Financial Accounting
Dec 2025 Examination
Q1. A national retail chain is experiencing rapid growth, opening 50 new stores in a single financial year and launching several promotional campaigns that offer deferred payment options to customers. The finance team is struggling to determine the correct timing for recognizing revenue from sales made under these promotions and matching related expenses, as cash inflows and outflows do not always align with the delivery of goods and services. The CFO is concerned that improper application of accounting principles could distort the company’s reported profitability and mislead stakeholders. Based on the scenario, how should the finance team at a rapidly expanding retail chain apply the accrual and realisation concepts to ensure accurate revenue and expense recognition during a period of aggressive store openings and promotional campaigns? (10 Marks)
Ans 1.
Introduction
The major retail chain’s fast development and promotional methods, such as delayed payment choices, present considerable hurdles to proper financial reporting. Accurate revenue and cost recognition is crucial for maintaining stakeholder confidence and adhering to accounting rules. The finance staff must carefully employ accrual and realisation ideas to match revenues and costs with
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Q2 (A) TechGen Inc., a leading technology company, recently undertook a comprehensive review of its accounting practices for the fiscal year ending December 31, 2023. The company meticulously followed each step of the accounting cycle, from recording transactions in subsidiary books to preparing financial statements, with the goal of improving transparency and regulatory compliance. However, the CFO is concerned about potential gaps in the process that could affect stakeholder trust and is seeking your critical assessment of their current approach. Critically evaluate TechGen Inc.’s approach to ensuring accuracy and transparency in its accounting cycle, particularly in the context of regulatory compliance and stakeholder trust. Considering the multiple stages from transaction recording to financial statement preparation, what improvements or alternative strategies could be justified to further enhance the reliability of its financial reporting? (5 Marks)
Ans 2A.
Introduction
TechGen Inc., a major technological business, has exhibited vigilance in adhering to the accounting cycle for the fiscal year ending December 31, 2023, from recording transactions in subsidiary books to producing financial statements. This methodical adherence demonstrates a strong dedication to truth, openness, and regulatory compliance. However, in today’s complex and highly scrutinised business environment, a rigorous evaluation of this approach is required to guarantee that the financial reporting process effectively protects stakeholder confidence and identifies possible
Q2(B) From the following Trial Balance of Gupta & Sons for the years ended December 31,
2018, Prepare:
Trading Account
Profit & Loss Account
Balance Sheet as on that date
| Name of the Account | Debit Balances | Credit Balances |
| Rs. | Rs. | |
| Capital | 5,00,000 | |
| Sales | 10,00,000 | |
| Sales Returns | 25,000 | |
| Purchases | 5,00,000 | |
| Purchases Returns | 15,000 | |
| Inventory as on 1.1.18 | 60,000 | |
| Land & Buildings | 4,00,000 | |
| Plant & Machinery | 3,00,000 | |
| Furniture | 1,00,000 | |
| Wages | 50,000 | – |
| Carriage Inwards | 10,000 | |
| Provision for Bad Debts | 7,000 | |
| Carriage Outwards | 5,000 | |
| Cartage | 5,000 | |
| Salaries | 40,000 | |
| Loan | 2,60,000 | |
| Debtors | 1,50,000 | |
| Creditors | 70,000 | |
| Rent | 8,000 | |
| Bills Receivable | 40,000 | |
| Acceptances | 10,000 | |
| General Expenses | 20,000 | |
| Rent & Rates | 10,000 | |
| Investments | 50,000 | |
| Cash in hand | 50,000 | |
| Bank Overdraft | 10,000 | |
| Discount | 4,500 | |
| Bad Debts | 5,000 | – |
| Interest on Investments | 5,000 | |
| Interest on Bank Overdraft | 500 |
| Goodwill | 60,000 | |
| Total | 18,85,000 | 18,85,000 |
| Additional Information | ||
|
1. The value of inventory on December 31, 2018 was Rs. |
1,00,000 |
|
| 2. Depreciation is to be provided on: Land & Building @ 5% p.a. Furniture @ 10% p.a. Plant & Machinery Rs. 50,000. | ||
| 3. Provision for Bad Debts is to be maintained @ 5% on debtors. | ||
|
4. Wages are outstanding to the extent of Rs. 4,000 and Salaries to the extent of Rs. 3,000. |
||
| 5. Rent and Rates are prepaid to the extent of 1/4th of the amount paid. | ||
| 6. Interest on Investment
outstanding is Rs. . |
1,000 |
|
| 7. Rent to the extent of Rs. 2,000 has been received in advance. | ||
Ans 2B.
Introduction
Preparing financial statements from a trial balance is a basic accounting activity that teaches how to use accounting concepts such as accrual, matching, and prudence. The Trading Account calculates gross profit by matching direct costs to sales, the Profit & Loss Account computes net profit by accounting for indirect expenditures and earnings, and the Balance Sheet shows the company’s financial status at a given date. Adjustments for depreciation, provisions, outstanding costs, prepaid items, and closing inventories are necessary to ensure that the financial statements accurately represent
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