KSLU Solved Question Papers
Financial Accounting
Previous Year Question Paper with Solution
B.Com. LL.B. (Five Years) · Sem 1
2025 Jan (100 marks) Examination
munotes.in
Mumbai
B.Com. LL.B. (Five Years) Sem 1 Financial Accounting 2025 Jan (100 marks) Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2025 Jan (100 marks) examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2025 Jan (100 marks) examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
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Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1What is double entry system of book keeping ? Explain its advantages and limitations.[16]
Answer
For full marks, cover: the meaning of the double entry system and its principle (every debit has an equal credit); its features; the rules of debit and credit by which it works; how it leads to the trial balance and the final accounts; its advantages, each explained; its limitations, each explained; and a conclusion on why it remains the accepted system.
Meaning of the double entry system
The double entry system is the method of recording transactions in which both aspects of every transaction are recorded. Every transaction involves a giving and a receiving. One account is debited with the value received and another account is credited with the value given, with the same amount.
Example. A trader buys machinery for ₹ 25,000 in cash. The business receives machinery and gives cash. So Machinery account is debited with ₹ 25,000 and Cash account is credited with ₹ 25,000.
Because each transaction is recorded twice, on opposite sides, the total of all debits in the books always equals the total of all credits. This equality is the foundation of the accounting equation:
Assets = Capital + Liabilities.
Principle behind it
The principle is the dual aspect concept: for every debit there is an equal and opposite credit. It does not matter how simple or complex the transaction is. A compound entry may debit two accounts and credit three, but the total debited must equal the total credited.
Features of the double entry system
- Two aspects of every transaction. At least two accounts are affected.
- Debit and credit. One aspect is debited and the other credited.
- Equal amounts. The debit and the credit are of the same amount.
- All kinds of accounts. Personal, real and nominal accounts are all maintained.
- Arithmetical check. The trial balance tests whether debits equal credits.
- Complete record. Both the profit and the financial position can be found from the books.
- Universal use. It applies to every kind and size of business, and it is the basis of all accounting software.
Rules by which it works
Under the traditional approach the rules are:
| Kind of account | Debit | Credit |
|---|---|---|
| Personal | The receiver | The giver |
| Real | What comes in | What goes out |
| Nominal | Expenses and losses | Incomes and gains |
Under the modern approach, assets and expenses increase by a debit, and liabilities, capital and incomes increase by a credit. Both approaches give the same entries.
How double entry leads to the final accounts
- Transactions are recorded in the journal or the subsidiary books, each with its debit and credit.
- They are posted to the ledger, where every account collects its debits and credits.
- The accounts are balanced, and the balances are listed in the trial balance. Since every debit had an equal credit, the trial balance agrees.
- The nominal accounts are closed to the trading and profit and loss account, which gives the profit or loss.
- The personal and real accounts remain and form the balance sheet, which agrees because of the same equality.
Advantages of the double entry system
- Complete and scientific record. Every transaction is recorded in full, with both its aspects. Nothing is left half-recorded, as it is under single entry.
- Arithmetical accuracy can be tested. Because total debits must equal total credits, a trial balance can be prepared. If it agrees, the books are arithmetically correct. If it does not, an error exists and can be traced.
- Profit or loss can be found exactly. The nominal accounts give all incomes and expenses. The trading and profit and loss account shows the gross profit, the net profit and how each figure was reached.
- Financial position can be shown. The real and personal accounts give the assets and liabilities, so a true balance sheet can be drawn up on any date.
- Detection of errors and fraud. Each figure appears twice and must match. A theft of cash or a false entry is more likely to be noticed, because the second record will not fit.
- Accounts of debtors and creditors. The personal accounts show at once how much each customer owes and how much is owed to each supplier.
- Comparison and control. Expenses and incomes can be compared with those of earlier years. Rising costs are noticed and controlled.
- Help to management. Detailed figures support decisions on pricing, purchasing, expansion and cost control.
- Legal acceptance. Section 128 of the Companies Act, 2013 requires every company to keep its books "on accrual basis and according to the double entry system of accounting". Tax authorities, banks and courts accept such books as reliable evidence.
- Basis for audit. An auditor can test the books because every entry has a matching entry and a voucher.
- Valuation of the business. On a sale, amalgamation or change in partners, the complete records help to value the business fairly.
- Basis for computerised accounting. All accounting software uses the double entry principle, so the system is the base of modern accounting.
Limitations of the double entry system
- Costly and laborious. Many books and accounts must be kept, and each transaction is recorded twice. This needs more staff and time, and so more money.
- Needs trained staff. The rules of debit and credit must be understood. A clerk without training may make wrong entries.
- Not suited to very small businesses. A street vendor or a small shopkeeper with a handful of transactions may find the system too elaborate for his needs.
- Agreement of the trial balance is not proof of accuracy. Several errors do not affect the agreement:
- errors of omission, where a transaction is left out entirely;
- errors of commission, where an amount goes to the wrong account of the same kind;
- errors of principle, where a capital item is treated as revenue or the other way round;
- compensating errors, where one error cancels another;
- errors of original entry, where a wrong amount is entered in the book of original entry.
- Depends on honest recording. If a transaction is deliberately left out or invented on both sides, the books still balance. The system cannot detect such fraud by itself. For example, a clerk records a false purchase of ₹ 10,000 from a friend, debiting purchases and crediting the friend. The trial balance still agrees. Only an audit of the vouchers will expose it.
- Estimates remain. Depreciation, provisions and stock values are matters of judgment. Double entry records them faithfully but cannot make them accurate.
- Money values only. Like all accounting, it records only what can be measured in money.
Advantages and limitations at a glance
| Advantages | Limitations |
|---|---|
| Complete, scientific record | Costly and laborious |
| Trial balance tests accuracy | Needs trained staff |
| Exact profit and true position | Too elaborate for very small traders |
| Errors and fraud easier to detect | Some errors do not upset the trial balance |
| Debtors and creditors known | Cannot stop deliberate two-sided fraud |
| Comparison, control and decisions | Estimates still needed |
| Advantages | Limitations |
|---|---|
| Accepted by law, banks and tax authorities | Records money values only |
| Basis of audit and of accounting software |
Double entry and single entry compared
| Point | Double entry | Single entry |
|---|---|---|
| Aspects recorded | Both, for every transaction | One, or none, for many transactions |
| Accounts kept | Personal, real and nominal | Mostly cash and personal accounts |
| Trial balance | Possible | Not possible |
| Profit | Found exactly | Estimated from changes in capital |
| Legal acceptance | Required for companies | Not accepted for companies |
The comparison shows that most limitations of double entry are the price of its completeness. Single entry is cheaper only because it leaves out the very records that make the profit and the position reliable.
Conclusion. The double entry system records both aspects of every transaction. It debits one account and credits another with the same amount, so that total debits always equal total credits. It gives a complete record, a trial balance, an exact profit and a true balance sheet. It helps detect errors and fraud and gives full accounts of debtors and creditors. It is required for companies by section 128 of the Companies Act, 2013. Its limitations are cost, the need for skill and its unsuitability for the smallest traders. Several kinds of error and deliberate fraud also escape the trial balance. The advantages far outweigh the limitations, which is why the system is used by every organised business today.
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