IPCC – GROUP-I –Accounting – Nov 2013 Exam Paper SOLVED By CA D. G. Sharma, CAPS Nagpur Q1.(a) Amma Ltd. Contracted with a supplier to purchase a specific machinery to be installed in Department A in two month time. Special foundations were required for the plant, which were to be prepared within this supply lead time. The cost of site preparation and laying foundation were Rs. 47,290. these activities were supervised by a technician during the entire period, who is employed for this purpose of Rs. 15,000 per month . the Technician’s services were given to Department A by Department B, which billed the services at Rs. 16,500 per month after margin. The machine was purchased at Rs. 52,78,000. Sales tax was charged at 4% on the invoice. Rs. 18,590 transportation charges were incurred to bring the machine to the factory. An Architect was engaged at a fee of Rs. 10,000 to supervise machinery installation at the factory premises. Also, payment under the invoice was due in 3 months. However, the company made the payment in 2 nd month. The company operates on bank overdraft @ 11%. Ascertain the amount at which the assets should be capitalized under AS 10. Solution to Q.1 (a) (Based on AS-10) Cost of Machinery Rs. Site preparation & laying foundation 47,290 Technicians cost actual 15000 x 2 30,000 Purchase cost of machine 52,78,000 Sales tax 5278000 x 4% 2,11,120 Transportation charges 18,590 Architect fees 10,000 55,95,000 Special Note: Interest on Bank O.D. due to early payment is not a directly attributable cost & also Machine is not a qualifying asset as per AS-16 being it took just 2 months to get installed. Q1.(b) Narmada Ltd. Purchase an existing bottling unit from Kaveri Ltd. Kaveri Ltd. Followed straight line method of charging depreciation on machinery of the sold unit whereas Narmada Ltd. Fallowed written down value method in its other units. The director of Narmada Ltd. Want to continue to charge depreciation for the acquired unit in Straight line method which is not consistent with the WDV method followed in other units. Discuss the contention of the directors with reference to the Accounting Standard 6. Further during the year, Narmada Ltd. Set up a new plant on coastal land. In view of the corrosive climate, the company felt that its machine life is reducing faster. Can the company charge a higher rate of depreciation? Solution to Q1 (B) (Based on AS-6) The 1st issue arising in the above case is: Is it permissible for the company to follow different depreciation methods for different location? As per AS-6 Accounting for Depreciation:  There are several methods of allocating depreciation over the useful life of the assets.  Those most commonly employed in industrial and commercial enterprises are the straight line method and the reducing balance method.  The management of a business selects the most appropriate method(s) based on various important factors e.g., (i) type of asset, (ii) the nature of the use of such asset and (iii) circumstances prevailing in the business.  A combination of more than one method is sometimes used.  AS-6 does not prescribe any particular method. AS-6 only requires that depreciable amount be systematically allocated over its useful life. According to the Guidance Note on Accounting for Depreciation in Companies issued by ICAI, it is permissible for a company to adopt more than one method of depreciation simultaneously that is to say that—

(a) Company may follow different methods for different types of assets; and (b) Different geographical locations can follow different methods. Only Condition is that same methods should be consistently adopted from year to year. Conclusion: The contention of the Directors that same method should be followed is not mandatory. Although Company can follow SLM method. The method followed by earlier Company will not be necessary to be followed by the New company. If the nature of this unit is same as those of existing asset then WDV method can be followed. 2nd issue of charging depreciation at higher rate, under the circumstances specified if the managements estimated rate of depreciation is higher than that provided by the statute then that higher rate can be applied. Q.1(c) A ltd. entered into a contract with B ltd. to dispatch goods valuing Rs. 25,000 every month for 4 months upon receipt of entire payment. B ltd. accordingly made the payment of Rs. 1,00,000 and A ltd. started dispatching the goods. In third month, due to natural calamity, B ltd. requested A ltd. not to dispatch goods until further notice though A ltd. is holding the remaining goods worth Rs.50,000 ready for dispatch. A ltd. accounted Rs. 50,000 as sales and transferred the balance to Advance Received against sales. Comment upon the treatment of balance amount with reference to the provisions of Accounting Standard 9. Solution to Q.1 (c) (Based on AS-9) As per AS-9: Bill and hold sales (Delivery is delayed at buyer's request) Revenue should be recognised even though physical delivery has not been completed so long as following conditions are satisfied – a. there is every expectation that delivery will be made; b. the item is on hand, identified and ready for delivery to the buyer at the time the sale is recognised. c. delivery is delayed at buyer's request d. buyer takes title and accepts billing. In the case of A ltd. all the above conditions are fulfilled and hence A ltd should record the balance Rs.50,000 as sale and not to keep as Advance. Q.1.(d) A ltd. is amalgamating with B ltd. They are undecided on the method of accounting to be fallowed. You are required to advice the management of B ltd. on method of accounting that can be adopted under AS-14. Solution to Q.1 (d) (Based on AS-14) Accounting for Amalgamations

Accounting problems of amalgamation are dealt with in AS-14 according to the type of amalgamation. Types of Amalgamation Amalgamation for accounting purposes can be classified into two categories. 1. Amalgamation in the nature of merger, and 2. Amalgamation in the nature of purchase. 14.5.4 Methods of Accounting for Amalgamations  There are two methods of accounting. (i) Pooling of Interest Method; and (ii) Purchase Method.

Amalgamation in the Nature of Merger This is a type of amalgamation which satisfies all the following conditions. (i) All the assets and liabilities of the transferor company are takenover by the transferee company. (ii) Shareholders holding not less than 90 percent of the face value of the equity shares of the transferor company agree to the scheme. (iii) The consideration for the amalgamation receivable by those consenting equity shareholders of the transferor company is discharged by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. That means dissenting shareholders can be paid by cash or other assets etc.

(iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.  It is to be accounted by Pooling of Interest method. Amalgamation in the Nature of Purchase  Amalgamation may be considered in the nature of purchase when any one or more of the five conditions specified for amalgamations in the nature of merger is not satisfied.  It is to be accounted by purchase method.

Q.2] Pathak, Quereshi, Ranjeet were partners sharing profits in the ratio of 7: 5 : 3 respectively. On 31st March, 2013 Quereshi retired when the firm’s Balance Sheet was as fallows Liabilities Capital Accounts : Pathak Quereshi Ranjeet General Reserve Trade Creditors

` 8,50,000 6,20,000 3,70,000 2,25,000 1,13,000

Asests Land and Building Plant & Machinery Furniture, Fixtures & Fitting Stock Trade Debtors 2,50,0000 Less : Provision for Bad Debts 6,000 Cash at Bank Total

` 10,00,000 4,65,000 2,30,100 1,82,200

1,94,000 1,06,700 21,78,000

Total 21,78,000 It was agreed that : (i) Land & Building be appreciated by 20% (ii) Plant & Machinery be depreciated by 10% (iii) Provision for Bad Debts be made equal to 4% of Trade Debtors. (iv) Outstanding repairs bill amounting to Rs. 1,500 be recorded in the books of account. (v) Goodwill of the firm be valued at Rs. 3,00,000 and Quereshi’s capital account be credited with his share of goodwill without raising goodwill account . (vi) Half of the account due to Qureshi be immediately paid to him by means of a cheque and the balance be treated as a loan bearing interest @ 12% per annum. After Quereshi’s retirement, Pathak and Ranjeet admitted Swamy as a new partner with effect from 1st April, 2013. Pathak, Ranjeet and Swamy agreed to share profit in the ratio of 2:1:1 respectively. Swamy brought patents valued at Rs. 20,000 and Rs. 3,80,000 in cash including payment for his share of goodwill as valued by the old firm. The entire amount of Rs. 4,00,000 was credited to Swamy’s Capital Account. Adjustment were made in the capital account for Swamy’s share of goodwill. You are required to: (a) Pass Journal Entries for all of the above transaction without any narration, and (b) Prepare a capital account of all the partners. Solution to Q.2 (Partnership : Retirement) Journal Entries (without narration) (i) Land & Building A/c To Revaluation A/c (ii) Revaluation A/c To Plant & Machinery A/c To Provision for Bad debt A/c 2,00,000 x 4% = 8000 – 6000 = 2000 To Repairs charges outstanding A/c (iii) Revaluation A/c To Pathak A/c To Quereshi A/c To Ranjeet A/c (iv) General Reserve A/c To Pathak A/c To Quereshi A/c To Ranjeet A/c

Dr.

2,00,000

Dr.

50,000

2,00,000 46,500 2,000 1,500 Dr.

1,50,000

Dr.

2,25,000

70,000 50,000 30,000 1,05,000 75,000 45,000

(v) (vi) (vii) (viii)

Pathak A/c 100000 x 7/10 Ranjeet A/c 100000 x 3/10 To Quereshi A/c 300000 x 5/15 Quereshi A/c To Bank A/c To 12% Quereshi’s Loan A/c Bank A/c Patent A/c To Salary A/c Swamy A/c To Pathak A/c To Ranjeet A/c

Dr. Dr.

70,000 30,000

Dr.

8,45,000

1,00,000 4,22,500 4,22,500

Dr. Dr.

3,80,000 20,000

Dr.

75,000

4,00,000 60,000 15,000

Goodwill Adjustment on Admission Credit in Old Ratio Debit in New Ratio Cr. Sacrifice Dr. Gain

7:3 2:1:1

Pathak Cr. 2,10,000 Dr. 1,50,000 Cr. 60,000

Ranjeet Cr. 90,000 Dr. 75,000 Cr. 15,000

Swamy – Dr. 75,000 Dr. 75,000

Capital A/c Quereshi Bank 12% Loan Pathak Ranjeet

Balance c/f

Pathak 70000 – – – –

Quereshi – 422500 422500 – –

Ranjeet 30000 – – – –

Swamy – – – 60000 15000

1015000

–

430000

325000

1085000

845000

460000

400000

Balance b/f Revaluation General Reserve Pathak Ranjeet Bank Patent Swamy

Pathak 850000 70000 105000

Quereshi 620000 50000 75000

Ranjeet 370000 30000 45000

Swamy – – –

– – – – 60000

70000 30000 – – –

– – – – 15000

– 380000 20000 –

1085000

845000

460000

400000

Q.3] (a) The details of Assets and liabilities of Mr. ‘A’ as on 31-3-2012 and 31-3-2013 are as fallows: Particulars 31-3-2012 31-3-2013 Rs. Rs. Assets : Furniture 50,000 Building 1,00,000 Stock 1,00,000 2,50,000 Sundry Debtors 60,000 1,10,000 Cash in Hand 11,200 13,200 Cash at Bank 60,000 75,000 Liabilities : Loans 90,000 70,000 Sundry Creditors 50,000 80,000 Mr. ‘A’ decided to provide depreciation on building by 2.5% and furniture by 10% for the period ended on 31-3-2013. Mr ‘A’ purchased jewellery for Rs. 24,000 for his daughter in December 2012. He sold his car on 30-3-2013 and the amount of Rs. 40,000 is retained in the business. You are required to: (a) Prepare statement of affairs as on 31-3-2012 & 31-3-2013. (b) Calculate the profit received by ‘A’ during the year ended 31-3-2013. Solution to Q. 3(a) (A/c from Incomplete Record : Statement of Affairs Method) Liabilities 31.3.12 31.3.13 Assets 31.3.12 31.3.13 Loan 90,000 70,000 Furniture 50,000 45,000 Creditor 50,000 80,000 Building 1,00,000 97,500 Capital 2,41,200 4,40,700 Stock 1,00,000 2,50,000 (Balancing figure) Debtor 60,000 1,10,000 Cash 11,200 13,200 Bank 60,000 75,000 3,81,200 5,90,700 3,81,200 5,90,700 Special Note: His Car sold means it is his personal asset, also because it was not appearing in 31.3.12 balances & hence the proceeds brought is business is a capital contribution

Statement of Profit earned for the year ended 31.3.2013 Closing Capital Add: Drawing : Jwellery for daughter (No other drawings is given)

4,40,700 24,000 4,64,700

Less: Opening Capital Additional Capital Contributed Profit for the year (Balance)

2,41,200 40,000

2,81,200 1,83,500

Q.3] (b) Surya Ltd. has provided you the following particulars. Prepare Cash Flow from Operating Activities by Indirect Method in accordance with AS 3: Profit & Loss Account of Surya Ltd. For the year ended 31st March, 2013 Particulars Rs. Particulars Rs. To Depreciation 86,700 By operating Profit before 11,01,600 To Patents written off 35,000 Depreciation To Provision for tax 1,25,000 By Profit on sale on Investment 10,000 To Propose dividend 72,000 By Refund of Tax 3,000 To Transfer to Reserve 87,000 By Insurance Claim – Major Fire 1,00,000 To Net Profit 8,08,900 Settlement Total 12,14,600 Total 12,14,600 Additional information: 31-3-2012 31-3-2013 Stock 1,20,000 1,60,000 Trade Debtors 7,500 75,000 Trade Creditors 23,735 87,525 Provision for Tax 1,18,775 1,25,000 Prepaid Expenses 15,775 12,475 Marketable Securities 11,775 29,325 Cash Balance 25,325 35,340 Solution to Q.3 (b) (Operating Cash Flow by Indirect Method) Cash Flow from Operating Activity Profit before tax 10,89,900 Add back : Depreciation 86,700 Patent written off 35,000 Less: Profit on sale of Investment – 10,000 Insurance Claim – 1,00,000 Operating profit before working capital changes 11,01,600 Increase in stock (40,000) Increase in Debtor (67,500) Increase in Creditor 63,790 Decrease in prepaid expense 3,300 Cash flow from operation 10,61,190 Extra ordinary cash flow: Insurance Claim 1,00,000 Cash flow before tax 11,61,190 Tax paid (1,18,775) Cash generated from Operating Activity 10,42,415 Working Note: 1. Operating Profit Add: Profit on Sale of Investment Insurance Claim received Less: Depreciation Patent written off Profit before tax 2.

Opening Tax Payable Add: Tax provision for the year Less: Closing Tax Payable

11,01,600 10,000 1,00,000 12,11,600 – 86,700 – 35,000 10,89,900 11,87,75 1,25,000 2,43,775 1,25,000

Tax paid during the year

1,18,775

Q.4] Highend Club appointed a new accountant for maintaining books of account. He prepared following Receipts and Payment A/c for the year ended as on 31st March, 2013. Receipts & Payment Account Receipts Rs.` Payments Rs. To Balance b/d 9,000 By Printing & Stationary 21,000 To Annual subscription for By Telephone Expenses 45,000 current year 9,18,000 By Repair & Maintenance 1,26,000 Add : Outstanding of last Expenses (including payment for sport material year received this year 36,000 Rs. 54,000) 9,54,000 By Garden Upkeep Less : Subscription received 55,000 By Electricity Charges in Advance as 31-3-2012 18,000 9,36,000 36,000 To sale of old Newspaper 36,000 By Loss on sale of furniture 36,000 To 5% Interest on Investment 27,000 (cost as per books Rs. To Entrance Fees 68,000 90,000) To Donation for building 18,00,000 By Balance c/d 25,57,000 Total 28,76,000 Total 28,76,000 Additional information: Highend Club had balances 01-04-2012 01-04-2012 Rs. Rs. Furniture 3,60,000 Stock of sports material 1,33,200 36,000 Subscription receivable 54,000 Subscription received in advance 18,000 Outstanding printing & Stationery Expenses 1,500 2,500 Outstanding Electricity charges 3,200 50% Entrance Fees is to be capitalized. Do you agree with above Receipt and Payment Account? If not, prepare correct Receipt and Payments Account and Income And Expenditure Account for the year ended 31 st March, 2013 and Balance Sheet as on that date. Solution to Q. 4 (Not for profit organization Final A/c ) Balance Sheet as on 31.3.2012 Liabilities Rs. Assets Rs. Advance Subscription 18,000 Cash Bank 9,000 Printing & Stationery outstanding 1,500 Subscription outstanding 36,000 Trust Fund (Balancing Figure) 10,58,700 Investment 27,000/5 X 100 5,40,000 Furniture 3,60,000 Stock of Sport Material 1,33,200 10,78,200 10,78,200 Balance Sheet as on 31.3.2013 Rs. Assets Trust fund Furniture Balance 10,58,700 Sport material Surplus 5,67,600 Investment (+) Entrance Fees 34,000 16,60,300 Subscription Received Building Fund A/c Cash and Bank - Donation Received 18,00,000 Advance Subscription 18,000 Printing Charges outstanding 2,500 Electricity outstanding 3,200 34,84,000 Liabilities

Receipt To Opening Balance To Sale of Old News Paper

Receipt and Payment A/c Rs. Payment 9,000 By Printing & Stationery 36,000 By Telephone Expenses

Rs. 2,70,000 36,000 5,40,000 54,000 25,84,000

34,84,000

Rs. 21,000 45,000

To To To To

Entrance Fees Donation For Building Furniture (sale proceeds) Subscription

68,000 18,00,000 54,000 9,00,000

By By By By By

Repair and Maintenance Sport Material (purchase) Garden Upkeep Electricity Charges Closing Balance

28,67,000

Expenditure To Telephone Charges To Repair and Maintenances To Garden Upkeep To Loss on Sale of Furniture To Printing and Stationery To Sport material consumed To Electricity Charges To Surplus Transferred to Trust Fund

Income and Expenditure A/c Rs. Income 45,000 By Subscription Income 72,000 By Sale of Old News Paper 55,000 By Entrance Fees (68,000 X 36,000 50%) 22,000 1,51,200 39,200 5,67,600 9,88,000

Particulars To Opening Outstanding To Income & Expenditure A/c (Annual Subscription) To Closing Advance

Particulars To Cash / bank A/c To Closing Outstanding

Particulars To Opening Stock To Cash / Bank (Purchase)

Particulars To Cash / Bank (Paid) To Closing Outstanding

Subscription A/c Rs. Particulars 36,000 By Opening Advance By Cash / Bank (Collection: 9,18,000 Balancing Figure) 18,000 By Closing Outstanding 9,72,000 Printing and Stationery A/c Rs. Particulars 21,000 By Opening Outstanding 2,500 By Income & Expenditure A/c 23,500 Sport Material A/c Rs. Particulars 1,33,200 By Income & Expenditure A/c 54,000 By Closing Stock 1,87,200 Electricity Charges A/c Rs. Particulars 36,000 By Income & Expenditure A/c 3,200 (Expense) 39,200

Furniture A/c Rs. Particulars 3,60,000 By Cash / Bank (Sale proceeds 90,000-36,000) By Income & Expenditure A/c (Loss on Sale) By Closing Balance 3,60,000 Note: Depreciation ignored as no information provided. Particulars To Opening Balance

72,000 54,000 55,000 36,000 25,84,000 28,67,000

Rs. 9,18,000 36,000 34,000

9,88,000

Rs. 18,000 9,00,000 54,000 9,72,000

Rs. 1,500 22,000 23,500

Rs. 1,51,200 36,000 1,87,200

Rs. 39,200 39,200

Rs. 54,000 36,000 2,70,000 3,60,000

Q.5] On 31st March, 2013 Bose and sen ltd. provided to you the following ledger balances after preparing its Profits and Loss Account for the year ended 31st March, 2013 : Credit Balances : Equity share capital, fully paid share of Rs. 10 each

Rs. 70,00,000

General Reserve

15,49,100

Loan from State Finance Corporation

10,50,000

Secured by hypothecation of plant and machinery (Repayable within one year Rs. 2,00,000 ) Loan : Unsecured (long term)

8,47,000

Sundry Creditor for goods & services (Payable within 6 months)

14,00,000

Profit & Loss Account

7,00,000

Provision for Taxation

3,25,000

Proposed Dividend

4,20,000

Provision for Dividend Distribution Tax

71,400 1,33,63,000

Debit Balances :

Rs.

Calls in arrear

7,000

Land

14,00,000

Buildings

20,50,000

Plant and Machinery

36,75,000

Furniture & Fixture

3,50,000

Stock : Finished goods

14,00,000

Raw Materials

3,50,000

Sundry Debtors

14,00,000

Advances : Short-term

2,98,900

Cash in hand

2,10,000

Balances with banks

17,29,000

Preliminary Expenses

93,100

Patents & Trade marks

4,00,000 1,33,63,000

The following additional information is also provided: (i) 4,20,000 fully paid equity share were allotted as consideration for land and buildings. (ii) Cost of Building

Rs. 28,00,000

Cost of Plant and Machinery

Rs. 49,00,000

Cost of Furniture & Fixture

Rs. 4,37,500

(iii) Sundry Debtors for Rs. 3,80,000 are due for more than 6 months. (iv) The amount of balances with bank includes Rs. 18,000 with a bank which is not a scheduled bank and the deposits of Rs. 5 lakhs are for a period of 9 months. (v) Unsecured loan includes Rs. 2,00,0000 from a bank and Rs. 1,00,000 from related parties. You are not required to give previous year figures. You are required to prepare the balance sheet of the company as on 31 st march , 2013 as required under revised schedule vi of the companies act, 1956. Solution: Name of the Company: M/s Bose & Sen Ltd. Balance Sheet as at 31.03.2013 (Rupees) Particulars Note Amount I. CAPITAL AND LIABILITIES (1) Shareholders’ funds (a) Share capital 1 69,93,000 (b) Reserves and surplus 2 21,56,000 (c) Money received against Share warrants --Total of (1) 91,49,000 (2) Share application money pending allotment Total of (2) --(3) Non-current liabilities (a) Long-term borrowings 3 16,97,000

(b) Deferred tax liabilities (Net) (c) Other long term liability (d) Long-term provisions (4)

II. (1)

Total of (3)

------16,97,000

Total of (4) TOTAL of (1) to (4)

--14,00,000 2,00,000 8,16,900 24,16,900 1,32,62,900

Current liabilities (a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions

4 5

ASSETS Non-current assets (a) Fixed assets (i) Tangible assets (ii) Intangible assets (iii) Capital work-in-progress (iv) Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d) Long-term loans and advances (e) Other non-current assets

6

74,75,000 4,00,000 ------------78,75,000

Total of (1) (2)

Current assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets

7 8 9

Total of (2) TOTAL of (1) to (3) As per AS-26 Preliminary expenses are to be expensed hence the same is written off against P&L a/c.

--17,50,000 14,00,000 19,39,000 2,98,900 --53,87,900 1,32,62,900

Notes & Explanation to Accounts for the year ended on 31.03.201 No. 1.

2.

3.

Particulars Share Capital: Authorised: Issued, Subscribed & Paid up: 7,00,000 Equity Shares of Rs.10 each fully called up Less: Calls in Arears (Out of the above 4,20,000 shares were issued for consideration other than cash) Reserve & Surplus: General Reserve: Balance Profit & Loss Account: Balance & Net Profit for the year 11,20,000 Less: Proposed Dividend 4,20,000 Less: Preliminary expense 93,100 Long term borrowings: Secured loans from state financial corporation (10,50,000 – current maturities 2,00,000) (Secured by hypothecation of plant & machinery) Unsecured Loan: From Bank From Related Parties

Amount

70,00,000 7,000

Amount

69,93,000

15,49,100

6,06,900

21,56,000

8,50,000 2,00,000 1,00,000

Others

5,47,000

8,47,000 16,97,000

4.

5.

6.

Other current liabilities Current maturities of long term borrowings Short term provisions: Provision for Income tax Proposed Dividend Provision for Dividend Distribution tax

8.

9.

3,25,500 4,20,000 71,400

8,16,900

Fixed Assets: Tangible Assets

Land Building Plant & Machinery Furniture

7.

2,00,000

Cost

Depreciation reserve

WDV

14,00,000 28,00,000 49,00,000 4,37,500

– 7,50,000 12,25,000 87,500

14,00,000 20,50,000 36,75,000 3,50,000

95,37,500

20,62,500

Inventory: Raw material Finished goods Trade Receivables: Due for more than 6 month old Other Less: Provision for doubtful debt

3,80,000 10,20,000

Cash & Cash Equivalent: Cash balance Bank balance (Bank balance includes fixed deposit maturing in 9 months Rs. 5,00,000 and Balance with unscheduled bank Rs.18,000)

74,75,000

3,50,000 14,00,000

17,50,000

14,00,000 --

14,00,000

2,10,000 17,29,000

19,39,000

Q.6] Monalisa & co. Runs plastic goods shop. Following details are available fromquartely sales tax return filed. sales 2009 2010 2011 2012 Rs. Rs. Rs. RS From From From From total

1st 1st 1st 1st

January to 31st march april to 30st june july to 30st September October to 31st December

Period Sales from Sales from Sales from Sales from

16-09-2011 to 30-09-2011 16-09-2012 to 30-09-2012 16-12-2011 to 31-12-2011 111116-12-2012 to 31-12-2012

1,80,000 1,28,000 1,53,000 1,59000

1,70,000 1,86,000 2,10,000 1,47,000

2,05,950 1,93,000 2,31,000 1,90,000

1,62,000 2,21,000 1,75,000 1,48,000

6,20,000

7,13,000

8,19,950

7,06,000

Rs. 34,000 nil 60,000 20,000

A loss of profit policy was taken for Rs. 1,00,000. Fire occurred on 15 th September, 2012. Indemnity period was for 3 months. Net profit was Rs. 1,20,000 and standing charges (all insured ) amounted to Rs. 43,990 for year ending 2011. Determine the insurance claim? Solution: Claim Calculation: Rs. In respect of reduction in turnover 20,120 1,00,600 x 20% (+) Increased cost of working Nil Total 20,120 (-) Saving in insured standing Charges Nil Loss of profit 20,120 Average Clause: Claim =

20,120 x 1,00,000

=

11,186

1,79,860

Working Notes:

(I) Actual turnover : (16.9.2012 to 15.12.2012) Turnover from 16.9.12 to 30.09.12 + Turnover from 01.10.12 to 15.12.12 1.10.12 to 31.12.12 (-) 16.12.12 to 31.12.12

-1,48,000 60,000 Actual turnover

Nil

88,000 88,000

(II) Standard turnover: (16.9.2011 to 15.12.2011): Turnover from 16.9.11 to 30.09.11 + Turnover from 01.10.11 to 15.12.11 1.10.11 to 31.12.11 (-) 16.12.11 to 31.12.11

34,000 1,90,000 60,000 Standard turnover

1,30,000 1,64,000

(III) Annual turnover (16.9.2011 to 15.09.2012): Turnover from 16.09.11 to 30.09.11 + Turnover from 01.10.11 to 31.12.11 + Turnover from 01.01.12 to 31.03.12 + Turnover from 01.04.12 to 30.06.12 + Turnover from 01.07.12 to 15.09.12 1.07.12 to 30.09.12 (-) 16.09.12 to 30.09.12

34,000 1,90,000 1,62,000 2,21,000 1,75,000 Nil Annual turnover

1,75,000 7,82,000

(IV) Trend in Turnover : Sales for the year ended 2009 Sales for the year ended 2010 Sales for the year ended 2011 Increase in 2010 =

7,13,000 - 6,20,000

6,20,000 7,13,000 8,19,950 x 100 = 15%

6,20,000

Increase in 2011 =

8,19,950 - 7,13,000

x 100 = 15%

7,13,000

From the above we can say there is a increasing trend of 15% in turnover.

(V) Reduction in turnover: Standard turnover Effect of trend + 15% Adjusted. St, Turnover (-) Actual turnover

1,64,000 24,600 1,88,600 88,000

Reduction in turnover

1,00,600

(VI) G.P. rate: G.P. = 1,20,000 + 43,990 Turnover G.P. rate =

1, 63,990

1,63,990 8,19,950

 100 =

20%

8,19,950

(VII) Average clause: Annual turnover (+) effect of trend 15% Adjusted annual turnover G.P. rate = 20% Insurable sum Policy amount Under insurance hence Average clause is applicable

7,82,000 1,17,300 8,99,300 1,79,860 1,00,000

Q.7] Answer any four of the following:

(a) On 01-05 2012, Mr. Mishra purchased 800 equity shares of Rs. 10 each in Fillco ltd. @ Rs. 50 each from a broker who charged 5% . He incurred 20 paisa per Rs. 100 as cost of shares transfer stamps. On 31-10-2012, bonus was declared in the ratio 1:4. The shares were quoted at Rs. 110 and Rs. 60 per share before and after the record date of bonus shares respectively. On 30-11-2012, Mr. Mishra sold the bonus shares to a broker who charged 5%. You are required to prepare investment account in the books of Mr. Mishra for the year ending 31-122012 and closing value of investment shall be made at cost or market value whichever is lower. Solution: Equity Shares in X Ltd. a/c F.V.

Income Investm Date Particulars ent 8,000 42,080 30.11 By Bank a/c 2,000 - 31.3 By Closing Balance c/f 2,984 10,000 45,064

Date Particulars 1.5 To Bank a/c 31.10 To Bonus shares a/c 31.3 To Profit on sale of shares a/c (bal. fig.)

Working Notes: 1. Valuation of Closing Balance Cost of Closing Balance

=

42,080 x 800 = 33,664 1,000

Market Value 800 x 60 Cost or market value which ever is lower

48,000 33,664

2. 1.5.2012 Purchase: Purchase price 800 share @ 50 + Brokerage 40,000 x 5% + Cost of Share Transfer Stamp

40,000 2,000

40, 000 x .20 100

3. 30.11.2012 Sale: Sale Value 200 @ 60 (-) Brokerage 12,000 x 5% Net Sale Proceeds Book value / cost 42,080 ÷ 1,000 x 200 Profit on Sale

80 42,080

12,000 600 11,400 8,416 2,984

F.V.

Income Investme nt 2,000 11,400 8,000 33,664

10,000

-

45,064

Q.7] (b) Pass journal entries for the following transactions : (i) conversion of 2 lakh fully paid enuity shares of Rs. 10 each into stocks of Rs. 1,00,000 and balance has 12% fully convertible debenture. (ii) consolidation of 40 lakh fully paid equity shares of Rs. 2.50 each into 10 lakh fully paid equity share of 10 each. (iii) Sub-division of 10 lakh fully paid 11% preference shares of Rs. 50 each into 50 lakh fully paid 11% preference shares of Rs. 10 each. (iv) Conversion of 12% preference shares of Rs. 5,00,000 into 14% preference shares Rs. 3,00,000 and remaining balance as 12% non- cumulative preference shares. Solution: Journal Entries: Date

Particulars

(i)

Equity Share Capital A/c To Equity Stock A/c To 12% Covertible Debentures A/c

Dr

Rs.2.50 Equity Share Capital A/c To Rs.10 Equity Share Capital A/c

Dr

Rs.50 11% Preference Share Capital A/c To Rs.10 11% Preference Share Capital A/c

Dr

12% Preference Share Capital A/c To 14% Preference Share Capital A/c To 12% Non-cumulative Preference Share Capital A/c

Dr

(ii)

(iii)

(iv)

Dr. Amt.

Cr. Amt.

20,00,000 1,00,000 19,00,000 1,00,00,000 1,00,00,000 5,00,00,000 5,00,00,000 5,00,000 3,00,000 2,00,000

Q.7] (c) Roshan has a current account with partnership firm . it has debit balance of Rs. 75,000 as on 01-0702012. He has further deposited the following amount : Date amount (Rs.) 14-07-2012 1,38,000 18-08-2012 22,000 He withdrew the following amount : Date amount (Rs.) 17-07-2012 97,000 09-09-2012 11,000 Show roshan a/c in the ledger of the firm. Interest is to be calculated at 10% on debit balance and 8% on credit balance. You are required to prepare current account as on 30 th September,2012. Solution: Account Current by Product of Balances Method ‘Roshan’ in Account Current with ‘Partnership Firm’ (Roshan’s a/c in the books of ‘Firm’) for the period 1.7.12 to 30.9.12 Dt Particulars Debit Credit Balance Days Product Dr/Cr Amt. Debit Credit 1.7 To Balance b/f Dr. 75,000 14 10,50,000 14.7 By Cash a/c 1,38,000 Cr. 63,000 15 9,45,000 29.7 To Cash a/c 97,000 Dr. 34,000 20 6,80,000 18.8 By Cash a/c 22,000 Dr. 12,000 22 2,64,000 9.9 To Cash a/c 11,000 Dr. 23,000 21 4,83,000 To Interest a/c 472 Dr. 23,472 92 24,77,000 9,45,000 Working Notes: Calculation of Interest Interest recoverable on 24,77,000 @10% Interest = 24,77,000 x

10 1 = Rs. 679 x 100 365

Interest payable on 9,45,000 @8% Interest = 9,45,000 x

8 1 = x 100 365

Net Interest recoverable Rs. 679 - Rs. 207 = Rs.472 Entry for interest due:- Roshan a/c Dr.

472

To Interest a/c

472

Explanation: 1. Assuming it be part of year 2012-13, total days of the year taken as 365. 2. Here days are the days for which that balance exist. For any transaction 1 day is completed on next date like for transaction of 14.7., 1 day is completed on 15.7. Hence upto 14.7 previous balance is considered and 1 day of new balance Rs. 63,000 is counted from 15.7, so on and so forth. Q.7] (d) The following transaction took place between thick and thin. They desire to settle their account on average due date. Purcheses by Thick from Thin Rs. 9th July, 2013 7,200 14th August, 2013 12,200 Sales by Thick to Thin

Rs.

th

15 July,2013 31st August, 2013

18,000 16,500

Calculate average due date and the amount to be paid or received by thick. Solution: Let base date be 9.7.2013 (student can take any other date as base date, the ultimate answer will be same) DUE DATE AMOUNT DAYS FROM BASE DATE 9.7.2013 PRODUCT Thick to receive from Thin 15.7.2013 18,000 6 1,08,000 31.8.2013 16,500 53 8,74,500 34,500 9,82,500 Thick to pay to Thin 9.7.2013 7,200 0 0 14.8.2013 12,200 36 4,39,200 19,400 4,39,200 Thick to receive from Thin (Net) Net Products 15,100 5,43,300 Therefore, Av eragedue date = Base date +

= 9.7.13 +

Dif f erenceof Sum of Product Dif f erenceof Sum of Amount

5,43,300

= 9.7.13 + 35.98 = 9.7. + 36 days = 14th August , 2013

15,100

Therefore 14th August , 2013 is the average due date on which Thick to receive Rs.15,100. Q.7] (e) Explain the reason due to which the manual accounting system was replaced by the computerized accounting system in modern time. Solution: With the advent of information technology and the e-age scenario, computers not only rule the Information Systems management area, but also provide a complete end-to-end management solution in the field of accountancy. Various performance boosters such as speed, accuracy, storage capacity etc. associated with the use of computers have brought significant changes in the methodologies by which accounting data used to be processed earlier (manually). However, it is to be noted that the same principles of debit and credit that we apply for recording income or expenditure, purchase or sale of assets or creation or

discharge of liability in a manual accounting system is equally applicable in a computerized environment. Manual accounts are replaced by computerised accounts in modern times due to following reasons:  Processing speed is substantially higher.  Elimination of difficulties, like balancing of trial balance etc.  Saving of time as no postings are to be made, once voucher is entered, system will automatically do posting. After every transaction you can get a revised Profit and loss account and Balancesheet.  Issues concerning controls, security and integrity of computer system now demand more attention.