Business Studies Question Paper

Part – A

1. Advantages of a Bill of Exchange

• Question: Explain two advantages of a Bill of Exchange. (2)

• Answer:

  1. Legal Document: A bill of exchange is a legally enforceable document, providing strong evidence of the debt and facilitating recovery in case of default.
  2. Easy Transferability: A bill of exchange is a negotiable instrument, meaning it can be easily transferred from one party to another before maturity, providing flexibility and liquidity.

2. Suspense Account

• Question: Give the meaning and utility of a suspense account. (2)

• Answer: A suspense account is a temporary account used to hold discrepancies or unidentified amounts during the accounting process. Its utility lies in:

  1. Facilitating Trial Balance Agreement: If the debit and credit totals of a trial balance don’t match, the difference is temporarily put into a suspense account to allow the trial balance to agree.
  2. Aiding Error Detection: The suspense account acts as a flag, indicating that errors exist and prompting further investigation to identify and correct them.

3. Trial Balance as Proof of Accuracy

• Question: Is a trial balance a conclusive proof of the accuracy of the Books of Account? If not, what are the errors which remain undetected in spite of its agreement? (3)

• Answer: No, a trial balance is not conclusive proof of the accuracy of the Books of Account. While it checks for mathematical accuracy (debits equal credits), certain errors do not affect the trial balance and thus remain undetected even if it agrees.

• Errors Undetected by Trial Balance:

  1. Errors of Principle: These occur when accounting principles are violated (e.g., treating a capital expenditure as revenue expenditure).
  2. Compensating Errors: Two or more errors that cancel each other out, so the trial balance still agrees (e.g., an over-debit and an under-credit of the same amount).
  3. Errors of Omission: Completely omitting a transaction from the books.
  4. Errors of Commission: Entering a transaction with the correct amount but in the wrong account (of the same type, e.g., debiting the wrong supplier account).
  5. Errors of Recording: Incorrectly recording a transaction (e.g., transposition errors like writing 123 instead of 321).

OR

• Question: Name three types of errors with examples which do not affect the Trial Balance?

• Answer: (See the 5 errors listed above as the answer to the main part of question 3.)

4. Options for the Receiver of a Bill of Exchange

• Question: What are the different options available to the receiver of a Bill of Exchange? (3)

• Answer: The receiver (payee) of a bill of exchange has the following options:

  1. Retain the Bill: Hold the bill until maturity and present it for payment.
  2. Discount the Bill: Get the bill discounted at a bank before maturity to receive immediate cash (but at a discounted value).
  3. Endorse the Bill: Transfer the bill to a third party (creditor) before maturity as a means of payment.
  4. Send the bill for collection: Lodge the bill with his bank for collection on the due date.

OR

• Question: Distinguish between bills of exchange and a promissory note? (any three)

• Answer:

 PART – B

9. Revenue Expenditure

• Question: What do you mean by Revenue Expenditure? Give two examples. (2)
• Answer: Revenue expenditures are short-term expenses incurred in the day-to-day operations of a business. They are recurring in nature and do not result in the creation of a long-term asset.
  • Examples:
    1. Salaries and wages paid to employees.
    2. Rent and utilities expenses.

10. Marshalling of Assets and Liabilities

• Question: Explain the concept of Marshalling of Assets and Liabilities through examples. (2)
• Answer: Marshalling refers to the arrangement of assets and liabilities in a specific order on the balance sheet. Assets are typically marshalled in order of liquidity (how easily they can be converted to cash), while liabilities are marshalled in order of priority of payment.
  • Example:
    • Assets: Cash in hand (most liquid), Accounts Receivable, Inventory, Fixed Assets (least liquid).
    • Liabilities: Short-term loans (due soonest), Accounts Payable, Long-term debt.

11. Limitations of Computerized Accounting

• Question: Give any two limitations of a Computerized Accounting system. (2)
• Answer:
  1. High Implementation Cost: Setting up a computerized accounting system can involve significant initial investment in hardware, software, and training.
  2. Data Security and Privacy: Computerized systems are susceptible to data breaches, cyberattacks, and the risk of data loss due to hardware or software failure.

12. Importance of Adjustments in Financial Statements

• Question: Give two importances of adjustments in financial statements? (2)
• Answer:
  1. Accrual Accounting: Adjustments are necessary to follow the accrual accounting principle, ensuring that revenues are recognized when earned and expenses are recognized when incurred, regardless of when cash is received or paid.

  2. True and Fair View: Adjustments help ensure that the financial statements present a true and fair view of the company’s financial position and performance.

13. Difference between Statement of Affairs and Balance Sheet

• Question: Give two differences between a Statement of Affairs and a Balance Sheet. (2)
• Answer:
  1. Basis of Preparation: A Statement of Affairs is prepared based on incomplete records, relying on available information and estimates. A Balance Sheet is prepared from proper double-entry accounting records.
  2. Reliability: A Balance Sheet is considered more reliable as it’s based on complete and accurate accounting records. A Statement of Affairs is less reliable due to its reliance on estimates and incomplete data.

14. Accounts Maintained in Incomplete Records

• Question: Name the two main accounts maintained in ‘Accounts from Incomplete Records’. (2)
• Answer:
  1. Statement of Affairs: To determine the opening and closing capital.
  2. Cash Book: To record cash receipts and payments.

15. Types of Software

• Question: Define Readymade software, Customized software, and Tailor-made software. (3)
• Answer:
  • Readymade Software: Pre-built software available for purchase and immediate use. It caters to common needs but might not perfectly fit specific requirements.
  • Customized Software: Readymade software that is modified or adapted to meet the specific needs of an organization.
  • Tailor-made Software: Software specifically designed and developed for a particular organization or purpose. It provides the best fit but is the most expensive and time-consuming option.

16. Notes on Accounting Concepts

• Question: Write notes on: (a) Contingent liability, (b) Capital Expenditure, (c) Operating Profit. (3)

• Answer:

  • (a) Contingent Liability: A potential liability that depends on the outcome of a future event. Its existence is uncertain, and it is only recognized if the event is probable and the amount can be reliably estimated.
  • (b) Capital Expenditure: Expenditure incurred on acquiring or improving long-term assets, which will benefit the business for several years. It is not expensed immediately but is depreciated over the asset’s useful life.
  • (c) Operating Profit: Profit earned from the core business operations. It is calculated as revenue minus the cost of goods sold and operating expenses.

OR

• Question: Distinguish between Trial Balance and Balance Sheet.
• Answer:

17. Use of Financial Statements

• Question: Explain the use of Financial Statements for Owners, Employees, and Government. (3)
• Answer:
  • Owners: Assess profitability, financial health, and growth potential of the business to make investment decisions.
  • Employees: Evaluate job security, the company’s ability to pay wages and benefits, and opportunities for career advancement.
  • Government: Analyze tax liabilities, assess economic activity, and formulate economic policies.

18. Double Entry vs. Single Entry System

• Question: Double Entry System is superior to Single Entry System. Explain with two suitable examples. (3)
• Answer: The double-entry system is superior because it provides a more complete and accurate record of financial transactions.
  • Example 1: In the double-entry system, a purchase of goods on credit is recorded both as an increase in inventory (asset) and an increase in accounts payable (liability). This dual recording ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced. The single-entry system might only record the increase in inventory, neglecting the corresponding increase in liability.
  • Example 2: The double-entry system facilitates the preparation of a trial balance, which checks for mathematical accuracy. This is not possible in the single-entry system, making it more prone to errors.

OR

• Question: Give three advantages of the Single-Entry System of Accounting?
• Answer:
  1. Simplicity: It is easy to understand and maintain, requiring less accounting knowledge.
  2. Low Cost: It is less expensive to implement and operate compared to the double-entry system.
  3. Suitable for Small Businesses: It is often adequate for very small businesses with limited transactions.

19. Cost of Revenue from Operation

• Question: Calculate the cost of revenue from operation.
• Answer:

Cost of Revenue from Operation = Adjusted Purchases + Manufacturing Expenses + Import Duty + Factory Expenses – Closing Stock + Sales Return

= 2,00,000 + 20,000 + 12,000 + 12,000 – 20,000 + 4,000 = ₹2,28,000

OR

• Question: Calculate closing stock and cost of goods sold.
• Answer:

Cost of Goods Sold = Opening Stock + Purchases – Purchase Return + Carriage Inwards – Closing Stock

6,000 (Gross Profit) = Sales (16,000 – 1,000) – Cost of Goods Sold Cost of Goods Sold = 15,000 – 6,000 = ₹9,000

9,000 = 5,000 + 10,000 – 900 + 1,000 – Closing Stock Closing Stock = 16,000 – 9,000 = ₹7,000

20. Anil’s Single Entry System

• Question: Anil keeps his books on a single entry system… Calculate profit or loss for the year ended 31st March, 2020. (3)

• Answer:

Statement of Profit or Loss For the year ended 31st March, 2020

21. Anand Bros. Financial Statement

• Question: Prepare Financial Statement of Anand Bros. from the following information… (5)

• Answer:

Anand Bros. Income Statement For the year ended 31st March, 2021

Anand Bros. Balance Sheet As on 31st March, 2021

22. Journal Entries for Adjustments

• Question: Give Journal entries for the following adjustments… (5)

• Answer:

(i) Interest on Capital ₹5,000:

(ii) Rent received in advance ₹7,000:

(iii) Insurance paid in advance ₹3,000:

(iv) Depreciation on Machinery:

(v) Manager’s Commission:

Calculation: Let the commission be ‘x’. Net profit after commission = 1,76,000 – x Commission = 10% of (1,76,000 – x) x = 0.10 * (1,76,000 – x) 1.1x = 17,600 x = 16,000 (approx.) Net Profit after commission = 1,76,000 – 16,000 = 1,60,000 Commission = 10% of 1,60,000 = 16,000

23. Kuldeep Singh’s Financial Information

(i) Value of Closing Stock:

• Opening stock: ₹63,000
• Closing stock is 1.5 times the opening stock.
• Closing stock = 1.5 * ₹63,000 = ₹94,500

(ii) Interest on Capital:

• Interest on capital is shown on the credit side of the Profit & Loss Appropriation account while preparing Final Accounts. It is also shown as a liability in the balance sheet.

(iii) Cost of Goods Sold (COGS):

• Opening Stock: ₹63,000
• Purchases: ₹3,17,750
• Less: Closing Stock: ₹94,500
• COGS = ₹63,000 + ₹3,17,750 – ₹94,500 = ₹2,86,250

(iv) Direct Expenses:

• Direct expenses are those directly related to production or bringing goods into a saleable condition. From the given list, the direct expenses are:
  • Freight outward: ₹1,550
  • Factory Power Expenses: ₹3,050
  • Packaging (On Sales): ₹17,500
• Total Direct Expenses = ₹1,550 + ₹3,050 + ₹17,500 = ₹22,100

(v) Gross Profit:

• Net Sales = Credit Sales + Cash Sales – Sales Returns
• Net Sales = ₹4,25,000 + ₹1,00,000 – ₹25,000 = ₹5,00,000
• Gross Profit = Net Sales – COGS
• Gross Profit = ₹5,00,000 – ₹2,86,250 = ₹2,13,750

24. Computerized vs. Manual Accounting

OR

Main Elements of a Computer System:

1. Hardware: The physical components of the computer, such as the CPU, monitor, keyboard, and printer.
2. Software: The set of programs that instruct the computer on what to do, including operating systems and application software.
3. Data: The raw facts and figures that are processed by the computer system.
4. People: The users who interact with the computer system, including programmers, operators, and end-users.
5. Procedures: The set of rules and instructions that govern the operation of the computer system.