CASE 1.

1

MEHTA AUTOMOBILES
SUMMARY HISTORY OF MEHTA AUTOMOBILES Mr Mehta is a mechanic. Due to his excellent work, professional ability, pleasing manners and sense of responsibility, he was soon promoted to the post of a chief mechanic. Because of his abilities, his friends and relatives advised him to start his own automobile repairs shop. Therefore, after consulting with his family he accepted the offers of his friends Mr Nitin and Mr Mohan Kapoor, who offered to give a rental office in a busy street of Ahmedabad and a loan of 1,00,000 respectively to start his business. CURRENT POSITION Mr Mehta’s business is well settled small-scale business. He has hired four more assistants in addition to earlier two and also two mechanics and a part-time salesman. He has a small office with necessary furniture, and he stores his goods at his home, which he uses as his small godown. He has also started a small spare parts selling section. He is also assisted by his son Mr Rajendra Mehta for the regular day-to-day activities. NEW VENTURE During his day-to-day activities, Mr Mehta came across an advertisement in a local newspaper, which was about a company, who was in search of a well-known automobile service shop owner, for a sole selling agency of their cars and spare parts in Gujarat. Mr Mehta found this proposal profitable and thus applied for the same. CONDITIONS OF CONTRACT The company specified two conditions which every applying firm in order to get the contract had to fulfil. The conditions are as under: (a) Every firm had to obtain from its bank, a certificate to the effect that a minimum balance of 5,00,000 was maintained in business account. (b) Every firm had to submit a complete current financial position of the business and the results of immediate past period. THE PROBLEM Mr Mehta found the problem, which was to comply with the above, two conditions. The following were the difficulties, which Mr Mehta had to face in order to get the problem. As Mr Mehta did not have any knowledge about how to prepare his financial accounts, he had not prepared any regular accounts. His used to run his business in such a manner that each cash received was deposited in bank and was withdrawn at the time of payment, and as his business was not of a very large scale he was not able to maintain a minimum balance of Rs 5,00,000 in his business account. Thus due to the above problems, he was not able to satisfy the two conditions laid down by the company.

1

THE SOLUTION In order to get the contract, Mr Mehta must fulfil the above two conditions so for that he has to do the following things. (a) Learn the basic things of recording of day-to-day transactions. (b) Collect necessary data for the preparation of last year’s financial statements. (c) Maintain a daily book to record all the day-to-day transactions of the business. (d) Appoint an accountant, who will prepare all the accounts and financial statements from this daily book. QUESTIONS AND ITS ANSWERS 1. Mr Mehta mentioned that (a) He could not have systematic accounting records because he did not possess specialized accounting skill; and (b) Keeping such records would increase in costs, which he could not afford. How would you respond to these comments? Solution: (a) Here, as Mr Mehta’s business is not very vast, recording of day-to-day transactions does not require any specialised knowledge so he could just learn the basic fundamentals of accounting and start recording the day-to-day transactions in a daily book. This daily book can be recorded systematically by appointing an accountant (Mr Lal). (b) In short term, recording of proper accounts will cost a bit to Mr Mehta but it will be equalized by the long-term benefits by maintaining proper books of accounts. In addition, appointing an accountant (Mr Lal) for such limited size firm would not cost very much as he will not have to be paid a very high amount for his services rendered. 2. What information would Mr Lal require for preparing the financial statements? Solution: Mr Mehta would require three types of information for preparing the financial statements, which are as under. (a) Information related to Trading Account (i) Purchases and sales of goods (ii) Direct expenses (iii) Closing stock of goods (b) Information related to Profit & Loss A/c. (i) Daily revenue expenses of the firm (ii) Daily revenue incomes of the firm (c) Information related to Balance Sheet (i) Information related to liabilities of firm 1. Share capital 2. Other liabilities which include: • Reserves & Surplus • Secured loan and unsecured loans • Current liability • Contingent liability (ii) Information related to Assets of the business:

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1. Fixed assets 2. Investments 3. Current Assets 4. Miscellaneous expenditure 3. What items would you expect to find in the statements of financial position and profit and loss analysis relating to Mr Mehta? Solution: Following are the items which may appear in the profit and loss account of Mr Mehta:
Particulars To Opening Stock To Purchase To Wages To Gross Profit Total Particulars To Salary of Assistants To Electricity Expenses To Telephone Expenses To Sundry Expenses To Discount Paid To Net Profit Total Liabilities Share Capital Total ownership capital Reserve & Surplus Profit Secured Loan Mortgage Loan Unsecured Loan Friend’s Loan Current Liability Bank Overdraft Creditors Total Trading Account of Mr Mehta Amount Particulars xxx By Sales xxx By Closing Stock xxx xxx By Gross Loss xxxxx Total Profit and loss a/c of Mr Mehta Amount Particulars xxx By sale of Assets xxx By Discount Received xxx By Interest on Investment xxx xxx xxx By Net Loss xxxxx Total Balance Sheet of Mr Mehta Amount Assets Fixed Assets xxx Land & Building Furniture xxx Equipments Investments xxx Investments Current Assets xxx Cash Balance Bank Balance xxx Debtors xxx Stock xxxxx Total Amount xxx xxx xxx xxxxx Amount xxx xxx xxx

xxx xxxxx Amount xxx xxx xxx xxx xxx xxx xxx xxx xxxxx

4. What records would Mr Mehta require to maintain, for controlling his business activities? Solution. Mr Mehta would be required to maintain the following records, for controlling his business activities. (1) Trading Account (a) It tells us what are the net purchase and net sales of the company. (b) It also specifies the direct expenditure, incurred by the company. (c) Information regarding trading account is helpful during time of calculating the gross profit of the company. (d) Other benefits.

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(2) Profit and Loss Account (a) It specifies the various expenses made by the company. (b) It also specifies the various incomes earned by the company. (c) This account helps us to find out the net profit of the company. (3) Balance Sheet (a) It tells the current financial position of the company. (b) It tells the total assets of the company. (c) It also tells about the total liabilities of the company. Note: A detailed explanation of above statement has been mention in Question 3. CONCLUSION Thus from the above case, we can conclude that the problem mentions in the case is one of the common problems which every unit faces if it does not prepare and maintain necessary accounts. Mr Mehta is one of the persons who are suffering from various problems, which are mentioned in this case, and there are many other problems, which may occur due to nonmaintenance of accounts. Thus in order to keep away such problems, every firm big or small should always maintain its accounts in a systematic way.

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Case 2.1
Liabilities Capital Mrs Bevan Mrs Maywoods Mr Maywoods Secured Loan Mortgage loan Total Balance Sheet as on April 12, 1946 Amount Assets 2,000 2,000 2,000 Fixed Assets Land 2,500 Add 2,000 Building Equipments Current Assets Cash (6,000 – 4,500) Total Amount

6,000 11,500 17,500

4,500 10,500 1,000 1,500 17,500

Liabilities Capital Mrs Bevan Add: Less: Loss Mrs Maywood Less: Loss Mr Maywood Less: Loss Secured Loan Mortgage Loan Current Liabilities & Provisions Bills Payable Total

Balance Sheet as on December 11, 1946 Amount Amount Assets 2000 400 2,400 329.34 2,000 329.34 2,000 329.34 Fixed Assets Land Less: Depreciation 2070.66 1670.66 1670.66 10800 Deposit Stock Cash Bank 92.01 16,303.99 Total Building Less: Depreciation Equipments Add: Purchase Less: Depreciation Current Assets, Loans & Advances

Amount 4,500 44.45

Amount

4,455.55

10,500 233.45 10,266.55 1,000 415.95 1,415.95 44.19

1,371.76

35 100 65.35 9.78 16,303.99

SUMMARY In the year 1946 three partners, Mr Bevan, Mr & Mrs Maywoods, started business contributing $2000 each. They also hire some amount of loan. The cafe was on the highway and frequently visited by truck drivers and voyagers. All of the partners have divided their duty by the mutual understanding. Due to the friendly relationship between one of the partners, namely, Mrs Maywoods with a customer Fred Mead, she finally she run away with him. Mr Maywoods searched her a lot. After this event occurred, Mrs. Bevan decided to dissolve this partnership. Thus they started their business on 12th April 1946 and dissolve on 16th December 1946. The dissolution of business resulted into loss and all the partners equally shared it. As the professional approach was a lacking factor for this partnership, finally it had to be broken up and bear a loss. After briefly analysing the case, we can say that the proper planning was not present in this partnership and they did have the scarcity of funds from the beginning.

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CASE 2.2 PREMIER ENGINEERING COMPANY LTD. Debtors Account
Dr Particulars To Balance b/d To Sales JF Amount 14,505,000 2,90,000,000 Particulars By Sales return By Discount By Cash By Balance c/f Total JF Cr Amount 20,000 40,000 26,00,00,000 4,44,45,000 3,04,50,000 Cr Amount 1,50,00,000 14,50,00,000 6,00,000 16,06,00,000 Cr Amount 80,00,000 9,27,000 1,00,03,000 8,00,00,000 14,00,00,000 2,59,65,500 1,39,40,000 69,08,000 36,14,30,000 Cr JF Amount 8,00,00,000 6,00,40,000 16,06,00,000 Particulars By Balance b/d By Bank loan Total JF Amount 4,00,20,000 10,00,20,000 16,06,00,000

Total Dr Particulars To Cash To Balance c/f Total Dr Particulars To Balance b/d To Bank To Debtors

3,04,50,000

Creditors Account JF Amount 14,000,000 2,06,00,000 16,06,00,000 Particulars By Balance b/d By Purchase By Supplies Total JF -

Cash Account JF Amount 14,10,000 10,00,20,000 26,00,000,000 Particulars By Machinery By Insurance and tax By Miscellaneous expenditure By Bank loan By Creditors By Insurance and tax By Dividend By Balance c/f Total JF -

Total Dr Particulars To retirement of bank loan To Balance c/f Total

36,14,30,000

Loan Account

6

Sales Account Dr Particulars To Sales return & allowances To Sales discount To Balance c/f Total JF Amount 20,000 40,000 28,99,40,000 29,00,00,0000 Particulars By Debtors JF Total 29,00,00,000 Cr Amount 29,00,00,000

Machinery Account Dr Particulars To Balance b/d To Cash JF Amount 22,61,30,000 80,00,000 Cr Particulars JF Amount By Depreciation 7,88,20,000 (accumulated & current year depreciation By Balance c/f 15,53,10,000 Total 23,41,30,000

Total

23,41,30,000

Accured Tax Dr Particulars To Balance c/f Total JF Amount 2,59,65,500 2,59,65,500 Particulars By Balance b/d Total JF Cr Amount 2,59,65,500 2,59,65,500

Depreciation Account Dr Particulars To Balance c/f Total JF Amount 7,88,20,000 7,88,20,000 Particulars By Balance b/d By P & L a/c Total JF Cr Amount 4,48,00,000 3,40,20,000 7,88,20,000

7

Trading and Profit & Loss Account Particulars For year ending on 31st March 1983 JF. Amount Particulars 8,32,05,000 14,56,00,000 2,40,50,000 48,40,000 2,50,000 35,46,000 4,30,00,500 1,00,03,000 8,00,000 3,40,20,00 29,348,275 3,957,225 38,28,20,000 Total 38,28,20,000 JF Amount

To Opening stock To Purchase To Direct labour To Indirect labour To ESIS premium To Heat, light and power To Sales administrative service To Interest To Manufacturing taxes and insurance To Depreciation To Income tax To Net profit Total

By Sales 29,00,00,000 Less : Sales return 20,000 Sales discount 40,000 By Closing stock **

28,99,40,000

9,26,80,000

**Calculation of Closing Stock Opening Stock 8,32,05,000 (5,30,00,000 + 1,00,05,000 + 2,00,00,000 + 2,00,000) Add: Purchase 14,56,00,000 22,88,05,000 Less: Raw Material consumed Supplied used Closing Stock 13,55,20,000 6,05,000 13,61,25,000 9,26,80,000 (22,88,05,000 – 13,61,25,000)

Particulars To Provision for dividend Total

Profit & Loss Appropriation Account for year ending on 31st March 1983 JF Amount Particulars 1,39,40,000 13,940,000 By Net profit By Deficit Total

JF -

Amount 39,57,225 99,82,775 13,940,000

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Particulars Shareholders Fund Equity Retained earnings Secured Loans Loans Current Liabilities & Provisions Creditors Provision for income tax

Balance Sheet as on 31st March 1983 JF Amount Particulars 19,10,46,700 84,97,800 6,00,40,000 2,06,00,000 2,93,48,275 Current Assets Loans & Advances Debtors Cash Closing stock Prepaid taxes and insurance Advance Taxes paid 9,27,000 Less : Expired 8,00,000 Misc. Expenditure Deficit Total Fixed Assets Plant and Equipments Investments

JF -

Amount

15,53,10,000

4,44,45,000 69,08,000 9,26,80,000 80,000

1,27,000 99,82,775 30,95,32,775

Total

30,95,32,775

Premier Engineering Company Ltd., General Budget for 1983 Worksheet Assets Changes Cash Debtors Raw Materials Goods in Process Finished Goods Supplies Prepaid Taxes & Insu. Manufacturing Plant 15,53,10,000 Liabilities Changes Loans Creditors Accursed Taxes Accumulated Dep. Amount Increase in Assets 14,10,000 1,45,05,000 5,30,00,000 1,00,05,000 2,00,00,000 2,00,000 80,000 22,61,30,000 54,98,000 2,99,40,000 94,80,000 -----Decrease in Assets -----5000 -7,08,30,000 69,08,000 4,44,45,000 6,24,80,000 --1,95,000 -Net

Amount

Increase in Liabilities

Decrease in Liabilities --2,59,65,500 --

Net

4,00,20,000 1,50,00,000 2,59,65,500 4,48,00,000

2,00,20,000 56,00,000 -3,42,20,000

6,00,40,000 20,600,000 -78,820,000

9

Equity Retained Earnings

19,10,46,700 84,97,800

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---

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CASE 3.1 MASTERS FUEL OIL COMPANY
Income Statement for the year ended 31st December 1958 Particulars Amount Income from Sales & Services Fuel oil, non-budget accounts Burner services & repairs Installations Credit Sales 2,39,776 Closing Stock of burner parts 8,250 Total Income Cost of Sales & Services Fuel oil delivered Buner parts Installations Subcontract charge Opening stock burner inventory parts Credit Purchases Total Cost of Sale Gross Profit on Sales Operating Expenses: Utilities Add Outstanding Supplies Telephone Advertising Add Outstanding Property Taxes Office & Printing costs Fees for professional services Payroll Taxes Outstanding Rental of Uniforms Vehicles Operation Wages Miscellaneous Exp. Depreciations: Furniture & Fixture Delivery & Services Equipment Vehicle (Truck) Building Net Profit from operation 424 36 Amount

2,48,026 2,48,026

5,490 1,58,990

1,64,480 1,64,480 83,546

460 277 231 2,786 972 1,119 1,520 490 512 2,312 9,816 1,949

2,627 159

148 4,757 202 1,084

6,191 28,635 54,911

10

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Master Fuel Oil Company Balance sheet as on 31st Dec. 1958 Liabilities Capital: Leonard Master Less: Drawing Profit Louis Webster Less: Drawing Profit 31,295 12,650 27,456 32,185 15,000 27,455 Amount Assets Fixed Assets: Land Furniture & Fixture Less: Depreciation Allowance Less: Depreciation Delivery & Services Equipment Add: Purchase (Truck) 6,000 1,481 566 148 23,786 12,133 35,919 9,787 21,173 767 Amount

46,101

44,640

Less: Depreciation Allowance Less: Depreciation 4959 Building 21,699 Less: Depreciation Allowance 7,364 Less: Depreciation 1,084 Current Liabilities Account Payables: Fuel bills Utility bills Burner parts Advertising Other Liabilities Total Date Particulars 1 Jan., To Opening Balance b/d 1958 To Regular Customers To Budget Plan Customers To Burner Service & repair To Installation Work To Deposit Refunds 3,962 36 438 159 Current Assets: Cash Account Receivables: Regular Accounts Budget Accounts Deposit on Commercial bids Less: Inventory of Burner Part Total Particulars By Account Payable Last Year’s 18,640 12,172 900 750

13,251

15,211

30,812 150 8,250 95,614 Amount 4,382

4,595 278 95,614

Cash Account Amount Date 13,993 1,06,478 97,798 12,714 4,460 750

By Drawing L. Master 12,650 By Drawing L. Webster 15,000 By Fuel Purchase 1,46,260 By Burner Parts 5,905 By Installations 2,111 By Subcontractors 314 By Utilities 424 By Supplies 277

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31st Dec Total 2,36,193

By New Truck By Telephone By Advertising By Property Taxes By Office & Printings By Fess Pro. Services By Liabilities Last Yr By Payroll Taxes C.Y By Rental of Uniforms By Vehicle Operation By Wages By Miscellaneous Exp. By Closing Balance Total

(contd.) 12,133 231 2,627 972 1,119 1,520 256 212 512 2,312 9,816 1,949 15,211 2,36,193

Date 1 Jan., 1958

Particulars To Balance b/d

Account Receivable (Debtors) A/c Amount Date Particulars 12,486 31 Dec., 1958 31 Dec., 1958 By Cash A/c (1,06,478 + 97,798 + 12,714 + 4,460) By Balance c/f : Regular A/c Budget A/c 18,640 12,172 2,52,262

Amount 2,21,450

31 Dec., To Credit Sales 1958

2,39,776

30,812

Total

2,52,262

Total

Date

Particulars

Account Payable (Creditors) A/c Amount Date Particulars By Balance b/d

Amount 4,382

31 Dec., To Cash (4.382 + 1,58,972 1 Jan., 1958 1,46,260 + 5.905 + 1958 2111 + 314) 31 Dec., To Balance c/f (3,962 4,400 31 Dec., 1958 + 438) 1958 Total 1,63,372

By Credit Purchases Total

1,58,990 1,63,372

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Profit and loss account of the year Ended on 31/3/1982 Dr. Expenses Amount Amount Income By Dividend received By Bills received By Closing Stock Amount Cr. Amount 1,19,000 20,79,000 70,000

To Depreciation on 21,815 office equipment To salary 10,39,920 + Outstanding 17,500 10,57,420 To office supply 3,45,450 + Outstanding 45,150 3,90,600 To rent 1,70,800 + Outstanding 16,800 1,87,600 To miscellaneous expenses 1,20,400 + Outstanding 1,750 1,22,150 To Profession fee Exp. 35,000 Bad debts 37,800 Net Profit c/f. 4,15,615 22,68,000

22,68,000

Balance sheet of Latif Khan Architect As on 31/3/1982 Capital Capital + Net profit – Drawing Outstanding Exp. Salary Rent Supplies Miscellaneous Exp. Amount Amount Assets Office equipment - Depreciation Investment + Purchase Debtors Cash at Bank Closing Stock Amount 2,18,153 21,815 3,50,000 1,68,000 Amount 1,96,338 5,18,000 2,91,200 47,530 70,000 11,86,253 4,15,615 16,01,868 5,60,000 10,41,868 17,500 16,800 45,150 1,750 11,23,068 Cash Account Dr. Particulars To Bal b/d. To Debtor To Dividend Int. Amount 1,12,000 23,45,000 1,19,000 Particulars By Salary & charges By Office supplies By Rent. By Profession exp. By Purchase shares By Drawing By Miscellaneous Exp. By Bal. B/d. 47,530 Cr. Amount 10,51,820 4,02,850 1,84,800 35,000 1,68,000 5,60,000 1,26,000 25,76,000

11,23,068

25,76,000

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WORKING NOTES:
FOR FINDING CAPITAL:Asset: Office Furniture And Equipment Investment Cash Debtors Less Outstanding of 1981 Salary Supplies Rent Misc. Capital in the Business FOR FINDING DEBTOR: Op. balance + Bills issued Less By cash Received By Bad debts. 23,45,000 37,800 5,95,000 20,79,000 26,74,000 11,900 57,400 14,000 5,600 88,900 1,86,253 21,8,153 3,50,000 1,12,000 5,95,000 12,75,153

23,82,800 Net debtors at end of the year 1982 2,91,200 Cash Received = 17,50,000 + 5,95,000 = 23,45,000

CASE No. 3.3
Particulars Profit Reconciliation Statement Amount Amount 2,05,000 29,000 40,000 25,000 2,500 75 37,750

Profit as per Bhatia Less: Acc. Dep Provision for Exp. Reduction in Value of stock Add: Prepaid Ins. Prepaid Subscription Change in Capital Profit as per accountant

94,000

40,325 1,51,325

15

Liabilities Capital Creditors Accumulated Dep.

Opening Statement of Affairs Amount Assets 1,16,250 80,000 19,000 2,15,250 Furniture Cash & Bank Debitors Stock

Amount 1,00,000 47,000 12,000 56,250 2,15,250 Cr Amount 12,000 9,70,000 30,000 10,12,000 Cr Amount 80,000 7,50,000 8,30,000 Cr Amount 19,000 10,000 29,000 Amount 1,00,000 70,000 30,000 2,500 75 75,000 2,77,575

Debtors Account Dr Particulars To Balance To Sales Amount 12,000 10,00,000 By Bal 10,12,000 Creditors Account Dr Particulars To Cash To Cash To Bal Amount 80,000 6,40,000 1,10,000 8,30,000 Acc. Dep. Account Dr Particulars To Bal Amount 29,000 29,000 Particulars By Bal By Depreciation Particulars By Bal By Purchase Particulars By Cash By Cash

Liabilities Capital Less: Drawings Add: Profit Pro. for Service Exp. Less: Exp. Inc. Acc. Dep Add. Dep. Creditors

Balance Sheet as at 31st Dec. 1981 Amount Assets 1,16,250 1,69,000 – 52,750 1,51,325 50,000 10,000 19,000 10,000 98,575 Furniture Cash & Bank Debtors Prepaid Ins. Prepaid Subscription Closing Stock

40,000

29,000 1,10,000 2,77,575

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Income & Exp. A/c for the year ended on the 31st Dec. 1981 Dr Cr Particulars Amount Particulars Amount Opening Stock 56,250 Purchase 7,50,000 Sales of Radios 10,00,000 Dep. on Furniture 10,000 of Radio Parts 50,000 Prov. For Service Exp. 50,000 Exp. for Services 20,000 (For the radios sold in the Previous Period) Wages & Salaries 60,000 Insurance Paid 2,500 Rent Paid 10,000 Selling & Gen. Exp 14,850 Subscription 75 Net Profit 1,51,325 10,50,000 10,50,000

CASE 4.1 International Hotels Ltd Date 30th June Particulars Journal-Adjusting Entries LF Debit Rs. 19,250 19,250 Credit Rs.

Bad debts A/c Dr. To Debtors A/c (Being there is a Bad debts arise and deduct from Debtors) P&L A/c Dr. To Bad debts A/c (Being Bad debts is recognize and debited to P&L A/c Advertisement Exp. A/c Dr. To P&L A/c (Being Advertisement Exp. is carried forward to next year) Depreciation A/c Dr. To Building & Furniture A/c (Being Amt. Depreciated to the Building and Furniture) P&L A/c Dr. To Depreciation A/c (Being the depreciation recognized and debited to P&L A/c)

30th June

19,250 19,250

30th June

2,02,500 2,02,500

30th June

31,97,250 31,97,250

30th June

3,197,250 3,197,250

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30th June

P&L A/c Dr. To O/s wages A/c (Being O/s wages is transfer to P&L A/c) General Reserve A/c Dr. P&L Appro. A/c Dr. To proposed equity div A/c (Being the proposed dividend is paid through P&L Appro. A/c and G.R. A/c P&L A/c Dr. To Repairs and maintenance A/c (Being repairs and maintenance is not recorded) Total

1,92,000 1,92,000

30th June

1,46,505 95,13,495 96,60,000

30th June

28,900 28,900

1,65,16,400 International Hotels Ltd.

1,65,16,400

Solution (ii)

Statement showing Profit and Loss Account of the year ended June 30, 1982 Dr. Cr. Particulars Rs. Rs. Particulars Rs. Rs. To Opening stock wine, cigars + food stuff To purchase wine, cigars + food stuff To wages & salaries o/s wages & salaries To coal & firewood To Carriage & freight To Gross Profit To Depreciation Land & Building Fitting & Furniture To Bad Debts (T) + Bad Debts (Adj) + B.D.R.(Adj) 9,20,000 17,89,000 28,70,000 9,430,000 4,245,000 192,000 By sales wine, cigars 27,09,000 + food stuff By closing stock wine, cigars 12,300,000 + food stuff 4,437,000 493,500 121,500 6,674,000 26,735,000 2,550,000 647,250 0 19,250 0 19,250 – B.D.R(T) 0 To Adventiserpent Exp. 1,254,000 + c/f next year. 202,500 To Repair & Maintanance 637,500 + Not Recover 28,900 To rent, Rates, Taxes To Gross Profit To rent room 3,197,250 To Casino Room Earning To golf course Earning To Health club earning To Pool side earning To shopping arcade rentals 19,250 To discotheque earnings 1,051,500 666,400 1,335,000 26,735,000 6,674,000 8,108,950 142,500 148,500 268,250 136,400 145,000 125,400 5,260,000 13,640,000 18,900,000 3,375,000 4,460,000

7,835,000

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To Laundry To miscellaneous Exp. To O/s debenture Int. To Provision for Tax To net profit

122,500 876,000 4,050,000 2,442,605 1,998,495 15,749,000 15,749,000

Statement showing Profit and Loss Appropriation Account of the year ended June 30, 1982 Dr. Cr. Particulars Rs. Particulars Rs. To proposed equity share dividend By Bal b/d 9,660,000 By P & L A/c By General reserve 9,660,000 6,225,000 1,998,495 146,505 9,660,000 Rs. 75,000,000 124,950,000 12,297,750

Liabilities

Statement showing Balance Sheet as on June 30, 1982. Rs. Rs. Assets Rs.

Share capital Fixed assets 1207500 Equity share 120,750,000 Good will of Rs. 100 each 75,000,000 Land & building 127,500,000 750000 Preference -Dep. @ 2% 2,550,000 share of Rs. 100 each Furniture & Fittings 12,945,000 Reserve & surplus - Dep. @ 5% 647,250 General reserve 30,000,000 - Equity share 1,436,505 28,563,495 dividend Investment: Secured loan: 300000 13.5% Current assets: Deb of Rs. 100 each 300,000,000 loan & advances +O/s deb. int. 4,050,000 34,050,000 Closing stock: wine, cigars 3,375,000 Current liabilities & + food stuffs 4,460,000 Provision Cash in Hand O/s repairs & 28,900 Cash in Bank maintenance Creditors 6,300,000 Debtors 2,889,000 Proposed equity dividend 9,660,000 - Bad. Debt 19,250 Provision for tax 2,442,605 Carried forward O/s wages & salaries 192,000 Adv. exp Miscellaneous Expenses: Preliminary & formation expenses 276,987,000

40,845,000

7,835,000 330,000 11,457,000

2,869,750 202,500

1,200,000 276,987,000

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CASE 4.2: SUMMARY This is the cas of Supreme Paper Company Ltd. Here list of balances is given, from that information following items should be prepared. 1. The adjustment entries. 2. The Profit and loss account for the year ending December 31, 1982. 3. The Profit and loss appropriation account. 4. The Balance Sheet as on December 31, 1982.
Particulars P&L A/c for the year ended as on Dec. 31, 1982 Amount (Rs.) Particulars 31,400 By Dividend on Investment By Net Loss 2,60,000 60,000 40,000 3.45,000 Amount (Rs.) 1,00,000 20,53,300

To Tax on dividend To Debenture interest 84000 + Outstanding interest 176000 To Un-expired payment To Director’s fees To Interim Dividend To Depreciation on Land & Building 1,00,000 Plant 6,00,000 Furniture 32,000 Vehicles 50,000 To Tax Total

7,82,000 6,34,900 21,53,300 Total 21,53,300

Profit & Loss Appropriation A/c for the year ended on Dec. 31, 1982 Particulars Amount (Rs.) Particulars Amount (Rs.) To Debenture Redemption Reserve To General Reserve To provision for dividend To provision for taxation To net loss Total 4,00,000 By balance b/d 7,00,000 By balance c/f 7,20,000 3,24,540 20,53,300 41,97,840 Total 32,51,700 9,46,140

41,97,840

20

Balance sheet as on 31st December 1982 Liabilities Owners’ Equity: Share capital Reserves and Surplus: General reserve 6,00,000 + Extra provision 7,00,000 Debn redm reserve + Extra provision 4,00,000 4,00,000 Amount 60,00,000 Assets Fixed Assets: Lease hold and & Building - Depreciation Amount

16,00,000 1,00,000

15,00,000

13,00,000

Plant & machinery 42,40,000 - Depreciation 6,00,000 Furniture & Equip - Depreciation Vehicle - Depreciation 3,20,000 32,000 2,00,000 50,000

36,40,000

8,00,000 1,00,000

2,88,000

Share premium Secured Loans: 13 % debenture 20,00,000 + interest outstanding 1,76000 Current Liabilities: Other liabilities Creditors & accured charges Provisions: Proposed dividend Provision for taxation

1,50,000 10,00,000 49,10,000 33,20,000 10,000 5,00,000 1,08,000 9,46,140 1,63,72,140

21,76,000 600 40,69,000 Investment: Current Assets: Debtors Stocks & WIP Cash Bank Other assets By P & L A/C 1,63,72.140

7,20,000 12,06,540

Adjustment Entries Date March 31 Particulars Depreciation A/C To land & building A/C (Depreciation provided on the Land & Building at the end of the year) Depreciation A/C To plant & machinery A/C (Depreciation provided on the plant & Machinery at the end of the year) Depreciation A/C To vehicle A/C (Depreciation provided on the vehicle at the end of the year) Dr. LF No. Debit 1,00,000 1,00,000 Credit

March 31

Dr.

6,00,000 6,00,000

Mach 31

Dr.

50,000 50,000

21

March 31

March 31

March 31

March 31

March 31

March 31

March 31

P & L A/C Dr. To Depreciation A/C (Transfer of Depreciation A/C to the Profit & Loss A/C P & L appropriation A/C Dr. To provision for taxation A/C (Provision made for the Taxation) P & L appropriation A/C Dr. To debenture redemption reserve A/C (Provision made for the Debenture Redemption Reserve) P & L appropriation A/C Dr. To general reserve A/C (Provision made for the General Reserve) P & L appropriation A/C Dr. To provision for dividend A/C (Provision made for the proposed 12 % Dividend) Debenture interest A/C Dr. To debenture A/C (Outstanding Debenture Interest) P & L A/C Dr. To debenture interest A/C (Outstanding Debenture Interest) TOTAL

7,82,000 7,82,000

3,24,520 3,24,520 4,00,000 4,00,000

7,00,000 7,00,000 7,20,000 7,20,000

1,76,000 1,76,000 1,76,000 1,76,000 56,44,520 56,44520

CASE 4.2 Monarch Trading Corporation Ltd. Trial Balance for the Period ending on March 31, 1982

Particulars Leasehold Land Buildings Stock (31 March 1982) Merchandize Cost of Merchandise sold Carriage inward Creditors Wages Debtors Bank overdraft Interest on Bank overdraft Advertisement expenses Premium received (Apprentice Scheme) Office administration expenses

Debit 2,000,000 77,00,000 4,80,000 10,120,000 95,000 8,850,000 9,405,000

Credit

4,520,000

3,000,000 240,000 328,000 50,000 192,000

22

Discount allowed and earned Capital Salaries Electricity charges Rent and rates Retained earnings (1st April 1981) Commission earned Investments & interests on investment Sales Stock of stationery as at 1st April 1981 Furniture and fixtures Salesmen’s salary and commission Carriage outward Purchase on stationery Accumulated depreciation 1st April 1981 Buildings Furniture and Fittings Provision for bad debts as on 1st Apr-81 Advance Income tax during the year Total

147,000 3,553,000 186,000 215,000

101,000 10,000,000

2,750,000 45,000 1,710,000 1,632,000 218,000 180,000

3,188,000 75,000 247,500 30,038,000

1,750,000 450,000 176,500 3,550,000 53,596,000 53,596,000

Journal Adjustment Entries Date Particulars P & L A/c Dr. To Land A/C Wages A/c Dr. Salaries A/c Dr. To Outstanding wages A/c To Outstanding salaries A/c Miscellaneous Expense A/c Dr. P & L A/c Dr. To Advertisement Expense A/c Premium of Apprentice A/c Dr. To Prepaid Apprentice A/c Commission accured A/c Dr. To Commission A/c P & L A/c Dr. To Stationery A/c P & L A/c Dr. To Provision for Bad Debts A/c P & L A/c Dr. To Accumulated A/c 5,56,000 5,56,000 470,250 4,70,250 195,000 195,000 12,500 12,500 12,500 12,500 160,000 40,000 200,000 15,000 27,500 15,000 27,500 LF No. Debit Rs. 100,000 Credit Rs. 100,000

23

Adjusted Trial Balance for the Period ending on March 31, 1982 Particulars Debit Credit Leasehold Land 19,00,000 Buildings 7,70,000 Stock (31 March 1982) Merchandize 4,80,000 Cost of Merchandize sold 10,120,000 Carriage inward 95,000 Creditors 4,520,000 Wages 8,850,000 Debtors 9,405,000 Bad Debt Provision 6,46,750 Bank overdraft 3,000,000 Interest on Bank overdraft 240,000 Advertisement expenses 128,000 Miscellanius Expense (Advertisement) 160,000 Premium received (Apprentice Scheme) 37,500 Office administration expenses 192,000 Discount allowed and earned 147,000 101,000 Capital 10,000,000 Salaries 3,580,000 Electricity charges 186,000 Rent and rates 215,000 Retained earnings 3,188,000 Commission earned 875,000 Outstanding commission 12,500 Investments & interests 247,500 Sales 2,750,000 30,038,000 Stock of Stationery 30,000 Furniture and fixtures 1,710,000 Salesmens salary and commission 1,632,000 Carriage outward 218,000 Accumulated Depreciation Buildings 2,135,000 Furniture and Fixture 6,210,00 Advance Income tax during the year 1982 3,550,000 Outstanding Wages and Salaries 42000 P and L A/c 1,348,750 Total 54664250 54664250

24

Profit and Loss Account and Retained Earning Statement for the Year ended March 31, 1982 Particulars Amount Amount Particulars Amount Amount To Cost of Marchandise 1,01,20,000 By Sales 3,00,38,000 To Carriage Inward 95,000 Less: Sales 27,50,000 2,72,88,000 Return Wages 88,50,000 Add: Outstanding Wages 15,000 88,65,000 To P and L A/c (Gross Profit) 82,08,000 Total To Land A/c To Stationary A/c To Bad Debt Reserve To Interest on BOD To Advertisement Expense Add: Adv. Expense To Office Expense To Discount Allowed To Salaries Paid Add: Outstanding Salary To Electric Charges To Rent & Rates To Depreciation: Building Furniture To Salesman Salary To Carriage Outward To Provision of Tax To Net Profit Total 1,28,000 40,000 2,72,88,000 Total 1,00,000 By Trading A/c 1,95,000 By Premium of Apprentice 4,70,250 2,40,000 By Discount Earned By Commission Earned 1,68,000 Add: Accrued Commission 1,92,000 By Investment and its Interest 1,47,000 35,80,000 1,86,000 2,15,000 75,000 12,500 87,500 2,47,500 2,72,88,000 82,08,000 12,500

1,01,000

35,53,000 27,000

3,85,000 1,71,000

5,56,000 16,32,000 2,18,000 3,93,770 3,63,480 86,56,500 Total

86,56,500

25

Balance Sheet as on March 31, 1982 Amount Amount Assets Amount Amount Fixed Assets: 1,00,00,000 Land 19,00,000 Building 77,00,000 Furniture 17,10,000 Reserve and Surplus: Investments: Retained Earnings 31,88,000 Net Profit 3,63,480 Premium of Apprentice 37,500 Provisions: Current Assets: Accumulated Depreciation Debtors 94,05,000 Building 17,50,000 Less: Prov. For 6,46,750 87,58,250 Bad debts Add: Depreciation 3,85,000 21,35,000 Furniture 4,50,000 Stock of Merchandice 4,80,000 Add: Depreciation 1,71,000 6,21,000 Provision For Tax 3,93,770 Stock of Stationary 30,000 Current Liabilities: Loans and Advances: Creditors 45,20,000 Accured Commission 12,500 BOD 30,00,000 Advance Tax Paid 35,50,000 (1982) Outstanding Wages 15,000 Outstanding Salary 27,000 Miscellaneous Expenses: Advertisement Expenses 2,00,000 Less: Written Off 40,000 1,60,000 Total 2,43,00,750 Total 2,43,00,750 Liabilities Capital Capital Stationery Account

Dr
Particulars To Balance B/d To Bank A/c Total Amount 45,000 180,000 225,000 Particulars By P & L A/c By Closing Stock Total Amount 195,000 30,000 225,000

Cr

CASE 5.1 Oliver Optics Company Particulars To purchase To gross profit Trading A/c for year ending 31 December Amount Amount Particulars Amount 15,130 23,280 38,410 By Sales By closing stock Amount 35,210 3,200 38,410

26

Expenditure

P&L A/c for year ending 31 December Amt. ($) Amt.($) Particulars 50 60 800 1,200 By Gross profit

Amt.($)

Amt.($) 23,280

To Insurance To Interest on uncle’s loan To Office & admin. Exp. Salary to Miss Schultz Salary to Oliver To Selling Exp. (Shop salaries) (3,500 + 3,200 + 4,800 + 400) To Rent To Office supply used To Electricity To Travel and Advertising Exp. To Bad debts To B.D.R. To Depreciation on equipment To Prov. for loss by rejection To Net profit

2,000 11,900 2,000 200 430 2,670 310 103 800 208 2,429 23,280 Amount ($) 5,000 800 10,250 103

23,280 Amount ($) 4,200

Liabilities Capital + Net profit Provision for loss by rejection Uncle’s Loan Creditors for Equip. (W.N-4) Creditors

Balance Sheet As On 31 December Amount Amount Assets ($) ($) 5,000 2,429 7,429 208 2,000 3,000 5,130 Equipment (W.N-4) Less Dep. (W.N-5) Debtor’s Less B.D.R. Insurance paid in advance Interest paid in advance Stock of office supply Closing stock

10,147 150 20 50 3,200 17,767

17,767 Particulars WORKING NOTE NO. 1 (W.N.-1) Amount Particulars 80 120 2,000 13,900 2,000 10,000 250 430 2,670 200 31,650 By Capital By uncle’s loan By Debtor’s Amount

To Interest on uncle’s loan To Interest on equipments To Installment and down payment To Salaries paid To rent paid To Suppliers (Creditors) To Office supply To Electricity and etc. To Travel and Advertisement Exp. To Insurance paid

5,000 2,000 24,650

31,650

27

Working Note No. 2 (W.N.-2) Particulars To Sales Debtor’s A/c Amount ($) Particulars 35,210 By Cash (Cash a/c) By Bad Debts By Balance (Cash sales) Amount ($) 24,650 310 10,250 35,210

35,210 Working Note No. 3 (W.N.-3) Particulars To bank/cash A/C. To balance Amount ($) 10,000 5,130 15,130 Creditor’s A/C Particulars By Purchase

Amount ($) 15,130 15,130

Working Note No. 4 (W.N.-4) Equipment value Down payment + Instalment (250* 16) Total Cost = 1,000 = 4,000 = 5,000 Working Note No. 5 (W.N.-5) Equipment value Equipment value Less Scrap value Net value Usage period = 5 Years So, Depreciation = 800 p.a Journal Entries 2 Audit fees 5,500 P&L 16 Rental received from employees provided with quarters 84,720 P&L 32 Interest and dividends received on investments 3,52,000 P&L 2,150 P&L 11,12,280 P&L 47,510 P&L = 5,000 = 1,000 = 4,000

4 Entertainment expenses 6 Remuneration paid to managing director 10 Loss on sales of assets 12 Depreciation (for the year ended Dec 31, 1982) 14 Interest paid on loans during the year 18 establishment expense 20 Traveling expense 22 Insurance expenses for machinery at work site

88,480 P&L

3,68,300 P&L 2,75,370 P&L 1,82,250 P&L 1,15,420 P&L

28

24 Salaries, wages, bonus, 38,91,640 etc 26 Repairs to machinery 3,74,860 and building 28 Power and fuel 11,22,760 30 Freight and transpora- 31,88,320 tion expenses APPR. 34 Stores and materials 1,05,69,720 consumed 3 Loan given to a sister 4,76,580 instititution, Capital Stores, a supplier of building materials 19 Debtors 42,780 23 Cash in hand 4,38,940 25 Cash at bank 29 Investments in shares

P&L P&L P&L P&L 11 Retained earning (jan. 1, 1982) P&L B/S 1 Paid up capital 27,70,000 B/S

43,57,430 P&L

B/S B/S

5,35,180 B/S 9,88,170 B/S

31 Fixed Assets

1,42,09,400 B/S

33 Advances to suppliers 6,57,450 equipment and stores 35 Advance income-tax 11,23,020 36 Billing to customers* 2,21,98,220 37 Earnest money deposi1,70,700 ted with the Municipal corporation, Government, etc. against building 7 Stock of stores and 25,63,410 supplies-Dec. 31, 1982 1,02,26,770 9 Value of uncompleted contracts (based on architect certificate and valued at contract price for work done 13 Interest accured on 22,510 Total 7,52,98,420

B/S

5 Unsecured loan from bank 8 Accumulated depreciation Dec. 31, 1982 27 Interest accured but not due on unsecured loan 15 Secured loans (against work-in-progress and stock of stores and supplies) repayable on Dec. 31, 1986) 17 “on account” advances received from customers against uncompleted contracts 21 Creditors

6,24,850 80,61,490 86,320 53,67,530

B/S B/S B/S B/S

33,52,950

B/S

42,72,900 21,97,520 4,40,71,440

B/S B/S B/S

B/S 38 Income-tax payable B/S General reserve B/S

B/S B/S

B/S 7,52,98,420

29

Particulars 2 Audit fees

4 6 10 12

14 18 20 22 24 26 28 30 34

Profit and Loss Account for the year 31st Dec. 1982 Amount Particulars 5,500 16 Rental received from employees provided with quarters Entertainment expenses 84,720 32 Interest and dividends received on investment Remuneration paid to 3,52,000 * Contract account profit managing director Loss on sales of assets 2,150 Depreciation (for the 11,12,280 Net Loss year ended Dec 31, 1982) Interest paid on loans 3,68,300 during the year Miscellaneous 2,75,370 establishment expense Traveling expense 1,82,250 Insurance expenses for 1,15,420 machinery at work site Salaries, wages, bonus, 38,91,640 etc Repairs to machinery 3,74,860 and building Power and fuel 11,22,760 Freight and transpora31,88,320 tion expenses Stores and materials 1,05,69,720 consumed Less: Adj. 2 99,66,220 less: 6,03,500 Adj. 2: Loss on transit 2,41,400 Adj. 3: Loss on invest 1,75,000 ments: Adj. 4: Provision for bad 856 debts Total 2,14,59,046 Total

Amount 47,510

88,480

2,05,83,115

2,14,59,046 Amount 43,57,430 2,77,000 1,62,25,685 2,08,60,115

Particulars Loss b/d Proposed dividend

Profit and Loss Appropriation A/c Amount Particulars 2,05,83,115 Retained earning (Jan. 1, 1982) 2,77,000 General reserve Balance c/d

Total

2,08,60,115

Total

30

Balance Sheet as on 31st Dec. 1982 Amount Assets Amount Share Capital 1 Paid up capital 2770000 31 Fixed Assets 14209400 Reserve and Surplus: 8 Less: Accumulated 8061490 General reserve Investments Adj.5: Transfer to P&L 4379440 29 Investments in shares 988170 Approx. A/c debentures Secured Loan Adj.3: Less loss 17500 15 Secured loans 5367530 Current Assets, Loans and Advances Unsecured Loan: A. Current Assets 5 Unsecured loan from bank 624850 19 Debtors 42780 Current Liabilities and Less: Provision for bad 856 Provisions debts A. Current Liabilities 23 Cash in hand 27 Interest accured but not due 86320 25 Cash at bank 17 “On account” Advance: 2613009 36 Billing to customers* Less: Profit margin 739941 Stock of stores and 21 Creditors 4272900 7 supplies – Dec. 31, 38 Income-tax payable 2197520 9 Value of uncompleted contacts (based on architects certificate and valued at contract price for work done B. Provisions 13 interest accrued on invest ments Adj. 5:Proposed dividend 277000 Adj: 2.Insurrance claim B. Loans 3 Loan given to a sister institution, Capital Stores, a supplier of building, materials 33 Advances to suppliers of equipment and stores 35 Advance income-tax paid P&L A/c (net loss) 1,62,25,685 37 Earnest money deposited with the Municipal corporation, Government, etc. against building contracts Total 62003569 Total Liabilities Adjustment Adj 1: Contingent liability of Rs. 380000

Amount : 6147910

813170

41924 438940 535180 22198220 2563410 10226770

22510 362100 476580

657450 1123020

1,70,700

62003569

31

Adj 2: Loss in transit included in cost of material consumed 603500 60% B/S 362100 40% P/L 241400 Adj 3: 250000 Market value decreased due to liquidation 30 paise realizable i.e. 75000 therefore loss on investment 175000 Adj 4: Provision of bad debts on Government contract 2% Assuming Debtor to be of Government contract Adj 5: Last year unpaid dividend decided to be paid No effect Adj 6: Future contract of next accounting year estimated No entries Working note: Contract complected Contract profit (profit margin) greater than 50% of contract Total contract Profit margin is to be taken as 2/3rd of total contract profit If less than 50% 1/3rd of total contract profit is realized. Here, 11971450 / 22198220 = 53% Therefore, 5% of 22198220 = 1109911 * 2/3 = 749441 profit margin for current year.

CASE No. 5.3 Consumer Product International Ltd. Manufacturing & Trading A/c for the year ended April 30, 1982

Dr.
Particulars To, Opening Stock Raw Material WIP- Fin. Goods. Raw Material Purchase Processing Charge Power & Fuel Freight & Forwarding Ch. Cost of Goods Purchase of finished Goods Gross Profit Amount 75544017 61855426 427169870 1107096 1107096 16032535 592731752 476575039 2666275 406156983 885398297 Particulars By Closing Stock: WIP-Fin. Goods. Raw Material

Cr.
Amount 63331296 52830817

Cost of Goods Sales Goods Destroyed by fire

476575039 592737152 885342435 55862

885398297

32

Profit & Loss A/c for the year ended April 30, 1982.

Dr.
Particulars To, Employee R & B. Con. of Stores Rent, Rates, Taxes - Prepaid Insurance Advt. - 50 % Repair & Maint. + Un Recorded Commission Interest Mis. Exp. Depri. + Extra Excise Duty Tax. Bad Debt. Salaries Loss by Fire Net Profit? Amount Amount 37213329 1652486 5732667 19662 31749447 1592737 1805062 29650 5713005 1407567 30156710 1834712 103130 773772 16403391 2226785 135740481 129844757 265382 2305680 10512 44685316 410337015 Profit & Loss A/c for the year ended April 30, 1982. Particulars By, Gross Profit Duty draw back Other income Amount

Cr.
Amount 406156983 216567 3963465

2005610 221175

410337015

Dr.
Particulars To, Interim Dividend Proposed Div. General Reserve I II Bal C/F Amount Amount 26822250 1965000 3062203 7713328 Particulars By, Net Profit Amount

Cr.
Amount 44685316

10775531 5122535 44685316

44685316

33

Balance Sheet as on April 30, 1982. Particulars Share Capital Reserve & Surplus: Devel. & Rebate General Reserve 43028712 +I 3062203 + II 7713328 P & L A/C Secured Loan: Unsecured Loan: Loan from Foreign Liability: Acceptance Creditor Unclaimed Div. Adv. From Cust. Un paid Salary Proposed Div. Un Recorded Main Provision: Tax Provision Pro. for Exp. Amount Amount 29475000 Particulars Fixed Asset: Building Plant & Machi. Amount Amount 13514577 6213488 5992313 1846167 920919

187400

53804243 5122535

29770426

45950454 7156668 408510 614318 2305680 1965000 29650

- Depri. 221175 Furniture 1781804 + Depri. (wrongly) 64363 Auto & truck 985282 - Depri. 64363 Investment: C.A. & Loan, Adv. Current Asset: Store and Spare WIP Finished goods Debtor 50731705 - Bad Debt. 265382 Cash in hand Bank Balance Insu. Claim Prepaid Rent Creative Ltd. (advt) Closing stock RM Loan & Advances: Adv. For Capital WIP

1818373 743916 62135880 50466323 23712 39848499 45350 19662 1592737 52830817 10859458 6358477 249197180

6844362 396367

249197180

CASE NO. 5.4 CONSOLIDATED STEELS LTD.

Consolidated Steels Limited manufactures iron and steel products, steel castings (including alloy steel castings) and various types of Industrial Machinery; e.g. Ball Mills, E.O.T. Cranes, Copper converters, etc. From the following trial balance and adjustments, prepare the Profit and Loss account, the Profit and Loss Appropriation account and the Balance sheet.

34

Trial Balance as on December 31, 1982
Account Heads Share Capital Reserves and surplus Deferred Payment Liability Unsecured Loans Land and Roads Buildings Plant and Machinery Furniture and Fixtures Vehicles Accumulated Depreciation - On Building - On Plant and Machinery - On Furniture and Fixtures - On Vehicles Capital Work-in-Progress Investments Loose Tools (Stock on 31.12.1982) Stores (Stock on 31.12.1982) Raw Materials (Stock on 31.12.1982) Debtors Cash and Bank Balances Loans and Advances Creditors Advance received against orders Unclaimed Dividends Sales Cash subsidy Raw Materials Consumed Interest Depreciation Stores and Spares Consumed Power and Fuel Subcontracting Rent, Rates and Taxes Insurance Advertisements Repairs and Maintenance Freight and Carriage Bad debts and Advances Written off Miscellaneous Expenses Excise Duty Salaries, Wages, etc. Staff Welfare Dr. (Rs.) Cr. (Rs.) 60,558,000 21,955,000 113,637,000 35,949,000 3,360,000 34,243,500 117,989,250 7,305,750 1,455,000 14,362,500 76,370,250 2,381,250 905,250 2,289,000 4,119,750 507,000 53,382,000 45,777,750 53,014,500 3,388,500 41,090,250 57,501,000 24,370,500 71,250 497,322,750 5,730,000 158,803,500 10,689,750 9,591,750 126,394,500 42,966,000 31,426,500 1,378,500 988,500 446,250 1,895,250 3,060,000 744,000 10,664,250 6,731,250 67,650,000 5,049,000 911,474,250

911,474,250

35

Additional Information: (1) The Board of Directors resolved that Rs. 528,000 included in the interest, relating to buying of an imported plant, be capitalized (2) A provision of doubtful debts amounting to Rs. 468,000 to be made. (3) The income-tax liability for the current year was Rs. 14,000. (4) Company XYZ Limited, to which the company has given a loan of Rs. 326,400 went into liquidation. The liquidator informed that all the unsecured creditors would get a 20% dividend. (5) Slow moving stock of the following items had to be written off: Raw Materials – Rs. 430,200 Loose Tools – Rs. 89,500 Stores – Rs. 689,400 (6) A pilferage of Rs. 5,500 was reported from the cash box. This had been included in the cash balance in the Trial balance. (7) Due to shift in the export policy, the company was to receive an additional cash subsidy of Rs. 732,000 (8) Interest accrued and due on the loans taken – Rs. 759,650 (9) Dividend (proposed) of Rs. 60,55,550 is to be provided. (10) Closing stock (as on 31.12.82) of the Work-in-progress and Finished goods was: Work-in-progress Rs. 57,836,250. Finished goods Rs. 21,807,000. Consolidated Steels Ltd. P&L Account for the year ending on 31st Dec. 1982 Particulars Amount Particulars Opening stock: Sales: -work-in-progress 53638500 Closing stock: -Finished Goods 11434500 Work-in-Progress Raw Materials Consumed 158803500 Finished Goods Stores & Spares consumed 126394500 Power & Fuel 42966000 Subcontracting 31426500 Freight & Carriage 306000 Excise Duty 6731250 Gross Profit 142511250 576966000 Loss from Pilferage Gross Profit Bad Debts (New) 261120 Bad Debts (Old) 744000 B.D.R. 468000 1473120 Interest 10689750 + Acc. Interest 759650 11449400 - For Assets 528000 10921400 Depreciation 9591750 Rent, Rates & Taxes 1378500 Insurance 988500 Amount 497322750 57836250 2180700

576966000 142511250

36

Advertisement Repairs & maintenance Misc. Expenses Salaries, Wages etc., Staff Welfare Provision for Tax Loss on Moving Stock Net Profit Total

446250 1895250 10664250 67650000 5049000 14000 1209100 31224630 142511250 Total 142511250

P&L Appropriation Account for the year ending on 31st Dec. 1982 Particulars Amount Particulars Amount Proposed Dividend Surplus Total 6055550 25169080 31224630 Net Profit Total 31224630 31224630

37

Liabilities 1. Share Capital 2. Reserves & Surplus Reserves & Surplus + Additional Cash Subsidy Surplus 3. Secured Loans

21955500 732000 22687500 5730000 25169080

Consolidated Steels Ltd. Balance sheet As on 31st Dec.-1982 Amount Assets 60558000 1. Fixed Assets Land & Roads Building Plant & Machinery + Addition to P & M Furniture 53586580 Vehicles Capital work in process 2- Investments

Amount 3360000 34243500 117989250 528000 7305750 1455000 2289000

167170500 4119750

4. Unsecured Loans Loans + Unpaid Interest 5. C.L & Provisions A. Current Liabilities Differed payment Creditors Advance against order Unclaimed Dividend B. Provisions Accumulated depreciation - On Building - On Plant & Mach. - On Furniture - On Vehicles Tax Provision Proposed Dividend 35949000 759650 36708650 3. C.A., Loans & Adv. A. Current Assets Closing Stock Debtors Cash & Bank Unreceived Subsidy B. Loans & Advances Loans Bad Debts

11363700 57501000 24370500 71250 195579750

178100900 52546500 3383000 732000 234762400 41090250 261120 40829130

275591530

14362500 76730250 2381250 9050250 94379250 14000 6055550

100448800 Total

296028550 446881780

Total

446881780

38

Calculations 1. Closing stock: Loose tools Stores Raw Materials Work in progress Finished goods 417500 52692600 45347550 57836250 21807000 178100900

2. Lose on moving stock: Loose tools Stores Raw Materials Total

89,500 689,400 430,200 1,209,100

Manufacturing Account for the year ended on 31st December 1982.

Dr.
Particulars To, Opening Inventory Raw Material Work in Progress To Net Purchase To Direct Labour To Indirect Labour To Rent and Rates To Canteen Charges To Depreciation Plant & Machinery Building To Fire Insu. Premium To Power & Light To Service Dept. Total Amount in 000 1850 2300 Amount Particulars Amount in 000 in 000 By Closing Inventory Raw Material 1600 4150 Work in Progress 2100 15800 By Balance C/F. 9119 (Cost of Production) 1450 825 2781

Cr.
Amount in 000

3700 34061

225 2100 300

2625 120 600 191 37761

Total

37761

Trading Account for the year ended on 31st December 1982

Dr.
Particulars To, Opening Inventory Finished Goods To Cost of Production To Gross Profit Amount in 000 Amount Particulars in 000 By Net Sales 3000 34061 By Closing Inventory Finished Goods 14498 Amount in 000

Cr.
Amount in 000 48709

2850

39

Total

51559

Total

51559

Profit & Loss Account for the year ended on 31st December 1982

Dr.
Particulars To Interest on Debenture To Rent and Rates To Depreciation Building Furniture To Fire Insu. Premium To Powe & Light To Canteen Charges To Service Dept. To Discount Allowed To Selling Expenses To Packing Charges To Advertising Exp. To Office Salary To Bad Debt Written Off To Provision for I.T. To Net Profit Total Amount in 000 Amount Particulars in 000 350 550 185 150 By Gross Profit Amount in 000

Cr.
Amount in 000 14498

335 60 100 515 382 520 800 760 1500 2600 250 2388 3388 14498

Total

14498

Balance Sheet as on 31st December 1982

Dr.
Liabilities Share Capital Equity Shares Reserve & Surplus P & L A/c. (Net Profit) Amount in 000 Amount in 000 40000 Assets Fixed Assets Land Buildings Depreciation Plant & Machinery Depreciation Secured Loan 7% Debenture Unsecured Loan Investments Fixed Depositors Current Liabilities Creditors 398.4 Investments 4250 Current Assets, Loans and Advances (A) Current Assets 5000 Furniture & Fixtures Depreciation Amount in 000

Cr.
Amount in 000 5000 10000 3500 21000 4100 4850 1487.6 6500

6775 16900

3362.4

4500

Provisions

40

Provision for I.T.

2388

Debtors Cash in Hand Cash at Bank Closing Stock Raw Material 1600 Work in Progress 2100 Finished Goods 2850 (B) Loans & Advances Total

11700 67 4232

6550 58811.4

Total

58811.4

Cost Distribution Schedule of Engineering Ancillaries Ltd.
Item Total Amount Basis of Distribution Production Department Sales Department Administrative Department Service Department

Power & Light

750,000 Kilo Watt Hours 12:1:1:1 1650000 Area Sq. Feet 33:9:13:11 3399000 No. of Employee 27:1:4:1 485000 Cost of Furniture 45:17:20:15 2100000 Cost of P & Mach.

600000 750000 × (12/15) 825000 1650000 × (33/66) 2781000 3399000 × (27/33) 225000

500000 750000 × (1/15) 225000 1650000 × (9/66) 103000 3399000 × (1/33) 85000

50000 750000 × (1/15) 325000 1650000 × (13/66) 412000 3399000 × (4/33) 100000

50000 750000 × (1/15) 275000 1650000 × (11:66) 103000 3399000 × (1/33) 75000

Rent & Rates

Canteen Charges

Depreciation on Furniture Deprec iation on Plant & Machinery Depreciation on Building

2100000

*****

*****

*****

500000 Cost of Building 6:1:2:1 200000 Cost of Building 6:1:2:1 573000 1:01:01

300000

50000

100000

50000

Fire Insu. Premium

1200000

20000

40000

20000

Proportion of Service Department

191000

191000

191000

****

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CASE NO. 6.1. CHARLES CROWN COMPANY

Solution 1 Project 220 Method (a): 102751.5 completed 106230.0 claimed 208961.5 total cost ∴ 49.16775% completed. Method (b): 116970 completed 232294 claimed 349264 total cost ∴ 50.35429% completed Net impact on company’s B/s: Billing Earned through Method (a): 116970 Cost earned through Method (a): 102751.5 Net Profit 14218.5 Answer: Net profit earned for current year as per Method (a) = 14218.5 × 49.16775 = 6990.92 Net profit earned for current year as per Method (b) = 14218.5 × 50.35 = 7159.63 ∴ Net Change in P&L statement = 6990.92 – 7159.63 = Rs. 168.71. Solution 2. Project 221 Method (a): 76578.18 Task completed 9040.00 85618.18 Total cost ∴ 89.44% completed. Method (b): 90780 Task completed 110220 Total Task (cost) ∴ 82.36% completed. Net Billing = 90780 – 70578.18 = Rs. 14201.82 (Net profit) Method (a): 89 unit of 44201.82 = 12702.32 (Net profit earned for current year) Method (b): 82.36% of 44201.82 = 11696.98

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(Net profit earned for current year)

Net change in P&L statement: = 12702.32 – 11696.98 = Rs. 1005.34 (Net effect of changing Method) Project 224: Method (a): 11486.84 completed 100250.00 total task 111736.84 ∴ Total 10.28% task completed. Method (b): 12250 task completed 121950 task task ∴ Total 10.05% task completed. Net profit = Net Billing – Cost = 12250 – 11486 = Rs. 763.16. ∴ Entire profit will transfer to contingency reserve. Ans 2. Method (a): Capital & Liabilities Assets Reserve & surplus: Contingency Reserve 7227.58 Surplus 6990.92 Method (b): Capital & Liabilities Assets Reserve & surplus: Contingency Reserve 7058.87 Surplus 5759.63 Answer 3: Net Profit: Additional Billing (125000 – 116970) Estimated cost (106230 – 100000) Net profit * Percentage compelation by Method (a) (49.17%)

8030 6230 1800 = 885.02

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Percentage compeletion by Method (b) (50.35%) Net Effect on profit

= 906.38 21.35

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Answer 4: Mr John would prefer Method A, as profitibility of Method A is higher than profitibility of Method B.
CASE NO. 6.2 GOLDEN GATE HOLIDAY RESORT LTD.

Ans 1. 1. Copntribution from members (fees) can be capitalised. And revenue generating from that would be reserve for the period. 2. Identification of Real value of contribution for 99 years and then amortisation of that fees. Ans 2. Effect of on Accounts: 1. * Contribution on liability side. * Only return will be shown in the P&L Account. 2. * Revenue Income (Amrtised value) = Proporturate Revenue Regonition Real value of contribution/99 years. * If instalment system is followed then proporturate division of EMI will be treated as revenue and will be shown in P&L credit side. Ans 3. Second option is preferable because it reflects the revenue of primary business.
CASE NO. 7.3 CALCUTTA MOTORS PVT. LTD.

1. If there is no estimate for future warranty of repair cost, then current year’s financial statement will show higher profit and results into outflow of current tax and return to stake holders. 2. Mr Bannarji should make estimate for outstanding warranty expenditure on the basis of some reasonable percentage on sale made. 3. Adding 2% warranty on expenditure (As per Income Tax Act in India) in Profit & Loss account and then profit should be found. The second effect will be on the provision side of Balance Sheet.
CASE NO. 7.4 VAT IN DAT

As per AS 2, Inventory should be valued net of MODVAT e.g. Purchase Price ×××× MODVAT ××× Net value of Inventory ×××× • MODVAT has been replaced by SENVAT in the year 2004.

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CASE NO. 8.1 CONTROL DATA CORPORATION

Solution 1 As manufacturing cost of product is 50% of the selling piece of the listed selling price, it can be possible to spend on maintenance of computer to increase the life of the product. If possible, life of computer can be increased by 2 more years. Given figures of cost of specification of computer it is always possible to increase the life of product. Solution 2 Yes, CDC should change the department policy. Simple WDV would be more preferable for six years. Depreciation rate will end up around 16.677, which will give stability in cost and profit. As depending on nature of business, depreciation shares 317 of the total cost which is considerable. Written Down Value (WDV) method will give constitency in cost structure in long run.. CASE No. 8.2 National Pharma Ltd Solution 1. Managerial factors : *To sustain goodwill of the organisation or net profit is negative with present policy. *To identify appropriate policy for depreciation that suits to the company. *Present performance of the company will not show sound and rosy picture of the organisation so far reporting to shareholders and other external associates some adjustments in financial statement is required. *To sustain dividend policy. For dividend policy decision led to reconsider the policy. Operational Factors : *Profit will turn from negative to positive. It will save the doubts of operational efficiency of business. *To identify appropriate policy for depreciation, in terms of accounting of usage of fund since the doubts are raised by the secretary which will demand another thought about companies policy. *Reduction of Net profit ratio from 4% (app.) to – 127. (app.) the strong factor to think over operational issues. Depreciation policy is one of them. Financial *To have an ideal Dividend Policy decision for the current year. And use this experience in future to divide such situation. *Interest exp. is increased by more than five times. It will give considerable effect on financial statement as interest are paid to long term loans which are taken for long-term assets in general. *To get an advantage of current amendment of financial policies of government for example revised depreciation rates. Solution 2 Suggested changes in accounting policy for depreciation is valid for the current year. Because profit with suggested policy is getting increased by Rs. 54,89,000. So far the current year, it is better to change the policy. Another reason, This action will reduce

46

current assets (by reducing inventory) of increase in Fixed Assets which is positive move for the better financial reporting. Solution 3 No. change in the depreciation policy is not the permanent solution. This proposed change will differentiate the financial statement from the financial statement reported policy then their would be serious question mark for the past performance. Because it can be taken as c past attempt to create the secrete reserve. Solution 4 Impect of taxation wound be as per the current rate. This action will increase tax.
CASE NO. 9.3 RAINBOW PAINTS LTD.

No Accounting standard for R&D. (A) Amalgumation of Nature of Purchase. Balance Sheet Capital-Liabilities Assets Share capital FA (3000 + 200) (500 + 200) 700 Investment Reserve & Surplus: Current Assets Reserve 1500 (1940 + 75) Loans (2500 + 50) 2550 Current Liabilities (500 + 25) 525 5275

3200 60 2075

5275

(B) The company can show the same as the Amalgamation of Nature of merger in which all Assets and Liabilities will merge with acquiring company and Net impact of change will be given to reserve and surplus. Investment (60) will be eliminated from investments.

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