FEDERAL PUBLIC SERVICE COMMISSION
COMPETITIVE EXAMINATION FOR RECRUITMENT TO POSTS
IN BS-17, UNDER THE FEDERAL GOVERNMENT, 2015
ACCOUNTANCY & AUDITING, PAPER-I
TIME ALLOWED: THREE HOURS (PART-I MCQs) Maximum Marks: 20
PART –I (MCQs) Maximum 30 Minutes (PART-II) Maximum Marks: 80
Note: (i) Part-II is to be attempted on the separate Answer Book.
(ii) Attempt ONLY FOUR questions from PART-II. All questions carry EQUAL Marks.
(iii) All the parts (if any) of each Question must be attempted at One Place instead of at different places.
(iv) Candidate must write Q. No. in the Answer Book in accordance with Q. No. in the Q. Paper.
(v) No Page /Space be left blank between the answers. All the blank pages of Answer Book must be crossed.
(vi) Extra attempt of any question or any part of the attempted question will not be considered.
(vii) Use of Calculator is allowed.
PART-II
SECTION-A
Q. No.2 Malcolm’s trial balance as at 30th June, 2012 was follows:-
£ £
Capital account as at 1st July, 2011 29,000
Creditors 21,000
Debtors 22,650
Cost of goods sold 144,000
Drawings 32,100
Sales 243,000
Stock 36,000
Vehicles 21,000
Wages expenses 14,250
Sundry expenses 3,000
Rent expenses 13,000
Insurance expenses 2,000
Cash at bank 4,500 _______ 293,000 293,000
The following information is relevant:
1. Wages payable but unpaid at 30th June, 2012 amounted to £ 750.
2. Rent accrued and unpaid to 30th June, 2012 amounted to £ 3,000.
3. The figure of insurance expenses includes a prepayment at 30th June, 2012 of £ 1,000.
4. The vehicle to be are depreciated at the rate of 25 percent per annum. As the vehicle was purchased at the beginning of the year, no depreciation has yet been charged. A full year’s depreciation is now to be charged.
5. Bad debts of £ 2,650 are to be written off and provision is to be made for doubtful debts to 10 percent of the remaining debtors.
Required: Prepare Malcom’s profit and loss account for the year ended on 30th June, 2012 and his balance sheet as at that date.
Q. 3. Listed below are nine technical terms:
Trend percentage Leverage Inventory turnover
Vertical analysis Yield Operating cycle
Return on assets Quick ratio Book value per share
Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the term.
a. Buying assets with money raised by borrowing or by issuing preferred stock.
b. The proportion of total assets financed by stockholders, as distinguished from creditors.
c. Net asset represented by each share of stock.
d. Changes in financial statement items from a base year to following years expressed as a percentage of the base year amount and designed to show the extent and direction of change.
e. Dividends per share divided by market price per share.
f. Average time period between the purchase of merchandise and the conversion of this merchandise back into cash.
g. Comparison of a particular financial statement item to a total including that item.
h. Net sales divided by average inventory.
i. Comparison of highly liquid current assets (cash, marketable, securities and receivable) with current liabilities.
Q. 4. (a) Discuss the limitations of ratio analysis and why they arise. Do you think that they are so serious as to undermine the validity of this approach to the analysis of financial statements?
(b) Financial statements are prepared to seek the financial position of an organization. How much the above statement is helpful to overcome the financial issues facing by an organization? Justify the above statement with solid reasons.


SECTION-B
Q. 5. Piers, Quick, Right and Squires were in partnership, sharing profits and losses in the ratio 4:3:2:1. They decided to dissolve the partnership on 31st December, 2012 at which date the balance sheet of the partnership was as follow:
£ £ £
Capital accounts
Goodwill 20,000
Piers 60,000 Land and
Quick 30,000 Buildings 110,000
Right 60,000 Stock 20,000
Squires 20,000 170,000 Debtors 40,000
Creditors 30,000 Balance at Bank 10,000
£200,000 £200,000

The assets were realized as follows:
£
5th Jan. Stock 18,000
8th Jan. Debtors (part) 16,000
2nd Feb. Good will 6,000
2nd Feb. Land and buildings (part) 22,000
1st Mar. Land and buildings (balance) 120,000

The partners decided that, as soon as the creditors were paid, any cash received should be immediately distributed to the partners.
All the creditors were paid on 11th January, after deducting cash discounts of £2,000.
On 1st March it was decided that the remaining debts were irrecoverable and that the dissolution should be considered as being completed.
Required: Prepare a schedule setting out the payments that could be made to the partners subject to the provision that there should be no possibility that any of the partners would be called upon to repay cash. Realization expenses should be ignored.
Q. 6. (a) Why should the essential features of internal control be designed into all accounting systems? Justify your answer.
(b) What requirement is imposed by double entry system in the recording of any business transaction?


Q. 7. Acne Plumbing Company’s balance sheet of year 2011:
Assets Rs. Liabilities Rs.
Cash 30,000 Accounts payable 230,000
Accounts receivable 200,000 Accruals 200,000
Inventory 400,000 Bank loan 100,000
Net fixed assets 800,000 Long term debt 300,000
Common stock 100,000
Retained earning 500,000
Total assets 1,430,000 Liabilities and stock 1,430,000
holders equity
Further information: Sales were Rs. 4,000,000/-, Cost of Goods sold were Rs. 3,200,000/- Net Profit was Rs. 300,000/-.
Required:
Compute the following ratios:
Current ratio, Acid test ratio, Average collection period, Inventory turnover, Total debt/equity, Long term debt/Gross profit margin, Net profit margin, Total assets turnover, Return on assets.
Q. 8. Lane Insurance Agency began business on April 1, 2012. Assume that the accounts are closed and financial statements prepared each month. The company occupies rented office space but owns office equipment estimated to have a useful life of 10 years from date of acquisition, April 1. The trial balance for Lane Insurance Company at June 30, 2012, is shown below:
$ $
Cash 1,275
Accounts receivable 605
Office equipment 6,000
Accumulated depreciation: office equipment 100
Accounts payable 1,260
Richard Lane, Capital, May 31, 2012 6,500
Richard Lane, drawing 1,000
Commissions earned 3,710
Advertising expenses 500
Rent expenses 370
Telephone expenses 120
Salaries expenses 1,700
______________________________
11,570 11,570
a. Prepare the adjusting journal entry to record depreciation of the office equipment for the month of June.
b. Prepare an adjusted trial balance at June 30, 2012.
c. Prepare an income statement for the month ended June 30, 2012 and a balance sheet in report form at June 30, 2012. In the owner’s equity section of the balance sheet, show the changes in the owner’s capital account during the period.