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Tuesday, May 23, 2017

IGNOU Solved Question Papers - ECO 02 (December' 2012)



Term-End Examination December, 2012
ECO-2: ACCOUNTANCY-I
Time: 2 Hours Maximum Marks: 50
Note: Attempt any four questions, including question no. 1 which is compulsory.
1. Answer any two of the following: 7+7
(a) Distinguish between Income and Expenditure Account and Receipts and Payments Account.
Ans: Receipts and Payments Account: A Receipts and Payments Account is a summary of bank and cash transaction. Receipts are shown on the left hand side while payments are shown on the right hand side. It starts with opening cash and bank balances and ends with their closing balances. All receipts and payments are recorded in this account whether these are of revenue nature or capital nature.
Income and Expenditure Account: Income and Expenditure Account is a Nominal Account which is prepared at the end of the accounting period by a Not-For-Profit Organisation to ascertain the surplus, i.e., excess of income over expenditure, or the deficit, i.e.  Excess of expenditure over income.
Difference between Receipts and Payments Account and Income and Expenditure Account

Basis
Receipt and Payment Account
Income and Expenditure Account
1. Nature
It is a Real Account
It is nominal Account.
2. Recording
It records receipt and payments of both capital and revenue nature.
It records incomes and expense of revenue nature only.
3. Period of items
It records the items received or paid during the current year, whether relating to past, present or future periods.
It includes expenses or incomes relating to current year only.
4. Non cash items
It ignores non-cash items like depreciation, credit purchase, credit sales etc.
It records non-cash items also.
5. Balance of account
It usually shows a debit balance.
It may show a debit or a credit balance.


(b) What do you mean by invoice price? Give reasons for consigning the goods at invoice price.
(c) What is cost concept? Explain its accounting implications with examples.
(d) Discuss briefly the utility of debit note, credit note and invoice.
2. (a) What do you mean by Sectional Balancing? How does it differ from self-balancing? 6+6
Ans: Under this system also personal accounts of trade debtors and trade creditors are maintained in separate ledgers like Self-balancing system. Under this system also following three ledgers are maintained:
(i) General Ledger.
(ii) Sales Ledger or Debtors Ledger.
(iii) Purchase Ledger or Creditors Ledger.
Under this system trial balance is prepared only in General Ledger. Following Control Accounts are opened in General Ledger to complete double entry.
(i) Total Debtors Account or Debtors Ledger Control Account.
(ii) Total Creditors Account or Creditors Ledger Control Account.
Difference between Self-Balancing and Sectional-Balancing:
Both self balancing ledgers and sectional balancing ledgers serve the same purpose. Under both the system control accounts have to be prepared. However there are certain points of distinction between the two systems which can be described as follows:
Self Balancing Ledger
Sectional Ledger
Control accounts are prepared in all the ledgers. In the general ledger, debtors ledger adjustment account and creditors ledger adjustment account are prepared.
Control accounts are prepared in general ledger only. The name of these control accounts are total debtors accounts and total creditors account. Personal ledgers namely debtors ledger and creditors ledger have no control account.
A trial balance can independently be prepared from each one of the ledgers.
A trial balance can be prepared only from the general ledger.
All the ledgers form part of double entry system.
Double entry system is completed in the general ledger only. Debtors ledger and creditors ledger serve only as memorandum books of account.


(b) Differentiate between Provisions and Reserves.
Ans: Provisions: The term ‘provision’ means an amount, which is written off, or retained, by way of providing for depreciation, renewals, diminution in the value of assets; or retained by way of providing for any unknown future liability of which the amount cannot be determined with reasonable accuracy.
Reserves: A part of the profit may be set aside and retained in the business to provide for certain future needs like growth and expansion or to meet future contingencies such as workmen compensation are called reserves.
Difference between reserves and provisions:
  1. Provision is made to meet known liability the  amount of which cannot be ascertained with substantial  accuracy. Whereas Reserve is created to meet unexpected losses and  contingencies likely to arise in future.
  2. Provision can be used only for meeting the specific  purpose for which it has been made. Whereas Reserve can be used for any purpose unless it is created for a specific purpose.
  3. Provision is a charge on profits and reduces the amount of net profits. Whereas, Reserves is an appropriation of profits and reflects undistributed profits.
  4. Provision is to be made even if there are no profits. Whereas Reserve is created only when there are profits.
  5. Provision creation is compulsory. Whereas Reserves creation is at the discretion of management with the exception of debenture redemption reserve for which the Companies Act has made a provision in certain cases.
  6. Provision is meant for meeting expected losses and cannot be used for dividend distribution. Whereas Reserves is a part of owner’s funds and can be used for distribution of dividends.
3. Radha & Co., Bombay sent on consignment to Krishna & Co., Chennai 100 Fans, invoiced at Rs. 100 each on 5th June, 2009. Radha & Co. paid Rs. 2000 for dispatch of goods to the consignee. Consignee remitted Rs. 6000 as an advance by bank draft on 20th June 2009. The consignee is entitled to a commission of 10% on the sale proceeds. On receipt of goods the consignee paid Rs. 2000 for godown charges. On 30th June, 2009 Krishna & Co. sent an Account sales showing that the fans have realised Rs. 250 each. He remits the amount due to Radha & Co. Prepare ledger accounts in the books of the consignor. 12
Consignment to Chennai Account
Particulars
Amount
Particulars
Amount
To Goods sent on consignment
(100 Fans @ Rs. 100)
To Cash A/c (Expenses of consignor)
To Krishna & Co. (Expenses of consignee)
To Krishna & Co. (Commission = 25,000x10/100)
To Profit & Loss A/c (Profit)
10,000

2,000
2,000
2,500
8500
By Krishna & Co.
(Sale Proceeds - 100 Fans @ Rs. 250)
25,000

25,000

25,000


Krishna & Co. (Consignee)
Particulars
Amount
Particulars
Amount
To Consignment to Chennai A/c
25,000
By Bank A/c (Advance)
By Consignment to  Chennai A/c(expenses)
By Consignment to Chennai A/c
By Bank A/c ( Balance received )
5,000
2,000
2,500
15,500

25,000

25,000


4. The Trial Balance of M/S Mohan Brothers shows the following balances as on 31.12.2010: 12

Rs.

Rs.
Purchases
Sales Return
Machine
Opening Stock
Discount allowed
Bank charges
Debtors
Salaries
Wages
Carriage inward
Carriage outward
Rent paid
Bad debts
Cash at Bank
60,000
1,500
90,000
40,000
350
100
45,000
7,000
10,000
1,000
1,200
2,000
2,000
7,000
Capital
Sales
Purchase Returns
Discount Received
Creditors
Bills Payable
1,13,075
1,27,000
1,275
800
20,000
5,000

2,67,150

2,67,150
Closing stock was valued at Rs. 35000. Prepare trading account and Profit and Loss Account for the year ended 31.12.2010 and a Balance Sheet as on that date.
Trading and Profit & Loss A/c of M/S Brothers
For the year ended on 31-12-2010
Particulars
Amount
Particulars
Amount
To Opening stock
To Purchase               60,000
Less : Return                1,275
To Wages
To Carriage Inward
To Gross profit c/d
40,000

58,725
10,000
1,000
50,775
By Sales                  12,700
Less : Return             1,500
By Closing stock

1,25,500
35,000

1,60,500

1,60,500
To Discount allowed
To Bank charges
To Salaries
To Carriage outward
To Rent paid
To Bad debts
To Net Profit transferred to Capital
350
100
7,000
1,200
2,000
2,000
38,925
By Gross Profit b/d
By Discount Received
50,775
800





51575

51,575


Balance Sheet
As on 31-12-2010
Liabilities
Amount
Assets
Amount
Capital                         1,13,075
Add : Net Profit               38,925
Creditors
Bills Payable

1,52,000
20,000
5,000
Machine
Debtors
Cash at Bank
Closing Stock
90,000
45,000
7,000
35,000

1,77,000

1,77,000


5. Birla Cotton Mill purchased a machine on 1st May 2006 for Rs. 90,000. On 1st July, 2007 it purchased another machine for Rs. 40,000. On 31.3.2008 it sold off the first machine purchased in 2006 for Rs. 58000 and on the same date purchased a new machine for Rs. 1, 00,000. Depreciation is provided at 20% p.a. on the original cost each year. Accounts are closed on 31st December each year. Show Machine Account for three years. 12
6. Write short note on the following: 4+4+4
(a) Single Entry System,
Ans: Single entry system - Introduction
It is defined as the method of accounting which does not follow the principle of double entry system .Under this method only one account is given debit or credit for each transaction. Under this method, only personal accounts are maintained and impersonal account may not be maintained in the books.
Characteristics of Single Entry System
  1. This system is a mixture of (i) double entry (ii) Single entry and (iii) no entry.
  2. This system is suitable for small business.
  3. In this system, generally personal Account are kept but real and Normal Account are ignored.
Types of Single Entry System
  1. Pure Single Entry System:-Under this type of Single entry, the dual aspect of each transaction is ignored. Only personal account of debtors and creditors are kept but no record is kept for Real or Nominal Account.
  2. Simple Single Entry System:-Under this system, (i) Personal Account and (ii) Cash book are kept.
  3. Quasi Single Entry System:-Under this System, (i) Personal Account, (ii) Cash book and (iii) Some other subsidiary books are kept.
(b) Ledger,
Ans: Ledger: Journal records all business transactions separately and date-wise. The transactions relating to a particular person, asset, expense or income are recorded at different places in the journal as they occur on different dates. Hence, it fails to bring the similar transactions together at one place. Thus, to have a consolidated view of the similar transactions different accounts are prepared in the Ledger.
A Ledger account may be defined as a summary statement of all the transactions relating to a person, asset, expense or income, which have taken place during a given period of time and show their net effect. So every entry recorded in the journal must be posted into the Ledger.
 A ledger account is a statement shaped liked an English alphabet 'T' that systematically contains all financial transactions relating to either a particular person or thing for a certain period of time. It is the principal book of accounts.
(c) Promissory Note
Ans: A Promissory note is defined as an instrument in writing, containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument.
Features of Promissory note are:
  1. It must be in writing.
  2. It must contain an unconditional promise to pay.
  3. The sum payable must be certain.
  4. It must be signed by the maker.
  5. The maker must sign it.
  6. It must be payable to a certain person.
  7. It should be properly stamped.