Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Paper 5 – Financial Accounting

Q. 1. Choose Questions:
(i) The accounting measurement that is not consistent with the Going Concern concept is
(a) Historical Cost
(b) Realization
(c) The Transaction Approach
(d) Liquidation Value
(ii) The beginnings inventory of the current year is overstated by ` 5,000 and closing
inventory is overstated by ` 12,000.
These errors will cause the net income for the current year by
(a) ` 17,000 (overstated)
(b) ` 12,000 (understated)
(c) ` 7,000 (overstated)
(d) ` 7,000 (understated)
(iii) Depreciation is a process of
(a) Valuation
(b) Valuation and allocation
(c) Allocation
(d) Appropriation
(iv) X Ltd., purchased goods for ` 5 lakh and sold 9/10th of the value of goods for ` 6 lakh. Net
expenses during the year were ` 25, 000. The company reported its net profit as ` 75,000.
Which of the following concept is violated by the company?
(a) Realization
(b) Conservation
(c) Matching
(d) Accrual
(v) Payment received from Debtor
(a) Decreases the Total Assets
(b) Increases the Total Assets
(c) Results in no change in the Total Assets
(d) Increases the Total Liabilities

Answer 1.
(i) — (d) Liquidation Value
[Hints: Liquidation value is the value of the business when the business is wound up
and is under liquidation whereas the going concern concept assumes that the
business will continue over a long time and therefore the accounting measurement
“Liquidation Value” is inconsistent with going concern concept.]
(ii) — (c) ` 7,000 (overstated)
[Hints: Overstatement of closing stock results in overstatement of profit and
overstatement of opening stock results in understatement of profit. In the instant
case, there will be overstatement of profit by ` 12,000 - ` 5,000= ` 7,000.]

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(iii) — (c) Allocation

[Hints: AS-6 on depreciation accounting defines ‘depreciation’ as the measure of
wearing out, consumption or other loss of a value of a depreciable asset arising from
use, effluxion of time or obsolescence through technology and market changes.
Depreciation is allocated so as to charge a fair proportion of the depreciable
amount in each accounting period during the expected useful life of the asset.
Depreciation includes amortization of assets whose useful life is predetermined.]
(iv) — (c) Matching
[Hints: Matching concept requires the expenses must relate to the goods and
services sold during that period to arrive at the net profits of the enterprise. Hence
matching concept requires the recognition of revenue and expenses on a
comparable basis. In the above question that amount of ` 75,000 as net profit was
arrived at by deducting ` 5,00,000 ( being cost of purchases ) + ` 25,000 expenses
from the sale proceeds of ` 6,00,000. This does not follow matching concept since
the cost of goods sold is to be deducted and not the cost of purchases, since some
purchases have been left in stock. So the net profit using matching concept is `
6,00,000 less cost of goods ` 4,50,000 (i.e. ` 5,00,000 x 9/10) less expenses of ` 25,000
= ` 1,25,000]
(v) — (c) Results in no change in the Total Assets
[Hints: Payments received from debtors results in decrease of debtors and increase
in cash. It does not result in any change in the total assets as decrease in one asset is
compensated by increase in the other asset.]

Q. 2. How will you translate the following items of Singapore Branch for the year 2012-13 :
Fixed Assets as on 31.3.2013 $ 70,000, Balance of Loan (taken to purchase the fixed Assets)
on 31.3.2013 $ 52,000, Depreciation as on 31.3.2013 $ 10,000, Interest paid during
2013 $ 11,520.
Fixed Assets having useful life of 10 years were purchased for $ 1,00,000 on 1.4.2010 after
taking a loan of $ 88,000 @ 18% interest p.a. Annual loan installment of $ 12,000 and
interest were paid on 31st March each year. Exchange Rate 1.4.2010 $ 1 = ` 25.50,
Average of 2010-11 $ 1 = 25.70, 31.3.2011 $ 1 = ` 26.10, Average of 2011-12 $ 1 = ` 26.20,
31.3.2012, $ 1 = ` 26.40, Average of 2012-13 $ 1 = ` 36.50, 31.3.2013, $ 1 = ` 42.20.

Answer 2.
Statement showing the Translation of Fixed Assets and Depreciation

Particulars 2010-11 2011-12 2012-13

` ` `
A Book Value in the beginning of the year 25,50,000 23,42,520 21,02,507

B Add : Adjustment for increase in Foreign Currency liabilities 52,800 22,800 10,11,200

[Amount of outstanding Loan × (Closing Rate – Opening 26,02,800 23,65,320 31,13,707

Rate)]
2,60,280 2,62,813 3,89,214

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C Adjusted Book Value of Fixed Assets (A+B) 23,42,520 21,02,507 27,24,493

D Less : Depreciation on Adjusted Book Value

(Adjusted Book Value/Remaining Useful life)

E Adjusted Book Value of Fixed Assets at the end (C–D)

Statement showing the Translation of Long-term Loan and Interest
Particulars 2010-11 2011-12 2012-13
A Outstanding Long-term Loan in the beginning of the $ 88,000 $ 76,000 $ 64,000
year (in foreign currency)
B Less : Principal portion of the installment paid (in
foreign currency)
$ 12,000 $ 12,000 $ 12,000
C Outstanding Long-term Loan at the end of the year (in
foreign currency) [A–B]
D Outstanding Long-term Loan at the end of the year (in ` 19,83,600 ` 16,89,600 ` 21,94,400
$ 76,000 $ 64,000 $ 52,000
Indian Rupees)
[O/s Long-term Loan (in foreign currency)×Closing Rate]
E Interest on outstanding Long-term Loan in the beginning
(in foreign currency)
[O/s Long-term Loan (in foreign currency) × 18%] $ 15,840 $ 13,680 $ 11,520
F Interest on outstanding Long-term Loan in the beginning
(in Indian Rupees)
[Interest in foreign currency × Average Rate]

Q. 3. Trans Co. records transactions relating to its hire purchase` business

4,07,088 on` Stock & Debtors
3,58,416 ` 4,20,480
System, It sold to Rasheed a Handicam (Cost ` 27,000) for which Rasheed was
required to pay in all ` 36,000 in the form of 12 monthly installments of ` 3,000 each.
Rasheed paid four instalments in time but thereafter stopped paying installments.
Trans Co. after the seventh instalment, had also become due (but before the eight
installment had fallden due) repossessed the tape recorder. Trans Co. spent ` 6,000 on
reconditioning of the tape recorder and sold the same for ` 30,000.
Required : Give the necessary journal entries relating to Goods repossessed and prepare
the Goods Repossessed Account.
Case (a) If the repossessed tape recorder was valued at ` 19,500.
Case (b) If no other information is given.

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Answer 3.
Case (a)
Journal

Particulars Dr. (`) Cr. (`)

Goods Repossessed A/c Dr. 24,000
To Hire Purchase Stock A/c 15,000
To HIre Purchase Debtors A/c 9,000
(Being 5 instalments not yet due credited to H.P. Stock A/c,
3 instalments due but not paid, credited to Hire Purchase Debtors A/c)

Hire Purchase Adjustment A/c Dr. 4,500

To Goods Repossessed A/c 4,500
Being the repossessed goods valued at ` 19,500 and thus,
the difference (i.e. ` 19,500 – ` 24,000) being debited to
Hire Purchase Adjustment Account)

Goods Repossessed A/c Dr. 6,000

6,000
To Bank A/c
(Being the reconditioning charges paid)

30,000
Bank A/c Dr.
30,000
To Goods Repossessed A/c
(Being the repossessed goods sold)

4,500
Goods Repossessed A/c Dr.
4,500
To Hire Purchase Adjustment A/c
(Being the profit on sale of repossessed goods transferred)

Dr. Goods Repossessed Account Cr.

Particulars ` Particulars `
To Hire Purchase Stock A/c 15,000 By Hire Purchase Adjustment A/c 4,500
To Hire Purchased Debtors A/c 9,000 By Balance c/d 19,50
24,000 24,000
0
To Balance b/d 19,500 30,000
To Bank A/c (Expenses) 6,000 By Bank A/c (Sale proceeds)
To Hire Purchase Adjustment A/c 4,500

30,000 30,000

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Case (b)

Journal

Particulars Dr. (`) Cr. (`)

Goods Repossessed A/c Dr. 24,000
To Hire Purchase Stock A/c 15,000
To Hire Purchase Debtors A/c 9,000
(Being 5 instalments not yet due credited to H.P. Stock A/c, 3
instalments due but not paid, credited to Hire Purchase Debtors A/c)
Hire Purchase Adjustment A/c Dr. 6,000
To Goods Repossessed A/c 6,000
(Being the repossessed goods valued at theoretical cost of
` 6,000 and thus, the difference (i.e. ` 18,000 – ` 24,000)
being debited to Hire Purchase Adjustment Account) [Refer Note]
Goods Repossessed A/c Dr. 6,000
To Bank A/c 6,000
(Being the reconditioning charges paid)
Bank A/c Dr. 30,000
To Goods Repossessed A/c 30,000
(Being the repossessed goods sold)
Goods Repossessed A/c Dr. 6,000
To Hire Purchased Adjustment A/c 6,000
(Being the profit on sale of repossessed goods t/f)
Working Note: Calculation of the Value of goods repossessed
Value of goods reposessed = ` [27,000 /36,000] × Unpaid amount (whether due or not)
= ` [27,000 /36,000] × ` 24,000 = ` 18,000
Dr. Goods Repossessed Account Cr.

Particulars ` Particulars `
To Hire Purchase Stock A/c 15,00 By Hire Purchse Adjustment A/c 6,000
To Hire Purchased Debtors A/c 0 By Balance c/d 18,00
24,000
9,000 24,000
0
18,00 30,000
To Balance b/d 0 By Bank A/c (Sale proceeds)
To Bank A/c (Expenses) 6,000
To Hire Purchase Adjustment A/c 6,000

30,000 30,000

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Q. 4. (a) M/s. Hot and Cold commenced business on 01.07.2007. When they purchased a new
machinery at a cost of ` 8,00,000. On 01.01.2009 they purchased another machinery for
` 6,00,000 and again on 01.10.2011 machinery costing ` 15,00,000 was purchased. They
adopted a method of charging depreciation @ 20% p.a. on diminishing balance basis.
On 01.07.2011, they changed the method of providing depreciation and adopted the
method of writing off the Machinery Account at 15% p.a. under straight line method with
retrospective effect from 01.07.2007, the adjustment being made in the accounts for the
year ended 30.06.2012.
The depreciation has been charged on time basis. You are required to calculate the
difference in depreciation to be adjusted in the Machinery on 01.07.2011, and show the
Machinery Account for the year ended 30.06.2012.
(b) X Ltd. presented the following particular as on 31.3.2012: Compute the value of stock as
on 31.3.2012.
The total cost of product:

Cost per unit

`
Cost of materials (` 12 each)
50
Manufacturing inputs
30
Total Cost
Profit 80
Selling Price 20

100

On 31.3.2012, selling price has gone down suddenly from ` 100 to ` 70. Price of raw
material has also gone down to ` 8 each. X Ltd. had in its stock 6,000, units of materials
which was bought as per the above rate on the same date.
Answer 4. (a)
In the books of M/s Hot and Cold
Dr. Machinery Account Cr.

Date Particulars Amount Date Particulars Amount

` `

01.07.11 To, Balance b/d 6,73,280 30.6.12 By Depreciation A/c 3,78,750

To, Profit and Loss A/c 21,720 By Balance c/d 18,16,250

(Depreciation Overcharged)

01.10.11 To, Bank A/c 15,00,000

(Purchase)

21,95,000 21,95,000

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Workings:

1. Statement of Depreciation:

Date Particulars Machine – I Machine – II Total Depreciation

` ` `

01.07.2007 Book Value 8,00,000

30.06.2008 Depreciation @ 20% 1,60,000 1,60,000

01.07.2008 W.D.V. 6,40,000

01.01.2009 Bank (Purchase) 6,00,000

30.06.2009 Depreciation @ 20% 1,28,000 60,000 1,88,000

01.07.2009 W.D.V. 5,12,000 5,40,000

30.06.2010 Depreciation @ 20% 1,02,400 1,08,000 2,10,400

01.07.2010 W.D.V. 4,09,600 4,32,000

30.06.2011 Depreciation @ 20% 81,920 86,400 1,68,320

01.07.2011 W.D.V. 3,27,680 3,45,600

6,73,280 7,26,720

2. Depreciation Overcharged:

Now depreciation under Straight Line Method

On ` 8,00,000 @ 15% = ` 1,20,000 x 4 years (from 01.07.2007 to 30.06.2011) = ` 4,80,000

On ` 6,00,000 @ 15% = ` 90,000 x 2 years (from 01.01.2009 to 30.06.2011) = ` 2,25,000

` 7,05,000

Depreciation overcharged = Reducing Balance Basis – Straight Line Basis

= ` (7,26,720 – 7,05,000)
= ` 21,720

3. Depreciation for the year:

On ` 14,00,000 @ 15% for the year = ` 2,10,000

On ` 15,00,000 @ 15% for the 9 months = ` 1,68,750

` 3,78,750

Answer 4. (b)
According to para 24, AS 2, when there has been a decline in the price of materials and it is
estimated that the cost of the finished products will exceed net realisable value, the materials
are written-down to net realisable value. In such circumstances, the replacement cost of the
materials may be the best available measure of their net realisable value. In this case, the total

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cost of ` 80 exceeds the net realisable value, i.e., selling price, of ` 70 (as the price of raw
materials had gone down from ` 12 to ` 8). So, inventories should be valued @ ` 70 each and, as
such, the total value of stock would be ` 4,20,000 (i.e., ` 6,000 units x ` 70).
Q. 5. Given below is the Balance Sheet of a Company as at the beginning of a Financial year
(1st April)
Liabilities ` Assets ` `

Share Capital: Equity Shares 2,00,000 Fixed Assets : Cost 5,00,000

14% Preference Shares 1,00,000 Less : Depreciation 1,60,000 3,40,000
General Reserve 40,000
12% Debentures 60,000 Stock-in-Trade 60,000
Current Liabilities 1,00,000 Sundry Debtors 80,000
Cash 20,000

5,00,000 5,00,000

The following information is available

Fixed Assets costing `1,00,000 to be installed on 1st April, would become operative on
that date, payment is required to be made on 31st March ( end of the financial year).
The Fixed Assets Turnover Ratio would be 1.5 (on the basis of Cost of Fixed Assets)
The Stock-Turnover Ratio would be 14.4 (on the basis of the Average of the Opening
and Closing Stock).
The break-up of Costs and Profit would be as follows: Materials – 40% ; Labour-25%;
Manufacturing OH-10%; Admin. and Selling OH – 10%; Depreciation – 5%; and Profit -
10%; This Profit is subject to interest and Taxation at 50%.
Debtors would be 1/9th of Sales while Creditors would be 1/5th of Materials Cost.
Dividend at 10% would be paid on Equity Shares in March.
`50,000, 12% Debentures have been issued on 1st April.

Prepare the Company’s Balance Sheet as on 31st March ( end of the financial year) and
show the following resultant ratios- (a) Current Ratio; (b) Fixed Assets to Net Worth Ratio
and (c ) Capital Gearing Ratio. Show workings.

Answer 5.
1. Application of Ratios for computing missing figures

1. Sales : Fixed Assets Turnover Ratio = Turnover ÷ Fixed Assets = 1.5 (given)

F.A = Opg Bal. + Additions = 5,00,000 + 1,00,000 = 6,00,000.

Hence, Sales = 6,00,000 X 1.5 = ` 9,00,000

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2. P & L Account : Since breakup of Cost and Profits is given , P & L is prepared below:

Particulars ` `

Sales 9,00,000
Less : Expenses Cost of Materials (` 9,00,000 x 40%) 3,60,000
Labour (` 9,00,000 x 25%) 2,25,000
Manufacturing Expenses (` 9,00,000 x 10%) 90,000
Office and Selling Expenses (` 9,00,000 x 10%) 90,000 (7,65,000)

Profit Before Depreciation , Interest and Tax 1,35,000

Less: Depreciation (` 9,00,000 x 5%) (45,000)

Profit Before Interest and Tax 90,000

Less: Interest on Debentures [(` 60,000 + ` 50,000) x 12%] (13,200)

Profit before Tax 76,800

Less: Provision for Taxation at 50% (38,400)

Profit After Tax 38,400

Less: Preference Dividend for the year at 14% of ` 1,00,000 (14,000)

Balance 24,400
Less: Equity Dividend at 10% of ` 2,00,000 (20,000)

Balance carried to Balance Sheet 4,400

3. Average Stock: Stock Turnover Ratio = Sales ÷ Average Stock = 14.4 times
(It is Assumed that Sales is taken instead of Cost of Goods Sold)
Hence, `9,00,000 ÷ Average Stock = 14.4. Hence, Average Stock = ` 62,500

4. Closing Stock : Average Stock = ( Opening Stock + Closing Stock) ÷ 2

62,500 = (60,000+Closing Stock) ÷ 2. Hence, Closing Stock = ` 65,000

5. Debtors : 1/9th of Sales = 1/9 X ` 9,00,000 = ` 1,00,000

6. Creditors : 1/5th of Cost of Materials = 1/5 X ` 3,60,000 = ` 72,000
7. Cash & Bank : The cash flows are analyzed to determine the closing balance as under

Inflows ` Outflows `

To Balance b/d - Opening balance. 20,000 By Increase in Current Assets:

To Net Profit for the year 4,400 — Stock in Trade (65,000 - 60,000) 5,000
To Depreciation — Non Cash Item 45,000 — Trade Debtors (1,00,000 - 80,000) 20,000
To Debentures — proceeds of issue 50,000 By Decrease in Current Liabilities:
To balance c/d (Overdraft Balance) 33,400 — Trade Creditors (1,00,000 -72,000) 28,000
(balancing figure) By Asset Purchased 1,00,000

1,53,000 1,53,000

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2. Balance Sheet as at 31st March

Liabilities ` Assets `

Share Capital ; - Equity Share Capital 2,00,000 Fixed Assets:

-14% Pref. Share Capital 1,00,000 Cost ( 5,00,000 + 1,00,000) 6,00,000
Reserve & Surplus:- General Reserve 40,000 Less: Depreciation (1,60,000 +45,000) 2,05,000
P & L A/c 4,400 Net Block
3,95,000
Long Term Loan:
12% Debentures (50,000 +60,000) 1,10,000 Current Assets:
Current Liabilities: Trade Creditors 72,000 Stock in Trade
65,000
Bank Overdraft 33,600 Sundry Debtors
1,00,000

5,60,000 5,60,000

Q. 6. (a) From the following information, prepare the Subscription Account for the year ending on
March, 31, 2012
(i) Subscription in arrears on 31.03.2011 ` 1,500
(ii) Subscription received in advance on 31.03.2011 ` 1,000
(iii) Amount of Subscription received during 2011-12 ` 40,000, which includes ` 1,000
for the year 2010-11, ` 1,500 for the year 2012-13.
(iv) Subscription outstanding ` 1,000.
(b) Explain, in short, the relevant Disclosures of Accounting Policies as per AS 1.

Answer 6. (a)
Dr. Subscription Account Cr.
Particulars Amount (`) Particulars Amount (`)

To, Balance b/d 1,500 By, Balance b/d 1,000

To, Income & Expenditure A/c 39,500 By, Bank A/c 40,000
By, Balance c/d
For 2010-11 500
To, Balance c/d For 2011-12 1,000
For 2012-13 1,500
42,500 42,500

Answer 6. (b)
As per AS 1, the Disclosures of Accounting Policies are: All significant accounting policies
adopted in the preparation and presentation of financial statements should be disclosed.
The disclosure of the significant accounting policies as such should form part of the financial
statements and the significant accounting policies should normally be disclosed in one place.

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Any change in the accounting policies which has a material effect in the current period or
which is reasonably expected to have a material effect in later periods should be disclosed. In
the case of a change in accounting policies which has a material effect in the current period,
the amount by which any item in the financial statements is affected by such change should
also be disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or
in part, the fact should be indicated.
If the fundamental accounting assumptions, viz, Going Concern, Consistency and Accruals, are
followed in financial statements, specific disclosure is not required. If a fundamental accounting
assumption is not followed, the fact should be disclosed.

Q. 7. Kalyani and Ranu commenced business on 1st July, 2010 as partners with capitals
of ` 1,80,000 and ` 1,20,000 respectively. The capitals would remain fixed and carry
interest at 10% p.a. profit and losses were to be shared in proportion to their capitals.
They appointed Anita as their Manager on 1st July, 2010 at a salary of ` 9,600 per
annum plus a bonus of 5% of the net profits after charging such bonus and interest as
a partner from the commencement of the business. She had to deposit ` 80,000 as
security, carrying an interest @ 12%p.a. It was agreed that she would be entitled to
one-fifth share of the profits and her security deposit would be treated as her capital
carrying interest @ 10% p.a. It was further agreed that this new arrangement should
not result in Anita’s share for any of these years being less than what she had already
received under the original agreement and terms of her appointment.
The profits before charging Anita’s bonus and interest on Capital of the partners or
giving effect to the new arrangement were – (a) for the year 2010-11 — ` 60,000; (b) for
the year 2011-12 — ` 1,20,000; (c) for the year 2012-13 — ` 1,60,000.
Show by a single journal entry to give effect to the new arrangement with
explanatory computation.

Points to be noted :

1. As a Manager, Anita received (a) bonus @ 5% on Net Profits after charging such
bonus and interest on capital at 10% p.a. to Kalyani and Ranu (b) Salary ` 9,600
p.a. (c) Interest on security deposit at 12% p.a.
2. As a Partner Anita is entitled to (a) Interest on Capital at 10% p.a. (b) 1/5th of profit
after providing interest on capital at 10% p.a. to all partners including herself.
3. If total dues of Anita under (2) above is more than that under (1) above, she
should get the difference. But if such dues under (1) above is more, she would
not refund the excess already received.

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Answer 7.
Workings : (1) – Calculation of Anita’s Dues as Manager

Particulars 2010-11 2011-12 2012-13

` ` `

Salary 9,600 9,600 9,600

Interest on Security Deposit : 12% of 80,000 9,600 9,600 9,600
Bonus 5/105 of profit after charging interest on capitals
of Kalyani and Ranu
2010-11 = 5/105 of (60,000 – 10% of 3,00,000) 1,429
2011-12 = 5/105 of (1,20,000 – 10% of 3,00,000) 4,286
6,190
2012-13 = 5/105 of (1,60,000 – 10% of 3,00,000)

20,629 23,486 25,390

(2) Calculation of Distributable profit under the new arrangement

Particulars 2010-11 2011-12 2012-13

` ` `
Net profits given (after charging interest on security
deposit and Anita’s salary but before charging interest 60,000 1,20,000 1,60,000
on capitals)
Add : Anita’s Salary and Interest on Deposit no more 19,200 19,200 19,200
payable [9,600 + 9,600]
79,200 1,39,200 1,79,200

Less : Interest on Capitals to all partners @ 10% of

38,000 38,000 38,000
[1,80,000 + 1,20,000 + 80,000]

1,01,200 1,41,200
41,200
Distributable Profits

8,240 20,240 28,240

Anita’s Share of Profit = 1/5th of Distributable Profit

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(3) Difference in Payments to Anita

Particulars 2010-11 2011-12 2012-13

` ` `

A. Anita’s Dues as Partner : 8,000 8,000 8,000

Interest on Capital @ 10% of 80,000 8,240 20,240 28,240

Share of Profit [as per workings 2] 16,240 28,240 36,240

B. Anita’s Dues as manager [as per workings 1] 20,629 23,486 25,390

- 4,754 10,850
Difference Payable to Anita
Total 15,604

Journal
Dr. Cr.
Date Particulars L.F. Amount Amount
` `
Kalyani’s Current A/c [3/5 of 15,604] Dr. 9,362
Ranu’s Current A/c [2/5 of 15,604] Dr. 6,242
To Anita’s Current A/c 15,604
[Adjustments made through Partners’ Current A/cs to
As capitalsthe to new fixed
remained arrangement regarding
and interest profits]
was calculated every year on these fixed capitals,
the necessary adjustment has been made through current accounts.

Q. 8. On 1.4.2007 Mayami got a mining lease and from that date a part of the mine was sub-
leased to Pathan. The terms of payment and the production of 5 years are as below :

Particulars Lessee Sub-

Lessee
Royalty (`/Tonne) 2.00 3.00
Dead Rent per anum (`) 15,000 10,000
Short working recoverable (Years) 3 2
Production (Year ended....31.3.)
2008 1,000 1,000

2009 3,000 2,000

2010 12,000 5,000
2011 9,000 2,000 (strike)
2012 5,000 12,000

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

In case of strike, royalty earned will discharge all liabilities for the year only. Show ledger
accounts in the books of Mayami.
Answer 8.
In the Books of Mayami
Statement showing Royalties Payable

Fig in (`)

Year Output Actual Min. Excess Short Shortworkings Amount

(Tons) Royalties Rent Workings
Occurred Recouped Written off C/F Payable
2008 2,000 4,000 15,000 0 11,000 0 0 11,000 15,000

2009 5,000 10,000 15,000 0 5,000 0 0 16,000 15,000

2010 17,000 34,000 15,000 19,000 0 16,000 0 0 18,000

2011 11,000 22,000 15,000 7,000 0 0 0 0 22,000

2012 17,000 34,000 15,000 19,000 0 0 0 0 34,000

Statement showing Royalties Receivable

Fig in (`)

Year Output Actual Min. Excess Short Shortworkings Amount

(Tons) Royalties Rent Workings Occurred Recouped Written off C/F Payable

2008 1,000 3,000 10,000 0 7,000 0 0 7,000 10,000

2009 2,000 6,000 10,000 0 4,000 0 0 11,000 10,000

2010 5,000 15,000 10,000 5,000 0 5,000 2,000 4,000 10,000

2011 2,000 6,000 6,000 0 0 0 4,000 0 6,000

2012 12,000 36,000 10,000 26,000 0 0 0 0 36,000

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Dr. Shortworkings Account Cr.

Date Particulars Amount (`) Date Particulars Amount (`)

31.03.08 To Landlord A/c 11,000 31.03.08 By Balance c/d 11,000

11,000 11,000

1.4.08 To Balance b/d 11,000 16,000

31.03.09 By Balance c/d
31.03.09 To Landlord A/c 5,000

16,000 16,000

1.4.09 To Balance b/d 16,000 31.03.10 By Royalty Payable A/c 16,000

(recouped)

16,000 16,000

Dr. Shortworkings Suspense Account Cr.

Date Particulars Amount (`) Date Particulars Amount (`)

31.03.08 To Balance c/d 7,000 31.03.08 By Pathan A/c 7,000

7,000 7,000

31.03.09 To Balance c/d 11,000 1.04.08 By Balance b/d 7,000

31.03.09 By Pathan A/c 4,000

11,000 11,000

31.3.10 To Royalty Receivable A/c 5,000 1.04.09 By Balance b/d 11,000

To P& L A/c 2,000
To Balance c/d 4,000

11,000 11,000

31.03.11 To P &L A/c 4,000 1.4.10 By Balance b/d 4,000

4,000 4,000

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Dr Royalty Receivable Account Cr.

Date Particulars Amount (`) Date Particulars Amount (`)

31.03.08 To Royalties Payable A/c 2000 31.03.08 By Pathan A/c 3,000

(1,000 × 2) (1,000 × 3)
To Profit & Loss A/c 1,000

3,000 3,000
31.03.09 To Royalties Payable A/c 4000 31.03.09 By Pathan A/c 6,000
(2,000 × 2) (2,000 × 3)
To Profit & Loss A/c 2,000

6,000 6,000
31.03.10 To Royalties Payable A/c 10000 31.03.10 By Shortworkings
(5,000 × 2) Suspence A/c 5,000
To Profit & Loss A/c 5,000 By Pathan A/c
(5,000 × 2) 10,000

15,000 15,000
31.03.11 To Royalties Payable A/c 4000 31.03.11 By Pathan A/c
(2,000 × 2) (2,000 × 3) 6,000
To Profit & Loss A/c 2,000

6,000 6,000

31.03.12 To Royalties Payable A/c 24000 31.03.12 By Pathan A/c 36,000

(12,000 × 2) (12,000 × 3)
To Profit & Loss A/c 12,000

36,000
36,000

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Dr. Royalty Payable Account Cr.

Date Particulars Amount (`) Date Particulars Amount

(`)
31.03.08 To Landlord A/c 4000 31.03.08 By Royalty Receivable A/c 2,000
(2000*2) (1000*2)
By Profit & Loss A/c 2,000

4,000 4,000

31.03.09 To Landlord A/c 10000

(5000*2) 31.03.09 By Royalty Receivable A/c 4,000
(2000*2)
By Profit & Loss A/c 6,000
10,000
10,000
16,000
31.03.10 To Shortworkings A/c 18,000 31.03.10 By Royalty Receivable A/c 10,000
To Landlord A/c (5000*2)
(17000*2) By Profit & Loss A/c 24,000
34,000
34,000

31.03.11 To Landlord A/c 22000 31.03.11 By Royalty Receivable A/c 4,000

(11000*2) (2000*2)
By Profit & Loss A/c 18,000

22,000 22,000

31.03.12 To Landlord A/c 34000 31.03.12 By Royalty Receivable A/c 24,000

(17000*2) (12000*2)
By Profit & Loss A/c 10,000

34,000 34,000

Note :
1. Royalty to be paid to Landlord on total production including the production from sub-
lessee.
2. Royalties receivable from sub lease to be adjusted against the payable amount to
the extent of royalty payable to Landlord.

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Dr. Pathan’s Account Cr.

Date Particulars Amount (`) Date Particulars Amount (`)

31.03.08 To Royalties Receivable A/c 3,000 31.03.08 By Bank A/c 10,000

To Shortworkings Susp. A/c 7,000

10,000 10,000
31.03.09 To Royalties Receivable A/c 6,000 31.03.09 By Bank A/c 10,000
To Shortworkings Susp. A/c 4,000

10,000 10,000

31.03.10 To Royalties Receivable A/c

10,000 31.03.10 By Bank A/c 10,000

10,000 10,000

31.03.11 To Royalties Receivable A/c 6,000 6,000

31.03.11 By Bank A/c
6,000 6,000

31.03.12 To Royalties Receivable A/c 36,000 36,000

31.03.12 By Bank A/c
36,000 36,000

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Dr. Landlord Account Cr.

Date Particulars Amount (`) Date Particulars Amount (`)

31.03.08 To Bank A/c 15,000 31.03.08 By Royalties A/c 4,000

By Shortworkings A/c 11,000

15,000 15,000
31.03.09 To Bank A/c 15,000 31.03.09 By Royalties A/c 10,000
By Shortworkings A/c 5,000

15,000 15,000

31.03.10 To Bank A/c 18,000 31.03.10 By Royalties A/c 34,000

To Shortworkings A/c 16,000

34,000 34,000

31.03.11 To Bank A/c 31.03.11 By Royalties A/c

22,000 22,000

22,000 22,000

31.03.12 To Bank A/c 34,000 31.03.12 By Royalties A/c 34,000

34,000 34,000

Q. 9. (a) P Ltd. took a contract to construct a multistoried building for a consideration of `

20,00,000 to be completed within 3 years for which total cost to be incurred is `
16,50,000. The details are:

Particulars Year-I (`) Year-II (`) Year-III (`)

3,50,000 8,00,000 16,50,000

Total cost incurred

Estimated cost to be incurred for completion 7,00,000 1,00,000 -

Progress payment to be received 2,50,000 9,00,000 12,00,000

Progress payment received 1,70,000 5,50,000 2,20,000

Advise the company to prepare the accounts in completion AS– 7.

(b) On 01.01.2007 S Ltd. had 2,000, 12% Debentures of ` 100 each. On 01.05.2007 the
company purchased 400 own Debentures at ` 97 cum-interest in the open market.
Interest on debenture is payable on 30the June and 31st Dec. each year.

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Required: Give the necessary journal entires assuming (i) that the own Debentures
purchased were cancelled immediately and (ii) the the own Debentures purchased
were retained as investments till 31.12.2012 on which date they were cancelled.
Answer 9. (a)
Estimated Profit to be calculated

Particulars Year- I Year-II Year-III

` ` ` ` ` `

Total Contract Price 20,00,000 20,00,000 20,00,000

Less: Cost of Contract

Incurred 3,50,000 8,00,000 16,50,000

Will be incurred 7,00,000 10,50,000 1,00,000 9,00,000 - 16,50,000

Estimated Profit 9,50,000 11,00,000 3,50,000

% of completion of Work:

Year - I Year-II Year-III

3,50,000x100/10,50,000 800,000x100/900,000 16,50,000x100/16,50,000
33 1/3% 89% 100%

Recognition of Revenue and Expenses to be calculated As:

Year Particulars At the end of the Recognized in Recognized in

year earlier years Current years

` ` `

I Revenue (` 20,00,000 x33 1/3%) 6,66,667 - 6,66,667

Less: Expenses (` 16,50,000 x 33 1/3%) 5,50,000 - 5,50,000

Profit 1,16,667 1,16,667

II Revenue (` 20,00,000 x 89%) 17,80,000 6,66,667 11,13,333

Less: Expenses(16,50,000x89%) 14,68,500 5,50,000 9,18,500

Profit 3,11,500 1,16,667 1,94,833

III Revenue (` 20,00,000 x 100%) 20,00,000 17,80,000 2,20,000

Less: Expenses(16,50,000x100%) 16,50,000 14,68,500 1,81,500

Profit 3,50,000 3,11,500 38,500

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Answer 9. (b)
(i) If own Debentures were cancelled immediately on date of purchase.
Journal

Date Particulars L.F. Dr. (` ) Cr. (` )

2007

May 01 12% Debentures A/c Dr. 40,000

Debentures Interest A/c Dr. 1,600

To Bank A/c 38,800

To Capital Reserve A/c 2,800

(Being 400 debentures cancelled by

purchase
@ ` 97 cum-interest)

June 30 Debentures Interest A/c Dr. 9,600

To Bank A/c 9,600

(Being the interest paid on ` 1,60,000 @ 12%

p.a. for 6 months)

Dec. 31 Debenture Interest A/c Dr. 9,600

To Bank A/c 9,600

(Being the interest paid on ` 1,60,000 @ 12%

p.a. for 6 months)
Dec. 31 Profit & Loss A/c Dr. 20,800

To Debenture Interest A/c 20,800

(Being the transfer of debenture interest to P

& L A/c)
Dec. 31 Profit & Loss Appropriation A/c Dr. 37,200

To Debenture Redemption Reserve A/c 37,200

(Being the transfer of an amount equivalent to

the cash sum applied (towards principal) in
redeeming the debentures to DRR out of
profits)

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

(ii) If own debentures were cancelled on 31.12.2012.

Journal of X Ltd.

Date Particulars L.F. Dr. (` ) Cr. (` )

May 01 Own Debentures A/c Dr. 37,200

Debentures Interest A/c 1,600

To Bank A/c 38,800

(Being the purchase of 400 debentures @ ` 97

cum-interest)

June 30 Debentures Interest A/c Dr. 10,400

To Interest on Own Debentures A/c 800

To Bank A/c 9,600

(Being the Interest paid/credited on `

1,60,000

debentures held by outsiders for 6 months &

on

` 40,000 own debentures for 2 months)

Dec. 31 Debenture Interest A/c Dr. 12,000

To Bank A/c 9,600

To Interest on Own Debentures A/c 2,400

(Being the interest paid/credited on `

1,60,000 debentures held by outsiders and `
40,000 own debentures for 6 months)

Dec. 31 Profit & Loss A/c Dr. 24,000

To Debenture Interest A/c 24,000

(Being the transfer of debenture interest to P

& L A/c)

Dec. 31 Interest on Own Debentures A/c Dr. 3,200

To Profit & Loss A/c 3,200

(Being the transfer of interest on own

debentures to P & L A/c)

Dec. 31 12% Debentures A/c Dr. 40,000

To Own Debentures A/c 37,200

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Date Particulars L.F. Dr. (` ) Cr. (` )

To Capital Reserve A/c 2,800

(Being the cancellation of 200 own

debentures)

Dec. 31 Profit & Loss Appropriation A/c Dr. 37,200

To Debenture Redemption Reserve A/c 37,200

(Being the transfer of an amount equivalent

to the cash sum applied in redeming the
debentures)

Q. 10. Mr. Gavaskar is the proprietor of a large business. The following Trial Balance was
prepared from his books as on 30th June, 2012:

` `

Land & Buildings 80,000 12% Bank Loan (U.B.I.) 1,00,000

Cash at Bank 50,000 (No movement during the year)

Motor Car 40,000 Capital Accounts 1,50,000

Furniture 20,000 Bills Payable 10,000

Sundry Debtors 1,20,000 Sundry Creditors 1,30,000

Cash in hand 10,000 Returns Outward 8,000

Stock (1.7.11) 1,10,000 Discount Received 2,000

Return Inward 10,000 Sales 9,00,000

Printing & Stationery 4,000

Drawings 16,000

Bills Receivable 10,000

Travelling Expenses 12,000

Discount Allowed 4,000

Miscellaneous Expenses 38,000

Postage 2,000

Joint Venture Suspense 2,000

A/c

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Investments (Market value

` 28,000) 30,000

Interest on Bank Loan 8,000

Salaries (including
advance

For ` 4,000) 54,000

Entertainment Expenses 4,000

Purchases 6,50,000

Carriage Inwards 8,000

Advertisements 18,000

13,00,000 13,00,000

Additional Information:
(1) On 2nd January, 2012, Mr. Gavaskar entered into a Joint Venture with Mr. Shastri with an
agreement to share the profits and losses equally. Shastri supplied goods totalling ` 60,000
which wrongly passed through the Purchase Day Book. The goods were sold for cash at
profit of 25% on sales and stood credited to Sales Account. Shastri had earlier incurred an
amount of ` 4,000 on account of Freight ad Insurance. Joint Venture Suspense Account
represents expenses incurred by Gavaskar on Joint Venture.
(2) Bills Receivable for ` 8,000 endorsed on 21st March, 2012 in favour of creditors were
subsequently dishonoured but no entry for the dishonoured has been passed.
(3) Three cheques of ` 3,000, ` 4,000 and ` 6,000 issued to parties on 29th June, 2012, were lying
unpresented on 30th June, 2012.
(4) Sales included a sum of ` 60,000 received from sale of goods on behalf of Mr. Kapil, the
cost of these goods to Mr. Kapil was ` 50,000. Mr. Gavaskar is entitled to a commission of
5% on sales, for which effect should be given and reimbursement of selling expenses of `
2,000 were debited to Miscellaneous Expenses Account.
(5) 1/3rd of the advertisement expenses are to be carried forward.
(6) Of the Debtors a sum of ` 2,000 is to be written off as bad debt. Create provision for
doubtful debts @ 2%.
(7) Depreciate fixed assets by 10% except Motor Car which is to be depreciated at 20%.
(8) Value of Stock at the end is ` 90,000.
(9) During the year some goods (Invoiced at ` 1,00,000) were sent to sundry customers on
sales on approval. On 30th June, 2012 of these goods ` 20,000 remained with customers as

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

the period of approval did not expire as yet. Proper adjustment should be made in respect
of the above. Mr. Gavaskar makes his invoices at cost plus 25%.
You are required to prepare Trading and Profit & Loss Account for the year ended 30 th June,
2012 and a Balance Sheet as at 30th June, 2012.

Answer 10.
In the books of Mr. Gavaskar
Trading Account for the year ended 30th June, 2012
Dr. Cr.
Particulars ` ` Particulars ` `
To, Opening Stock 1,10,000 By, Sales 9,00,000
To, Purchase A/c 6,50,000 Less : Return Inward 10,000
Less : Return Outward 8,000 8,90,000
6,42,000 Less : Joint Venture sales 80,000
Less : Supplies by 8,10,000
Mr. Sastri 60,000 5,82,000 Less : Sales on
To, Carriage Inward 8,000 Consignment 60,000 7,50,000

To, Profit & Loss A/c 1,56,000 By, Closing Stock 90,000
- G. P. transferred Add : Goods sold on
Approval 16,000 1,06,000
8,56,000 [` 20,000 ×(100/125)] 8,56,000

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Profit & Loss Account

for the year ended 30th June, 2012
Dr. Cr.
Particulars ` ` Particulars ` `
To, Printing & Stationery 4,000 By, Trading A/c 1,56,000
To, Travelling Expenses 12,000 - G. P. transferred
To, Discount Allowed 4,000 By, Discount Received 2,000
To, Miscellaneous Exp. 38,000 By, Profit on Joint Venture 7,000
Less : Consignment (W.N. 1)
Expenses 2,000 By, Commission Received 3,000
To, Postage 36,000 (` 60,000 × 5%)
To, Interest on Bank Loan 2,000
To, Salaries 54,000 8,000
Less : Advance Salary 4,000
To, Entertainment Exp. 50,000
To, Advertisement (W.N. 3) 4,000
To, Bad Debts 18,000
To, Provision for Doubtful 2,000
Debts
To, Depreciation: 2,520
Land & Building 8,000
Motor Car 8,000
Furniture 2,000 1,68,000 1,68,000
To, Capital A/c 18,000
- N. P. transferred 7,480

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Balance Sheet as at 30th June, 2012

Liabilities ` ` Assets ` `
Capital 1,50,000 Land & Building 80,000
Less: Drawings 16,000 Less: Depreciation @ 10%
1,34,000 8,000 72,000
Add: Net Profit 7,480 1,41,480 Machinery 40,000
12% Bank Loan (U.B.I.) 1,00,000 Less: Depreciation @ 20% 8,000 32,000

Creditors 1,30,000 Furniture 20,000

Add: Bill endorsed Less: Depreciation @ 10% 2,000 18,000
Dishonoured 8,000 Investment 30,000
1,38,000 Stock 1,06,000
Less : Supplies by Debtors 1,20,000
Mr. Sastri 60,000 78,000 Add: Bill endorsed
Consignment Creditors 55,000 dishonoured 8,000
Amount due to Mr. Sastri 1,28,000
(W.N. 2) 71,000 Less: Return In Ward not
Bills Payable 10,000 recorded 2,000
1,26,000
Less: Provision for Bad
Debts 2,520 1,23,480

Bills Receivable 10,000

Cash at Bank 50,000
Cash in hand 10,000
Advance Salary 4,000

4,55,480 4,55,480

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Working Note
1.
In the books of Mr. Gavaskar Joint Venture Account
Dr. Cr.
Particulars ` ` Particulars ` `

To, Mr. Sastri A/c 60,000 By, Cash A/c 80,000

To, Mr. Sastri A/c 4,000 (Sales Proceeds)
- Freight & Insurance [` 60,000 × (100/75)]
To, Bank A/c 2,000
- Expenses
To, Profit on Venture :
Mr. Sastri A/c 7,000
Profit & Loss A/c 7,000 14,000

80,000 80,000

2.
Mr. Sastri Account
Dr. Cr.
Particulars ` ` Particulars ` `
By, Joint Venture A/c 60,000
By, Joint Venture A/c 4,000
To, Balance c/d 71,000 - Freight & Insurance
By, Joint Venture A/c 7,000
- Share of Profit

71,000 71,000

3. After the date on which AS 26 became mandatory, the expenditure incurred on intangible
items would have to be expensed off when they are incurred (as per Para 56 of AS 26). So, the
Advertisement Expense is not carried forward to the next year and the full amount is shown in
the Profit & Loss A/c.

Q. 11. From the following trial balance and the additional information, prepare a Balance Sheet
of Lakshmi Bank Ltd. as at 31st March,2012:

Debit balance ` (in Lakhs)

Cash Credits 1,218.15

Cash in hand 240.23

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Cash with Reserve Bank of India 67.82

Cash with other Banks 132.81

Money at call and short notice 315.18

Gold 82.84

Government securities 365.25

Current Accounts 42.00

Premises 133.55

Furniture 95.18

Term Loan 1,189.32

3,882.33

Credit balance ` (in Lakhs)

Share Capital (29,70,000 equity shares of ` 10 each, fully paid up) 297.00

Statutory Reserve 346.50

Net Profit for the year (before appropriation) 225.00

Profit & Loss Account (Opening balance) 618.00

Fixed deposit Accounts 775.50

Savings Deposit Accounts 675.00

Current Accounts 780.18

Bills Payable 0.15

Borrowings from other Banks 165.00

3,882.33

Additional Information :
(i) Bills for collection : ` 18,10,000
(ii) Acceptance and endorsements : ` 14,12,000
(iii) Claims against the bank not acknowledged as debts : ` 55,000
(iv) Depreciation charged on premises : ` 1,10,000 and Furniture : ` 78,000

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Answer 11.
Lakshmi Bank Ltd.
Balance Sheet as on 31.3.2012

Details Schedule Amount

No. (` in Lakhs)

Capital and Liabilities:

Capital 1 297.00

Reserves and Surplus 2 1,189.50

Deposits 3 2,230.68

Borrowings 4 165.00

Other Liabilities and Provisions 5 0.15

Total 3,882.33

Assets :

Cash and Balance with RBI 6 308.05

Balances with Banks and Money at Call and Short Notice 7 489.99

Investments 8 448.09

Advances 9 2,407.47

Fixed Assets 10 228.73

Total 3,882.33

Contingent Liabilities 12 14.67

Bills for Collection 18.10

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Schedules

Schedule 1 - Capital

` (in lakh)

Issued, Subscribed and Called – up Capital 297.00

(29,70,000 @` 10)

Schedule 2 - Reserves and Surplus

` (in lakh) ` (in lakh)

1. Statutory Reserve 346.50

Add: 20% of ` 2,25,00,000 45.00

(Assumed to be an unscheduled Bank) 391.50

2. Profit & Loss A/c Opening 6,18,000

Add: Current Year

` (2,25,00,000 – 45,00,000) 1,80,000 798.00

1,198.50 1,189.50
Schedule 3 - Deposit

` (in lakh)

1. Demand Deposits 780.18

2. Savings Bank Deposits 675.00

3. Term Deposit 775.50

2,230.68
Schedule 4 - Borrowings

` (in lakh)

Borrowings from other Banks 165.00

Schedule 5 - Outstandings and Provisions

` (in lakh)

Bills Payable 0.15

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Schedule 6 - Cash and Balances with RBI

` (in lakh)

Cash in Hand 240.23

Balances with RBI 67.82

308.05
Schedule 7 - Balances with Banks and Money at Call and Short Notice

` (in lakh)

Cash with other Banks 132.81

Money at Call and short Notice 315.18

Current Accounts 42.00

4,89.99
Schedule 8 - Investment

` (in lakh)

Government securities 365.25

Gold 82.84

4,48.09
Schedule 9 - Advances

` (in lakh)

Cash Credit 1,218.15

Term Loans 1,189.32

2,407.47
Schedule 10 - Fixed Assets

` (in lakh) ` (in lakh)

Premises 1,34,65,000

Less : Depreciation (1,10,000) 133.55

Furniture 95,96,000

Less : Depreciation (78,000) 95.18

228.73

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Schedule 11 - Other Assets

Schedule 12 - Contingent Liabilities

` (in lakh) ` (in lakh)

Acceptance and Endrosements 14.12

Claims against the Bank not acknowledge as Debts 0.55

14.67

Q. 12. ‘H’ Electricity Company earned a profit of ` 60,00,000 (after tax) after paying ` 48,000 at
12% interest on debentures for the year ended 31.3.2012. The following further information
is supplied to you:

Amount (`)

Share Capital 2,50,00,000

Reserve Fund Investment (invested in 8% Government Securities at par) 60,00,000

Contingencies Reserve Fund Investment (7%) 25,00,000

Loan from State Electricity Board 50,00,000

Development Reserve 16,00,000

Fixed Assets 6,00,00,000

Depreciation Reserve on Fixed Assets 60,00,000

Security Deposits of customers 80,00,000

Amount contributed by consumers towards cost of Fixed Assets 4,50,000

Intangible Assets 17,50,000

Tariffs and Dividends Control Reserve 22,00,000

Monthly average of Current Assets including amount due from customers `5,00,000 36,00,000

Show, how the profits of the company will be dealt with under the provisions of the
Electricity Act, assuming the bank rate of the year was 8%. All working notes should form
part of your answer.

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Answer 12.
‘H’ Electricity Company
Statement of Distribution of Profit for the year ended 31.3.2012

Particulars Amount Amount

(`) (`)

Fixed Assets as reduced by customers contribution

(` 6,00,00,000 – ` 4,50,000) 5,95,50,000

Intangible Assets 17,50,000

Monthly average of Current Assets (Excluding amount due from

customers i.e. ` 36,00,000 – ` 5,00,000) 31,00,000

Contingencies Reserve Fund Investment 25,00,000 6,69,00,000

Deduct:

Depreciation Reserve 60,00,000

Loan from Electricity Board 50,00,000

12% Debentures ( ` 48,000 x 100/12) 4,00,000

Development Reserve 16,00,000

Security Deposits of Customers 80,00,000

Tariffs and Dividends Control Reserve 22,00,000 2,32,00,000

Capital Base 4,37,00,000

Reasonable Return
Particulars Amount (`)

10% (Bank Rate + 2%) on Capital Base 43,70,000

8% on Reserve Fund Investment 4,80,000

½% on Loan from Electricity Board 25,000

½% on Debentures 2,000

½% on Development Reserve 8,000

Reasonable Return 48,85,000

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Surplus and its Disposal

Particulars Amount (`)

Clear Profit 60,00,000

Surplus (`60,00,000 – `48,85,000) 11,15,000

Less: 20% of Reasonable Return (to be disposed off) 9,77,000

Amount refundable to consumers 1,38,000

Disposal of Surplus of ` 9,77,000

Amount (`)

1/3 of surplus over clear profit limited to 5% of reasonable return will be at the
disposal of the company i.e. ` 3,25,667 > ` 2,44,250 2,44,250

Credit to Tariffs and Dividends Control Reserve (1/2 of remaining balance of 20% of
Reasonable Return) 3,66,375

Credit to Consumers’ Suspense Account 3,66,375

9,77,000

Total amount at the disposal of the company

Particulars Amount (`)

Amount of reasonable return 48,85,000

Share in surplus 2,44,250

51,29,250

Total amount refunded to consumers

Particulars Amount (`)

Surplus in excess of 20% of reasonable return 1,38,000

Share in surplus 3,66,375

5,04,375

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Q. 13. The following balances appeared in the books of Happy Mutual Life Assurance Society
Ltd. as on 31st March 2012:
Dr. (` in lakh) Cr.
Particulars ` Particulars `

Claims less reassurance paid during Life Assurance Fund at the beginning 1,00,000
The year of the year
By death 4,400 Premium less Reassurances 30,000
By maturity 3,000 Claims less reassurances
Annuities 12 outstanding
Furniture and Office Equipment at At the beginning of the year:
cost By death 1,800
(including `80 lakh bought during 250 By maturity 1,200
the year) Credit balances pending 120
Printing and Stationery 154 adjustments
Cash with Bank in current account 2,700 Consideration for annuities granted 4
Cash and stamp in hand 60 Interest, dividends and rents
Surrenders less Reassurances 80 Registration and other Fees 3,600
Commission 500 Sundry Deposits 4
Expenses of Management 6,200 Taxation Provision 200
Sundry Deposits with Electricity 2 Premium Deposits 600
Companies Sundry Creditors 2,300
Advance Payment of Tax 100 Contingency Reserve 700
Sundry Debtors 100 Furniture and Office Equipment 300
Agents Balances 200 Depreciation Account
Income Tax 900 Building Depreciation Account 80
Income Tax on Interest, Dividend 1,000 600
and Rents
Loans on Policies
300
Loans on Places
6,500
Investments
1,04,000
(`500 lakh deposited with Reserve
Bank of India)
House Property at Cost
10,800
(including ` 170 lakh added during
the year)

1,41,508 1,41,508

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From the foregoing balances and the following information, prepare the Balance Sheet of Happy
Mutual Life Assurance Society Ltd. as on 31st March 2012 and its Revenue Account for the year
ended on that date:
(i) Claims less reassurance outstanding at the end of the year: By death ` 1,200 lakh, By maturity `
800 lakh.
(ii) Expenses outstanding ` 120 lakh and prepaid ` 30 lakh.
(iii) Provide ` 90 lakh for depreciation on buildings, ` 30 lakh for depreciation on furniture and
office equipment and ` 220 lakh for taxation.
(iv) Premiums outstanding `4056 lakh, commission thereon ` 130 lakhs.
(v) Interests, dividends and rents outstanding (net) ` 60 lakh and interests and rents accrued (net) ` 700
lakh.
Answer 13.
Happy Mutual Life Assurance Society Ltd.
Form A-RA
Revenue Account for the Year Ended 31 st March 2012
Particulars Schedule Current Year Previous Year
(` in lakh) (` in lakh)

Premium earned-net 1 34,056

Investment from Investments
Interest, Dividends and Rent(Gross) 4,360
Other Income:
Annuities granted 4
Registration and other Fees 4

Total (A) 38,424

Commission 2 630
Operating Expenses 3 6,564
Provision for Tax 1,520

Total (B) 8,714

Benefits paid (net) 4 6,492

Total (c) 6,492

Surplus (D)=A-B-C 23,218

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Form A-BS
Balance Sheet as on 31st March 2012
Particulars Schedule Current Year Previous Year
(` in lakh) (` in lakh)

Share Capital 5
Reserves and Surplus 6 300
Borrowings 7 2,500
Life Assurance Fund 1,23,218

Total 1,26,018

Application of Funds 8 1,03,500

Investment 9 6,800
Fixed Assets 10 10,500
Current Assets:
Cash and Bank Balance 11 2,760
Advances and Other Assets 12 5,748

Sub-Total (A) 8,508

Current Liabilities 13 3,070

Provisions 14 220

Sub-Total (B) 3,290

Net Current Assets=Sub-Total (A)-Sub-Total (B) 1,26,018

Note: Since the question is silent about the preparation of Profit & Loss Account, as such (From A-
PL) is not prepared.
Thus Provision for Taxation and adjustments are shown in Revenue Account.
Schedules forming parts of Financial Statements
Workings:

Schedule 1: Premium Earned `

Premium 30,000
Add: Outstanding 4,056
34,056

Schedule 2: Commission `

Commission Paid 500

Add: Commission on Re-Insurance Accepted 130

630

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Schedule 3: Operating Expenses ` `

Expenses of management 6,200
Add: Outstanding 120
6,320
Less: Prepaid 30 6,290
Printing & Stationary 154
Depreciation on:
Building 90
Furniture 30 120
6,564

Schedule 4: Benefit (Paid) ` `

Claims:
By Death-
Paid 4,400
Add: Outstanding at the ends 1,200
5,600
Less: Out. at the beginning 1,800 3,800
By Maturity-
Paid 3,000
Add: Outstanding at the end 800
3,800
Less: Outstanding at beginning 1,200 2,600
Annuities 12

Surrender, less Re-insurance 80

6,492

Schedule 5: Share Capital `

Share Capital Nil
Nil

Schedule 6: Reserves & Surplus `

Contingency Reserve 300
Add: Other Life Assurance Fund 1,23,218
1,23,518
Schedule 7: Borrowings `
Premium Deposit 2,300
Add: Sundry Deposits 200
2,500

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Schedule 8: Investments ` `
Investment in House Property 10,630
Additions 170
10,800
Less: Depreciation 690 10,110
Other Investments 1,03,500
1,13,610

Schedule 9: Loans `
Mortgage 300
Policies 6,500
6,800

Schedule 10: Fixed Assets `

Furniture (420-30) 390
390

Schedule 11: Cash and Book Balance `

Cash + Stamps 60
Bank at Current A/c 2,700
2,760

Schedule 12: Advance and Other Assets ` `

Advances:
Prepaid Expenses 30
Adv. Payment of Tax 100 130
Other Assets:
Int. Dividend & Rent Outstanding
60
Int. Dividend Rent Accruing
700
Outstanding Premium
4,056
Agents’ balance
200
Sundry Debtors
100
Deposit with RBI
500
Deposit with Electricity Co.
2

5,748

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Schedule 13: Current Liabilities `

Creditors 700
Outstanding Expenses 120
Com. Due but not paid 130
Claims outstanding 2,000
Credit balance Pending adjustments 120
3,070

Schedule 14: Provisions `

Provisions for Tax 220
220

Schedule 15: Miscellaneous `

Misc. Expenses Nil
Nil

Q. 14. (a) Puskar Enterprise has its H.O. in Ranchi and a branch in Imphal. The following Trial
Balance has been extracted from the books of accounts as at 31st March, 2013:
Particulars Head Office Branch Office
Dr. Cr. Dr. Cr.
` ` ` `
Capital --- 16,50,000 --- ---
Debtors 3,00,000 --- 1,80,000 ---
Creditors --- 1,50,000 --- ---
Purchases 27,42,000 --- --- ---
Sales --- 25,50,000 --- 13,11,000
Goods sent to Branch at I.P. --- 11,40,000 11,25,000 ---
Fixed Assets (Net) 10,50,000 --- 2,00,000 ---
Stock (1.4.2012) 24,000 --- 60,000 ---
Stock Adjustment (Unrealised Profit) --- 12,000 --- ---
H.O./Branch Current A/c 5,25,000 --- --- 3,60,000
Administrative & Selling Expenses 8,41,500 --- 74,500 ---
Cash and Bank 46,500 --- 39,000 ---
Provision for Bad Debts --- 27,000 --- 7,500
55,29,000 55,29,000 16,78,500 16,78,500

Other relevant information:

(1) All goods are purchased by the H.O. Goods are sent to branch at cost plus 25%.
(2) Stock 31.3.2013 are valued at:
H.O. ` 36,000
Branch ` 45,000 (Invoice Price)
(3) Depreciation is to be provided on fixed assets at 10% on book value.
(4) Bad debts provision is to be maintained at 5% on debtors as at the end of the year.

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(5) Cash-in-transit from branch to H.O. at 31st March 2013 was `1,50,000.
(6) Goods-in-transit from H.O. to branch at 31st March, 2013 at invoice price was `15,000.
Prepare in Columnar from, the branch and H.O. Trading and Profit and Loss Accounts for the
year ended 31st March, 2013 and a combined Balance Sheet of Puskar Enterprises as on that
date.

(b)On 1st May 2012 Superman Ltd. issued 5,000 Equity Shares of ` 100 each payable as follows:
` `
On application 20 On 1st Call 20 (Last date fixed for payment
31st July)
On allotment 30 On Final Call 30 (Last date fixed for payment
30th August)
Applications were received on 15th May 2012 for 6,000 shares and allotment was made on 1st
June 2012. Applicants for 2,500 shares were allotted in full, those for 3,000 shares were allotted
2,500 shares and applications for 500 shares were rejected.
Balance of amount due on allotment was received on 15th June.
The calls were duly made on 1st July, 2012 and 1st August 2012 respectively. One shareholder
did not pay the 1st Call money on 150 shares which he paid with the final call together with
interest at 5% p.a. Another shareholder holding 100 shares did not pay the final call money till
end of the accounting year which ends on 31st October.
Required: Show the Cash Book and Journal Entries.

Answer 14. (a) In the books of H.O.

Columnar Trading and Profit and Loss Account
Dr. Cr.
Particulars H.O. Branch Particulars H.O. Branch
` ` ` `
To Opening Stock 24,000 60,000 By Sales 25,50,000 13,11,000
,, Purchases 27,42,000 --- ,, Goods Sent to Branch 11,40,000 ---
,, Goods from H.O. --- 11,25,000 ,, Closing Stock 36,000 45,000
,, Gross Profit c/d 9,60,000 1,71,000

37,26,000 13,56,000 37,26,000 13,56,000

To Adm. & Selling Exp. 8,41,500 74,500 By Gross Profit b/d 9,60,000 1,71,000
,, Depreciation 1,05,000 20,000 ,, Stock Adjustment 12,000 ---
,, Stock Adjustment 12,000 --- ,, Provision for Bad Debts 27,000 7,500
(old)
(20% of45,000+15,000)
,, Provision for Bad 15,000 9,000
Debts (new)
Net Profit 25,500 75,000

9,99,000 1,78,500 9,99,000 1,78,500

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Balance Sheet (Combined) as at 31st March 2013

Liabilities Amount Amount Assets Amount Amount
` ` ` `
Capital 16,50,000 Fixed Assets 12,50,000
Add: Net Profit 1,00,500 17,50,500 Less: Depreciation 1,25,000 11,25,000
(25,500 + 75,000)
Current A/c – H.O. 5,25,000 Current Assets
Less: Branch (Cr.) 3,60,000 Stock
Cash-in-transit 1,50,000 H.O. 36,000
Goods-in-transit 15,000 5,25,000 Nil Branch 45,000
81,000
Less: Stock Adj. 12,000 69,000
Creditors 1,50,000
Goods-in-Transit 15,000
Debtors
H.O. 3,00,000
Branch 1,80,000
4,80,000
Less; Prov. for Bad 24,000 4,56,000
Debts
Cash at Bank
H.O. 46,500
Branch 39,000
Cash-in-transit 1,50,000 2,35,500

19,00,500 19,00,500

Answer 14. (b)

In the Books of Superman Ltd

Journals

Dr. Cr.

Date Particulars L.F. (`) (`)

1.6.12 Equity Share Application A/c Dr 1,20,000

To Equity Share Capital A/c 1,00,000
To Share Allotment A/c 10,000
To Share Allotment A/c 10,000
(Being the transfer of application money @ ` 20 per share
on 5,000 shares transferred to Share Capital A/c and @ `
20 on 500 t/f to Share Allotment A/c and application
money on 500 Share refunded

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Dr. Cr.

Date Particulars L.F. (`) (`)

1.6.12 Equity Share Allotment A/c Dr. 1,50,000 1,50,000

To Equity Share Capital A/c
(Being the transfer of allotment money @ ` 30 per share
transferred to Share Capital A/c)

1.7.12 Equity Share First Call A/c Dr. 1,00,000 1,00,000

To Equity Share Capital A/c
(Being the transfer of 1st call money @ ` 20 per share t/f to
Share Capital A/c

1.8.12 Calls-in-Arrear A/c Dr. 3,000 3,000

To Equity Share 1st call A/c
(Being the transfer of 1st Call money on 150 equity shares
@ ` 20 per share)

1.8.12 Equity Share Final Call A/c Dr. 1,50,000 1,50,000

To Equity Share First Call A/c
(Being the transfer of final call money @ ` 30 per share t/f
to Share Capital A/c

1.9.12 Calls-in-Arrear A/c Dr. 3,000 3,000

To Equity Share Final Call A/c
(Being the transfer of final call money on 100 equity shares
@ ` 30 per shares)

1.9.12 Sundry Shareholders A/c Dr. 25 25

To Interest on Calls-in-Arrears A/c
(Being the interest due on ` 3,000 @ 5% for two months)

Dr. Cash Book (Bank Column) Cr.

Date Particulars ` Date Particulars `

15.5.12 To Equity Share 1.9.12 By Equity Share

Application A/c 1,20,000 Application A/c (Refund 10,000

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Date Particulars ` Date Particulars `

(Application money of application money @

@ ` 20 per share on ` 20 per share on

6,000 shares) 500 shares rejected)

15.6.12 To Equity Share 1,40,000 31.10.12 By Balance c/d 4,97,025.00

Allotment A/c (Balance
of allotment money)

1.8.12 To Equity Share 1st Call 97,000

A/c (1st Call money on
4,850 shares)

1.9.12 To Equity Share Final A/c 1,47,000

(Final call money on

4,900 Shares)

1.9.12 To Calls-in-Arrear (Arrear 3,000

of 1st Call money @
` 20 per Share on 1,50
Shares)

1.9.12 To Interest on Calls-in- 25.00

Arrear A/c (Interest on
` 3,000 for two months @
5% p.a.)

5,07,025.50 5,07,025.50

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Statement of shares applied, allotted and amounts adjusted

Categories A B C

(a) Applied (No. of shares) 2,500 3,000 500

(b) Allotted (No. of shares) 2,500 2,500 Nil

(c) Application money received [(a) x ` 20 per share] 50,000 60,000 10,000

(d) Application money required [(b) x ` 20 per share] 50,000 50,000 (Refunded)

(e) Excess Application money to be adjusted with allotment Nil 10,000 —

[(c)- (d)]

(f) Allotment money due [(b) x ` 30 per share] 75,000 75,000 —

(g) Amount received on allotment [(f) -(e) ] 75,000 65,000 —

Q. 15. On 1st November, 2011 Squash Ltd. was incorporated with an authorized capital of ` 200
crores. It issued to its promoters equity capital of ` 10 crores which was paid for in full. On
that day it purchased the running business of Jam Ltd. for ` 40 crores and allotted at par
equity capital of ` 40 crores in discharge of the consideration. The net assets taken over
from Jam Ltd. were valued as follows: Fixed Assets ` 30 crores, Inventory ` 2 crores,
Customers’ dues ` 14 crores and Creditors ` 6 crores. Squash Ltd. carried on business and
the following information is furnished to you:
(a) Summary of cash/bank transactions (for year ended 31st October, 2012).
(` in crores)

Equity capital raised:

Promoters (as shown above) 10

Others 50 60
Collections from customers 800

Sale proceeds of fixed assets (cost ` 18 crores) 4

864

Payments to suppliers 400

Payments to employees 140

Payment for expenses 100 640

Investments in Upkar Ltd. 20

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(` in crores)

Payments to suppliers of fixed assets:

Instalment due 120

Interest 10 130
Tax payment 54

Dividend 10

Closing cash/bank balance 10

864

(b) On 31st October, 2012 Squash Ltd.’s assets and liabilities were: (` in crores)

Inventory at cost 3

Customers’ dues 80

Prepaid expenses 2

Advances to suppliers 8

Amounts due to suppliers of goods 52

Amounts due to suppliers of fixed assets 150

Outstanding expenses 6

(c) Depreciation for the year under:

(i) Companies Act, 1956 ` 36 crores
(ii) Income tax Act, 1961 ` 40 crores
(d) Provide for tax at 38.5% of “total income”. There are no disallowed expenses for the
purpose of income taxation. Provision for tax is to be rounded off.
For Squash Ltd. prepare:
(i) Revenue statement for the year ended 31st October, 2012 and
(ii) Balance Sheet as on 31st October, 2012 from the above information.
Answer 15.
Name of the Company: Squash Ltd
Balance Sheet as at: 31st October, 2012 (` in ‘000)

Ref No. Particulars Note No. As at 31st As at 31st

March, 2012 March, 2011

1 EQUITY AND LIABILITIES

(a) Share capital 1 100

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Ref No. Particulars Note No. As at 31st As at 31st

March, 2012 March, 2011

(b) Reserves and surplus 2 77.4

(c) Money received against share warrants

2 Share application money pending allotment

3 Non-current liabilities

(a) Long-term borrowings

(b) Deferred tax liabilities (Net)

(c) Other Long term liabilities

(d) Long-term provisions

4 Current Liabilities

(a) Short-term borrowings

(b) Trade payables 3 52

(c) Other current liabilities 4 156

(d) Short-term provisions 5 52

Total (1+2+3+4) 437.40

II ASSETS

1 Non-current assets

(a) Fixed assets

(i) Tangible assets 6 260.4

(ii) Intangible assets

(iii) Capital work-in-progress

(iv) Intangible assets under development

(b) Non-current investments 7 20

(c) Deferred tax assets (Net)

(d) Long-term loans and advances 8 54

(e) Other non-current assets

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Ref No. Particulars Note No. As at 31st As at 31st

March, 2012 March, 2011

2 Current assets

(a) Current investments

(b) inventories 9 3

(c) trade receivables 10 80

(d) Cash and cash equivalents 11 10

(e) Short-term loans and advances 12 10

(f) Other current assets

Total (1+2) 437.40

Name of the Company : Squash Ltd

Profit and Loss Statement for the year ended: 31st October, 2012 (` in ……..)

Ref Particulars Note As at 31st As at 31st

No. No. March, 2012 March, 2011

I REVENUE FROM OPERATION 13 866

Less: Excise duty

866

II OTHER INCOME

III TOTAL REVENUE(I+II) 866

IV EXPENSES:

(a) Cost of material consumed 14 437

(b) Purchase of products for sale

(c) changes in inventories of finished goods, work-in-

progress and products for sale

(d) Employees cost/ benefits expenses 140

(e) Finance cost 10

(f) Depreciation and amortization expenses 36

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Ref Particulars Note As at 31st As at 31st

No. No. March, 2012 March, 2011

(g) Other expenses 15 104

TOTAL EXPENSES 727

V PROFIT BEFORE EXCEPTIONAL AND EXTRAORDINARY ITEMS 139

AND TAX ( III-IV)

VI EXCEPTIONAL ITEMS

VII PROFIT BEFORE EXTRAORDINARY ITEMS AND TAX (V-VI) 139

VIII EXTRAORDINARY ITEMS 0.4

IX PROFIT BEFORE TAX FRON CONTINUING OPERATIONS (VII- 139.40

VIII)

X Tax expenses:

(1) Current Tax 52

(2) deferred tax

XI PROFIT AFTER TAX FOR THE YEAR FROM CONTINUING 87.4

OPERATION(IX-X)

XII Profit (loss) from discontinuing operations

XIII Tax expenses from discontinuing operations

XIV Profit(loss) from discontinuing operations (after tax)(XII-XIII)

XV PROFIT (LOSS) FOR THE PERIOD (XI+XIV) 87.4

Balance brought forward from previous year

Profit available for appropriation 87.4

Appropriation:

Proposed dividend 10

Balance carried forward 77.40

XVI Earning per equity share:

(1) Basic

(2) Diluted

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

(` In crores)

Note 1. Share Capital As at 31st As at 31st

March, 2012 March, 2011

Authorized Equity share capital of ` 10 each 200

Issued, Subscribed and paid-up Share capital: 10 Crores Equity share 100
of ` 10 each (of which 4 crores equity share have been issued for a
consideration other than cash, on take-over of business of Jam Ltd.

Total 100

RECONCILIATION OF SHARE CAPITAL

FOR EQUITY SHARE As at 31st March, 2012 As at 31st March, 2011

Nos. Amount (`) Nos. Amount (`)

Opening Balance as on 01.04.11 (Figure in 10 100

crores)

Add: Fresh Issue (Including Bonus shares, right

shares, split shares, share issued other than cash)

10 100

Less: Buy Back of share

Total 10 100

Note 2. Reserve & Surplus As at 31st As at 31st

March, 2012 March, 2011

Profit and loss A/c 77.40

Total 77.40

Note 3. Trade Payables As at 31st As at 31st

March, 2012 March, 2011

Sundry Creditors 52

Total 52

Note 4. Other Current Liabilities As at 31st As at 31st

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March, 2012 March, 2011

Amount due to supplier of fixed assets 150

Outstanding expenses 6

Total 156

Note 5. Short- term provisions As at 31st As at 31st

March, 2012 March, 2011

Provision for Taxation 52

Total 52

Note 6. Tangible Assets As at 31st As at 31st

March, 2012 March, 2011

Fixed Assets taken over from Jam Ltd 30

Add: Purchase (120+150) 270 300

Less: Sale proceeds 3.60

Less: Depreciation 36 39.60

Total 260.40

Note 7. Non-current Investments As at 31st As at 31st

March, 2012 March, 2011

Investments in Upkar Ltd 20

Total 20

Note 8. Long term loans and advances As at 31st As at 31st

March, 2012 March, 2011

Advance Tax 54

Total 54

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Note 9. Inventories As at 31st As at 31st

March, 2012 March, 2011
Inventories at cost 3

Total 3

Note 10. Trade receivables As at 31st As at 31st

March, 2012 March, 2011

Customer’s Due 80

Total 80

Note [Link] and cash equivalents As at 31st As at 31st

March, 2012 March, 2011
Cash/bank balance 10

Total 10

Note 12. Short-term loans and advances As at 31st As at 31st

March, 2012 March, 2011
Advance to suppliers 8

Prepaid expenses 2

Total 10

Note 13. Revenue from operation As at 31st As at 31st

March, 2012 March, 2011
Sales ( net of Excise Duty) 866

Total 866

Note 14. Cost of materials Consumed As at 31st As at 31st

March, 2012 March, 2011

Prepaid Expenses 2

Stock taken over 438

Purchase 440

Less: Closing Stock 3

Total 437

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Note 15. Other Expenses As at 31st As at 31st

March, 2012 March, 2011
Payment for expenses 100

Add: Outstanding expenses 6

Less: Prepaid expenses (2)

Total 104

Working Notes:

(`. in crores)

(1) Net assets of Jam Ltd. taken over:

Fixed Assets 30

Inventory 2

Customers’ dues 14

46

Less: Creditors 6

40
Purchase consideration: 4 crores equity shares of ` 10 each.
(2) Customers’ Account
Dr. Cr.

Particulars ` Particulars `

To Business Purchase A/c 14 By Bank A/c 800

To Sales A/c (Balancing figure) 866 By Balance c/d 80

880 880

Suppliers’ (Goods) Account

` `

To Bank A/c (400 – 8) 392 By Business Purchase 6

A/c

To Balance c/d 52 By Purchases A/c 438

(Balancing figure)

444 444

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Q. 16. The following Trail Balance has been extracted from the books of Mr. Agarwal as on
31.3.2012:
Trial Balance as on 31.3.2012.

Particulars Dr. Particulars Cr.

(`) (`)

Purchase 6,80,000 Sales 8,38,200

Sundry Debtors 96,000 Capital Account 1,97,000
Drawings 36,000 Sundry Creditors 1,14,000
Bad Debts 2,000 Outstanding Salary 2,500
Furniture & Fixtures 8,100 Sale of Old Papers 1,500
Office Equipments 54,000 Bank Overdraft (UBI) 60,000
Salaries 24,000
Advanced Salary 1,500
Carriage Inward 6,500
Miscellaneous Expenses 12,000
Travelling Expenses 6,500
Stationery & Printing 1,500
Rent 18,000
Electricity & Telephone 6,800
Cash In Hand 5,900
Cash at Bank (SBI) 53,000
Stock (1.4.2011) 50,000
Repairs 7,500
Motor Car 56,000
Depreciation:
Furniture 9,000
Office Equipment 6,000 15,000

12,13,200 12,13,200
Additional Information:
(i) Sales includes ` 60,000 towards goods for cash on account of a joint venture with Mr. Reddy
who incurred ` 800 as forwarding expenses. The joint venture earned a profit of ` 15,000 to
which
Mr. Reddy is entitled to 60%
(ii) To motor car account represents an old motor car which was replaced on 1.4.2011 by a
new motor car costing ` 1,20,000 with an additional cash payment of ` 40,000 laying
debited to Purchase Account.
(iii) UBI has allowed an overdraft limit against hypothecation of stocks keeping a margin of 20%.
The present balance is the maximum as permitted by the Bank.
(iv) Sundry Debtors include ` 4,000 as due from Mr. Trivedi and Sundry Creditors include ` 7,000
as payable to him.
(v) On 31.3.2012 outstanding rent amounted to ` 6,000 and you are informed that 50% of the
total rent is attributable towards Agarwal’s resident.
(vi) Depreciation to be provided on motor car @ 20% (excluding sold item).
Mr. Agarwal requests you to prepare a Trading and Profit & Loss Account for the year ended
31.3.2012 and a Balance Sheet as on that date.

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Answer 16. In the books of Mr. Agarwal

Trading and Profit and Loss Account
Dr. for the year ended 31st March, 2012. Cr.

Particulars Amount Amount Particulars Amount Amount

(`) (`) (`) (`)
To, Opening Stock 50,000 By, Sales 8,38,200
` Purchases 6,80,000 Less: Sale on account of Joint
Venture 60,000 7,78,200
Less: Motor Car 40,000 6,40,000
` Closing Stock 75,0003
` Carriage Inward 6,500
` Profit & Loss A/c. 1,56,700
-Gross Profit transferred
8,53,200 8,53,200
To, Salaries 24,000 By, Trading A/c.
-Gross Profit transferred 1,56,700
` Travelling Expenses 6,500 ` Sale of old papers 1,500
` Printing & Stationery 1,500 ` Profit on Joint Venture 6,000
(40% of ` 15,000)
` Electricity & Telephone 6,800 ` Profit on replacement of 24,0002
Motor Car
[(1,20,000–(56,000+40,000)]
` Rent 18,000

Add: Outstanding 6,000

24,000
Less: Drawings 12,000 12,000
` Bad Debts 2,000
` Miscellaneous Expenses 12,000
` Repairs 7,500
` Depreciation on:
Furniture 9,000
Office Equipment 6,000
Motor Car 24,0001 39,000

` Capital Account
- Net Profit transferred 76,900
1,88,200 1,88,200

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Balance Sheet
as at 31st March, 2013

Liabilities Amount Amount Assets Amount Amount

(`) (`) (`) (`)

Capital Account 1,97,000 Furniture & Fixtures 90,000

Add: Net Profit 76,900 Less: Depreciation 9,000

2,73,900 81,000

Less: Drawings Office Equipment 60,000

(36,000+12,000) 48,000

2,25,900 Less: Depreciation 6,000

Bank Overdraft 60,000 54,000

Creditors 1,14,000 Motor Car 56,000

Less: Due to Trivedi 4,000 Additions 1,20,000

1,10,000 1,76,000

Less: Sold 56,000

1,20,000

Less: Depreciation 24,000

Amount payable to 54,000 96,000

Reddy (60,000 - 6,000)

Outstanding Liabilities: Stock 75,000

Salaries 2,500 Debtors 96,000

Rent 6,000 Less: Due from Trivedi 4,000

8,500 92,000

Cash 9,500

Bank 53,000

Prepaid Salary 1,500

4,58,400 4,58,400

Workings

1. Depreciation on Motor Car

on new motor car i.e., @ 20% on ` 1,20,000 = ` 24,000

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2. Profit on Replacement of Motor Car

Cost of new Motor Car 1,20,000

Less: Exchange Value 56,000

Cash Payment 40,000 96,000

Profit on replacement 24,000

3. Closing Stock

Maximum allowable limit of overdraft subject to a margin of 20% of stock.

Overdraft which is given ` 60,000 that is equal to 80%.

So, value of closing stock = ` 60,000 x (100/80) = ` 75,000.

Q. 17. (a) Ram Ltd. which depreciates its machinery at 10% p.a. on Diminishing Balance
Method, had on 1st January, 2012 ` 9,72,000 on the debit side of Machinery
Account.
During the year 2012 machinery purchased on 1st January, 2010 for ` 80,000 was sold
for ` 45,000 on 1st July, 2012 and a new machinery at a cost of ` 1,50,000 was
purchased and installed on the same date, installation charges being ` 8,000.
The company wanted to change the method of depreciation from Diminishing
Balance Method to Straight Line Method with effect from 1st January, 2009.
Difference of depreciation up to 31st December, 2012 to be adjusted. The rate of
depreciation remains the same as before. Show Machinery Account.
(b) On 1.1.2007, Z Ltd acquired a freehold land & building for ` 10,00,000. It decided the
following for the purpose of depreciation on such building:
(i) the building part, valued ` 8,00,000 depreciated on straight line method for 25
years having no scrap value.
(ii) the land part valued ` 2,00,000, no depreciation will be charged on it.
On 1.1.2012, it was decided that the value of land and building would be ` 20,00,000,
divided into: Land ` 5,00,000 and building ` 15,00,000.
It has also been further estimated that the useful life of the Land and Building would be
further 20 years.
Ascertain the amount of depreciation to be charged annually over the useful life of
Land and Building, the WDV of the same to be shown in Balance Sheet of every year.
Calculate also the surplus on revaluation of land and building in (1) Before
Revaluation, and (2) After the Revaluation.

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Answer 17. (a)

Solution :
In the books of Ram Ltd.
Dr. Machinery Account Cr.
Date Particulars Amount Date Particulars Amount
(`) (`)
01.01.12 To, Balance b/d 9,72,000 01.07.12 By, Depreciation A/c [W.N.3] 3,240
By, Bank A/c - Sale 45,000
(9,07,200+64,800)
By, Loss on sale of Machine
A/c
01.07.12 To, Bank A / c 1,58,000 [W.N.4] 16,560
(1,50,000 + 8,000)

31.12.12 By, Depreciation A/c:

- For the year 2012 1,12,000

- For year 7,900

By, Profit & Loss A/c :

Adjustment 11,200
By, Balance c/d :
- M1 (9,07,200 – 1,12,000 – 7,84,000
11,200)
- M2 Nil

- M 3 (1,58,000 – 7,900) 1,50,100

11,30,000 11,30,000

Working Notes :
(1) At 10% depreciation on Diminishing Balance Method : `
If balance of machinery in the beginning of the year is 10
Depreciation for the year is 1
Balance of Machinery at the end of the year 9
By using the formula, balance of asset on 1st January 2009 will be calculated as follows :
`
Balance as on 1st January, 2012 9,72,000
Balance as on 1st January, 2011 is 9,72,000 x (10/9) = 10,80,000

Balance as on 1st January, 2010 is 10,80,000 x (10/9)= 12,00,000

This balance, ` 12,00,000 is composed of 2 machines, one of ` 11,20,000 and another of `
80,000.
`
Depreciation at 10% p.a. on Straight Line Method on ` 11,20,000 1,12,000

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Total Depreciation for 2010 and 2011 (` 1,12,000 x 2) 2,24,000

Total Depreciation charged for 2010 and 2011 on
Diminishing Balance Method (1,12,000 + 1,00,800) 2,12,800
Balance to be charged in 2012 to change from
Diminishing Balance Method to Straight Line Method 11,200
(2) Machine purchased on 1st January, 2010 for ` 80,000 shows the balance of ` 64,800
on 1st January 2012 as follows :
`
Purchase price 80,000

Less : Depreciation for 2010 8,000

72,000

Less : Depreciation for 2011 7,200

Balance as on Jan. 1, 2012 64,800

(3) On second machine (original purchase price ` 80,000), depreciation at 10% p.a. on `
64,800 for 6 months, viz., ` 3,240 has been charged to the machine on July 1 2012 i.e.,
on date of sale.
(4) Loss on sale of (ii) machine has been computed as under : `
Balance of the machine as on 1.1.2012 64,800

Less : Depreciation for 6 months up to date of sale 3,240

Balance on date of sale 61,560

Less : Sale proceeds 45,000

Loss on sale 16,560
Answer 17. (b)
(i) Before the Revaluation

Annual depreciation on Building = = ` 32,000

Naturally, for the 1st 5 years, annual depreciations to be made @ ` 32,000 each.
The W.D.V of Building for the year ended:

Particulars `

31.12.2007 (` 10,00,000 – ` 32,000) 9,68,000

31.12.2008 (` 9,68,000 – ` 32,000) 9,36,000
31.12.2009 (` 9,36,000 – ` 32,000) 9,04,000
31.12.2010 (` 9,04,000 – ` 32,000) 8,72,000
31.12.2011 (` 8,72,000 – ` 32,000) 8,40,000

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(ii) After the Revaluation

Depreciation to be charged on building by the following new rate = ` 75,000 p.a.

From 1.1.2012, the WDV of the building to be reduced by ` 75,000. The building part will totally
be depreciated after 20 years but the value of the land will be ` 5,00,000.
Profit on Revaluation

Value of Land and Building 20,00,000

Less: Net Book Value as on 31.12.2011 8,40,000

Surplus 11,60,000

As per para 30, AS, 10, this surplus amounting to ` 11,60,000 should be transferred to Revaluation
Reserve.
Q. 18. Brick, Sand and Cement were partners in a firm sharing profits and losses in
the ratio of 3:2:1 respectively.
Following is their Balance Sheet as on 31st December, 2012.

Liabilities ` ` Assets `
Capital Accounts : Land & Buildings 50,000
30,000 Furniture 15,000
Brick
Sand 20,000 Stock 20,000
Cement 10,000 Bill Receivable 5,000
60,000 Debtors 7,500
Reserve
29,800 Cash in hand and at Bank 2,500
Creditors
6,200
Bills Payable 1,00,000 1,00,000
4,000

Lime is to be admitted as a partner with effect from 1st January, 2013 on the following
terms
(a) Lime will bring in ` 15,000 as Capital and ` 12,000 as premium for goodwill. Half of
the premium will be withdrawn by the partners.
(b) Lime will be entitled to : 1/6th share in the profits of the firm.
(c) The assets will be revalued as follows Land and Building— ` 56,000; Furniture
— ` 12.000; Stock— ` 16,000; Debtors — ` 7,000
(d) The claim of a creditor for ` 2,300 is paid at ` 2,000.
(e) Half of the Reserve is to be withdrawn by the partners.
Record the Journal entries (including cash transactions) in the books of the firm and
show the opening Balance Sheet of the new firm.

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Answer 18.

Books of Brick, Sand, Cement and Lime

Journal Entries

Dr. Cr.
Date Particulars L.F. Amount Amount
` `
01.01.13 Bank A/c Dr. 15,000
To Lime’s Capital A/c
15,000
[Being amount contributed by lime on admission as a
new partner]

” Bank A/c Dr. 12,000

To Brick’s Capital A/c [3/6]
6,000
To Sand’s Capital A/c [2/6]
4,000
To Cement’s Capital A/c [1/6]
2,000
[Being premium for goodwill brought in by new
partner and credited to old partners Capitals in their
sacrifice ratio 3:2:1]
” Land and Buildings A/c Dr. 6,000
To Revaluation A/c
6,000
[Being value of Land & Buildings appreciated on
revaluation]

” Revaluation A/c Dr. 7,500

To Furniture A/c
3,000
To Stock A/c
4,000
To Provision for Bad Debts A/c
500
[Being values of assets decreased on revaluation]

” Creditors A/c Dr. 2,300

To Bank A/c
2,000
To Revaluation A/c
300
[Being creditors claim discharged at a discount]

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” Brick’s Capital A/c Dr. 600

Sand’s Capital A/c Dr. 400
Cement’s Capital A/c Dr. 200
To Revaluation A/c 1,200
[Loss on revaluation debited to’ old partners in old
ratio 3 : 2 :1]
” Reserve A/c Dr. 29,800
To Brick’s Capital A/c
14,900
To Sand’s Capital A/c
9,933
To Cement’s Capital A/c
4,967
[Reserve A/c closed and credited to old partners in
” old ratio 3 : 2 :1]
Brick’s Capital A/c Dr. 7,450
Sand’s Capital A/c Dr. 4,967

Cement’s Capital A/c Dr. 2,483

To Bank A/c 14,900
[Half of the Reserve withdrawn by old partners]
” Brick’s Capital A/c Dr. 3,000
Sand’s Capital A/c Dr. 2,000
Cement’s Capital A/c Dr. 1,000
To Bank A/c 6,000
[Half of the premium money withdrawn by old
partners]

Balance Sheet as on
1.1.2013

Liabilities Amount Amount Assets Amount Amount

` ` ` `
Capital Accounts : [Note3] Land & Buildings 56,000
39,850
Brick
26,566 Furniture 12,000
Sand
13,284 Stock 16,000
Cement
15,000 Debtors
Lime 7,500
94,700 Less : Provision for Bad
Creditors [6,200 – 2,300] 3,900 Debts 500
7,000
Bills Payable
4,000 Bill Receivable
1,02,600 Cash in hand and at 5,000
1,02,600
Bank [Note 2] 6,600

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Working Notes :
1. It is assumed that after giving 1/6th share of profits to Lime, the balance will be
shared by old partners in old ratio 3 : 2 : 1. So, Sacrifice Ratio = Old Ratio = 3 : 2 : 1.

2. Cash and Bank `

As per last Balance Sheet 2,500
Add: Lime’s Capital Contribution and Premium (net) 27,000
29,500

Less: Paid to creditors 2,000

Less: Portion of Reserve withdrawn 14,900

Less: Share of premium withdrawn 6,000

6,000
3. Capital Brick Sand Cement Lime

Balances 30,000 20,000 10,000 —

Add: Capital brought in — — — 15,000
Add: Share of Premium for Goodwill 6,000 4,000 2,000 —
Add: Share of Reserves 14,900 9,933 4,967 —
Less: Share of Reserves withdrawn 7,450 4,967 2,483 —
Less: Share of Premium for goodwill withdrawn 3,000 2,000 1,000 —
Less: Loss on Revaluation 39,850
600 26,566
400 13,284
200 15,000
—

Q. 19. The following was the balance sheet of Diamond Ltd. as at 31st March, 2012.

Liabilities ` in lakhs

10% Redeemable Preference Shares of ` 10 each, fully paid up 2,500

Equity Shares of ` 10 each fully paid up 8,000

Capital Redemption Reserve 1,000

Securities Premium 800

General Reserve 6,000

Profit and Loss Account 300

9% Debentures 5,000

Sundry creditors 2,300

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Sundry Provisions 1,000

26,900

Assets ` in lakhs

Fixed assets 14,000

Investments 3,000

Cash at Bank 1,650

Other Current assets 8,250

26,900

On 1st April, 2012 the company redeemed all of its preference shares at a premium of 10% and
bought back 25% of its equity shares @ ` 20 per share. In order to make cash available, the
company sold all the investments for ` 3, 150 lakh and raised a bank loan amounting to ` 2,000
lakhs on the security of the company’s plant.

Pass journal entries for all the above mentioned transactions including cash transactions and
prepare the company’s balance sheet immediately thereafter. The amount of securities
premium has been utilized to the maximum extent allowed by law.

Answer 19.
Journal Entries

Particulars Debit Credit

` `

1. Bank A/c Dr. 3,150 3,000

To Investment A/c
To Profit and Loss A/c
150
(Being sale of investments and profit
thereon)

2. Bank A/c Dr. 2,000

To Bank Loan A/c
2,000
(Being loan taken from bank)

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Particulars Debit Credit

` `

3. 10% Redeemable preference Share

capital A/c
Dr. 2,500
Premium on redemption of preference
shareholder A/c Dr. 200
To Preference shareholder A/c
(Being redemption of preference shares)
2,750

4 Preference shareholders A/c Dr. 2,750

To Bank A/c
2,750
(Being payment of amount due to
preference shareholders)

5. Securities premium A/c Dr. 250

To Premium on redemption of preference
share A/c
(Being use of securities premium to 250
provide premium on redemption of
preference shares)

6. Equity Share capital A/c Dr. 2,000

Securities premium A/c [800 - 250] Dr. 550

General reserves A/c Dr. 1,450

[(200×20) - 2000 - 550]

To Equity shareholders A/c 4,000

(being buy back of equity shares)

Note : Balance of General Reserve

[6000 - 1450] = ` 4550.

7. General Reserves A/ c Dr. 4,500

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Particulars Debit Credit

` `

To Capital redemption reserve A/c (2000 4,500

+ 2500)

(Being creation of capital redemption

reserve to the extent of the face value of
preference share redeemed and equity
shares bought back).

Note: Balance in General reserve as on

01.04.2012

(4550 - 4500) = ` 50.

8. Equity shareholders A/c Dr. 4,000

To Bank A/c 4,000

(Being payment of amount due to equity

shareholders).

Note : Cash at Bank

[1650+3150+2000-2750-4000] = ` 50

Balance Sheet of Diamond Ltd., as on 01.04.2012

Balance Sheet as at: 01.04.2012 (` in lakhs)

Ref No. Particulars Note No. Current Year Previous Year

Reporting Period Reporting Period

` `

1 EQUITY AND LIABILITIES

(a) Share capital 1 6,000

(b) Reserves and surplus 2 6,000

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( c) Money received against share warrants

2 Share application money pending

allotment

3 Non-current liabilities

(a) Long-term borrowings 3 7,000

(b)Deferred tax liabilities (Net)

(c ) Other Long term liabilities

(d) Long-term provisions

4 Current Liabilities

(a) Short-term borrowings

(b) Trade payables 2,300

(c )Other current liabilities

(d) Short-term provisions 4 1,000

Total(1+2+3+4) 22,300

1 ASSETS

Non-current assets

(a) Fixed assets

(i) Tangible assets 5 14,000

(ii) Intangible assets

(iii) Capital work-in-progress

(iv) Intangible assets under

development

(b) Non-current investments (Market value

of Investment)

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( c)Deferred tax assets (Net)

(d) Long-term loans and advances

(e) Other non-current assets

2 Current assets

(a)Current investments

(b) inventories

(c ) trade receivables

(d) Cash and cash equivalents 50

(e)Short-term loans and advances

(f) Other current assets 8,250

Total(1+2) 22,300

Notes to the Accounts

(` in crores)

Note 1. Share Capital Current Year Previous Year

Reporting Period Reporting
(`) Period(`)

Issued Capital , Subscribed and Paid Up capital

Equity Shares of ` 10 each 6,000

Total 6,000

Note 2. Reserve and Surplus Current Year Previous Year

Reporting Period Reporting Period

Capital Redemption Reserve (1,000+4,500) 5,500

General Reserve 50

Profit and Loss(300+150) 450

Total 6,000

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Note 3. Long Term borrowings Current Year Previous Year

Reporting Period Reporting Period

9% Debenture 5,000

Bank Loan 2,000

Total 7,000

Note 4. Short Term Provisions Current Year Previous Year

Reporting Period Reporting Period

As per Balance Sheet 1,000

Total 1,000

Note 4. Tangible Assets Current Year Previous Year

Reporting Period Reporting Period

As per Balance Sheet 14,000

Total 14,000

Q. 20. Partners M, N and P have called upon you to assist them in winding up the affairs of
their partnership on 30th June, 2012. Their Balance Sheet as on that date is given below :

Liabilities Amount Assets Amount

` `

Sundry Creditors 17,000 Cash at Bank 6,500

Capital Sundry Debtors 22,000
Accounts : M 67,000 Stock in trade 13,500
N 45,000 Plant and Equipment 99,000
P 31,500 Loan : M 12,000
Loan : N 7,500

1,60,500 1,60,500

(a) The partners share profits and losses in the ratio of 5 : 3 : 2.

(b) Cash is distributed to the partners at the end of each month.
(c) A summary of liquidation transaction are as follows :
July :
` 16,500 — collected from Debtors; balance is irrecoverable.
` 10,000 — received from sale of entire stock.
` 1,000 — liquidation expenses paid.

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` 8,000 — cash retained in the business at the end of the month.

August :
` 1,500 — liquidation expenses paid; as part of the payment of his capital, P accepted an
equipment for ` 10,000 (book value ` 4,000).
` 2,500 — cash retained in the business at the end of the month.

September :
` 75,000 — received on sale of remaining plant and equipment.
` 1,000 — liquidation expenses paid. No cash is retained in the business.
Required : Prepare a Schedule of cash payments as on 30th September, showing how the
cash was distributed.
Answer 20.
Statement showing the Distribution of Cash (According to Proportionate Capital Method)

Particulars Creditors Capital

`
M N P
` ` `

A. Balance Due 17,000 55,000 37,500 31,500

B. Amount distributed as on 31st July 17,000 — — 6,500
C. Balance Due (A – B) — 55,000 37,500 25,000
D. Cash paid to ‘N’ and
Equipment given to P on 31st August. — 4,000 10,000
E. Balance due (C – D) 55,000 33,500 15,000
F. Amount paid to partners on 41,500 25,400 9,600
30th September
G. Loss on Realisation 13,500 8,100 5,400
(Unpaid Balance) [E – F]

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Working Notes :
(i) Statement showing the Calculation of Highest Relative Capital

Particulars M N P

A Balance of Capital Accounts 67,000 45,000 31,500

B Less : Loan 12,000 7,500 —
C Actual Capital (A – B) 55,000 37,500 31,500
D Profit sharing ratio 5 3 2
E Actual Capital ÷ Profit sharing ratio 11,000 12,500 15,750
F Proportionate Capitals taking M’s Capital as Base Capital 55,000 33,000 22,000
G Excess of Actual Capitals over Proportionate 4,500 9,500
Capitals (C - F)
H Profit Sharing Ratio — 3 2
I Surplus Capital ÷ Profit Sharing Ratio — 1,500 4,750
J Revised Proportionate Capital taking N’s — 4,500 3,000
Capital as Base Capital
K Excess of Surplus Capital over Revised — — 6,500
Proportionate Capitals (G - J)

Scheme of distribution of available cash : First instalment up to ` 6,500 will be paid to P. Next
instalment up to ` 7,500 will be distribution between N and P in the ratio of 3 : 2. Balance
realisation will be distributed among M, N and P in the ratio of 5 : 3 : 2.

(ii) Statement showing the Calculation of Cash Available for Distribution

Particulars July August September

` ` `

A Opening Balance 6,500 8,000 2,500

B Add : Net amount realised 25,000 (1,500) 74,000
(Gross amount — Expenses)
C Less : Closing Balance 8,000 —
2,500
D Amount available for distribution (A + B – C) 23,500 76,500
4,000

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(iii) Statement showing the Manner of Distribution of amount available in August and September

Particulars July August September

` ` `

First ` 7,500 — 4,500 3,000

Balance ` 83,000 41,500 24,900 16,600
(Cash and Equipment) 41,500 29,400 19,600
Less : Actual Distribution in August — 4,000 10,000
Manner of Distribution in September 41,500 25,400 9,600

Q. 21. Anumod Ltd. is a retail store having 2 Departments P and Q. The Company maintains
a Memorandum Stock Account & Memorandum Mark Up Account for each of the
Departments. Supplies issued to the Departments are debited to the Memorandum Stock
Account of the Department at Cost plus Mark Up, and Departmental Sales are credited to this
Account. The Mark Up on supplies issued to the Departments is credited to the Mark Up
Account for the Department. When it is necessary to reduce the Selling Price below the Normal
Selling Price, i.e. Cost plus Mark Up, the reduction (Mark Down) is entered in the Memorandum
Stock Account & Mark Up Account. Department P has a mark up of 33-1/3% on Cost, and
Department Q has a mark-up of 50% on cost.

The following information has been extracted from the records of the Company for a year
ended 31st December, 2012.

Particulars P (`) Q (`)

Opening Stock (at Cost) 24,000 36,000
Purchases 162,000 190,000
Sales 210,000 285,000

1. Opening Stock of Department P includes goods on which the Selling Price has been
marked down by ` 510. These goods were sold in January at the reduced Selling
Price.
2. Certain goods purchased during the year for ` 2,700 for Department P, were transferred
during the year to Department Q & sold for ` 4,500. Purchases & Sales are
recorded in the Purchases of Department P & the Sales of Department Q respectively,
but no entries have been made in respect of the transfer.
3. Goods purchased during the year were marked down as follows :
Particulars P (`) Q (`)
Cost 8,000 21,000
Mark down 800 4,100

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At the end of the year there were some items in the stock of Department Q, which had been
marked down to ` 2,300. With this exception, all goods marked down during the year
were sold during the year at reduced prices.
4. During stock-taking at the end of the year, goods which had cost ` 240 were found to
be missing in Department P. It was determined that loss should be regarded as
irrecoverable.
5. The Closing Stock in both Departments are to be valued at Cost for the purpose of
the annual accounts.
Prepare for the year ended 31st December the following accounts - (a) Trading
Account; (b) Memorandum Stock Account and (c) Memorandum Mark Up Account.

Answer 21.
Dr. 1. Memorandum Stock Account Cr.
Particulars P (`) Q (`) Particulars P (`) Q (`)

To Balance b/d (given cost 32,000 54,000 By Balance b/d (mark down 510
+ 33-1/3% & 50% mark up) - given)
To Purchases (given) By Sales (given)
162,000 190,000 By Internal 210,000 285,000
To Memorandum Mark Up
54,000 95,000 Transfer -per contra 2,700 —
(33-1/3% & 50% on pur.)
By Memorandum Mark
To Internal Transfer - per
contra — 2,700 Up (Mark up on Transfer) 900 —
To Memorandum Mark Up By Memorandum Mark
Up (Mark Down - given)
(50% on Internal Tfr)
— 1,350 By Abnormal Loss-Cost 800 4,100
To Memorandum Mark Up (on
transferred to P & L A/c
Marked Down Goods still in stock
—
- See Note 1) — 3 4 4 By Memorandum Mark 240
Up ( Mark up on Stock Lost)
By Balance c/d (Closing —
248,000 343,394 Stock - balancing figure) 80
248,000 343,394

54,294
32,770

Note 1 : Mark Down in Unsold Stock of Department Q

Total Mark down x Value of Stock = 4,100 x2,300 = ` 344

Value of Mark down goods 27,400 *

* Value of Mark Down Goods =
Cost = ` 21,000
Add: Normal Mark Up 50% ` 10,500
Less: Amount Marked Down = ` 4,100 (given)
= ` 27,400

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Note 2 : Valuation of Closing Stack at cost :

Department P (`) Q (`)

Closing Stock at Invoice Price as per Memorandum 32,770 54,294

Stock A/c
Closing Stock at Cost after reducing 1/3 and 1/2 32,770 – 1/4 54,294 - 1/3
on cost = 1/4 and 1/3 on the Invoice Price respectively thereon = 24,578 thereon = 36,196

Dr. 2. Trading Account for the year ended 31st December, 2012 Cr.
Particulars P (`) Q (`) Particulars P (`) Q (`)

To Opening Stock 24,000 36,000 By Sales 210,000 285,000

To Purchases 162,000 190,000 By Internal Transfer 2,700 —
To Internal Transfer — 2,700 By Abnormal Loss 240 —
To Gross Profit 51,518 92,496 By Closing Stock (Note 2) 24,578 36,196

237,518 321,196 237,518 321,196

Dr. 3. Memorandum Mark Up Account Cr.

Particulars P (`) Q (`) Particulars P (`) Q (`)

To Balance b/d (Mark 510 — By Balance b/d (33-1/3% 8,000 18,000

Down-given - per contra) and 50% on cost given)
To Memorandum Stock By Memorandum Stock
900 54,000 95,000
A/c (Mark up on Transfer) (Mark Up on Purchase)
To Memorandum Stock By Memorandum Stock
A/c (Mark Down - given) 800 (Mark Up on Int. transfer) 1,350
4,100
To Memorandum Stock By Memorandum Stock
A/c (Mark up on Goods Lost) A/c (marked down goods
still in stock) 80 — 344
To Gross Profit (as above)
63,694 1,13,00 63,694 1,13,000
To Balance c/d (bal. fig.) 51,518 92,4960
9,886 16,404

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4. Confirmation / Verification of Gross Profit

Department P (`) Q (`)

Sales (given) 210,000 285,000

Add back : Reduction/Mark down (510+800) = 1,310 (4,100-344) = 3,756
Total 211,310 288,756
Normal Gross Profit at 1/4 and 1/3 of above (1/4) = 52,828 (1/3) = 96,252
Less : Reduction/Mark down 1,310 3,756
Gross Profit (as per Memo Mark Up A/c) 51,518 92,496

Q. 22. A, B and C are in partnership sharing profit and losses equally and agreed to dissolve the
firm on 30.06.2012. On that date their Balance Sheet stood on follows:
Balance Sheet
as at 30th June, 2012

Liabilities Amount Asset Amount

` `

Capital A/c Sundry Asset 50,000

A 34,000 Profit & Loss A/c 12,000
B 24,000 58,000 Capital A/c
Creditors 12,000 C 8,000

70,000 70,000

The assets are realised at 50% of the book value. Realization expenses amounted to ` 5,000. C
became insolvent and received ` 2,000 from his [Link] the book of the firm under (i) Fixed
Capital Method and (ii) Fluctuating Capital Method applying Garner Vs. Murray principles.
Answer 22. In the books of A, B & C
Dr. Realization Account Cr.

Particulars Amount Particulars Amount

` `

To Sundry Asset A/c 50,000 By Bank A/c

` Bank A/c Amount Realised 25,000
Expense 5,000 ` Capital A/c
Loss on Realization
A 10,000
B 10,000
C 10,000 30,000

55,000 55,000

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Working:
(a) Under Fixed Capital Method
Deficiency of the insolvent partner Mr. C must be borne by the solvent partner A and B as
per their last agreed capital given in the Balance Sheet i.e., 17:12.
(b) Under Fluctuating Capital Method
Deficiency of the insolvent partner Mr. C must be borne by the solvent partners A & C as the
following adjusted capital which will be considered as the last agreed capital i.e., after
adjusting the debit balance of Profit and Loss Account.

Particulars A B
` `

Capital as per Balance Sheet 34,000 24,000

Less: Debit balance of P&L A/c (-) 4,000 (-) 4,000
(equally)

30,000 20,000

Ratio = 3:2
(a) Capital Account under Fixed Capital Method
Dr. Capital Account Cr.

Particulars A B C Particulars A B C

` ` ` ` ` `

To Balance b/d --- --- 8,000 By Balance b/d 34,000 24,000 ---

` Realisation A/c ` Bank A/c --- --- 2,000

Loss 10,000 10,000 10,000 ` Bank A/c 10,000 10,000 ---

` Profit & Loss A/c ` A’s Capital --- --- 11,724

Loss 4,000 4,000 4,000 ` B’s Capital --- --- 8,276

` Z’s Capital A/c 11,724 8,276 ---

` Bank A/c 18,276 11,724 ---

(bal. fig.)

44,000 34,000 22,000 44,000 34,000 22,000

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Dr. Bank Account Cr.

Particulars ` Particulars `

To Balance b/d 25,000 By Realisation A/c

` Capital A/c Expenses 5,000
A 10,000 ` Creditors 12,000
B 10,000 ` Capital A/c
C 2,000 A 18,276
22,000 B 11,724

47,000 47,000

(b) Under Fluctuating Capital Method

Dr. Capital Account Cr.

Particulars A B C Particulars A B C
` ` ` ` ` `

To Balance b/d --- --- 8,000 By Balance b/d 34,000 24,000 ---
` Realisation A/c ` Bank A/c 10,000 10,000 ---
Loss 10,000 10,000 10,000 ` Bank A/c --- --- 2,000
` Profit & Loss A/c ` A’s Capital --- --- 12,000
Loss 4,000 4,000 4,000 ` B’s Capital --- --- 8,000
` C’s Capital A/c 12,000 8,000 ---
` Bank A/c 18,000 12,000 ---
(bal. fig.)

44,000 34,000 22,000 44,000 34,000 22,000

Dr. Bank Account Cr.

Particulars ` Particulars `

To Realisation A/c 25,000 By Realisation A/c

Assets realized Expenses 5,000
` Capital A/c ` Creditors 12,000
10,000
A ` Capital A/c
10,000

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B 2,000 A 18,000
C B 12,000

47,000 47,000

Q. 23. (a) The financial statements of Ankita Ltd. for the year ended 31.3.2012 were considered
and approved by the Board of Directors on 20.5.2012.
“The company was engaged in construction work involving ` 10 crores. In the course
of execution of work a portion of factory shed under construction came crashing
down on 30.5.2012. Fortunately there was no loss of life, but the company will have to
rebuild the construction at an additional cost of ` 2 crores which cannot be recovered
from the contractee.”
How should this event be reported?
(b) M Ltd. has obtained an institutional loan of ` 680 lakhs for modernisation and
renovation of its Plant and Machinery. Plant and Machinery acquired under the
Modernisation Scheme and installation completed on 31.3.2012 amounted to ` 520
lakhs. ` 30 lakhs has been advanced to suppliers for additional assets and the
balance loan of ` 130 lakhs has been utilised for Working Capital purpose. The total
interest paid for the above loan amounted to ` 68 lakhs during 2011-2012.
You are required to state how the interest on the institutional loan is to be accounted
for in the year 2011-2012.
(c) Compute EPS:
i) Net profit for 2010 ` 11,00,000
Net profit for 2011 ` 15,00,000
ii) Nos. of shares outstanding prior to Right Issue: 5,00,000 shares as on 1-01-2011
iii) Right Issue: one new share for 5 outstanding i.e. 1,00,000 new shares
iv) Right price: ` 15
v) Last date of right option: 1st March 2011
vi) Fair value prior to the right option on 1st march 2011 : ` 21 per equity share
Answer 23. (a)
As per AS 4 “Events Occurring After the Balance Sheet Date” are those significant events, both
favourable and unfavourable, that occur between the Balance Sheet date and the date on
which the financial statements are approved by the Board of Directors in the case of a
company, and, by the corresponding approving authority in case of any other entity.
However, in the present case, financial statements were prepared for the year ended 31.3.2012,
the final statements were approved by the Board of Directors on 20.5.2012, and a portion of
construction crashed down on 30.5.2012, The present unfavourable event is not an event which
comes under “Events Occurring After the Balance Sheet Date.” As such, no adjustment is

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required against assets and liabilities and, at the same time, it does not require to disclose the
matters in the financial statement.
But as it is, no doubt, a material change which affects the financial position and which
happened as a result of the event occurred after the Balance Sheet date, the same should be
mentioned in the Directors’ Report of the company.

Answer 23. (b)

Interest on borrowed Capital which are used for the purpose of acquisition/construction of fixed
asset during the period up to the completion stage or acquisition should be added to the gross
book value of the concerned fixed assets. As such, the institution loan amounting to ` 520 lakhs
together with interest of ` 52 lakhs (shown below) should be added to the gross book value of
the fixed asset.
But, advance to supplier for additional assets amounting to ` 30 lakhs together with interest of ` 3
lakhs (shown below) may be treated as capital work-in-progress and the same should be
capitalised at a subsequent date.
Similarly, loan taken for working capital purpose amounting to ` 130 lakhs and interest on it of `
13 lakhs (shown below) should be charged against current year’s Profit and Loss Account.
Thus, the whole matter stands as:

Items Percentage of Term Amount Amount of Interest

Loans to Total ` `

Acquisition of Plant &

76.47% 520 52
Machinery

Advance to Suppliers 4.41% 30 3

Working Capital Loan 19.12% 130 13

100.00% 680 68

Answer 23. (c)

1) Theoretical ex-right fair value per share:
[(` 21 x 5,00,000) + (` 15 x 1,00,000)] / (5,00,000+ 1,00,000)
i.e. 1,20,00,000/6,00,000 = ` 20/-

2) Adjustment factor:- fair value prior to exercise of rights/theoretical ex-right value. i.e.
21/20=1.05

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3) Computation of EPS:

Year 2010 Year 2011

EPS as originally reported

` 11.00,000/5,00,000 shares ` 2.20

EPS restated for right issue

` 11,00,000/(5,00,000 x ` 1.05) ` 2.10

EPS-for 2011 including rights

` 15,00,000/(5,00,000x 1.05x2/12) + (6.00,000x 1 0/12) ` 2.55

Q. 24. Two partnership firms, carrying on business under the style of R & Co. (Partners A & B) and
W & Co. (Partners C & D) respectively, decided to amalgamate into RW & Co. with effect
from 1st April 2013. The respective Balance Sheets of both the firms as on 31st March,
2013 are in below :

Liabilities R (`) W (` ) Assets R (` ) W (` )

Capital B 19,000 - Goodwill - 5,000
Capital C - 10,000 Machinery 10,000 -
Capital D - 2,000 Stock-in-trade 20,000 5,000
Bank Loan Creditors 15,000 - Sundry Debtors 10,000 10,000
10,000 9,500 Cash in hand - 1,500
Capital - A 4,000 -
44,000 21,500 44,000 21,500
Profit sharing ratios are : A & B = 1:2; C & D = 1:1. Agreed terms are :

1. All fixed assets are to be devalued by 20%.

2. All stock in trade is to be appreciated by 50%.

3. Red & Company owes ` 5,000 to White & Co. as on 31st March 2013. This is settled at `
2,000. Goodwill is to be ignored for the purpose of amalgamation.
5. The fixed capital accounts in the new firm (RW & Co.) are to be : Mr A ` 2,000; Mr. B ` 3,000;
Mr C ` 1,000 and D ` 4,000.
6. Mr. B takes over bank overdraft of Red & Co. and contributed to Mr. A the amount of
money to be brought in by Mr. A to make up his capital contribution.
7. Mr C is paid off in cash from White & Co. and Mr. D brings in sufficient cash to make up his
required capital contribution.
Pass necessary Journal entries to close the books of both the firms as on 31st March 2013.

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Answer 24.
Calculation of Purchase Consideration

Assets taken over : R & Co. W & Co.

Plant & Machinery 8,000 -
Stock-in-trade 30,000 7,500
Sundry Debtors [(* After adjustment (` 10,000 – 3000)] 10,000 *7,000
(A) 48,000 14,500

Liability taken over:

(B)
Sundry Creditors 7,000 9,500

Purchase consideration (A-B) 41,000 5,000

In the books of R & Co.
Journals
Dr. Cr.

Date Particulars L.F Amount Amount

` `
31.3.13 Realisation A/c Dr. 40,000
To Plant and Machinery A/c
To Stock-in-trade A/c 10,000
To Sundry Debtors A/c 20,000
(Different assets transferred) 10,000

Sundry Creditors A/c Dr. 10,000

To Realisation A/c
(Sundry creditors transferred to Realisation Account) 10,000

Bank Loan A/c Dr. 15,000

To B Capital A/c 15,000
(Bank overdraft taken over by B)
RW & Co. A/c Dr. 41,000
To Realisation A/c
(Purchase consideration due) 41,000

Realisation A/c (Note 2) Dr. 11,000

To A Capital A/c
To B Capital A/c 3,667
(Profit on realisation transferred to partners capital in the 7,333
ratio of 1:2)

B Capital A/c Dr. 2,333

To A Capital A/c
(Deficit in A’s capital made good by B) 2,333

A Capital A/c Dr. 2,000

B Capital A/c Dr. 39,000
To RW & Co. A/c
(Capital accounts of the partners closed by transfer to 41,000
RW & Co.)

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Note: It should be noted that the credit balance in B’s capital account is ` 39,000. His agreed
capital in RW & Co is ` 3,000 only. Since there is no liquid assets in Black & Co. from which B can
be repaid, the excess amount of ` 36,000 should be taken over by RW & Co. as loan from B.

In the books of W & Company

Journals
Dr. Cr.

Date Particulars L.F Amount Amount

` `

31.3.13 Realisalion A/c Dr. 20,000

To Goodwill A/c
5,000
To Stock-in-trade A/c
5,000
To Sundry Debtors A/c
10,000
(Different Assets
transferred)
Sundry Creditors A/c Dr. 9,500
To Realisation A/c
9,500
(Sundry creditors transferred)

RW & Co. A/c Dr. 5,000

To Realisation A/c
5,000
(Purchase consideration due)

C’s Capital A/c Dr. 2,750

D’s Capital A/c Dr. 2,750
To Realisation A/c
(Loss on realisation transferred to Capital 5,500
Account equally)
Bank A/c Dr. 4,750
To D’s Capital A/c
4,750
(Being the necessary amount brought in by D
to make up his required capital contribution)

C’s Capital A/c Dr. 7,250

D’s Capital A/c Dr. 4,000
To R & Co. A/c
To Bank A/c 5,000

(Capital accounts of the partners closed by 6,250

transfer to RW & Co. and balance paid by
cash)

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Realization Account
Dr. Cr.

Particulars R & Co. W & Co. Particulars R & Co. W & Co.
` ` ` `
To Goodwill - 5,000 By Creditors 10,000 9,500
“ Machinery 10,000 - By RW & Co. 41,000 5,000
“ Stock-in-trade 20,000 5,000 By C’s Capital 2,750
“ Sundry Debtors 10,000 10,000 2,750
By D’s Capital
“ Cash in hand -
“ A’s Capital 3,667
“ B’s Capital 7,333
51,000 20,000 51,000 20,000

Q. 25. The Balance Sheet of Pixel Ltd. as on 31st March 2012 is given below:

Liabilities ` in Lakh Assets ` in Lakh

Share Capital: Fixed Assets 140

10,00,000 Equity shares of Investments 40

` 10 each 100 Stock 46

1,00,000 Redeemable Pref. Debtors 30

shares of `100 each 100 Bank 30

Less: Call-in-arrears on (4)

20,000 shares

Security premium account 15

Reserve 30

Profit and Loss account 15

Creditors 30

286 286

On 1st April 2012, fixed assets costing ` 40 Lakh were sold for ` 32 Lakh. On the same date it was
decided to redeem the preference shares at a premium of 20% by issuing sufficient number of
equity shares at a discount of 10% subject to leaving a balance of ` 10 Lakh in the reserve. All
the payments were made except to a holder of 10000 shares who could not be traced. The

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company also made bonus issue to the existing equity shareholders in the ratio of 1: 10. You are
required to pass the necessary journal entries.

Answer 25.
Workings:

Requirement of Fund for Redemption

No. Rate ` in Lakh

Pref Shares 1,00,000 100 100

Calls in Arrear 20,000 100 20

Bal. to be redeemed 80,000 80

Prem on redemption 20% 16

Total Fund requirement 96

Sources Nominal Premium Total

Value

Requirement 80 16 96

Securities Prem. A/c 15 15

P/L A/c 6 1 7

General Reserve 20 20

Balance fund requirement 54 54

(From fresh issue)

Discount (10%) 6

New Issue 60

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Actual payment made = (80000-10000)*120 = ` 84 Lakh

Transfer to Capital Redemption Reserve ` in Lakh ` in Lakh

From P/L A/c

Balance 15

Less: Loss on Sale of Assets 8

Balance 7

Less: Used for Premium on Redemption of

Pref. Shares 1 6

From General Reservet 20

Total 26

In the books of Pixel Ltd.

Journal entries

Dr. Cr.

Journal Entry ` in Lakh ` in Lakh

Red. Pref. Share Capital A/c Dr. 80

Premium on Redemption A/c Dr. 16

To Red. Pref. Shareholders A/c 96

(Amount due on Redemption)

Bank A/c Dr. 32

Profit and Loss A/c Dr. 8

To Fixed Assets A/c 40

(Sale of Fixed Assets, Loss transferred)

Bank A/c Dr. 54 60

Discount on issue of Shares A/c Dr. 6

To Equity Share Capital A/c

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Dr. Cr.

Journal Entry ` in Lakh ` in Lakh

( Issue of new shares)

Securities Premium A/c Dr. 15

Profit and Loss A/c Dr. 1

To Premium on Redemption A/c 16

( Transfer)

Red. Pref. Shareholders A/c Dr. 84

To Bank A/c 84

(Payment to Pref. Shareholders)

General Reserve A/c Dr. 20

Profit and Loss A/c Dr. 6

To Capital Redemption Reserve A/c 26

(Transfer)

Capital Redemption Reserve A/c Dr. 16

To Bonus to Shareholders A/c 16

(Bonus declared)

Bonus to Shareholders A/c Dr. 16

To Equity Share Capital A/c 16

(Conversion of Bonus Shares to Equity Shares)

Q. 26. (a) On 01.01.2007 S Ltd. had 2,000, 12% Debentures of ` 100 each. On 01.05.2007 the
company purchased 400 own Debentures at ` 97 cum-interest in the open market.
Interest on debenture is payable on 30the June and 31st Dec. each year.
Required: Give the necessary journal entires assuming (i) that the own Debentures
purchased were cancelled immediately and (ii) the the own Debentures purchased
were retained as investments till 31.12.2012 on which date they were cancelled.

(b) On 1st April 2008. H Ltd. issued 442, 10% Debentures of ` 1000 each at a discount of
10% redeemable at a premium of 5% after 4 years. It was decided to create a Sinking

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Fund for the purposes of accumulating sufficient funds to redeem the Debentures and
to invest in some radily convertible securities yielding 10% interest p.a. Reference to
the table shows that ` 1.00 p.a. at 10% compound interest amounts to ` 4.641 in 4
years. Investments are to be made in the Bonds of ` 1000 each available at par.
On 31st March 2012, the investments realised ` 3,40,000 and debentures were
redeemed. The bank balance as on that date was ` 50,000.
Required: Prepare Debenture Redemption Fund Account and Debenture Redemption
Fund Investments Account for 4 years.

Answer 26. (a)

(i) If own Debentures were cancelled immediately on date of purchase.

Journal

Date Particulars L.F. Dr. (` ) Cr. (` )

2007

May 01 12% Debentures A/c Dr. 40,000

Debentures Interest A/c Dr. 1,600

To Bank A/c 38,800

To Capital Reserve A/c 2,800

(Being 400 debentures cancelled by

purchase

@ ` 97 cum-interest)

June 30 Debentures Interest A/c Dr. 9,600

To Bank A/c 9,600

(Being the interest paid on ` 1,60,000 @ 12%

p.a. for 6 months)

Dec. 31 Debenture Interest A/c Dr. 9,600

To Bank A/c 9,600

(Being the interest paid on ` 1,60,000 @ 12%

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Date Particulars L.F. Dr. (` ) Cr. (` )

p.a. for 6 months)

Dec. 31 Profit & Loss A/c Dr. 20,800

To Debenture Interest A/c 20,800

(Being the transfer of debenture interest to P

& L A/c)

Dec. 31 Profit & Loss Appropriation A/c Dr. 37,200

To Debenture Redemption Reserve A/c 37,200

(Being the transfer of an amount equivalent to

the cash sum applied (towards principal) in
redeeming the debentures to DRR out of
profits)

(ii) If own debentures were cancelled on 31.12.2012.

Journal of X Ltd.

Date Particulars L.F. Dr. (` ) Cr. (` )

May 01 Own Debentures A/c Dr. 37,200

Debentures Interest A/c 1,600

To Bank A/c 38,800

(Being the purchase of 400 debentures @ ` 97

cum-interest)

June 30 Debentures Interest A/c Dr. 10,400

To Interest on Own Debentures A/c 800

To Bank A/c 9,600

(Being the Interest paid/credited on `

1,60,000

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Date Particulars L.F. Dr. (` ) Cr. (` )

debentures held by outsiders for 6 months &

on

` 40,000 own debentures for 2 months)

Dec. 31 Debenture Interest A/c Dr. 12,000

To Bank A/c 9,600

To Interest on Own Debentures A/c 2,400

(Being the interest paid/credited on `

1,60,000 debentures held by outsiders and `
40,000 own debentures for 6 months)

Dec. 31 Profit & Loss A/c Dr. 24,000

To Debenture Interest A/c 24,000

(Being the transfer of debenture interest to P

& L A/c)

Dec. 31 Interest on Own Debentures A/c Dr. 3,200

To Profit & Loss A/c 3,200

(Being the transfer of interest on own

debentures to P & L A/c)

Dec. 31 12% Debentures A/c Dr. 40,000

To Own Debentures A/c 37,200

To Capital Reserve A/c 2,800

(Being the cancellation of 200 own

debentures)

Dec. 31 Profit & Loss Appropriation A/c Dr. 37,200

To Debenture Redemption Reserve A/c 37,200

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Date Particulars L.F. Dr. (` ) Cr. (` )

(Being the transfer of an amount equivalent

to the cash sum applied in redeeming the
debentures)

Answer 26. (b)

DRF = Debenture Redemption Fund, DRFI = Debenture Redemption Fund Investment

Dr. Discount on Issue of Debentures Account Cr.

Date Particulars ` Date Particulars `

31.03.09 To Balance c/d 1,00,000 31.03.09 By P & L App. A/c 1,00,000

31.03.10 To Balance c/d 2,10,000 01.04.09 By Balance b/d 1,00,000

31.03.10 By Interest on DRFI A/c 10,000

By P & L App. A/c 1,00,000

2,10,000 2,10,000

31.03.11 To Balance c/d 3,31,000 01.04.10 By Balance b/d 2,10,000

31.03.11 By Interest on DRFI A/c 21,000

By P & L App. A/c 1,00,000

3,31,000 3,31,000

31.03.12 To Loss on issue of 01.04.11 By Balance b/d 3,31,000

Debentures By Interest on DRFI A/c 33,100

(premium) 22,100 By P & L App. A/c 91,000

To Debenture By Debenture Red.

Redemption Fund Investment A/c

Reserve A/c 4,52,000 (profit) 19,000

4,74,100 4,74,100

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Dr. Debentures Redemption Fund Investment (DRFI) Account Cr.

Date Particulars ` Date Particulars `

31.03.09 To Bank A/c 1,00,000 31.03.09 By Balance c/d 1,00,000

01.04.09 To Balance b/d 1,00,000 31.03.10 By Balance c/d 2,10,000

31.03.10 To Bank A/c 1,10,000

2,10,000 2,10,000

01.04.10 To Balance b/d 2,10,000 31.03.11 By Balance c/d 3,31,000

31.03.11 To Bank A/c 1,21,000

3,31,000 3,31,000

01.04.11 To Balance b/d 3,31,000 31.03.12 By Bank A/c 3,50,000

31.03.12 To Debenture (Sales)

Redemption

Fund A/c (Profit) 9,000

3,50,000 3,50,000

Working Note:
(i) Calculation of the amount of profit set aside
`
a. Face Value of Debentures 4,42,000
b. Premium Premium Payable on Redemption 22,100
c. Depreciable Cost (A + B) 4,64,100
d. Value of annuity per Re 1 4,641
e. Annual amount to be charged (C/D) 1,00,000

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(ii) Calculation of the amount of investments and interest

Year Opening Balance Interest Saving Investments Closing Balance

a b c = b×10/100 d e=c+d f=b+e

2008-09 — — 1,00,000 1,00,000 1,00,000

2009-10 1,00,000 10,000 1,00,000 1,10,000 2,10,000

2010-11 2,10,000 21,000 1,00,000 1,21,000 3,31,000

2011-12 3,31,000 33,100 1,00,000 — —

Q. 27. The following are the Financial Statements of Whole selling Company, for the last two
years –
Profit and Loss Account (in ` 000s)

Year ending 31st December Last Year This Year

Turnover - Credit Sales 2,200 2,640

- Cash Sales 200 160

2,400 2,800
Less: Cost of Sales (1,872) (2,212)
Gross Profit
528 588
Less: Indirect Expenses
Distribution Costs
278 300
Administration Expenses (390) (414)
112 (114)

Operating Profit 174

138
Less: Interest Payable (32)
-

Profit on Ordinary Activities before Tax 138 142

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Balance Sheet as at the end of the last two years(in ` 000s)

Particulars Last Year (`) This Year (`)

Tangible Fixed Assets 220 286

Current Assets:
— Stocks 544 660
— Debtors 384 644
— Cash at Bank 8 110

936 1,414
Less : Trade Creditors
(256) (338)

Net Current Assets 680 1,076

Total Capital Employed (Fixed Assets + Net Current 900 1,362
Assets)
Less: Debentures and Loans - (320)

Shareholders’ Funds 900 1,042

You may assume that:

The range of products sold by the Company remained unchanged over the two years.
The Company managed to acquire its products this year at the same prices as it acquired
them last year.

The effects of any inflationary aspects have been taken into account in the figures.
Ignore taxation and show all calculations to one decimal place. You are required, using the
information above, to assess and comment briefly on the Company, from the point of view of—
(a) Profitability and (b) Liquidity.
Answer 27.
1. Computation of Profitability related indicators (Amount in ` 000s)

Ratios Last Year This Year

1. Gross Profit Ratio = Gross Profit ÷ Turnover = 528/2,400 = 22% =588/2,800 =21%

2. Cost of Sales to Sales ratio = Cost of Sales ÷ Sales = 1872/2,400 = 78% =2212/2,800 = 79%

[Link] Profit Ratio = Net Profit ÷ Turnover =138/2,400 = 5.8% =142/2,800 = 5.1%

[Link] Costs to Sales = Distribution Cost ÷ Sales = 278/2,400 = 11.6% =300/2,800 = 10.7%

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5. Administration Exp. to sales = Admn. Cost ÷ Sales =112/2,400 = 4.7% =114/2,800 = 4.1%

6. Interest Payable - `32,000

[Link]-Tax Profit ÷ Shareholders funds = 138/900 = 15.3% =142/1,042 = 13.6%

2. Analysis of Profitability Ratios

Gross Profit Ratio: There is a drop in the gross margin from 22% to 21% and also increase in the
ratio of Cost of Sales to Turnover. This may be because of — (a) an increase in the cost of
sales; or (b) a drop in the selling price. Since, the cost of purchase of materials has not
changed, the cost of operation like labour has gone up or the sales price has been
marginal lowered.

Fall in Net Profit Ratio: There is a marginal fall in Net Profit Margin which is due to a combination
of factors like ----(a) Drop in the Gross Profit margin and (b) Incremental interest outflow
due to raising of Loan Capital for expansion during the year.

Reduction in ratio of other costs to Turnover: The fall in Net Profit Margin has been curtailed due
to the drop in the ratio of Distribution Costs and Administration Costs to Turnover.

Increase in Sales: The sales during the year has raised by 20%. This may be due to the
expansion programme financed by the Loan Capital.
Return on Shareholders’ Funds: The Return on Shareholders’ Funds has dropped and due to the
overall drop in the Profit Margin.

3. Computation of Liquidity related Ratios (Amount in ` 000s)

Ratios Last Year This Year

1. Current ratio = Current Assets ÷ Current Liabilities 936÷ 256 = 3.7 times 1,414 ÷ 338 = 4.2 times

2. Quick Ratio = Quick Assets ÷ Current Liabilities 392 ÷ 256 = 1.5 times 754 ÷ 338 = 2.2 times
= (Debtors + Bank) : Current Liabilities

3. Stock Turnover Ratio = Cost of Sales ÷ Closing Stock 1,872 ÷ 544 = 3.4 times 2,212 ÷ 660 = 3.4 times

4. Stock Holding Period = 365 ÷ Stock Turnover Ratio 365 ÷ 3.4 = 107 days 365÷3.4 = 107 days

5. Debtors Turnover Ratio = Sales ÷ Closing Debtors 2,200 ÷ 384 = 5.7 times 2,640 ÷ 644= 4.1 times

6. Avg Credit Period = 365 ÷ Debtors Turnover Ratio 365 ÷ 5.7 = 64 days 365 ÷ 4.1 = 89 days

7. Cash at Bank `8,000 `1,10,000

8. Gearing Ratio = Debt ÷ Equity NIL 320 ÷ 1042 = 0.31

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4. Analysis of Liquidity Ratios

1. Improvement in Current and Liquid Ratio: Current Ratio and Quick Ratio have improved. Part
of this is due to the additional loan raised during the year.
2. Stock Turnover Ratio: The Company has been steady in it sales as is reflected in the
unchanged Stock Turnover Ratio.
3. High Collection Period: The time taken for collection of dues from Debtors has increased
during the period from 64 days to 89 days. Debtors now take almost 25 more days to settle
their accounts. This may be due to —(a) Poor Credit Control; and /or (b) Extension of more
credit to stimulate Sales.
4. Cash Balance: The Cash Balance represents the idle funds as at the year end and they
generate no return. Hence, they should be put to work to earn a return.

Q. 28. X, Y and Z are partners sharing profits and losses in the ratio of 2 : 1 : 1. They took out a
joint life policy of ` 1,20,000 on 1.1.2009, for the purpose of providing fund for repayment
of their share of capital and goodwill in the event of death. The annual premium of ` 5,000
was payable on 1st February every year and last premium was paid on 1st February,
2012. Y died on 10th March, 2012 and policy money was received on 30th April 2012.
The surrender value of the policy as on 31st December each year were : 2009 - Nil; 2010-
` 1,000; 2011- ` 1,600.
Show the necessary accounts and Balance Sheet (as on 31st December every year)
assuming :
(i) that the insurance premium is charged every year to the Profit and Loss Account of the
firm as business expenses;
(ii) that the insurance premium is debited to Joint Life Policy Account but an adjustment is
made through the Profit and Loss Account each year to bring the policy to its
surrender value; and
(iii) that a sum equal to the annual insurance premium is charged to Profit and Loss
Appropriation Account each year and credited to Joint Life Policy Reserve Account
through which the adjustment is made to bring the policy to its surrender value.

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Answer 28.
Under Method (i)
In the book of X, Y and Z
Dr. Joint Life Policy Account Cr.

Date Particulars Amount Date Particulars Amount

` `

2012 2012
April 30 To Capital A/c April 30 By Bank A/c
— Transferred — Policy
X (2/4) 60,000 Money
Y (1/4) 30,000 Received
1,20,000
Z (1/4) 30,000
1,20,000

1,20,000 1,20,000

Under Method (ii)

Dr. Joint Life Policy Account Cr.

Date Particulars Amount Date Particulars Amount

` `

2009 2009
Feb. 1 To Bank A/c Dec. 31 By Profit and Loss A/c
— Premium paid 5,000 5,000

5,000 5,000
2010
2010 To Bank A/c 5,000 Dec. 31 By Profit & Loss A/c 4,000
Feb. 1 — Premium paid ” Balance c/d 1,000

5,000 5,000
2011
2011 To Balance b/d 1,000 Dec. 31 By Profit & Loss A/c 4,400
Jan. 1 To Bank A/c 5,000 ” Balance c/d 1,600
Feb. 1 — Premium paid

6,000 6,000
By Bank A/c
To Balance b/d 2012 — Policy money
” Bank A/c April 30 received
— Premium paid
2012 ” Capital A/c

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Jan. 1 — Transferred 1,600

Feb. 1 X (2/4) 56,700 5,000 1,20,000
Y (1/4) 28,350
Z (1/4) 28,350
April 30

1,13,400
1,20,000 1,20,000

Under Method (iii)

Dr. Joint Life Policy Account Cr.

Date Particulars Amount Date Particulars Amount

` `

2009 2009
Feb. 1 To Bank A/c Dec. 31 By Joint Life Policy
— Premium paid 5,000 Reserve A/c 5,000

5,000 5,000

2010
Feb. 1 To Bank A/c 2010 By Joint Life Policy
4,000
— Premium paid Dec. 31 Reserve A/c
5,000
” Balance c/d
1,000

2011 5,000 5,000

Jan. 1 To Balance b/d
4,400
Feb. 1 ” Bank - Premium paid 1,000 2011 By Joint Life Policy

5,000 Dec. 31 Reserve A/c 1,600

” Balance c/d

6,000 6,000

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2012 To Balance b/d

Jan. 1 ” Bank A/c 2012 By Bank — Policy
1,600 1,20,000
Feb. 1 — Premium paid April 30 Received Money
5,000
” Capital A/c - — Joint Life Policy
Transferred 1,600
April 30 Reserve A/c
X 57,500
— Balance
Y 28,750 1,15,000 transferred
Z 28,750
1,21,600 1,21,600

Q. 29. a) The life insurance fund of Prakash Life Insurance Co. Ltd. was ` 34,00,000 on 31st
March, 2012. Its actuarial valuation on 31st March, 2012 disclosed a net liability of ` 28,80,000.
An interim bonus of ` 40,000 was paid to the policyholders during the previous two years. It is
now proposed to carry forward ` 1,10,000 and to divide the balance between the policyholders
and the shareholders. Show (i) the Valuation Balance Sheet, (ii) the net profit for the two-year
period, and (iii) the distribution of the profits.

b) The Partners of Saheb & Co decided to convert partnership into a Private Limited Company
called Kings Agencies P Ltd. with effect from 1st January. The consideration was agreed at
`11,70,000 based on the Firm's Balance Sheet as on that date.
However, due to some procedural difficulties, the Company could be incorporated only on 1st
April. Meanwhile, the business was continued on behalf of the Company and the consideration
was settled on that day with interest at 12% p.a. The same books of account were continued by
the Company, which closed its account for the first time on 31st March of the next year and
prepared the following summarized Profit and Loss Account.
Particulars ` `
Sales 2,34,00,000
Less: Cost of Goods Sold and Other Expenses
Cost of Goods Sold 1,63,80,000
Salaries 11,70,000
Depreciation 1,80,000
Advertisement 7,02,000
Discounts 11,70,000
Managing Director's Remuneration 90,000
Miscellaneous Office Expenses 1,20,000
Office-cum-Show Room Rent 7,20,000
Interest- 9,51,000 2,14,83,000
Profit 19,17,000
The Company’s only borrowal was a loan of `50,00,000 at 12% p.a. to pay the Purchase
Consideration due to the Firm and for Working Capital requirements.
The Company was able to double the average monthly Sales of the Firm from 1st April but the
Salaries trebled from that date. It had to obtain additional space from 1st July, for which rent was
`30,000 per month.

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Prepare a Profit and Loss Account in columnar form apportioning costs and revenue between
pre-incorporation and post-incorporation periods. Also, suggest how the pre-incorporation
profits are to be dealt with.

Answer 29.
a) In the Books of Prakash Life Insurance Co. Ltd.
Valuation Balance Sheet as on 31st March, 2012

Liabilities Amount (`) Assets Amount (`)

To Net liability 2,880,000 By Life Assurance Fund 3,400,000

To Net Profit 520,000

3,400,000 3,400,000

Net profit for the two-year period

Profit as per Valuation Balance Sheet 5,20,000

Add: Interim Bonus paid during the previous two years 40,000

Net Profit 5,60,000

Distribution of the profits

Net Profit 5,60,000

Less: Amount proposed to be carried forward 1,10,000

Balance 4,50,000

Share of policyholders (95% of ` 4,50,000) 4,27,500

Less: Interim bonus paid 40,000

Amount due to policyholders 3,87,500

Share of Shareholders (5% of ` 4,50,000) 22,500

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b) [Link] of Ratios for apportionment purposes

Particulars Pre-incorpn. Post-Incorpn.

(a) Period in Months (Time Ratio) 1st Jan-31st Mar 1st April-31st Mar next

=3 months = 12 months

(b) Sales per month ratio (given) `1 (double of earlier period)

i.e .`2

© Overall Sales ratio (a)x(b) 3x1=3 12x2=24

Upon simplification, Sales Ratio is 1 8

(d)Salary per month ratio (given) `1 (treble of earlier period)

i.e. `3

(e) Total Salary Ratio (a) x(d) 3x1=3 12x3=36

Upon simplification, Salary Ratio is 1 12

(f) Rent for additional premises (from 1st July) - 30000x9=2,70,000

(g) So, Balance Rent (7,20,000-2,70,000) in 3:12 90,000 3,60,000

(time)

(h) Total Rent Cost (f)+(g) 90,000 6,30,000

(i) Interest allocable to Company - 6,00,000

(Rs.50Lakhs x 12% from 1st Apr to 31st Mar next)

(j) Hence, Balance Interest for Pre- 3,51,000

Incorporation Period

Notes:
Expenses apportioned on Sales Ratio Basis: (a) Cost of Goods old;(b) Advertisement; and
(c) Discounts.
Expenses apportioned on Time Ratio Basis: (a) Depreciation,(b) Miscellaneous Office
Expenses.

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2. Profit & Loss Account of Kings Agencies P Ltd. For 15 months ended 31st March (in ` 000’s)

Particulars 1stJan- 1st Apr-31st Particulars 1st Jan- 1st Apr-31st

31st Mar Mar next 31st Mar Mar next

To Cost of Goods Sold (1:8) 1,820 14,560 By Sales 2,600 20,800

To Salaries (1:12) 90 1,080 By Net Loss 19

To Depreciation (1:4) 36 144 - Pre Icorp Loss

To Advertisement (1:8) 78 624

To Discounts (1:8) 130 1,040

To MD’s Remuneration - 90
(direct)

To Misc. Office Exps. (1:4) 24 96

To Rent (W N 1) 90 630

To interest (W N 1) 351 600

To Net Profit- Post Incorp Pft - 1,936

Total 2,619 20,800 Total 2,619 20,800

Treatment of Negative Profit prior to Incorporation:

The Loss may be considered as a reduction from any Capital Reserve arising on
acquisition.
Alternatively, such loss may be as Goodwill and shown under Assets.

Q. 30. A fire occurred in the office premises of lessee in the evening of 31.3.2012 destroying
most of the books and records. From the documents saved, the following information is
gathered :
Short-working recovered :
2009-10 ` 2,000 (towards short-workings which arose in 2006-07)
2010-11 ` 4,000 (including ` 1,000 for short-working 2007-08)
2011-12 ` 1,000
Short-working lapsed :
2008-09 ` 1,500
2009-10 ` 1,800
2011-12 ` 1,000
A sum of ` 25,000 was paid to the landlord in 2008-09. The agreement of Royalty
contains a clause of Minimum Rent payable for fixed amount and recoupment of short-
workings within 3 years following the year in which Short-workings arise.

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 Revisionary Test Paper_Intermediate_Syllabus 2008_June 2013

Information as regards payments to landlord subsequent to the year 2008-09 is not

four years ended 31.3.2012.

Answer 30.
Before preparing the respective ledger accounts we are to compute the following
information :

Royalty Short-working Short-working Short-working Payment to

Year recovered Lapsed Landlord
` ` ` ` `

2008-09 — — — 1,500 25,000

2009-10 — — ` 2,000 (for 2006-07) 1,800 —
2010-11 — — ` 4,000 (including ` 1,000 — —
for 2007-08)
2011-12 — — 1,000 1,000 —

From the above statement it is quite clear that :

(i) Short-working lapsed in 2011-12 ` 1,000 which relates to 2008-09 as per terms, short-
working should be recouped within three years i.e., 2011-12 is the last year for
recoupment.

(ii) Short-working recovered in 2010-11 ` 4,000, out of which ` 1,000 for 2007-08 and the
balance ` 3,000 for the year 2005-06.

(iii) Short-working recovered in 2011-12 ` 1,000 which is also related to 2008-09 in which
year actually is arose.

Thus, the total short-working balance in 2008-09 amounted to ` 5,000 (i.e., ` 1,000 + ` 3,000
+ ` 1,000). Now, we can prepare our usual statement as under :

Hence, Actual Royalty = Payment to Landlord + Recoupment – Short-working

For, 2008-09 = ` 25,000 + Nil – ` 5,000
= ` 20,000.
For, 2009-10 = ` 25,000 + ` 2,000 – Nil
= ` 27,000
For, 2010-11 = ` 25,000 + ` 4,000 – Nil
= ` 29,000
For, 2011-12 = ` 25,000 + ` 1,000 – Nil
= ` 26,000

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Year Royalty Short-working Recoupment Tr. to P&L A/c Payment to Landlord

` ` ` ` `
2008-09 20,000 5,000 — 1,500 25,000
2009-10 27,000 — 2,000 1,800 25,000
2010-11 29,000 — 4,000 — 25,000
2011-12 26,000 — 1,000 1,000 25,000

In the books of Lessee

Royalty
Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
` `

31.3.09 To Landlord A/c 20,000 31.3.09 By Profit and Loss 20,000

A/c
20,000 20,000
31.3.10
31.3.10 To Short-working A/c 2,000 By Profit and Loss 27,000
A/c
” Landlord A/c 25,000

27,000 27,000

4,000 By Profit and Loss 29,000

31.3.11 To Short-working A/c 31.3.11 A/c
” Landlord A/c 25,000

29,000 29,000
By Profit and Loss
31.3.12 To Short-working A/c 31.3.12 A/c
1,000 29,000
” Landlord A/c
25,000

26,000 26,000

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Dr. Short-working Account Cr.

Date Particulars Amount Date Particulars Amount
` `

31.3.09 To Balance b/d 6,300 31.3.09 By Profit and Loss A/c 1,500
” Landlord A/c 5,000 ” Balance c/d 9,800

11,300 11,300
31.3.10 To Balance b/d 31.3.10 By Royalty A/c
9,800 ” Profit and Loss A/c 2,000
” Balance c/d 1,800
6,000

31.3.11 To Balance b/d 9,800 31.3.11 By Royalty A/c 9,800

” Landlord A/c ” Balance c/d
1,000 4,000
5,000 2,000
31.3.12 To Balance b/d 31.3.12 By Royalty A/c
6,000 ” Profit and Loss A/c 6,000

This includes the following : 2,000 1,000

` 1,000
Lapsed : in 2008-09 1,500
2,000 2,000
in 2009-10 1,800
Recoupment : in 2009-10 2,000
in 2010-11 1,000
6,300

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