Q.1 Please write the alphabate of your choice
in the answer column. (10)
(Answer)
i |
The purpose of adjusting entries is to:
A |
Adjust the owner’s
capital account for the revenue, expense, and withdrawal
transactions which occurred during the year. |
B |
Apply the realization principle and the matching principle
to transactions affecting two or more accounting periods |
C |
Adjust daily balances in assets, liabilities, revenue
and expense accounts for the effects of business transactions |
D |
Prepare revenue and expense accounts for recording the
transactions of the next accounting period |
E |
None of the above. |
|
|
ii. |
Which of the following statements best describes the nature
of depreciation:
A |
Allocation of the cost
of a fixed asset to the periods in which services are received
from the asset |
B |
Regular reduction of asset value to
correspond to decline in the market value as the asset ages |
C |
A process of correlating the carrying value of an asset
with its gradual decline in physical efficiency |
D |
Allocation of cost in a manner that will ensure that plant
and equipment items are not carried on the balance sheet at
amounts in excess of net realizable value |
E |
None of the above |
|
|
iii. |
Which of the following is not the indicator of liquidity position
of a bank:
A |
Credit Deposit Ratio |
B |
Liquid Assets to Liquid Liabilities Ratio |
C |
Statutory Liquidity Ratio |
D |
Currency notes held |
E |
None of the above |
|
|
iv |
Which of the following is not part of Tier–I capital
of the bank:
A |
Premium on shares |
B |
Reserve for bonus |
C |
Surplus on revaluation of securities |
D |
Discount on issue of shares |
E |
None of the above |
|
|
| v |
A bank will always incur net loss if:
A |
Cost of funds exceeds its return on earning
assets |
B |
Operating expenses exceeds gross profits |
C |
Other income exceeds other expenses |
D |
Capital budget exceeds depreciation |
E |
None of the above |
|
|
vi |
Which of the following is not treated as part of the Tier-II
capital of the bank:
A |
Subordinated debt |
B |
Surplus on revaluation of fixed assets |
C |
General provisions |
D |
Branch Expansion expenses |
E |
None of the above |
|
|
vii |
Which of the following would not be classified as current assets
of a manufacturing company:
A |
Cash in Hand |
B |
Inventory |
C |
Receivables |
D |
Short-term Borrowing |
E |
None of the above |
|
|
viii |
Which of the following is not an intangible asset:
A |
Software development cost |
B |
Goodwill |
C |
Pre-payment for purchase of softwares |
D |
Website development cost |
E |
None of the above |
|
|
ix |
Revaluation gain / loss on “Held for Trading” securities
is taken to:
A |
Equity |
B |
Surplus / Deficit on revaluation of securities |
C |
Profit & Loss Account |
D |
Balance Sheet |
E |
None of the above |
|
|
x |
The term “IFRS” refers to:
A |
Information on Financial Reserves and Securities |
B |
Internal Financial Resources System |
C |
International Financial Reporting System |
D |
International Financial Reporting Standards |
E |
None of the above |
|
|
Q.2 State True or False in the answer column.
Give brief reason for your selection at the space provided
below the question.
(17)
(Answer)
i |
Software expenses are depreciated
on annual basis and charged to Profit and Loss Account. |
|
ii |
Net book value represents the fair value
of an asset net of accumulated depreciation. |
|
iii |
If a capital expenditure is erroneously treated
as a revenue expenditure, this will understate the net income
of the current year. |
|
iv |
The Accounting principle of Consistency require
a company to use the same rate of depreciation for all of its
assets. |
|
v |
Accumulated depreciation represents a fund
being accumulated for the replacement of plant assets. |
|
vi |
The Statement of Cash Flows is designed to
assist users in assessing the profitability of a company. |
|
vii |
Bank reconciliation means an analysis that
explains the difference between the balance of accounting records
and cash book of the bank. |
|
viii |
A Balance Sheet shows the Assets, Liabilities,
and Owner’s Equity of a business entity, valued in conformity
with generally accepted Accounting principles. |
|
ix |
Accountants assume no business will last
for ever; therefore, assets are never valued in a Balance Sheet
in excess of their immediate sale value. |
|
x |
According to the rules of Debit and Credit
for Balance Sheet accounts, decreases in liability and owner’s
equity accounts are recorded by debits. |
|
xi |
According to matching concept, an entity
is not only to measure revenues in a particular accounting period
but also has to calculate expenses which can be assigned in earning
such revenues. |
|
xii |
The principle of conservatism takes into
account all potential profits but leaves all potential losses.
|
|
xiii |
The provision for bad debts is debited to
sundry debtors account. |
|
xiv |
An expenditure incurred on increasing the
useful life of a fixed asset is revenue expenditure. |
|
xv |
A major objective of accounting for inventories
is the proper determination of income through the process of matching
appropriate costs against revenues. |
|
xvi |
The damaged stock, if its market price is
less than its cost price, should be valued at cost price. |
|
xvii |
Sales + closing stock – Purchases-
Gross Profit = Opening Stock. |
|
Q.3 Choose one of the two alternatives
given below and fill in the blanks in the given
statements: (10)
i |
As per the going concern concept,
the business is viewed as having _____ life, until and unless
it has entered into a state of liquidation. (definite/indefinite).
|
ii |
The closing debit balance falls on the__________
side. (debit/credit) |
iii |
Any expenditure incurred in acquiring the
right to carry on a business is ________ expenditure. (capital/revenue)
|
iv |
In FIFO method, issues of materials are priced
in order of their________. (issues/purchases)
|
v |
In periods of rising prices, the profit under
LIFO method is indicated at ________ amount. (reduced/increased).
|
vi |
Any gain on the sale of non-current asset
should be_______ the net profit for determining funds from operation.
(added to/deducted from) |
vii |
If the net profit earned during the year
is Rs. 50,000 and the amount of debtors in the beginning and at
the end of the year is Rs. 10,000 and Rs.20,000 respectively,
then the cash from operations will be equal to Rs.________ . (40,000/60,000)
|
viii |
For calculating cash generated from operations,
provision for doubtful debts is _______ the profit made during
the year. (added to/deducted from) |
ix |
As per the requirements of State Bank of
Pakistan, loans classified as loss require a provision of______
of outstanding balance, net of liquid assets. (100%/ 50%)
|
x |
If there is decrease in cost of goods sold,
it will result in ______ in the gross profit. (increase/decrease)
|
Q.4 |
Computational Questions:
i |
ABC Ltd. has a
total equity of Rs.5,000,000/-. Its sales turnover is 4
times of equity and the net profit margin on sales is 5
percent. What is the Return on Equity (ROE). (02) |
ii |
ABC Ltd. has a credit sales
of Rs.2,400,000/- during 2005. The outstanding receivables
as of 1st January and 31st December, 2005 were Rs.375,000/-
& Rs.425,000/- respectively. Calculate the Debtor
Turnover Ratio and the debt collection period. (02) |
iii |
The ratios relating to liquidity
position of ABC Ltd. are given below:
2003
2004
2005
-
Current Ratio 2.00
2.13
2.28
-
Acid Test Ratio 1.20
1.10
0.90
-
Debtors Turnover 10.00
8.00
7.00
-
Stock Turnover 6.00
5.00
4.00
The Current Ratio is increasing, while the Acid Test Ratio
is decreasing. Explain the contributing factor(s) for this
apparently divergent trend. (02) |
iv |
ABC Ltd. has decided to replace
one of its existing staff cars by trade in with a new car.
The old car was purchased for Rs.800,000/- and has
been depreciated by the Straight Line method with
the assumption of a 5 years life and no salvage value. Annual
depreciation expense is Rs.160,000/-. After 4 years of use,
the car is traded in with a new model having a list price
of Rs.1,000,000/-. Automobile dealer grants a trade in allowance
of Rs.240,000/- for the old car; the additional amount
to be paid to acquire the new car is, therefore, Rs.760,000/-.
You are required to calculate the (i) Book value
of old car, (ii) Gain or loss on exchange and (iii) Accumulated
depreciation (03) |
v |
Based on the data given at
Question 3(iv) above, give the general entries to record
the removal of the old car and recording of the new car.
(02) |
vi |
ABC Ltd’s net profit
was Rs.4 million in 2004 and Rs.1.6 million in 2005. What
percentage increase in net profit must ABC Ltd. achieve
in 2006 to offset the decline in profits in 2005 (02) |
|
Q.5 |
A and B belonging to the same industry
have applied to a bank for a loan of equal amount to be repaid
over two years:-
Company
‘A’ Company
‘B’
-
Current Ratio 3.2
: 1
2.0 : 1
-
Acid – test Ratio 1.7
: 1 1.1
: 1
-
Debt-equity Ratio
30 : 70 40
: 60
-
Number of times interest earned 6
5
Based on above you are required to answer the following questions:
a) If you could grant a loan to only
one company, which would it be and why? (05)
b) If you could grant a loan to both the companies,
would you be willing to do so
and why or why not? (05)
|
| Q.6 |
Royal Bank Ltd. has received credit applications from
two small companies manufacturing ready-made garments for an
unsecured short-term loan of Rs.500,000 each. In order to remain
within the limit on aggregate unsecured lending under Prudential
Regulations, the bank can grant loan to only one of these companies.
The relevant information provided by the two companies is given
below:
Rs. in Thousands
| |
ABC Ltd. |
XYZ Ltd. |
Assets
Cash
Sundry Debtors
Stock
Total Current Assets
Other Assets
Total Assets
|
170
274
900
1,344
1,000
2,344
|
300
424
1,350
2,074
1,020
3,094
|
Liabilities & Equity
Current Liabilities
Long-term loans
Share Capital
Retained Earnings
Total Liabilities & Equity
|
500
800
800
244
2,344
|
640
1,000
1,200
254
3,094
|
Additional information :
Sales
Rate of Gross profit on sales
|
2,400
30% |
1,700
40% |
Based on the above information, you as
the credit officer of the bank are required to:
(i) Calculate the relevant ratios of both these
companies. (10)
(ii) Recommend to the management that which company should be
granted the credit andy why?
(05)
|
Q.7 Following
information is available in respect of Republican Bank Ltd. for the
year
ended December 31, 2005:
(Rs.
in thousand)
1 |
Fee, commission and brokerage income |
838 |
2 |
Administrative expenses |
2,592 |
3 |
Mark up / return / interest earned |
8,780 |
4 |
Balances with other banks |
5,550 |
5 |
Other Liabilities |
2,271 |
6 |
income from dealing in foreign currencies |
356 |
7 |
Reserves |
5,862 |
8 |
Provision against non-performing loans and advances |
638 |
9 |
Taxation for the prior years |
(188) |
10 |
Surplus on revaluation of assets |
1,218 |
11 |
Advances – net of provisions |
85,977 |
12 |
Other income |
207 |
13 |
Bad debts written off directly |
0 |
14 |
Borrowings from financial institutions |
10,562 |
15 |
Unappropriated profit |
0 |
16 |
Taxation for the year - Deferred |
196 |
17 |
Bills Payable |
1,316 |
18 |
Deposits and other accounts |
118,795 |
19 |
Share capital |
1,507 |
20 |
Deferred Tax Assets |
0 |
21 |
Investments – net of provisions |
25,708 |
22 |
Dividend income |
51 |
23 |
Subordinated loans |
3,000 |
24 |
Mark up / return / interest expensed |
4,278 |
25 |
Liabilities against assets subject to finance lease |
2 |
26 |
Reversal of provision for impairment in the value of investments
|
36 |
27 |
Deferred tax liabilities |
567 |
28 |
Other charges |
2 |
29 |
Operating Fixed Assets |
3,193 |
30 |
Cash and balances with treasury banks |
11,767 |
31 |
Lendings to financial institutions |
10,172 |
32 |
Other Assets |
2,733 |
33 |
Taxation for the current year |
829 |
34 |
Gain on sale of investments |
100 |
You
are required to prepare on the SBP prescribed format:
i) Balance Sheet
as of 31st December, 2005 (15)
ii) Profit & Loss Account for
the year ended 31st December, 2005. (10)
|