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Appendix CA-CPT Solved Scanner (English)

December - 2013 Examination

Paper – 1 : Fundamentals of Accounting

Chapter-1: Accounting: An Introduction

Unit-1: Meaning and Scope of Accounting [1] Accounting has universal application for recording, classifying and summarising

the transactions and events and presenting suitable information for decision making.

Answer : (b)

Unit-2: Accounting Concepts, Principles and Conventions [2] As per the basic accounting equation: Equity + Liabilities = Total Assets Where, net profit is a part of equity, thus. (Owners Equity + Profits) + Liability (if any) = Total Assets (90,000 + 60,000) + Nil = 1,50,000 Answer : (a) [3] If nothing has been written about the fundamental accounting assumptions in

the financial statements, then it is assumed that they have already been followed in the preparation of financial statements. However, if any of the fundamental accounting assumption is not followed then this fact should be specially disclosed.

Answer : (b) [4] Proprietor (owner) is treated as creditor due to entity concept or separate entity

concept. As per this concept the business and owner are two distinct and separate entities and thus all transactions of proprietor with the business should also be recorded.

Answer : (c) [5] Matching principle demands than revenue and the expenses incurred to earn

the revenue should be properly matched. At the end of the year inventory of all the stock is prepared and is valued at cost. The credit to the trading account has the effect of reducing the debit side of trading account to the extent goods remain unsold, these will be sold or used up next year and the cost will

2 CPT Solved Scanner (English) : Appendix

therefore, be properly debited to the next year’s trading account. It justified the principle that as per matching concept if some expenses has been incurred but against it sale will take place in the next year or income will be received next year, then it should be carry forward as asset.

Answer : (d)

Unit-3: Accounting Standards - Concepts, Objectives, Benefits [6] According to consistency concept in order to achieve comparability of the

financial statements of an enterprise through time, the accounting policies, accounting principles are followed consistently from one period to another.

Thus, we can say that consistency with reference to application of accounting principles refer to the accounting methods and procedures used have to be consistently applied from year to year.

Answer : (c)

Chapter-2: Accounting Process

Unit-1: Basic Accounting Procedures - Journal Entries [7] The fixed asset are the long term asset which remain with the business for longer

duration so they sustain good profit for a business. Thus we can say that fixed assets are held by business organization for generating income.

Answer : (b) [8] In the given question, purchase of computer for 60,000 increase fixed asset by

60,000 and subsequently due to down payment of ` 10,000 reduces cash and bank balance by 10,000, the net effect shows increase in asset side with ` 50,000. Similarly there is a corresponding increase in liability side by ` 50,000 in the name of bills payable.

Answer : (a) [9] Profit earned and further capital introduced is added in capital A/c and losses is

less in capital A/c. It will change capital A/c of proprietor. Thus option (D) any of the above is right answer. Answer : (d)

Unit-2: Ledgers [10] Market price = ` 60,000 Less: Purchase price = ` 45,000 Trade discount before discount = ` 15,000 Less: Cash discount = 9,000 Trade discount after cash discount = 6,000

Percentage of Trade Discount = Tradediscountbeforecashdiscount 100

Marketpr ice

CPT Solved Scanner (English) : Appendix 3

= 15,000

60,000 x 100

= 25% Answer : (d)

Unit-3: Trial Balance [11] Since salary paid ` 4,500 is an expense and needs to be debited, which caused

shortfall of debit side by ` 4,500, on the other hand, this amount is wrongly credited i.e. credit side of trial balance is increased by ` 4,500. In total the debit side of trial balance will be short by ` 9,000 (4,500 + 4,500).

Answer : (c) [12] Trial balance enables to check whether the posting and other accounting

processes have been done without arithmetical errors. In other words trial balance is prepared to ascertain the arithmetical accuracy of posting and balancing.

Answer : (c)

Unit-5: Cash Book [13] In a business house, a number of small payments for telegram, taxi fare,

cartage, etc. have to be made. Such small expenses relating to postage and conveyances etc. one paid from petty cash to lessen the burden of main cashier.

Answer : (a)

Unit-6: Capital and Revenue Expenditures and Receipts [14] Amount spent on increasing the seating capacity is a capital expenditure as

this expenditure proposes to increase the capacity which is a long-term benefit for the organisation.

Answer : (a) [15] Amount spent on renewal fee for patent right is a revenue expenditure. Answer : (b)

Unit-8: Rectification of Errors [16] It is a general rule that errors affecting two accounts can be corrected by a

journal entry. In other words, rectification entries are first recorded in Journal proper.

Answer : (c) [17] This is an error of principle when a transaction is recorded in contravention of

accounting principles like wages for installation of machine as normal wages. In this case there is no effect on the trial balance since this amount is pleases on the correct side, though in a wrong account.


Answer : (b)

Chapter-3: Bank Reconciliation Statement [18]

Bank Reconciliation Statement as on ...

Amount

Balance as per pass book Less: (1) Cheque issued yet not presented for

payment (2) Wrongly credited by bank Overdraft as

per cash book

75,800 20,600

65,600 (96,400) (30,800)

Answer : (b) [19] Debit Balance of pass book ` 3,159 can be written as Bank overdraft of ` 3,159.

While credit balance of cash book ` 7,074 is written as Bank balance as on 31.03.2012 is the Balance Sheet.

Answer : (c) [20] A Bank Reconciliation Statement is prepared to know the causes for difference

between, the balance of bank column of the cash book and pass book. Thus, for preparing Bank Reconciliation Statement, the documents statements required are bank column of cash book and bank statement.

Answer : (b)

Chapter-4: Inventories [21] Net realizable value means that value which we have in hand. Thus, we can say that net realizable value is estimated selling price less

cost incurred in order to make the sale. Answer : (c) [22] Calculation of closing stock : Physical stock (on 20 April) = 1,60,000 (+) (Between 01 April to 20 April) (i) Realizable Value of Damaged Goods = 15,000 (ii) Remaining Goods

40,000[15,000 ×4

3] = 20,000

= 1,95,000 Answer : (b) [23] Opening stock is immensely proportional to the gross profit. The overstatement

of opening stock leads to an understatement of gross profit. Thus, when


opening stock is overstated by ` 10,000, the gross profit reduces by ` 10,000. Similarly, closing stock is directly proportional to the gross profit. Its understatement will lead to understatement of gross profit. Thus when closing stock reduces by `15,000, the gross profit also reduces by ` 15,000. As a result, the gross profit reduces by ` 25,000 and the net profit also gets understated by ` 25,000.

Answer : (c)

Chapter-5: Depreciation Accounting [24] Under straight line method of depreciation an equal amount of depreciation is

written off each year whereas in written down value method, depreciation is calculated on WDV of the asset after deducting depreciation. E.g. If the cost of an asset is ` 10,000 and depreciation is calculated at the rate of 10%, the depreciation under both methods will be —

Straight line method Written down value method

Ist Year Ilnd Year IIlrd Year

10,000 (-) 1,000 (10% of 10,000) 9,000 (-) 1,000 8,000 (-) 1,000 7,000

10,000 (-) 1,000 (10% of 10,000) 9,000 (-) 900 (10% of 9,000) 8,100 (-) 810 (10% of 8,100) 7,290

Answer : (c) [25] When the depreciation of the asset is determined by comparing production with

estimated production for example, if depreciation of machine is determined according to its production of products of uniform size, then Production unit method of depreciation is applied

Answer : (d) [26] Obsolescence means the decline in the value of asset due to technological and

market changes i.e. innovations and inventions. Due to this the product although functioning properly, becomes technological outdated. Hence it can be said that a depreciable asset may suffer obsolescence due to technological changes.

Answer : (c) [27] Advantage of Reducing Balance Method is that the total charge to revenue is

uniform when the depreciation is high, repairs and maintenance are negligible, and as the repairs increase the burden of depreciation gets lesser and lesser. So, Reducing Balance Method shall be efficient.

Answer : (b) [28] Above entry stated in Machinery A/c will be shown in journal books as follow:- Profit & Loss A/c Dr. 5,000 To Machinery A/c 5,000


Since, here Profit and Loss A/c is debited it means loss occur and other hand Machinery A/c is credited it means balance of machinery A/c reduced.

Hence, we can say that above entry means loss on sale of machinery transferred to Profit and Loss A/c.

Answer : (d)

Chapter-6: Preparation of Final Accounts of Sole Proprietors [29] Intangible assets are such assets which can not be seen but felt. These include

Goodwill, Patent Rights, Designs and Brand names, etc. This the statement intangible asset is not an asset is false

Answer : (c) [30] Current assets are those assets that are meant to be converted into cash as

quickly as possible. These include stock in trade, sundry debtors, bills receivable, prepayments, advances, bank and cash balance. Thus, accounts receivable and salary paid in advance are current assets.

Answer : (b) [31] Managers commission (10% of Net Profit) = ` 25,000

Net Profit = 25,000

10% = 2,50,000

Sales - Profit = (Direct + Indirect expenses) 3,50,000 (-) 2,50,000 = 1,00,000 Answer : (b) [32] When Prepaid Expenses A/c shows closing balance, it means that expenses

transferred from previous year for accounting in current year. Thus, option (A) is right answer. Answer : (a) [33] “Bill Discounted ` 10,000" is a contingent liability. Since contingent liability is

shown in Balance Sheet as foot note. So, option (A) foot notes to Balance Sheet is right answer. Answer : (a) [34] Since, Goodwill is an Intangible Asset and is shown in the Balance Sheet under

the head of Intangible Asset. So, Goodwill is not shown in ‘Miscellaneous Expenditure’ in assets side of Balance Sheet.

Answer : (d) [35] Selling and distribution expenses comprises of: (i) Salesmen’s salaries and commission (ii) Commission to agents (iii) Advertising (iv) Warehousing expenses


(v) Packing expenses (vi) Freight and carriage on sales (vii) Export duties (viii) Sales tax (ix) Insurance of finished goods (x) Bad debts Thus legal expenses will not be included in selling & distribution expenses. Answer : (c) [36] Provision for depreciation provided is a change against profit, thus is debited to

Profit & Loss Account. Answer : (b)

Chapter-7: Accounting for Special Transactions Unit-1: Consignment [37] Del credere commission is provided to the consignee for protection against bad

debts. After this, bad debts is no more the expense of the consignor. It is provided on total sales.

Commission = 10% of total sales (cash + credit) = 10% of 1,50,000 = 15,000 Answer : (b) [38] Over-riding commission refers to the extra commission allowed by the

consignor to the consignee to promote sales at a higher price than specified or to encourage the consignee to put hard work in introducing the new product in the market.

Answer : (c)

Unit-2: Joint Ventures [39] Under Joint Venture Agreement, co-venturers share the profit in the agreed ratio

and if agreement is silent on this matter, then in an equal ratio. In the given question since, there is no written agreement among the co-venturers, the profit of ` 25,000 will be shared equally between A & B i.e. `12,500 and ` 12,500 to both the co-venturers.

Answer : (c)

[40] Joint Venture A/c

To Karthik: Purchase of goods Commission on Purchase (2,00,000 × 1%) To Dhoni: Commission on Sales

2,00,000

2,000

By Dhoni: (Sales of Goods) 2,50,000


(2,50,000 × 5%) To Profit on Joint Venture

12,500 35,500

2,50,000 2,50,000

Answer : (a) [41] A joint venture is a very short duration business entered into by two or more

persons jointly without the use of firm name for a limited purpose. Hence, it can be concluded the minimum number of co-venture will be at least 2 in joint venture business.

Answer : (a) [42] Joint venture is a kind of a temporary partnership and the co-ventures are

absolute free to decide their respective terms and conditions. Since it is a joint venture, they usually contribute funds for running the venture.

Answer : (d) [43] Net profit of Joint Venture is ` 33,600. Commission on Net Profit 5% after charging such

Commission = 33,600 × 5

105

= ` 1,600 Share of Profit of C and D before Commission = Net profit - Commission = 33,600 - 1,600 = ` 32,000 Share of Profit ` 32,000 is distributed between C and D is 5 : 3

So, therefore C’s share = 32,000 x 5

8 = ` 20,000

and D = 32,000 x 3

8 = ` 12,000

Answer : (b)

Unit-3: Bills of Exchange and Promissory Notes [44] Many a times instances do arise when the acceptor has spare funds much

before the maturity date of the bill of exchange accepted by him. This is known as retiring the bill, i.e. payment of bill before maturity or due date. In such cases, the acceptor gets a certain rebate or interest or discount for premature payment.

Answer : (d)


[45] Amount of discount = Bill amount Rate Bill period (month)

100 12

= 10,000 15 3

100 12

= ` 375 Answer : (c) [46] Holder of a bill of exchange have following option for dealing with : (a) To retain it till the due date (b) Send the bill to Bank for collection (c) Get the bill discounted with a bank (d) Endorsing the bill to a creditor. Thus we can say that option(D) is right answer. Answer : (d)

Unit-4: Sale of Goods on Approval or Return Basis [47] When goods sent to customer on sale or return basis, profit element is included

in invoice price. Thus, on the calculation of closing stock goods will be valued on cost basis. Hence, cost of goods lying with the customer will be (55,000 × 2) = ` 1,10,000. Answer : (a)

Chapter-8: Partnership Unit-2: Treatment of Goodwill in Partnership Accounts [48] Calculation of new Ratio:

Total share of firm = 1, C’s share = th1

7

Remaining share = 1- 1

7 =

6

7

A’s share = 1

2 x

6

7 =

6

14 =

3

7

B’s share = 1

2 x

6

7 =

6

14 =

3

7

Thus, new ratio = 3:3:1 and A and B 3

7 :

3

7

Answer : (b)

Unit-3: Admission of New Partner [49] Goodwill is the value of reputation of a firm in respect of profit expected in future

over and above the normal rate of profit earned by similar firms in the same


locality due to its locational advantage, personal reputation of the partner etc. The necessity for revaluation of goodwill in a firm arises in the following cases:

(i) When the profit sharing ratio is changed. (ii) When a new partner is admitted. (iii) When a partner retires or dies and (iv) When the business is dissolved or sold. Thus, Option (A) Goodwill is right answer. Answer : (a)

Unit-4: Retirement of a Partner [50] Under Ordinary Business Expense Method, the premium is treated is an

ordinary expense and Joint Life Policy does not appear as an asset in the Balance Sheet of the firm.

Answer : (a)

Chapter-9: Company Accounts Unit-1: Introduction to Company Accounts [51] Following are few salient features of a company (i) Incorporated association (ii) Separate legal entity (iii) Perpetual Succession (iv) Distinction between ownership and management. Thus, no separation between management and ownership is not the feature of a company. Answer : (d)

Unit-2: Issue, Forfeiture and Re-Issue of Shares [52] As per Section 79, a company can issue shares at a discount if atleast one year,

must have elapsed since the commencement of the business and shares are of such a class which has already been issued. This is the clear implication of the restriction that it is not possible for a company limited by shares to issue shares at a discount at the time of commencement.

Answer : (b) [53] Discount on issue of share A/c is always credited at the time of forfeiture with

the amount of discount allowed while issuing shares. Share Capital A/c (1,000 × 20) Dr. 20,000 To Share forfeiture A/c (1,000 × 6) 6,000 To Share discount A/c (1,000 × 2) 2,000 To Calls in arrear A/c (1,000 × 12) 12,000 Answer : (c) [54] Shares applied by M = 600 shares


Shares allotted to M = 600 x 5,000

7,500 = 400 Shares

Money sent by him on application (600 × 3) = 1,800 Money utilised on allotment (400 × 3) = 1,200 Amount to be carried forward for adjustment against allotment money from M will be 600 Answer : (c) [55] The share capital of a company is divided into following categories: (i) Authorised share capital (ii) Issued share capital (iii) Called-up share capital (iv) Paid-up share capital (v) Subscribed share capital (vi) Reserve Capital. The un-issued capital i.e. the remaining portion of authorised capital which is

not issued in cash or in consideration is not shown in balance sheet. Answer : (b) [56] As we know that underwriting commission is paid only to the underwriter who

gives the guarantee of taking up those all left shares, hence it will be not paid to directors or promoters of the company, it will be paid only to the underwriters.

Thus option (D) is right answer. Answer : (d)

Unit-3: Redemption of Preference Shares [57] It is the requirement of companies Act, 1956 that no preference shares can be

redeemed unless they are fully paid. So preference shares cannot be redeemed unless they are fully paid up.

Answer : (b)

Unit-4: Issue of Debentures [58] In the Balance Sheet of a company, debentures are shown under the secured

loan on the liability side because they are generally issued by creating charge on the assets of a company as a security.

Answer : (a)

[59] Total interest (1 July - 31 Dec.) = 20,00,000 × 15% × 6

12

= 1,50,000

Total interest upto June 30 = 20,00,000 × 15% × 6

12

= 1,50,000


Total interest accrued by not yet due for the period 1 April - June 30, i.e. 3 months

= 1,50,000 × 3 months

6 months = ` 75,000

Answer : (c) [60] As we know that debentures are issued by company for cash and for

consideration other than cash and to buy its own debentures. So, the above all aspects are correct regarding issuing of debentures.

So, we may conclude that the incorrect aspect of debentures is that cannot be issued in lieu of dividends.

Answer : (d)

Paper – 2 : Mercantile Laws

Chapter-1: The Indian Contract Act, 1872

Unit-1: Nature of Contracts

[1] When two parties exchange identical offers in ignorance at the time of each other’s offer, the offers are called Cross offers. There is not biding contract in such a case, as one’s offer cannot be constructed as acceptance by other.

Answer : (a) [2] General offer is an offer made to the public in general and hence anyone can

accept and do the desired act. So, in the given question, the advertisement for sale of an old flat is published in leading newspaper and anyone can buy that flat. Hence, this kind of offer is general offer.

Answer : (d) [3] Wagering Contract is an agreement involving payment of a sum of money upon

the determination of an uncertain event. The essence of a wager is that each side should stand to win or lose, depending on the way an uncertain event takes place in reference to which the chance is taken and in the occurrence of which neither of the parties has legitimate interest. Hence, we can say that wagering contract is a game of chance.

Answer : (c) [4] When offeree offers to qualified acceptance of the offer subject to modifications

and variations in the terms of original offer, he is said to have made a counter offer. So, in the given question A offers B to supply books @ ` 100 each but B accepts the same with the condition of 10% discount. Hence, we can say that this is a case of counter offer.

Answer : (a)


[5] Completed contracts are also called contracts with executed consideration i.e. the consideration for the promise in a contract is given or executed.

Answer : (b) [6] If entire specified goods is perished before entering into contract of sale, the

contract is void. This contract cannot be enforced by law. Such contract which cannot be enforced becomes void.

Answer : (b) [7] Where a contract is good in substance but because of some technical defect

i.e., absence in writing, barred by limitation etc. one or both the parties cannot sue upon it, it is described as unenforceable Contract.

Answer : (b) [8] When the offeree offers to qualified acceptance of the offer subject to

modification and variations in the terms of original offer, he is said to have made a counter offer. It amounts to rejection of the original offer.

Answer : (a)

Unit-2: Consideration [9] As per the general rule, an agreement without any consideration is void.

However, there are certain exceptions to this rule which are as follows: (i) Agreement based on Natural Love and Affection (ii) Compensation for past voluntary services (iii) Promise to pay time barred debt (iv) Agency (v) Completed gift. In the given statement all are the exceptions of this rule, hence none of the above is not an exception to the rule “no consideration, no contract”. Answer : (d)

Unit-3: Other Essential Elements of a Valid Contract [10] An agreement is void because of unlawful consideration. In the question G paid `

10,000 to H to influence the head of a Government Organisation in order to provide an employment to him. The consideration, being opposed to public policy, is unlawful. Hence, he cannot recover any amount.

Answer : (d) [11] The consent is said to have been obtained by Undue Influence where is the

relations subsisting between the parties are such that one of the parties is in a position to dominate the will of another and uses his position to obtain an unfair advantage of the other.

Answer : (b)


Unit-4: Performance of Contract [12] Rescission is communicated and revoked in the same way as a promise. The

effect is to dispense with further performance and to render the party rescinding liable to restore any benefit he may have received.

Such a contract can be terminated at the option of the party who is empowered to do so. Hence, the case of X and Y is the discharge of contract by Rescission.

Answer : (c) [13] The contract is discharged by merger when an inferior right accruing to a party

under contract mergers into a superior right accruing to the same party under the same or some other contract.

Thus, in the given case the contract is discharged by merger. Answer : (b) [14] When performance of promise become impossible or illegal by occurrence of an

unexpected event i.e. due to the destruction of the subject matter, the contract becomes void. So, in this case also, the contract becomes void.

Answer : (c) [15] If two or more persons have made a joint promise, ordinarily all of them during

their life-time must jointly fulfill the promise. After death of anyone of them, his legal representative jointly with the survivor or survivors should do so.[Sec.42]. After the death of the last survivor the legal representatives of all the original co-promisors must fulfill the promise. So, in the given question, the contract should be performed by A and B along with C’s legal representatives.

Answer : (b)

Unit-5: Breach of Contract [16] The damages awarded by way of punishment are vindictive damages since

these damages may be awarded only in wrongful dishonour by a banker of his customer’s cheque.

Answer : (a)

Unit-6: Contingent and Quasi – Contracts [17] In case of certain contracts, an obligation is imposed by law upon a person for

the benefit of another even in the absence of a contract. Such contracts are known as Quasi contracts. Eg- If necessaries are supplied to a person who is incapable of contracting like minor or a person of unsound mind, the supplier is entitled to claim their price from the property of such a person.

Thus, in the given case, the contract is a Quasi contract. Answer : (c)

Chapter-2: The Sale of Goods Act, 1930


Unit-1: Formation of Contract of Sale [18] As per Section 4(1)of the Sale of Goods Act, 1930, “A contract of sale is a

contract where by the seller transfers or agrees to transfer the property in goods to the buyer for a price”.

Answer : (d) [19] In contract of sale, the subsequent loss or destruction of the goods is the liability

of the buyer even if the goods are lying with the seller. Answer : (a) [20] Under the contract of sale when buyer makes payment, ownership transfers to

him. According to general rule, risk passes with ownership. Since, ownership passes to the ‘P’ so risk also passes to ‘P’. Thus, loss will be borne by ‘P’.

Answer : (b)

Unit-2: Conditions and Warranties [21] “Caveat Emptor” means “let the buyer beware”. There are some exceptions to the doctrine of “Caveat Emptor”. (a) Where the buyer makes known to the seller the particular purpose for which

the goods are required. (b) In case where the goods are purchased under its patent name or brand

name. (c) Where the goods are bought by description from a seller who deals in

goods of that description there is an implied condition that the goods shall be of merchantable quality.

Hence, we can say that the caveat emptor rule applies in none of the above cases.

Answer : (d) [22] A stipulation in a contract of sale with reference to goods, which are the subject

thereof, may be a condition or a warranty. A condition is a stipulation essential to the main purpose of the contract, the breach of which gives right to repudiate the contract and to claim damages. On the other hand, warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.[ Sec. 12 (3) of the Sale of Goods Act,1930].

Answer : (c) [23] Conditions may be either express or implied. They are “express” when the terms

of the contract expressly state them. They are implied when, not being expressly provided for. On other hand, the implied conditions are those which are presumed by law to be present in the contract.

Answer : (c)


[24] According to the Sale of Goods Act,1930, the seller has the right to sell the goods at the time when the property is to pass. If seller’s title turns out to be defective, the buyer must return the goods to the true owner and recover the price from the seller.

Therefore, when a seller sells the goods by infringing the copyright or trademark of the other, there is a breach of an implied condition as to title.

Answer : (a) Unit-3: Transfer of Ownership and Delivery of Goods [25] In case of tender of lesser quantity of goods the buyer may either accept the

same and pay for it at the contract rate or reject it. In case of excess delivery the buyer may accept or reject the delivery, if he accepts the whole of the goods, he shall pay for them at the contract rate. In case the seller makes a delivery of the goods contracted mixed with goods of a different description, the buyer may accept the relevant goods and reject the rest or reject the whole. Hence, we conclude that option i.e. all of the above is the correct answer.

Answer : (d)

Unit-4: Unpaid Seller [26] An auction sale is a mode of selling property by inviting bids publicly and the

property is sold to the highest bidder. Right of general lien cannot be exercised by the auctioneer as he is an agent governed by the law of Agency. When he sell, he is only an agent of the seller.

Answer : (c)

Chapter-3: The Indian Partnership Act, 1932 Unit-1: General Nature of a Partnership [27] In the content of sharing profit of business there must be an agreement to share

profits. But an agreement to share losses is not an essential element. In the given question A & B to divide the profits of a business equally but the loss, if any is to be borne by A alone. Hence, the agreement is lawful.

Answer : (a) [28] Partnership contains the following essential elements- (i) It must be a result of an agreement between two or more persons. (ii) The agreement must be to share the profits of the business. (iii) The business must be carried on by all or any of them acting for all. Hence, option D is correct answer. Answer : (d) [29] A partnership for which no duration is fixed is known as partnership at will. Answer : (b)


[30] A partner who does not take an active part in the conduct of the business of the firm is called as dormant partner and dormant partner is also known as sleeping partner.

Answer : (a) [31] According to partnership, the business must be carried on by all or any of them

acting for all. When a partner carries business by himself, he is in the position of principal and when business is carried by any of them acting for all, he is in the position of agent.

Thus, option(C) is right. Answer : (c) [32] Partnership is formed as a result of an agreement between two or more

persons. However, a partner becoming of unsound mind or a convict undergoing imprisonment results in dissolution of a firm which means that under the Partnership Act, partnership cannot be formed with them.

Thus, partnership can be formed with one Indian and two foreigners. Answer : (a)

Unit-2: Relations of Partners [33] All partners of the firm (whether active or sleeping)is entitled to have access to

any of the books of the firm and to inspect and take out of copy thereof. The right must however, be exercised bonafide. Thus, the action of other partners is not correct since Robert has right of access to books of accounts.

Answer : (a) [34] As per Sec. 19 of Indian Partnership Act, 1932, the acts beyond the Implied

authority of partner of a firm are as follows : (i) Submit a dispute relating to business of the firm . (ii) Open a bank account an behalf of firm in his own name. (iii) Compromise an any claim by the firm against a third party. (iv) Withdraw a suit or proceedings filed on behalf of the firm. (v) Admit any liability in a suit or proceedings against the firm. (vi) Acquire immovable property on behalf of the firm. (vii) Transfer immovable property belonging to the firm. (viii) Enter into partnership on firm’s behalf. Hence, purchase and sell goods in which the firm is dealing is, within the

implied authority of a partner of a firm. Answer : (d) [35] According to the Indian Partnership Act, 1932, the liabilities of the new partner

ordinarily commence from the date when he is admitted as a partner, unless he agrees to be liable for obligations incurred by the firm prior to the date. Thus, it depends upon the terms of the partnership agreement.

Answer : (b)


Unit-3: Registration & Dissolution of a Firm [38] The firm or any other person on its behalf cannot bring an action against the

third party for breach of contract entered into by the firm, unless the firm is registered and the persons suing are or have been shown in the register of firms as partners in the firms. Thus, unregistered firm does not have right to file a suit against third party.

Answer : (a) [46] At the time of winding up of firm, the assets of the firm are first applied to

payment of third parties and then in paying to each partner rateably what is due to him from firm for advances as distinguished from capital i.e. as creditors of the firm.

Answer : (c) [47] Dissolution of a firm may take place by intervention of court in case of- (i) A partner becoming of unsound mind(insanity of partner). (ii) Permanent incapacity of a partner to perform his duties as such. (iii) Misconduct of partner affecting business. (iv) Willful or persistent breaches of agreement of a partner. (v) Transfer or sale of the whole interest of a partner. (vi) Improbability of the business being carried on save at a loss. (vii) The court being satisfied an other equitable reason that the firm should be

dissolved. Hence, on all of the above grounds, partners of a firm individually or together may apply to the court for dissolution of the firm.

Thus, option (D) is right. Answer : (d) [48] An agreement from which relationship of Partnership arises may be expressed.

It may be oral or in writing. An agreement to form a partnership is to be signed by all the partners, the document so formed is called as Partnership Deed.

Answer : (b) [49] The modes of dissolution of a partnership firm provided under the Indian

Partnership Act,1932 is inclusive. Answer : (b)

Paper – 3 : General Economics Chapter-1: Introduction to Micro Economics [1] A capitalistic economy has no central planning authority to decide what, how

and for whom to produce. This economy uses the impersonal forces of the market demand and supply or price mechanism to solve its central problems.

Answer : (a)


[2] Normative aspects is concerned with welfare propositions. It involves value judgements. It is prescriptive in nature and describes ‘what should be the things’. For eg. what should be the level of national income, what should be the wage rate.

Thus Normative economics is the correct option. Answer : (d) [3] Capitalism is an economic system in which all the means of production are

owned and controlled by private individuals for profit. The right of private property means that productive factors such as land, factories, machinery, mines etc are under private ownership. The owners of these factors are free to use them in the manner they like.

Thus option B is correct. Answer : (b) [4] A positive or pure science analyses causes and effect relationship between

variables but it does not pass value judgement. It states what is and not what ought to be

Thus, option A is correct. Answer : (a) [5] A mixed economy is a planned economy in which the government has a clear

and definite economy plan. Socialist economy is also known as centrally planned economy because there is

central authority to set and accomplish socio-economic goals. Thus, correct option is none of the above. Answer : (d) Chapter-2: Theory of Demand and Supply Unit-1: Theory of Demand [6] When a product is demanded consequent on the purchase of a parent product,

its demand is called derived demand. Thus, demand for factor of production like labour etc. for a activity like building

construction is a derived demand. Answer : (b) [7] In case of perfect substitute goods cross elasticity is positive and very high. It

means when the price of the substitute good falls, the demand of the commodity also falls or vice-versa. Eg Tea and Coffee are substitute goods. When the price of tea falls, its demand rises, hence the demand of coffee falls.

Therefore, substitute goods have very high perfect cross elasticity of demand.

Answer : (a) [8] Point elasticity measures elasticity at a given point on a demand curve.


Point elasticity = Lowersegment

Uppersegment

Y

X

U

L0

e =

e > 1

M e = 1

e < 1

e = 0

P

Q

Elasticity between mid point and upper extreme point of a straight line = > 1 Answer : (c) [9] Price Elasticity of demand

= changeinquantity

originalquantity × original price

change in price

= 25000

125000× 100

25

Ep = 0.8 Thus, option B is correct Answer : (b) [10] Coefficient of price elasticity of demand

= change in Quantity

original Quantity× original price

change in price

= 5 1 0

2 5 2= -1.00

Thus, option B is correct. Answer : (b)

Unit-2: Theory of Consumer Behaviour [11] An indifference curve is a curve which represents all those combinations of

goods which provides equal amount of satisfaction to the consumer and

L P 3=

U P 1


consumer is indifferent among combinations on the same indifference curve. Thus, he will prefer the combination on the higher indifference curve because it signifies a higher level of satisfaction. Hence, a higher indifference curve shows a higher level of satisfaction.

Answer : (a) [12] Marginal utility analysis states when there is an increase in the given stock of a

thing, the additional benefit derived by a person diminishes with every increase in the stock he already has. There are three important relation between Total Utility and Marginal Utility—

(1) When the total utility rises the marginal utility diminishes. (2) When total utility is maximum, marginal utility is zero. (3) When total utility diminishes, marginal utility is negative.

TU

MUConsumption

X

Y

Thus, when total utility increases at a diminishing rate, marginal utility is

diminishing. Answer : (b) [13] In case of complimentary goods like pen and ink, increase in consumption of

one commodity will lead to increase in consumption of other commodity also. Hence, the shape of the indifference curve will be right angled because the movement along the x-axis will have an equal movement on y-axis giving it a right angled shape.


Y

X

Thus option C is correct Answer : (c) [14] The concept of consumer’s surplus is derived from the law of diminishing

marginal utility. According to this concept as the consumer consumes more and more of a commodity, the utility derived from every additional goes on diminishing.

Thus, option A is correct. Answer : (a) [15] A budget line shows all those combinations of two goods which the consumer

can buy spending his given money income on the two goods at their given prices.

Y

X

Good y

Price line

0 Good x


Thus, price line joins the two axis Answer : (c) Chapter-3: Theory of Production and Cost Unit-1: Theory of Production [16] The concept of innovative Entrepreneurship was propounded by Schumpeter. Answer : (b) [17] Production function states the relationship between inputs and output i.e. the

maximum amount of output that can be produced with given quantities of inputs under a given state of technical knowledge.

Thus, production function is purely a technical relationship between input & output.

Answer : (a) [18] Long Run refers to the time period when all the factors change and no factor is

fixed, when all inputs are changed in the same proportion, it leads to a change in scale. Therefore, returns to scale occurs in the long run.

Thus, option C is correct. Answer : (c) [19] Cobb-Douglas Production function applies not to an individual firm but to the

whole of manufacturing. In this case, output is manufacturing production and inputs used are labour and capital.

Answer : (b)

Unit-2: Theory of Cost [20] Average fixed cost never touches any axis but it slopes downward, Average

fixed cost can never be zero even if there is no production so it can never touch any axis. AFC falls when output increases as fixed cost is always fixed.

Thus option D is correct. Answer : (d)

Chapter-4: Market Unit-1: Market [21] S.P of 50 units = ` 3000 S.P of 52 units = ` 3100 S.P of additional 2 units = ` 100 & marginal revenue of 1 unit.

= 100

2= ` 50.

Thus, option B is correct. Answer : (b) Unit-3: Price and Output Determination


[21] In a perfectly competitive market, if MR is greater than MC, there is always an incentive for the firm to expand its production further and gain by sale additional units.

Thus, the firm should increase its production if MR is greater than MC. Answer : (a) [22] In oligopolistic industries prices remain sticky or inflexible for a long time. They

tend to change infrequently even if in the face of declining cost. These inflexibilities lead to kink shape of the demand curve.

Therefore, oligopolistic markets have kinked demand curve.

OUTPUT

PRICE

Y

X

d

p

D

Thus, option A is correct. Answer : (a) [23] Long run is a period long enough to allow the monopolist to adjust his plant size

or use his existing plant at any level that maximizes his profit. In the absence of competition the monopolist need not produce at the optimum level.

Therefore, the monopolist will not continue if he makes losses in the long run. He will continue to make super normal profits abnormal even in the long run

as entry of outside firm is blocked. Thus, option B is correct. Answer : (b) [24] In a monopolistic competitive market since the product is differentiated between

firms, each firm does not faces a perfectly elastic demand for its product. Each firm is a price maker and is in a position to determine price of its own product.

Thus, under monopolistic competition firm has considerable control over its price.

Answer : (b) Chapter-5: Indian Economy: A Profile Unit-1: Indian Economy


[25] The distribution of Income and Wealth in India is not equitable. In order to measure the inequality of income and wealth Gini Index is used. It measures the extent to which distribution of income/consumption among individuals or household deviates from a perfectly equal distribution. If Gini Index of zero represents perfect equality while an Index of one represents perfectly inequality. The coefficient lies between 0 and 1.

Thus option (A) Gini Index is correct. Answer : (a)

Unit-2: Role of Different Sectors [26] At the time independence, there, were three types of land tenure system

prevailing in India as follows:- (a) Zamindari system. (b) Ryotwari system. (c) Mahalwari system. Thus, the correct option is (d) all of the above. Answer : (d) [27] Although larger part of population comes from agriculture sector but largest

contribution to GDP comes from service sector. The share of service sector has increased from about one-third of GDP to more than half in 2007-08. In 2007-08, its share in the GDP was more than 57%.

Thus option D is correct. Answer : (d) [28] In India, CSO i.e. Central Statistical Organisation is responsible for collecting

and presenting statistics. Answer : (b)

Unit-3: National Income [29] National Income is NNPFC i.e. Net National Product at factor cost. NNPMP - Net Indirect-Tax = NNPFC or National Income Net Indirect-Tax = Taxes-Subsidies. Thus, option B is correct. Answer : (b) [30] There are three methods of measuring national income — (i) Value Added Method/Product Method (ii) Income Method (iii) Expenditure Method Thus, Value Added Method is a method of measuring national income. Answer : (a)


[31] Product Method of calculating National Income is also called value added method or Net value added method.

Answer : (b)

Unit-4: Tax System [32] Direct Taxes are imposed according to the ability of the person to pay. The

revenue is income elastic, because of the progressive character revenue will increase faster than the increase in income.

Thus, option A is correct. Answer : (a)

Chapter-6: Aspects of Indian Economy Unit-5: Inflation [33] When price increases due to growing factor prices it is cost push inflation. Answer : (d) [34] When more money chases relatively less quantity of goods and services the

excess of demand relative to supply pushes up the prices of goods and services, such inflation as a result of increased money expenditure is called demand pull inflation. Thus, option C is correct.

Answer: (c)

Chapter -7: Economic Reforms in India Unit-1: Economic Reforms in India [35] Fiscal deficit can be reduced by following ways: (i) Improving tax administration to raise large revenues (ii) Reducing Subsidies (iii) Downsizing of government (iv) Bolder privatisation (v) Re-prioritise plan schemes Thus, re-prioritise plan scheme is the correct answer. Answer: (d) [36] An important component of the Industrial Policy 1991 is the encouragement of

direct foreign investment and technology. Till the adoption of New Economic Policy in 1990-91, India did not favour direct foreign investment and put several hurdles in its path.

Answer: (d) [37] Policy relating to income of government like from taxes, from various financial

institutions etc. and the government’s expenditure on developmental projects, non-development projects etc. is known as fiscal policy.

Thus, fiscal policy is policy relating to income and expenditure of government.

Answer: (b)


Unit-2: Liberalisation, Privatisation and Disinvestment [38] Disinvestment means disposal of public sector’s units equity in the market or

selling of a public investment to a private entrepreneur. Thus, term disinvestment is used where CG/SG off load its holding public

sector companies. Answer: (c) [39] Under strategic sale method the government sells a major portion of its stake to

a strategic buyer and also gives over the management control. Under this disinvestment price would be market based and not prefixed. Answer: (d)

Unit-3: Globlisation [40] Convertibility of Rupee allows to determine the currency its own exchange rate

in the international market without any official intervention. Current account convertibility means freedom to buy or sell foreign exchange for the following transactions:-

(1) all payments due in connections with foreign trade. (2) payment due as interest on loans and as net income from banking and

credit facility. (3) payments of moderate amount of amortisation of loans or for

depreciation of direct investments. (4) Moderate remittances for family living expenses. Thus option (a) allow it to

determine its own exchange rate in international market is correct. Answer: (a) [41] Globalisation means integrating the domestic economy with the world economy. • Globalisation help to restructure the production and trade pattern in a

capital scarce. • It attracts foreign capital and updated technology also enters in the

country. • As the foreign capital enters the competition begins which helps in

removal of import tarrif barriers. • It is believed that the main effect of integration will be felt in the

industrial and related sectors. • It is also believed that the efficiency of banking and financial sectors

will improve. Thus, option B is correct. Answer: (b) [42] In International market, the firms carry out price discrimination with the following

objectives — (i) to capture foreign markets


(ii) to dispose off their surplus stocks (iii) to earn maximum profits. Thus, answer is all of the above. Answer: (d)

Chapter -8: Money and Banking Unit-2: Commercial Banks [43] Land Development Banks provide loans for a period of fifteen to twenty years. Answer: (d) [44] Increasing advances and loans to unemployed and weaker sections, the

commercial banks are facing the problem of bad-debts, doubtful debts and over dues. Therefore, bad and doubtful debts of scheduled commercial banks called non-performing assets.

Answer: (a)

Unit-3: Reserve Bank of India (RBI) [45] Statutory Liquidity Ratio (SLR) refers to that portion of total deposits which a

commercial bank keeps with itself in the form of liquid assets like cash, gold or approved government securities. Thus, SLR is the correct answer.

Answer: (b) [46] Qualitative or selective measures are generally meant to regulate credit for

specific purposes. Central bank use the following forms:- (a) Securing loan regulation by fixing of margin requirements. (b) Consumer credit regulations. (c) Issues of directives. (d) Rationing of credit. (e) Moral suasion. (f) Direct action. Thus, regulation of consumer credit is the correct option. Answer: (d) [47] Bank rate is the rate at which the Central Bank discounts the bills of commercial

banks. When the central bank wishes to control credit and inflation in the economy it raises the bank rate. On the other hand, if the Central Bank wishes to boost production and investment activities in the economy it will decrease the bank rate.

Answer: (a) [48] In order to control credit RBI uses two types of instrument i.e.

Quantitative Qualitative


1. Bank Rate Policy Consumer Credit Regulation 2. Open Market Operation Issue of directives 3. Variable Reserve Ratio Rationing of credit 4. Repo Rate & Reverse Rate Moral suasion

Thus, cash deposit ratio is not a measure taken by RBI to control credit in India.

Answer: (a)

Documents

Appendix - NIOS Gorakhpurcompanion.sauda.com/pdf/ca/cpt/Appendix/Appendix CA CPT Solved... · Appendix CA-CPT Solved Scanner ... Capital and Revenue Expenditures and Receipts