Financial Accounting DEC 2025
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
In financial accounting, the accuracy of reported profits depends on applying the correct accounting principles that govern recognition of revenues and expenses. For a rapidly expanding national retail chain, complexities arise when promotional campaigns involve deferred payments and when store openings generate significant upfront expenses but revenues accrue over time. If the finance team recognizes income based on cash flows rather than the actual delivery of goods and services, it risks presenting a misleading financial position to investors, regulators, and other stakeholders. In such cases, the accrual concept and the realisation concept become critical. They guide accountants in separating cash movements from performance obligations, ensuring that profitability is measured correctly
Its Sample only
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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
Accurate and transparent accounting is the backbone of financial reporting for any technology-driven corporation like TechGen Inc. The company’s commitment to following the accounting cycle—from recording transactions to preparing financial statements—reflects its aim of ensuring compliance and enhancing trust. However, the CFO’s concerns are valid, as even small gaps in processes such as classification, adjustments, or disclosure may distort the true financial position. To safeguard stakeholder trust, TechGen must not only adhere to
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
Final accounts present the overall performance and financial position of a business by transforming trial balance figures into structured statements. For Gupta & Sons, preparation of the Trading Account, Profit & Loss Account, and Balance Sheet requires applying adjustments such as closing stock, depreciation, provisions, outstanding and prepaid expenses, as well as incomes received in advance. These adjustments ensure compliance with the accrual and matching principles. The following statements show the true profitability for
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