Class Test -1 Accounting for Managers Time: 75 Minutes

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Marks: 50

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What is accounting equation? (2) Explain the accounting process. What purpose is served by this process? (8) Difference accounting and accountancy. (2) Explain the following concept: (4) a) Realisation concept b) Business Entity Concept c) Accrual Concept d) Materiality Concept Journalize the following transactions: (5) a. Purchased goods from Ashok of the list price of `1,25,000 at a trade discount of 20% and 2% cash discount and 40% paid by cheque. b. goods stolen in transit for ` 1,000 cost price ` 800 c. Purchased a typewriter for `2,000 and spent `50 on its repairs. d. received money order for `250 from Hari e. received commission `1,000 half of which is in advance Explain the following : (4) a. compound entry b. contra entry c. error of commission d. suspense account Case studies (25)

Royal Eagle Ltd. Rajesh Selvan, who owns Royale eagle Ltd, started business on 1st January 2005 buying and selling sports equipment. He has asked you to prepare some accounts for him for the year to 31 December 2005. He has left the following message on your answering machine: Aunt Chakreshwari lent me `5,000 in her will, and this formed my initial capital in my Royale Eagle account. A friend also loaned me `2,000 @ 10% p.a interest. He gave me a cheque, which I encashed. I bought an estate car to help with my collection and delivery stock, and I made`500 profit on this car deal. The salesman wanted ` 1,700 for the car but I beat him down to ` 1,200, and I paid him by cheque. I recon the car is good for 4 years before it go to the scrap yard. I rent a garage to keep my stock in, and this cost me `400 per annum. Ive paid `500 so far (by cheque) as the owner insists on quarterly payments in advance. My first bit of trading was to buy 3,000 pairs of trainers for `9,000. Ive paid a cheque to the supplier for `6,000 and shall have to pay the balance soon. Ive sold 2,500 pairs so for `9,500 cash and I am yet to receive `500. 20% of this is doubtful, but the rest should be collectable. Then I bought 200 golf clubs for `4,000 (by cheque). Ive sold 180 of these for `5,400 in cash, but the remaining are faulty, and Ive found someone who says he can repair them, and will take them off my hands for `100. I also do a god business in track suits. Three hundred pairs of cost me only `1,500. I havent paid for them yet, since a number of them appear to have faulty stitching. Ive complained to the supplier who says he will reduce the price to `900. I think Ill accept, since I know someone who will look them all over and repair as necessary for `2 a garment. I can sell them for `10 each and make a profit of ` 1,500. The cash I got from the golf clubs has been used to pay some bills: petrol for the estate car came to `500, and electricity for the garage `200. Ive spent `4,500 on myself. I also had a holiday in August, which cost `700, but I paid for that by cheque from the Royale Eagle Account. I must also pay the first years interest on the loan soon, I suppose. You are required : 1. prepare a trading account and profit and loss for the Royal Eagle Ltd. for the year ending 31 st December, 2005, and a Balance sheet as on that date. 2. Show the cash and bank balances separately on the balance sheet. 3. If possible show all the figures in vertical format.