expecting a loss.RequiredSuggest
Refer to the study by Bozanic, Roulstone, and Van Buskirk (2018) in Section 12.8.2.Requireda. Based on the results of their study concerning standalone future-oriented statements, do these statements
Valeant Pharmaceuticals International Inc. is a large Canada-based multinational drug company. Its shares are traded on the Toronto and New York stock exchanges. Valeant adopted an aggressive
The comparative balance sheet o f JSA Ltd. at June 30, 2018, is as follows:JSA Ltd.'s 2018 income statement is as follows:Requireda. Calculate the various accruals on an item-by-item basis. For each
If a manager "takes a bath" to manage reported earnings downwards, the probability of that manager receiving a bonus in a future year rises. Explain why.
Say-on-pay votes by shareholders are now quite common. Occasionally, shareholders' non-binding votes do not approve executive compensation. For example, in 2013, share holders of Barrick Gold Corp.
You are engaged by the owner of a small firm to recommend a one-year compensation contract for the firm's top manager. She is concerned about cash flow and feels that in previous years the manager
Mr. O'Kay, a risk -neutral investor, is contemp lating a one-year, 8 percent loan of $750 to Firm J. Mr. O'Kay demands at least a 5 percent expected return per annum on loans like this. O'Kay is
Edison operates a small, fast-growing electronics business. His workload has expanded to the point where he decides to hire a full-time manager. He will then take one year off to travel, and on his
New Horizons Co. is a high-tech firm whose owner does not have the required management expertise to run the firm. The owner wants to hire a manager with the required expertise. The continued success
Arthur's small business has grown to the point where he plans to hire a full-time manager. Arthur, an architect, has little inclination and ab il ity to manage a medium-sized, fast-growing business
Refer to Theory in Practice 7.5, describing how The Blackstone Group proposed to account for the carried interest to be received from future earnings of unconsolidated firms it has invested
Vulture Ltd. is incorporated to invest in risky securities. On January 1, 2019, the company buys Volatile Ltd. bonds with a par value of $10,000. Vulture plans to hold these bonds until they mature
Refer to the sensitivity analysis of Husky Energy Inc. reproduced in Table 7.2. The analysis discloses the potential effects of changes in prices of oil and natural gas, and of changes in the
Manulife Financial is a large Canadian-based insurance and financial services company, with operations in Canada, United States, and Asia. The company reports on the basis of IASB standards. However,
Manulife Financial is a large Canadian-based insurance and financial services company. with operations in Canada. United States. and Asia. Manulife's profits suffered from low interest rates and poor
Should firms be required to fair-value their long-term debt even in the event of a mismatch? Outline arguments for and against this suggestion. Include arguments based on eliminating or reducing
Refer to Theory in Practice vignette 1.3, concerning the bankruptcy of New Century Financial. New Century had securitized and transferred to investors (i.e., derecognized) many (but not all) of its
Refer to Theory in Practice 7.1 reInco Ltd., discussing the failure of Inco to recognize impairment of its Voisey's Bay nickel mine prior to 2002. Current accounting standards in Canada require an
A technology company sells a complex computer program. It promises customers that it will provide updates and virus protection for three years from the date of sale. Upon signing the contract, the
Refer to Theory in Practice 3.1 concerning Home Capital Group (HC), describing the issues faced by HC following public revelation of fraud problems with its high-risk mortgage portfolio. The vignette
The 2018 IASB Conceptual Framework (Section 3. 7) has significant effects on how financial reporting is implemented.Requireda. The Framework drops the word "rational" as a description of investor and
OiiSands Petro Ltd reported its 2019 earnings on March 27,2020. Net income was a record $374 million, up from $191 million for the same quarter of the previous year. Return on equity was 25.7
Pat, a rational investor, has $5,000 to invest for one year, pending a large purchase. She has narrowed her choice down to two investments. One (a1) is to invest the full amount in shares of Company
XYZ Ltd. is a large retail company listed on a major stock exchange, and its reported net income for the year ended December 31, 2019, is $5 million. The earnings were announced to the public on
Refer to Theory in Practice 3.1, concerning Home Capital Group (HC), describing the issues faced by HC following public revelation of problems with its high-risk mortgage portfolio and its failure to
Sonja, a rational investor, has $2,500 to invest for one year while she completes her professional accounting designation. She is contemplating investing the full amount in shares of Northeastern Oil
Stephen is a rational, risk-averse investor with $5,000 to invest for one year. He has decided to invest this amount in a high-technology firm and has narrowed his choice down to either AB Ltd. or XY
David has $2,500 that he wishes to invest for one year. He has narrowed his choices down to one of the following two actions:a1: Buy bonds of X Ltd., a company that has a very high debt-equity ratio.
Tina has $3,000 that she wishes to invest for one year. She has narrowed her choices down to one of the following two actions:a1: Buy bonds of Risky Mining Ltd. The se pay 14.7% interest unless Risky
Prudent plans to invest $6,000 in one of the following instruments:• Bonds of J ltd., yielding 12% (a1)• Canada Savings Bonds, yielding 9% (a2)On the basis of his knowledge of current economic
The following RRA information is taken from the 2019 annual report of Moonglo Energy Inc.Balance of proved reserves: beginning of year........................$ 1,010Sales, net of production
The following RRA information is taken from the December 31, 2019, annual report of AY Energy, Inc.Requireda. Prepare an RRA income statement for AY Energy for 2019.b. AY Energy reports elsewhere in
The following supplemental RRA information is taken from the 2019 annual report of HL Oil & Gas Ltd.Requireda. Prepare an income statement for 2019 on an RRA basis.b. Use the concepts of
On January 1, 2019, Drill Deep Ltd. started its business by purchasing a productive oil well. The proved oil reserves from the well are expected to generate $8,000 cash flow at the end of 2019,
Contingent Corp. operates under ideal conditions of uncertainty. It has just purchased a new machine, at a cost of $3,575.10, paid for entirely from the proceeds of a stock issue. The interest rate
SC Ltd. operates under ideal conditions of uncertainty. On January 1, 2019, it purchased a capital asset that will last for two full years and then will be retired with no salvage. The purchase price
AltCoins Ltd. has just begun operating under ideal conditions of uncertainty. Its cash flows will depend on the state of the economy. On January 1, 2019, the company acquired plant and equipment that
EZ Sports Ltd. plans to manufacture cross-country skiing equipment. Its cash flows are highly dependent on the winter weather. EZ operates under ideal conditions of uncertainty. On August 1, 2019,

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