Financial Accounting II – Old Question Paper 2015 | Semester : Spring

questionFinancial Accounting II
Old Question Paper
Year: 2015 | Semester: Spring
Pokhara University


Section “A”

Very Short Answer Questions


Attempt all the questions.                                                                                                              [  10×2=20 ]

  1. What is the difference between the perpetual and periodic inventory system?
  2. Define notes receivable.
  3. What is meant by current assets?
  4. What do you mean by preferred stock?
  5. Which inventory valuation method (LIFO or FIFO) will result in the higher profit, if the cost to purchase inventory is decreasing in the industry?
  6. Write in short about inventory turnover ratio or stock turnover ratio.
  7. When production unit method of depreciation is suitable to use?
  8. You are given the following information and required to determine gross profit ratio: Net sales revenue=Rs.500,000 ; opening stock Rs 35,000; net purchases Rs.3,65,000 and closing stock Rs.50,000.
  9. On 1st November 2014, Pokhara Company received a 6-month, 12% notes for Rs 100,000. The company’s accounting year ends on 31 Dec. each year. You are required to prepare the necessary journal entry the books of Pokhara Company to record collection of notes receivable on due date.
  10. Ending balance sheet of a company has 10%, 5,000 preferred stocks and 10,000 common stock. Both the stocks are of Rs. 100 par value per stock. What amount of dividend to preferred stocks and common stocks are distributed if total dividend of Rs.180,000 has been declared for the period. Assume preferred stocks are non-cumulative and non-participated

Section “B”

Descriptive Answer Questions

Attempt any six questions                                                                                                                   [  6×10 =60 ]

  1. On 1st January 2010 Pokhara Co. has purchased equipment for Rs 1,00,000 and paid freight charges of Rs 10,000 and expenditure of Rs 20,000 for installation of equipment and cheque Rs 500 for minor repair of the equipment. The estimated useful life of the equipment is five year and the asset is to be depreciated declining balance In 2013 the company altered its corporate strategy dramatically and sold the equipment on January 1, 2013 at Rs 35,000 in cash.


  i. Determine the amount of depreciation, accumulated depreciation and book value of the equipment in each                   year over three years.

   ii. Journal entries to record sale of equipment on January 1,2013.

  1.  At the beginning of 2015, Ralf Co’s accounts receivable balance was Rs 140,000 and the balance in the allowance for doubtful debt accounts was Rs 2350 (Cr). The company’s sales in 2015 were Rs1,050,000, 90 percent of which were on credit. Collections on account during the year were Rs 670,000. The company wrote off Rs 8000 of uncollectable accounts during the year.


    i. Prepare “necessary journal entries related to the sales, collections, and write-offs of accounts receivable                         during 2015.

    ii. Prepare journal entries to recognize bad debts assuming (1) bad debt expense is 3 % of credit sales and (2)                    amounts expected to be uncollectable are 6% of the year-end accounts receivable.

    iii. What is the net realizable value of accounts receivable on December 31, 2015, under each assumption in                     the above part “ii”?

  1. a) What are operating and financial lease? Describe how these are treated in the books of a firm.                                                                                                                                                                                                                    b)Lekhnath Grocery Shop borrowed Rs.500,000 from Muktinath  Bikash Bank on November 1, 2013 by signing a six month, 9% promissory note for the entire amount. The shop uses a calendar year to adjust accounts and to prepare financial statements.


              i. Prepare the journal entry on July 1 to record the issuance of the promissory note.

             ii. Prepare any adjusting entries needed at year-end.

             iii. Prepare the journal entry on May 1 to record the payment of principal and interest.

  1. Amortization of discount or premium on issue of bonds payable affects the amount of interest expenses.” How does amortization of premium or discount on issue of bonds payable affect the amount of interest expense? Explain.

  1. A portion of the stockholders equity section from the balance sheet of XYZ Company appears as follows.

 Stockholder equity:

Preferred stock, 90% cumulative, Rs. 100 par, 50,000 shares

Authorized and issued…..                                                                        Rs. 50,00,000

Preferred stock, 12% non-cumulative, Rs. 100 par, 800

Shares authorized and issued…………..                                                 8,00,000

Common stock, Rs. 5 par, 4,00,000 shares

Authorized and issued                                                                              20, 00,000

Total paid in capital                                                                                Rs. 78,00,000

Assume that all the stock was issued on January 1 and no dividends were paid during the first two years of operations. During the third year, the XYZ Company paid total cash dividends of Rs. 8,00,000


        a. Compute the amount of cash dividends paid during the third year to each of the three classes of stock.  [8]

        b. Compute the dividends paid per share during the third year for each of the three classes of stock. [2]

  1. The stockholder’s equity section of Dudhasagar Corporation as of December 31,2012 follows:

                      Common stock (par value Rs.100 per share)                                                         Rs.1,000,000

                       10% Preformed stock                                                                                                  200,000

                      Additional paid-in capital (common stocks)                                                              100,000

                       Retained earnings                                                                                                         500,000

                       Total stockholder’s   equities                                                                                      1,800,000

During 2013 the company entered into the following transactions.

  • Repurchased 1000 common shares as a treasury stock for Rs.600 per share.
  • As part of a compensation package, reissued half of the treasury stocks to executives for Rs.400 per stock.
  • Reissued the remainder of the treasury stocks on the open market for Rs.680 per stock
  • Declared and paid cash dividend to preferred stock holders


            i. Provide the journal entries for each of transaction given above

          ii. Prepare the stockholder’s equity section of the balance sheet as of December 31, 2013. Corporation generated             Rs.520,000 net income during 2013 and no dividends were declared to common stocks.

         iii. Why companies are interested to purchase treasury stocks?

  1.  What do you mean by interest and non-interest bearing notes receivable? Discuss with suitable example.

Section “C”

Case Analysis

    1. Disney Land Distributor reported the following information for the month of November, 2010, regarding dolls:

Date Units Unit Cost Total Cost
Inventory , November 2, 2010 8000 Rs. 10 Rs. 80,000
November 23 8000 12 96,000
November 14 7000 13 91,000
November 5 6000 12 72,000
November 10 9000 10 90,000
November 15 12000 9 108,000
Total Goods Available for Sale: 50,000 Rs 537,000
November 28 5000 units
November 15 3000 units
November 6 5000 units
November 12 10000 units
November 24 6000 units



a. Use the perpetual inventory system and determine the ending inventory and the cost of goods sold using:   [15]

i. LIFO cost flow method

ii. FIFO cost flow method

b. Which costs flow method result low tax liability? Does your response depend on whether cost prices are rising or falling? Explain your answer.                                                                                                                                                   [5]

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