FINAL TERM ASSESSMENT SPRING 2020

Student’s Name__Shahzad Channa___________________ Registration Number

__1947135_______________

Program: BSAF Class/Section: 1A

Course Name: Introduction to Financial Course Code AF1104

Accounting
Instructor’s Name: Mr. Asif Ali Khokhar Instructor’s email asifalikhokhar1982@hotmail.com

Total Marks: 55 Marks Obtained:

Date of Sharing: 17th June, 2020 Submission 23rd June, 2020 before 12:00PM
Deadline:

File Type Allowed for submission: (MS Word, MS Excel, pdf, Images, Hand written)

IMPORTANT instructions:
 Read all the questions carefully and then solve in this file, if needed.
 Marks of each question are mentioned at the end of each question.
 Solved Assignment must be mailed to the respective faculty by the due date.
Faculty Signature
 The answer file must be attached in the email.
 Regardless of file type (image or document), email must include attachment for faculty to check.
 Non-submissions of the assignments will be considered as absent for the Final Term and will be marked “0”
on ZABDESK Recap Sheet.
 While checking of the Assignment, SZABIST Plagiarism policy is to be followed.
 Group assignments are not allowed.
_____________________________________________________________________________
Part – I
Question 01: Vocabulary Test: (5 Marks)
Define the following Terms
I. Accruals & Deferrals

Accruals
These are liabilities which are recorded before the payment or receipt
Deferrals
These are liabilities which are recorded after the payment or receipt.

II. Liquid & Liquidity

Liquid
These are cash on hand or assets which are easily converted into cash.
Liquidity
It means a person or company has enough liquid assets to pay bills on given time.
III. List the component of Inventory Account
 Raw materials
 Work in process
 Finished goods
 Merchandise

IV. Sales & Net Sales

Sales
These are total sale transactions of a company without any deduction.
Net Sales
These are gross sales of a company minus deductions; allowances, discounts and returns.

V. Expense & Expenditure

Expense
It is the cost which incur to earn revenue.
Expenditure
It is the cost which is spent on fixed assets or purchases.
Part – II

Question # 1: A) On February 1, 2019, Mr. Syed Sohaib Ali started the small business enterprise
selling chocolate and flower gift packages, known as The Chocolate Petal. Customers order the
gift packages either by phone or emails and the gift packages are then delivered to them. To begin
the business, he contributed all the funds from his bank account, amounting to PKR. 27,000.
On February 1, 2019, Mr. Syed Sohaib Ali arranged for The Chocolate Petal to rent a vehicle from
M/s. Shahzad Channa Enterprises, a car rental company. The cost of this rental for a six-month
period is up to 7,200, payable in monthly installments and the payment will be released in the
beginning of every month.
Mr. Syed Sohaib Ali has no knowledge of accounting, needs some help and has come to you with
some queries furnished below: -
1. I am interested to close the business account every month
Before closing the business account every month he needs to record incoming cash or the funds
you received during the month. incoming cash includes revenue, loans and invoice payments. And
he should update his accounts payable,look at the fixed assets and organize and review his
fianancial statements.

2. Please explain to me how the payment and its expense for the vehicle rental should be
accounted at the beginning of the month period and at 28th February , 2019.
As the cost of six-month rental car is 7200 payable in monthly installments, so at the end of first
month we have to pay 1200.

3. I am very confused, my contribution of PKR. 27,000 in my business is its greatest assets- surely I
should show it then with all of the other assets on the statement of financial position?
Yes, it is a good step to show his assets on the statement of position by showing it in the income
statement, often called a profit and loss statement, shows a company's financial health over a
specified time period. Whether its has Non-current assets with physical substance are known as
property, plant and equipment or intangible assets to built a good impression about his newly
bussiness.

You are required to

Respond to all of Mr. Syed Sohaib Ali’s quries. Justify your answer in terms of the Accounting
Framework. (5 Marks)

Question # 1: B) You have been asked to maintain the accounting records of a small photographic
enterprise, trading as Nicepix. A summary of transactions that you processed during the current
month appear as follows.
_______________________________________________________________________________
a) Cash Increase

Fee Income Increase

b) Account Receivable Increase

Fee Income Increase

c) Cash Increase

Unearned Fee Income Increase

 d) Cash Increase

Account Receivable Decrease

_______________________________________________________________________________
The owner, who has no knowledge of accounitng, looked at these entries and commented as
follows to you:
 In entry a) you have recorded a receipt of cash and have recognized income. This I can
understand.
 In entry b) you have recognized income but no cash has been received. How is this possible?
 In entry c) you have recorded a receipt of cash but it appears that no income has been
recogizned. What is the unearned income fee?
 In entry d) you have also recorded a receipt of cash but again no income has been recognized.
Why is this so?

You are requried to:

Explain using correct accounting terminology, your accounting treatment for transactions (b), (c)
and (d) (5 Marks)
(a) Revenues are recognized in the period when it is earned when the buyer and seller have
entered into an agreement to transfer assets) revenues are also recognized when they are realized
(payment collected)and realized or record a receipt of when (cash payment has been received or
collection of payment is reasonably assured).
(b) A company records sale even though cash has not been received from customers for goods and
services. Rather, customers purchase on credit. Therefore, it will recognize and record this income
in its statement, regardless of cash receipts. This income is called accrued income.

(c) A company earned money in the form of cash, but not delivered yet. This means that it will
record some of revenue which is earned within accounting period. Rest is recorded as a liability
until delivery is made and converted into revenue according to revenue recognition principle. This
income is called deferred income or unearned income.

(d) Risks and rewards of ownership of goods and services have not been transferred to customers
by company. Therefore, company do not get revenue from them in accounting period. Rather, it
will receive cash from account receivables.

Question # 2: M/s. Mahima Sanjhara Enterprises was formed three years ago. At the start of her
business enterprise the owner, Ms Mahima, purchased a second – hand bike for PKR. 40,000. She
estimated at the time that it would last for six years and that she could sell it at the end of its life
for PKR. 4000. M/s. Mahima Sanjhara Enterprises maintains private and commercial gardens. In
the past, Ms Mahima had judged the performance of the business on the basis of the cash flow, but
as the business has grown, she wants to use the accrual basis of the accounting to establish the
performance of the business.
The following business transactions occurred during the current month:
1. During the month M/s. Mahima Sanjhara Enterprises paid PKR. 3,700 for petrol expenses
2. Wages to employees of PKR. 18,000 were paid during the month
3. M/s. Mahima Sanjhara Enterprises purchased PKR. 14,500 worth of supplies on account during the
month. At the end of the month, Ms. Mahima had PKR. 3000 worth of supplies on hand.
4. On 02nd January, the company paid PKR. 12000 for insurance for the year end 31 st December
5. At the end of the month, the company paid the account received from the accountant for
servicces provided by him for PKR. 6,900
6. Company purchased the builidng for PKR. 15,000 on account

You are requried to:

Determine using your understanding of accrual basis of accounting, the expenses to be included in
the income statement for the month and their exact amounts. (10 Marks)

M/S MAHIMA SANJHARA ENTERPRISES

Income Statement
31 January 2011
PKR PKR
Operating Expenses
Petrol 3,700
Wages 18,000
Supplies on account 14,500
Insurance 12,000
Services 6,900
Building 15,000
Net Loss 70,100

Question # 3 Aquino Pharmacy acquired a delivery truck at a cost of $14,400. estimated life of the
truck is four years. Management of Aquino elects to use the straight line depreciation method for
vehicles. (5 Marks)
a) State the amount of Depreciation Expense for the year.

Depreciation Expense = $14,400 / 4 years

 $3,600

b) Give the adjustment entry for the first month.

Description Dr Cr
Depreciation Expense 292
Accumulated Depreciation 292
Question # 4 Assume that M/s. Nadeem & Co invested in ABCD Corporation’s debt securities on
1st March 2019 for $50,000. The intent was not for trading purposes and the investment was
classified as available-for-sale and later on the company received the interest on 31 st March 2019
from ABCD Corporation for $250. (10 Marks)
What are the journal entries for these transactions?

Date Description Dr Cr
1/3/2019 Available-for-sales 50,000
1/3/2019 Cash 50,000
31/3/2019 Cash 250
31/3/2019 Revenue 250

Question # 5: Assume that M/s. Hamza Corporation purchased the stand having cost of $50,000
and originally had a useful life of 10 years (no residual value). Corporation used the asset for four
years, resulting in accumulated depreciation of $20,000 and a remaining book value of $30,000.
Management now believes the asset will remain useful for an additional 10 years.
Calculate the depreciation expense after the change of useful life of the assets. (5 Marks)

New Annual Depreciation = Asset’s remaining depreciable book value / New useful life

 $30000 / 10 years
 $3,000

Date Description Debit Credit

29 April Depreciation Expense 3000

Accumulated Depreciation 3000

Question # 6: On 1 January 2019 Mr. Vicky Lal was made redundant and received PKR 30,000 in
compensation. He used the cash as follows:
a) Purchased a sports car PKR 19,500.
b) Arranged the redecoration of his house PKR 1,000.
c) Paid off his personal overdraft PKR 3,500.
d) Decided to form a business called Vicky Ventures and, as a first step, opened a business bank
account and paid in PKR. 6,000.

To comply with the entity concept you are required to distinguish between Mr. Vicky Lal’s
personal transactions and the business transactions of Vicky Ventures. (5 Marks)

Business transaction of Vicky Ventures is the exchange of goods and services between his
business and other business entity. Example includes:
 Vicky Ventures opened a business bank account

Business transactions are recorded in financial statements.

Personal transaction of Mr. Vicky Lal involves transaction between his and other entity. Examples
include:
 Mr. Vicky Lal purchased a sports car
 He arranged the redecoration of his house
 He paid off his personal overdraft

Personal transactions are not included in financial reports.

Question # 7: From the following trial balance of Ward’s Consulting dated December 31, 2005, prepare
income statement and balance sheet. (5 Marks)

Ward’s Consulting
Trial Balance
January 31, 2019
Account Debit Credit
Cash $7,000
Accounts Receivable 3,000
Office Supplies 3,000
Office Equipment 5,000
Bank Loan $5,000
Accounts Payable 1,000
Common Stock 10,000
Consulting Revenue 7,000
Rent Expense 600
Salaries Expense 2,500
Supplies Used 1,200
Utilities Expense 700
Total $23,000 $23,000

WARD’S CONSULTING
Statement of Financial Position
31 January 2019
$ $
ASSETS
Non-current Assets
Office Equipment 5,000
Current Assets
Cash 7,000
Accounts Receivable 3,000
Office Supplies 3,000 13,000
Total Assets 18,000

LIABILITIES AND EQUITY

Non-current Liability
Bank Loan 5,000
Current Liability
Accounts Payable 1,000
Equity
Common Stock 10,000
Total Liabilities and Equity 16,000

WARD’S CONSULTING
Statement of Profit and Loss
31 January 2019
$ $
Revenue
Consulting Revenue 7,000
Operating Expenses
Rent 600
Salaries 2,500
Supplies 1,200
Utilities 700 (5,000)
Net Profit 2,000