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Instruction Pleas read question paper carefully before answering the question. Do not copy question on your answer sheet, just mention question number.
PART - 1
Q1A. Choose the correct answer. i. The system of recording transaction based on dual aspect concept is called a) Double accounting system b) Double entry system c) Single entry system ii. Purchase means a) Any commodity purchased b) Purchase of business commodity c) Purchase for resale iii. Merchandise denotes a) Purchase and sales of any commodities b) Beginning and ending inventories c) Purchase for resale, including, purchase return, discount and allowance iv. Account Receivable means a) Sold of old equipment on credit, amount receivable from purchase b) Sold of building on cash on credit, the amount receivable from purchase c) Sold merchandise on credit and amount collectible from customer v. Source of business means a. All liabilities of the business b. Business equities c. Owner equities only (10)
SECTION A: ACCOUNTING
Q1 Define business and describe types of the business? (5) Ans: There are three types of business 1. Manufacturing This type of business denotes the business, which are engaged in producing commodities or engaged in changing the shape of natural gift as sugar industries, cement industries etc. 2. Trading This type of business denotes the business which is engaged purchase and selling of commodities such as radio dealers, motor dealers etc. 3. Services This type of business denote the which is engage in rendering their skill or mechanical services to his customer. i.e. Advocate, Doctor, Engineering firms etc.
Q2 How many types of organization define the advantages and disadvantages of Company? (5) Ans: There are three types of organization Sole Proprietorship (Ownership) This organization owned by one person is known as Sole Proprietorship or Ownership. The owner can manage his business himself or employ someone to assist him. Partnership This organization is owned by two or more than two person and every investor is called partner. The firm itself is called partnership. It can controlled by all partners or by anyone who will act for all, or by an employee(s) Corporation / Company. This type of organization owned by several persons. It comes into existence under the company ordinance. It comes into existence under the Company Ordinance 1984. And the investor are called Share Holders or Stock Holders. Advantages Disadvantages Limited Liabilities High Taxes Depth in the Decision Delay Decision Making Borrowing huge amount easily Q3 Ans: What are the types of Accounts, equations of account and what are the natures of the accounts? (5) There are five types of accounts 1. Assets 2. Liabilities 3. Equity (Capital) 4. Revenue (Sales) 5. Expenses
Debit
Cash Accounts Receivable Allowance for Bed Debts Merchandise Inventories Prepaid Insurance Building Allowance for Depreciation Building Accounts Payables Capital Drawing Sales Sales Return & Allowance Commission Income Cost of Goods Sold Salaries Expenses Rent Expenses Supplies Expenses 30,000 90,000 1,000 60,000 6,000 230,000
Credit
30,000 71,000 250,000 20,000 343,000 3,000 72,000 230,000 50,000 30,000 16,000
Total
766,000
766,000
Data for Adjustment on June 30, 2008 1. Insurance was prepaid to extend of Rs.1,500. 2. The allowance of bad debts was estimated at rate of 3% of the year end Accounts Receivables Balance.
SECTION B: AUDITING
Q1. A) Define Auditing and what are the objects of Auditing? Conventional Banks 1. The functions and operating modes of conventional banks are based on fully manmade principles. 2. The investor is assured of a predetermined rate of interest. Islamic Banks 1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. It also aims at maximizing profit but subject to Shariah restrictions. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat. 5. Participation in partnership business is the fundamental function of the Islamic banks. So we have to understand our customers business very well. (3)
3. It aims at maximizing profit without any restriction. 4. It does not deal with Zakat.
5. Lending money and getting it back with compounding interest is the fundamental function of the conventional banks.
6. It can charge additional money (penalty and 6. The Islamic banks have no provision to charge compounded interest) in case of defaulters. any extra money from the defaulters. Only small amount of compensation and these proceeds is given to charity. Rebates are give for early settlement at the Banks discretion. 7. Very often it results in the banks own interest becoming prominent. It makes no effort to ensure growth with equity. 8. For interest-based commercial banks, borrowing from the money market is relatively easier. 9. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations. 10. The conventional banks give greater emphasis on credit-worthiness of the clients. 11. The status of a conventional bank, in relation to its clients, is that of creditor and debtors. 7. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.
8. For the Islamic banks, it must be based on a Shariah approved underlying transaction.
9. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations. 10. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects. 11. The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller.
12. A conventional bank has to guarantee all its 12. Islamic bank can only guarantee deposits for
Ans: The correctness of the financial statement is called auditing Object of Auditing a) Assisting management is maintaining adequate central controlling by point out week area. b) Giving advice to client on maters of controlling forecasting, analyzing and reporting. B) What are advantages and disadvantage of Auditing? (3) Advantage Disadvantage Management is assisted in preventing and Some sole traders or partnership firm may not detecting fraud and limits the temptation to afford to pay auditors remuneration. perpetrate fraud. Material errors can be detected and management is Clients staff and management may not willing assured regarding accuracy and effectiveness of given or provide information to the auditor. internal control procedures. Management gets the desire information speedily as the books are kept up-to-date and correct Q2. A) a) Analyze g) Footing m) Verify Enlist terms used by auditors during audit? b) Compare c) Confirm d) Count e) Examine h) Inspect i) Inspect j) Reconcile k) Testing n) Voucher o) Vouching (3) f) Extend l) Trace
B) Write Down the types of audit? (3) 1. Continuous Audit 2) Cost Audit 3) Final Audit 4) Government Audit 5) Interim Audit 6) Internal Audit 7) Management Audit 8) Private Audit 9) Operational Audit 10) Special Audit11) Standard Audit etc Q3. A) Define General and Professional qualities of an Auditor? Professional Qualities of Auditor General Qualities of Auditor
Knowledge of accounting and its principals concepts, conventions and standards Knowledge of cost accounting Knowledge of accounting system and techniques of business followed by the enterprise under audit Knowledge of relevant business laws Knowledge of production system, planning and process Knowledge of business mathematics Knowledge of economic factors effecting business
(3)
Auditor should be honest and a man of integrity, exercise due care and skill and do nothing under pressure He/She should be dynamic, tactful, diplomatic and know when to speck and how to write Exercise judgment as regards evidence, audit program, procedure, relevant, irrelevant import and unimportant matter Display high standard of audit performance and high sense of responsibility Work diligently and methodically to accomplished high task. Communicate his message effectively, clearly concisely and precisely. He must possess attractive and pleasing personality
(3)
Duty to make report of financial statement. Duty to report on additional matter Duty to attend general meeting of listed company Duty to assist investigator Duty to certify statutory report Duty to auditor to give report for prospectus
Define the Islamic Banking? (1) Islamic banking (or participant banking) (Arabic: ) is banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics.
Q2. A) Define Branch Banking System and enlist the advantages and disadvantages. (2.5) Branch Banking System Branch Banking is most popular banking system followed in many countries of the world because is conduct large scale business activities in larger area through its various branches Advantage Disadvantage Minimum Risk Delay in making decision Large scale Banking Bureaucratic management Transfer of Funds Inconvenience of local residents Diversification Monopoly Equitable distribution of Fund Lack of business competition Cheap remittance facilities Lack of efficient supervision Safety and liquidity High rate of interest Ability of expansion of business Large competition expenes Earning of Foreign exchange B) Ans 1. 2. 3. 4. 5. 6. 7. 8. List types of the accounts? There are the many types of Bank accounts as follows; Fixed Deposit Account Current Account Saving Bank Account Profit and Loss Account Home saving Account Short Term Deposit Account Call Deposit Account Foreign Currency Account (2.5)
Q3. A) Ans:
Describe the function of Commercial Bank. Explain the difference between the primary and secondary function with diagram
(3)
Depository institution that is relatively unrestricted in its ability to make commercial loan and that is legally permitted to issue checking accounts.
Primary Function
Secondary Function
Receiving Deposit
Advancing Loan
Agency Service
Utility Service
Misc. Services
B) Define Letter of Credit (L.C) and enlist kinds of the LCs. (2) Letter of Credit The bank issue letter of credit to facilitate commercial and non-commercial people in their transaction trade dealing and recreation journey / tours. Kind of LC Commercial Letter of Credit a) Revocable LC b) Irrevocable LC c) Confirmed LC d) Unconfirmed LC etc Personal / Private Letter of Credit a) Travellers LC b) Circular Note c) Traveller Cheque
3. Hibah (gift)
This is a token given voluntarily by a debtor to a debitor in return for a loan. Hibah usually arises in practice when Islamic banks voluntarily pay their customers a 'gift' on savings account balances, representing a portion of the profit made by using those savings account balances in other activities. It is important to note that while it appears similar to interest, and may, in effect, have the same outcome, Hibah is a voluntary payment made (or not made) at the bank's discretion, and cannot be 'guaranteed.'{akin to Dividends earned by Shares, however it is not time bound but is at the bank's discretion) However, the opportunity of receiving high Hibah will draw in customers' savings, providing the bank with capital necessary to create its profits; if the ventures are profitable, then some of those profits may be gifted back to its customers as Hibah. 4. Ijarah Ijarah means lease, rent or wage. Generally, the Ijarah concept refers to selling the benefit of use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipments such as plant, office automation, motor vehicle for a fixed period and price. 5. Takaful (Insurance) Takaful is an alternative form of cover that a Muslim can avail himself against the risk of loss due to misfortunes. Takaful is based on the idea that what is uncertain with respect to an individual may cease to be uncertain with respect to a very large number of similar individuals. Insurance by combining the risks of many people enables each individual to enjoy the advantage provided by the law of large numbers