Description

Financial Accounting

Jun 2026 Examination

 

 

Q1. Mr. Rajesh started business on 1st April 2025. The following transactions took place during April 2025: 1. Started business with cash Rs.1,00,000. 2. Deposited Rs.60,000 into bank. 3. Purchased goods for cash Rs.20,000. 4. Purchased goods on credit from M/s Sharma Rs.15,000. 5. Sold goods for cash Rs.25,000. 6. Sold goods on credit to M/s Verma Rs.12,000. 7. Paid rent Rs.5,000. 8. Paid Rs.10,000 to M/s Sharma. 9. Received Rs.8,000 from M/s Verma. Required: 1. Pass Journal Entries. 2. Post them into Ledger (T format). 3. Prepare Trial Balance as on 30th April 2025. (10 Marks)

Ans 1.

Introduction

Financial accounting begins with the systematic recording of every business transaction in the journal, followed by their transfer to individual ledger accounts, and culminates in the preparation of a Trial Balance that verifies arithmetic accuracy. These three steps form the foundation of the accounting cycle. For Mr. Rajesh’s business, which commenced on 1st April 2025, all nine transactions during April must be journalized using the double-entry principle, posted to respective ledger accounts in T format, and summarized in a Trial Balance to confirm that total debits equal total credits.

Concept and Application

The double-entry system requires every transaction to have an equal and opposite effect on two accounts: one debited and one credited. The rule is: Debit what comes in or what increases in

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Q2 (A). A rapidly growing startup, BrightVision Technologies Pvt. Ltd., has developed a new AI-based software product. During the financial year 2025-26, the company incurred the following expenditures: Rs.40 lakhs on research activities to test the feasibility of the software. Rs.60 lakhs on development after technical feasibility was established. Rs.25 lakhs on advertising and brand promotion to create market awareness. Rs.10 lakhs paid in advance for office rent for the next financial year. The Managing Director argues: Since these are all investments for future growth, let us show the entire Rs.1.35 crore as an asset in the Balance Sheet to improve profits and attract investors. As the Finance Manager, you are required to respond. Required: 1. Identify and explain which accounting concepts and conventions are applicable in this case. 2. Advise how each expense should be treated in the financial statements with justification. (5 Marks)

Ans 2(A).

Introduction

The Managing Director’s proposal to capitalize all Rs.1.35 crore as assets violates fundamental accounting principles. While the intention to present strong financials to investors is understandable, financial statements must reflect economic reality rather than management preference. As Finance Manager, the correct treatment of each expenditure must be determined by applicable accounting concepts and the nature of each expense, not by its strategic intent.

Concept and Application

Two accounting principles are directly relevant here. The Matching Concept requires that

 

Q2 (B). During the finalisation of accounts of M/s Orion Traders for the year ended 31st March 2025, the accountant discovered the following errors: 1. Goods purchased from Ravi for Rs.25,000 were wrongly recorded in the Sales Book. 2. Furniture purchased for office use Rs.40,000 was debited to Purchases Account. 3. A credit sale of Rs.18,000 to Mehta was recorded correctly in Sales Book but posted to Mehta’s account as Rs.8,000. 4. Salary paid Rs.12,000 was correctly journalised but not posted to Salary Account. The Trial Balance did not tally, and the difference was placed in a Suspense Account. As an accounts executive: 1. Explain the nature/type of each error. 2. Discuss how these errors affect profit and financial position. 3. Suggest the rectification approach. (5 Marks)

Ans 2(B).

Introduction

Errors in accounting can be broadly classified as errors that affect the Trial Balance and errors that do not. Some errors affect both sides equally and are therefore not detected by the Trial Balance, while others cause a mismatch that requires a Suspense Account. For M/s Orion Traders, four distinct errors have occurred, each of a different nature, each affecting the financial statements differently, and each requiring a specific rectification approach.

Concept and Application

Accounting errors fall into categories including errors of commission, errors of principle, errors