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Gurukripas Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

Gurukripas Guideline Answers to May 2015 Exam Questions


CA Inter (IPC) Group I Accounting
Question No.1 is compulsory (4 X 5 = 20 Marks).
Answer any five questions from the remaining six questions (16 X 5 = 80 Marks). [Answer any 4 out of 5 in Q.7]
Working Notes should form part of the answer.
Wherever necessary, suitable assumptions should be made and indicated in answer by the Candidates.

Note: All Page References given are from Padhukas Ready Referencer on Accounting For CA Inter (IPC)

Question 1(a): AS 3 Cash Flow Statement 5 Marks


Prepare Cash Flow from Investing Activities of M/s Creative Furnishings Limited for the year ended 31.03.2015.
Particulars `
Plant acquired by the issue of 8% Debentures 1,56,000
Claim received for Loss of Plant in Fire 49,600
Unsecured Loans given to Subsidiaries 4,85,000
Interest on Loan received from Subsidiary Companies 82,500
PreAcquisition Dividend received on Investment made 62,400
Debenture Interest Paid 1,16,000
Term Loan repaid 4,25,000
Interest received on Investment (TDS of ` 8,200 was deducted on the above Interest) 68,000
Book Value of Plant sold (Loss incurred ` 9,600) 84,000

Solution: Similar to Illustrations in AS3 Cash Flow Statement

Particulars `
CASH FLOW FROM INVESTING ACTIVITIES
Unsecured Loans given to subsidiary (4,85,000)
Interest on Loan received from Subsidiary Companies 82,500
PreAcquisition Dividend received on Investment 62,400
Interest Received on Investment (68,000 TDS 8,200) 59,800
Proceeds on Sale of Plant (84,000 9,600) 74,400
NET CASH USED IN INVESTING ACTIVITIES (2,05,900)
Note:
1. Plant acquired by Issue of 8% Debentures will not be considered in CFS, as Cash is not involved. They are disclosed in
Notes to Accounts.
2. Claims received for Loss of Plant in Fire is an Extraordinary Item, shown under Operating Activities.
3. Debenture Interest paid will be shown under Financing Activities
4. Term Loan Repaid will be shown under Financing Activities.

Question 1(b): AS 7 Construction Contract 5 Marks


A Construction Contractor has a Fixed Price Contract for ` 9,000 Lakhs to build a bridge in 3 years timeframe. A summary of
some of the financial data is as under:
Amount ` in Lakhs Year 1 Year 2 Year 3
Initial Amount for Revenue agreed in Contract 9,000 9,000 9,000
Variation in Revenue (+) 200 200
Contracts Costs incurred up to the reporting date 2,093 (Note 1) 6,168 (Note 2) 8,100
Estimated Profit for the whole Contract 950 1,000 1,000
Note:
1. Includes ` 100 Lakhs for Standard Materials stored at the Site to be used in Year 3 to complete the work.
2. Excludes ` 100 Lakhs for Standard Material brought forward from Year 2.

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The variation in Cost and Revenue in Year 2 has been approved by the customer.
Compute yearwise amount of Revenue, Expenses, Contract Cost to complete and Profit or Loss to be recognised in the
Statement of Profit or Loss as per AS7.
Solution: Similar to Page No.B.5.17, Q.No.49

Basic Calculations: (in ` Lakhs)


Particulars As at Year 1 As at Year 2 As at Year 3
Contract Price 9,000 9,000 9,000
Variations (Increase) Nil 200 200
(a) Total Contract Revenue 9,000 9,200 9,200
(b) Estimated Profit for whole Contract (given) 950 1,000 1,000
(c) Total Contract Costs = (a) (b) 8,050 8,200 8,200
(d) Costs till date 2,093 6,168 100 = 6,068 8,100 + 100 = 8,200
Cost Till Date ` 2,093 ` 6,068 ` 8,200
(e) % of Completion = = 26% = 74% =100%
Total Contract Costs ` 8,050 ` 8,200 ` 8,200

The Contract Revenues, Costs & Profits recognised in each of the 3 years are given below (in ` Lakhs)
Upto reporting date Already recognised Recognised during
Year Particulars
in previous years current year
1 Contract Revenue 9,000 26% = 2,340 Nil 2,340
Contract Costs 2,093 Nil 2,093
Contract Profits 247 Nil 247

2 Contract Revenue 9,200 74% = 6,808 2,340 4,468


Contract Costs 6,068 2,093 3,975
Contract Profits 740 247 493

3 Contract Revenue 9,200 100% = 9,200 6,808 2,392


Contract Costs 8,200 6,068 2,132
Contract Profits 1,000 740 260

Question 1(c): AS2 Inventory Valuation 5 Marks


Mr. Mehul gives the following information relating to items forming part of Inventory as on 31.03.2015. His Factory produces
Product X using Raw Material A.
1. 600 units of Raw Material A (purchased at ` 120). Replacement Cost of Raw Material A as on 31.03.2015 is ` 90 per unit.
2. 500 units of Partly Finished Goods in the process of producing X and Cost incurred till date ` 260 per unit. These units can
be finished next year by incurring Additional Cost of ` 60 per unit.
3. 1,500 units of Finished Product X and Total Cost incurred ` 320 per unit.
Expected Selling Price of Product X is ` 300 per unit.
Determine how each item of inventory will be valued on 31.03.2015. Calculate the Value of Total Inventory as on 31.03.2015.
Solution: Similar to Page No.B.2.16, Q.No.51 [P (A/c) RTP]

Item Valuation Principle Result


Raw Material Since the Finished Product using this Raw Material is expectable be sold below
600 ` 90 = ` 54,000
cost, Raw Material may be valued of NRV, i.e. Replacement Cost of ` 90.
Cost ` 260
WIP Estimated NRV = Sale Price ` 300 Cost to complete ` 60 = ` 240. 500` 240 = ` 1,20,000
Hence, valued at least of the above, i.e. ` 240 p.u.
Finished Cost ` 320 or Net Realisable Value ` 300, whichever is lower. Hence valued at
1,500` 300= ` 4,50,000
Goods ` 300 p.u.
Total ` 6,24,000

May 2015.2

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Gurukripas Guideline Answers for May 2015 CA Inter (IPC) Group I Accounting

Question 1(d): AS6 Depreciation 5 Marks


M/s. Laghu Udyog Limited has been charging depreciation on an item of Plant and Machinery on Straight line basis. The
Machine was purchased on 01.04.2012 at ` 3,25,000. It is expected to have a total useful life of 5 years from the date of
purchase and Residual Value of ` 25,000. Calculate the Book Value of the Machine as on 01.04.2015 and the Total Depreciation
charged till 31.03.2014 under SLM. The Company wants to change the method of depreciation and charge depreciation at 20%
on WDV from 201415.
Is it valid to change the method of depreciation? Explain the treatment required to be done in the books of accounts in the
context of AS 6.
Ascertain the amount of Depreciation to be charged for 201415 and the Net Book Value of Machine as on 31.03.2015 after
giving effect of the above change.

Solution: Similar to Page No.B.4.6, Q.No.22,23 [P (A/c) M 03, N 03, N 05, N 10, M 10, N 11, N 12]

Particulars Under Existing Method (SLM) Under New Method (WDV)


Cost on 01.04.2012 3,25,000 3,25,000
() Depreciation for 20122013 1/5th (3,25,000 25,000) = 60,000 20% 3,25,000 = 65,000
WDV on 01.04.2013 2,65,000 2,60,000
() Depreciation for 20132014 60,000 20% 2,60,000= 52,000
WDV on 01.04.2014 2,05,000 2,08,000

1. Book Value of Plant & Machinery on 01.04.2014 (using SLM Depreciation) = ` 2,05,000
2. Total Depreciation charged till 31.03.2014 under SLM = 60,000 2 = ` 1,20,000
3. Change in Method of Depreciation is permissible only for
(a) Compliance with Statutory Requirement, or
(b) Compliance with an Accounting Standard, or
(c) Consideration that the change would result in a more appropriate preparation or presentation of the Financilal
Statements of the enterprise.
4. Disclosure: A change in the method of charging depreciation is treated as a change in accounting policy and its effect is
quantified and disclosed.
5. Treatment in 20142015:
(a) Debit Asset & Credit P & L, by ` 3,000 (` 2,08,000 2,05,000) [Excess Depreciation to be reversed]
(b) Charge Depreciation at 20% on ` 2,08,000 = ` 41,600 (WDV basis)
(c) Net Book Value of Machine on 31032015 after the above = ` 2,08,000 ` 41,600 = ` 1,66,400
(d) The Company has to disclose that due to change in method of depreciation, there is a reversal of excess
depreciation of ` 3,000 and the Asset Value increased by ` 3,000 and Profits increased by ` 3,000. Such change will
have effect in future years also.

Question 2: Amalgamation 16 Marks


The financial position of two Companies Abhay Ltd and Asha Ltd as on 31.03.2015 is as follows

Balance Sheet as on 31.03.2015


Particulars Abhay Ltd Asha Ltd
Sources of Funds
Share Capital Issued and Subscribed: 15,000 Equity Shares at ` 100, fully paid 15,00,000
10,000 Equity Shares at ` 100, fully paid 10,00,000
General Reserve 2,75,000 1,25,000
Profit & Loss 75,000 25,000
Securities Premium 1,50,000 50,000
Contingency Reserve 45,000 30,000
12% Debentures, at ` 100 fully paid 2,50,000
Sundry Creditors 55,000 35,000
Total 21,00,000 15,15,000

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Particulars Abhay Ltd Asha Ltd


Application of Funds
Land and Buildings 8,50,000 5,75,000
Plant and Machinery 3,45,000 2,25,000
Goodwill 1,45,000
Inventory 4,20,000 2,40,000
Sundry Debtors 3,05,000 2,85,000
Bank 1,80,000 45,000
Total 21,00,000 15,15,000
They decided to merge and form a New Company Abhilasha Ltd. as on 01.04.2015 on the following terms:
1. Goodwill to be valued at 2 years purchase of the Super Profits. The Normal Rate of Return is 10% of the Combined Share
Capital and General Reserve. All Other Reserves are to be ignored for the purpose of Goodwill. Average Profits of Abhay
Ltd is ` 2,75,000 and Asha Ltd is ` 1,75,000.
2. Land and Buildings, Plant and Machinery and Inventory of both Companies to be valued at 10% above Book Value and a
Provision of 10% to be provided on Sundry Debtors.
3. 12% Debentures to be redeemed by the issue of 12% Preference Shares of Abhilasha Ltd (Face Value of ` 100) at a
Premium of 10%
4. Sundry Creditors to be taken over at Book Value. There is an Unrecorded Liability of ` 15,500 of Asha Ltd as on 01.04.2015.
5. The Bank Balance of both Companies to be taken over by Abhilasha Ltd after deducting Liquidation Expenses of ` 60,000
to be borne by Abhay Ltd and Asha Ltd in the ratio of 2:1.
You are required to:
1. Compute the basis on which Shares of Abhilasha Ltd. are to be issued to the Shareholders of the Existing Company
assuming that the Nominal Value per Share of Abhilasha Ltd is ` 100.
2. Draw the Balance Sheet of Abhilasha Ltd as on 01.04.2015 after the amalgamation.

Solution: Similar to Page No.A.11.19, Q.No.9, N 97


The given question is an Amalgamation in the nature of Purchase.
1. Computation of Goodwill and Purchase Consideration
Particulars Abhay Ltd Asha Ltd
(a) Average Net Profits (Given) 2,75,000 1,75,000
Less: Normal Profits (10% on Combined Share 10% of (15,00,000 + 10% of (10,00,000 + 1,25,000)
Capital & General Reserve) 2,75,000) = (1,77,500) = (1,12,500)
(b) Super Profits 97,500 62,500
(c) Goodwill at 2 years Purchase of Super Profits 1,95,000 1,25,000
Add: Other Assets:
Land and Building 8,50,000 + 10% = 9,35,000 5,75,000 + 10% = 6,32,500
Plant and Machinery 3,45,000 + 10% = 3,79,500 2,25,000 + 10% = 2,47,500
Inventories 4,20,000 + 10% = 4,62,000 2,40,000 + 10% = 2,64,000
Debtors 3,05,000 2,85,000
Bank 1,80,000 40,000 = 1,40,000 45,000 20,000 = 25,000
Total Assets including Goodwill (A) 24,16,500 15,79,000
Less: Creditors & other Current Liabilities Given = (55,000) 35,000 + 15,500 = (50,500)
Provision for Doubtful Debts 3,05,000 10% = (30,500) 2,85,000 10% = (28,500)
Debentures (See Note) 2,50,000 110% = (2,75,000)
Total Liabilities (B) (85,500) (3,54,000)
(d) Net Assets taken over=Purchase
23,31,000 12,25,000
Consideration (A) (B)
(e) Number of Shares in Selling Company 15,000 10,000
(f) Intrinsic Value per Share (i.e. Book Value) ` 155.40 ` 125
(g) No. of Shares to be issued by Abhilasha Ltd 155.4 122.50
15,000 = 23,310 10,000 = 12,250
(FV=` 100) 100 100

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Note: Computation of Preference Shares to be issued on Redemption of 12% Debentures


Amount Due to Debenture Holders = ` 2,50,000 110% = ` 2,75,000
Preference Shares to be issued on Redemption =2,75,000 100 = 2,750 Preference Shares at ` 100 each.
It is assumed that the Debentures are redeemed at a Premium of 10%. Alternatively, it can be assumed that Preference
Shares are issued at a Premium of 10%, i.e. ` 110 per Share for settling ` 2,50,000.

2. Balance Sheet of Abhilasha Limited as at 31st March (after Takeover)


Particulars as at 31st March Note This Year Prev. Yr
I EQUITY AND LIABILITIES:
(1) Shareholders Funds: Share Capital 1 38,31,000
(2) Current Liabilities:
Trade Payables Creditors (55,000+50,500) 1,05,500
Total 39,36,500
II ASSETS
(1) NonCurrent Assets
(a) Fixed Assets:(i) Tangible Assets Land (9,35,000 + 6,32,500) 15,67,500
Plant (3,79,500 + 2,47,500) 6,27,000
(ii) Intangible Assets (Goodwill) (1,95,000 + 1,25,000) 3,20,000
(2) Current Assets:
(a) Inventories (4,62,000 + 2,64,000) 7,26,000
(b) Trade Receivables (Net of Provision) (2,74,500 + 2,56,500) 5,31,000
(c) Cash and Cash Equivalents (1,40,000 + 25,000) 1,65,000
Total 39,36,500

Note 1: Share Capital


Particulars This Year Prev. Yr
Authorised: . Equity Shares of ` . Each
. Preference Shares of `.. Each
Issued, Subscribed & Paid up: (23,310 + 12,250) Equity Shares of ` 100 each 35,56,000
2,750 Preference Shares at ` 100 each 2,75,000
Note: Above 35,560 Equity Shares of ` 100 each and 2,750 Preference Shares of `100 each are
issued for non cash consideration, in the scheme of takeover of Abhay Ltd & Asha Ltd.
Total 38,31,000

Question 3(a): Profits Prior to Incorporation 10 Marks


The Partners Kamal and Vimal decided to convert their existing Partnership Business into a Private Limited Company called
KV Trading Private Ltd with effect from 01.07.2014.
The same books of accounts were continued by the Company which closed its account for the first term on 31.03.2015.
The summarized Profit and Loss Account for the year ended 31.03.2015 is below:
Particulars ` in Lakhs ` in Lakhs
Turnover 240.00
Interest on Investments 6.00
Total Income 246.00
Less: Cost of Goods Sold 102.00
Advertisement 3.00
Sales Commission 6.00
Salary 18.00
Managing Directors Remuneration 6.00
Interest on Debentures 2.00
Rent 5.50
Bad Debts 1.00
Underwriting Commission 2.00

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Particulars ` in Lakhs ` in Lakhs


Audit Fees 2.00
Loss on Sale of Investment 1.00
Depreciation 4.00 152.50
Net Profit 93.50
The following additional information was provided:
1. The Average Monthly Sales doubled from 01.07.2014. GP Ratio was constant.
2. All Investments were sold on 31.05.2014.
3. Average Monthly Salary doubled from 01.10.2014.
4. The Company occupied additional space from 01.07.2014 for which rent of ` 20,000 per month was incurred.
5. Bad Debts Recovered amounting to ` 50,000 for a sale made in 2012, has been deducted from Bad Debts mentioned above.
6. Audit Fees pertains to the Company.
Prepare a Statement apportioning the Expenses between Pre and Post Incorporation Periods and calculate the Profit/ Loss for
such periods. Also suggest how the PreIncorporation Profits are to be dealt with.

Solution: Similar to Page No.A.9.12, Q.No.10 [N 11]


1. Computation of Time Ratio and Sales Ratio
Particulars Pre Inc. Period Post Inc. Period Total
(a) No. of Months = Time Ratio 01.04.2014 to 31.06.2014 01.07.2014 to 31.03.2015
= 3 months = 9 months 3:9=1:3
(b) Sales per Month Ratio (given) Say ` 1 3 Months `29
Overall Sales Ratio =3 = 18 3 : 18= 1 : 6
(c) Rent for Addnl Premises (from 1st July) 20,000 9 Months=` 1,80,000
(d) Balance Rent (` 5,50,000 ` 1,80,000)
` 92,500 ` 2,77,500
distributed in 1 : 3 (Time Ratio)
Total Rent Expense (c) + (d) ` 92,500 ` 4,57,500
(e) Salary Ratio Say ` 13 Months = 3 (` 13 Months + ` 26) = 15 3: 15 = 1: 5

2. Statement showing calculation of Profit / Losses for Pre and Post Incorporation Periods
Total Ratio Post
Particulars Pre Incorpn.
Incorpn.
Turnover (Apportioned in Sales Ratio) 2,40,00,000 1:6 34,28,571 2,05,71,429
Add: Apportionment of Other Income
Interest on Investments 6,00,000 6,00,000
Bad Debts Recovered 50,000 50,000
A. Total Income 2,46,50,000 40,78,571 2,05,71,429
B. Apportionment of Expenses
Cost of Goods Sold 102,00,000 1:6 14,57,143 87,42,857
Advertisement Expenses 3,00,000 1:6 42,857 2,57,143
Sales Commission 6,00,000 1:6 85,714 5,14,286
Salary 18,00,000 1:5 3,00,000 15,00,000
Managing Directors Remuneration 6,00,000 Post 6,00,000
Interest on Debentures 2,00,000 Post 2,00,000
Rent (Note 1d) 5,50,000 92,500 4,57,500
Bad Debts 1,50,000 1:6 21,429 1,28,571
Underwriting Commission 2,00,000 Post 2,00,000
Audit Fees 2,00,000 Post 2,00,000
Loss on Sale of Investment 1,00,000 Pre 1,00,000
Depreciation 4,00,000 1:3 1,00,000 3,00,000
Total Expenses 1,53,00,000 21,99,643 1,31,00,357
C. Profit (A B) 93,50,000 18,78,928 74,71,072

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3. Accounting Treatment: PreIncorporation Profit is transferred to Capital Reserve A/c. Alternatively, the amount may
be set off against the Goodwill, if any, arising on acquisition of business.

Question 3(b): Insurance Claims Loss of Profits Computation of Policy Amount 6 Marks
M/s. Platinum Jewellers wants to take up a Loss of Profit Policy for the Year 2015. The Extract of the Profit and Loss Account
of the previous year ended 31.12.2014 is provided below:
Variable Expenses: Cost of Materials 18,60,000
Fixed Expenses: Wages for Skilled Craftsmen 1,60,000
Salaries 2,80,000
Audit Fees 40,000
Rent 64,000
Bank Charges 18,000
Interest Income 44,000
Net Profit 6,72,000
Turnover is expected to grow by 25% next year.

To meet the growing Working Capital needs, the Partners have decided to avail Overdraft Facilities from their Bankers @ 12%
p.a. interest. The Average Daily Overdraft Balance will be around ` 2 Lakhs. The Wages for the Skilled Craftsmen will increase
by 20% and Salaries by 10% in the current year. All other expenses will remain the same.

Determine the amount of policy to be taken up for the current year by M/s. Platinum Jewellers.

Solution: Similar to Page No.A.5.16, Q.No.22 [N 01]


1. Trading and Profit and Loss Account for Previous Year
Particulars ` Particulars `
To Variable Expenses 18,60,000 By Sales (balancing figure) 30,50,000
To Fixed Expenses 5,62,000 By Miscellaneous Income 44,000
To Net Profit 6,72,000
Total 30,94,000 Total 30,94,000
Note: Total Fixed Expenses = `1,60,000 + `2,80,000 + `40,000 + `64,000 + `18,000 = ` 5,62,000

2. Computation of Insurance Policy to be taken


Particulars `
Gross Profit (Sales ` 30,50,000 Less Variable Expenses ` 18,60,000) 11,90,000
Add: Additional GP at 25% of above 2,97,500
Add: Increasing Standing Charges
Wages @ 20% of 1,60,000 32,000
Salaries @ 10% of 2,80,000 28,000
Interest on Overdraft @ 12% of 2,00,000 24,000 84,000
Policy to be taken for Current Year 15,71,500

Question 4: Financial Statements from Incomplete Records 16 Marks


The following is the Balance Sheet of M/s Care Traders as on 01.04.2014:
Sources of Funds Amt in ` Application of Funds Amt in `
Share Capital 10,00,000 Machinery 8,25,500
Profit and Loss 1,47,800 Furniture 1,28,700
Unsecured Loan at 10% 1,75,000 Inventory 1,72.000
Trade Payables 45,800 Trade receivables 2,29,600
Bank balance 12,800
Total 13,68,600 13,68,600
A fire broke out in the premises on 31.03.2015 and destroyed the Books of Account. The Accountant could however provide the
following information:

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1. Sales for the year ended 31.03.2014 was ` 18,60,000. Sales for the current year was 20% higher than the last year.
2. 25% Sales were made in cash and the balance was on credit.
3. Gross Profit on Sales is 30%
4. Terms of Credit: Debtors 2 Months, Creditors 1 month. All Creditors are paid by Cheque and all Sales are collected in
Cheque.
5. The Bank Pass Book has the following details (other than payment to Creditors and collection from Debtors)
Machinery purchased 1,14,000 Repairs 36,500
Rent paid 1,32,000 Sales of Furniture 9,500
Advertisement Expenses 80,000 Cash withdrawn for Petty Expenses 28,300
Travelling Expenses 78,400 Interest paid on Unsecured Loan 8,750
6. Machinery was purchased on 01.10.2014.
7. Rent was paid for 11 months only and 25% of the Advertisement Expenses relates to the next year.
8. Travelling Expenses of ` 7,800 for which Cheques were issued but not presented in bank.
9. Furniture was sold on 01.04.2014 at a loss of ` 2,900 on Book Value.
10. Physical Verification as on 31.03.2015 ascertained the Stock Position at ` 1,81,000 and Petty Cash Balance at Nil.
11. There was no change in Unsecured Loans during the year.
12. Depreciation is to be provided at 10% on Machinery and 20% on Furniture.

Prepare Bank A/c, Trading and Profit & Loss A/c for the year ended 31.03.2015, in the books of M/s. Care Traders and a Balance
Sheet as on that date. Make necessary assumptions wherever necessary.

Solution: Similar to Page No.A.3.59 Q.No.36, [N 02] and other Illustrations in this Chapter

1. Computation of Gross Profit


Particulars Computation `
(a) Sales for Current Year 18,60,000 + 20% 22,32,000
(b) Cash Sales 22,32,000 25% 5,58,000
(c) Hence, Credit Sales = Total Sales () Cash Sales 22,32,000 5,58,000 16,74,000
(d) Gross Profit = Sales 30% 22,32,000 30% 6,69,600

2. Trading Account for the year ended 31st March


Particulars ` Particulars `
To Opening Stock 1,72,000 By Sales (WN 1) 22,32,000
To Purchases (balancing figure) 15,71,400 By Closing Stock 1,81,000
To Gross Profit (30%) 6,69,600
Total 24,13,000 Total 24,13,000

3. Computation of Debtors Closing Balance


No. of Months O/S 2
Closing Debtors = Credit Sales = ` 16,74,000 = ` 2,79,000
12 12

4. Sundry Debtors Account (To find out Collections from Debtors)


Particulars ` Particulars `
To balance b/d 2,29,600 By Bank Collection (balancing figure) 16,24,600
To Credit Sales (WN 1) 16,74,000 By balance c/d (WN 3) 2,79,000
Total 19,03,600 Total 19,03,600

5. Computation of Creditors Closing Balance


No. of Months O/S 1
Closing Creditors = Credit Purchases = ` 15,71,400 = ` 1,30,950
12 12
(Assumed that the entire Purchases is on Credit)

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6. Sundry Creditors Account (To find out Payments to Creditors)


Particulars ` Particulars `
To Bank Payment (balancing figure) 14,86,250 By balance b/d 45,800
To balance c/d (WN 5) 1,30,950 By Purchases Credit (WN 2) 15,71,400
Total 16,17,200 Total 16,17,200

7. Machinery Account
Particulars ` Particulars `
To balance b/d 8,25,500 By Depreciation (8,25,500 10%)+(1,14,000 10% 6/12) 88,250
To Bank 1,14,000 By balance c/d 8,51,250
Total 9,39,500 Total 9,39,500
Note: Alternatively, Depreciation can be assumed at 10% on Book Value irrespective of date of addition.

8. Furniture Account
Particulars ` Particulars `
To balance b/d 1,28,700 By
Bank (Sale Proceeds) 9,500
By
Loss on Sale 2,900
By
Depreciation (1,16,300 20%) (Note) 23,260
By
balance c/d 93,040
Total 1,28,700 Total 1,28,700
Note: Depreciation = 20% on (1,28,700 9,500 2,900) = 23,260

9. Bank Account
Particulars ` Particulars `
To Balance b/d 12,800 By Creditors (WN 6) 14,86,250
To Debtors Collections received (WN 4) 16,24,600 By Machinery 1,14,000
To Cash Sales (WN 1) 5,58,000 By Rent 1,32,000
To Furniture 9,500 By Advertisement 80,000
By Repairs 36,500
By Travelling (78,400 + 7,800) (Cheque issued) 86,200
By Petty Expenses 28,300
By Interest 8,750
By balance c/d (balancing figure) 2,32,900
Total 22,04,900 Total 22,04,900

10. Profit & Loss Account for the year ended 31.03.2015
Particulars ` Particulars `
1,32,000
To Rent ( 12) 1,44,000 By Gross Profit 6,69,600
11
To Advertisement (80,000 75%) 60,000
To Travelling Expenses 86,200
To Loss on Sale of Furniture 2,900
To Depreciation (88,250 + 23,260) 1,11,510
To Repairs 36,500
To Petty Expenses 28,300
To Interest (1,75,000 10%) 17,500
To Net Profit (balancing figure) 1,82,690
Total 6,69,600 Total 6,69,600
By Opening Balance b/d 1,47,800
To Closing Balance c/d 3,30,490 By Net Profits for the year as above 1,82,690
Total 3,30,490 Total 3,30,490

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11. Balance Sheet as at 31stMarch


Capital and Liabilities ` Properties and Assets `
Capital 10,00,000 NonCurrent Assets:
Profit & Loss Account 3,30,490 Machinery (WN 7) 8,51,250
Non Current Liabilities: Unsecured Loan 1,75,000 Furniture (WN 8) 93,040
Current Liabilities: Current Assets:
Sundry Creditors (WN 5) 1,30,950 Inventory 1,81,000
Rent Payable 12,000 Sundry Debtors (WN 3) 2,79,000
Interest Payable (17,500 8,750) 8,750 Bank 2,32,900
Advertisement Exp. paid in advance 20,000
Total 16,57,190 Total 16,57,190

Question 5(a): Hire Purchase Accounting Cash Price, Repossession, Ledger A/cs 8 Marks
Lucky bought 2 tractors from Happy on 01.10.2011 on the following terms:
Description `
Down Payment 5,00,000
1st Installment at the end of First Year 2,65,000
2nd Installment at the end of Second Year 2,45,000
3rd Installment at the end of Third Year 2,75,000
Interest is charged at 10% p.a
Lucky provides Depreciation @ 20% on the Diminishing Balances.
On 30.09.2014, Lucky failed to pay the 3rd Installment upon which Happy repossessed 1 Tractor. Happy agreed to leave one
tractor with Lucky and adjusted the value of the Tractor against the amount due. The Tractor taken over was valued on the
basis of 30% depreciation annually on written down basis. The balance amount remaining in the Vendors Account after the
above adjustment was paid by Lucky after 3 Months with Interest @ 18% p.a.

You are required to:


1. Calculate the Cash Price of the Tractors and the Interest paid with each installment.
2. Prepare Tractor Account and Happy Account in the books of Lucky assuming that books are closed on 30th September
every year. Figures may be rounded off to the nearest Rupee.

Solution: Similar to Page A.5.73 Q.No.2 [N 12], and Page A.5.80 Q.No.14 [M 90]

1. Statement of Cash Price of the Asset acquired on HP


End of Balance due after Instalment Cumulative Interest at 10%
Paid for Principal
Instalment Instalment Amount Amount p.a
(4) = (2) + (5) = (4) 10
(1) (2) (3) (6) = (3) (5)
(3) 110
3 Nil 2,75,000 2,75,000 25,000 2,50,000
2 2,50,000 2,45,000 4,95,000 45,000 2,00,000
1 4,50,000 2,65,000 7,15,000 65,000 2,00,000
0 6,50,000 5,00,000 11,50,000 NIL (Down Payment) 5,00,000
12,85,000 1,35,000 11,50,000
Thus, Cash Price of the Asset = ` 11,50,000.

2.Tractor A/c
Date Particulars ` Date Particulars `
01.10.11 To Bank A/c(Down Payment) 5,00,000 30.09.12 By Depreciation (11,50,000 20%) 2,30,000
01.10.11 To Happy A/c 6,50,000 30.09.12 By balance c/d 9,20,000
Total 11,50,000 Total 11,50,000
01.10.12 To balance b/d 9,20,000 30.09.13 By Depreciation (9,20,000 20%) 1,84,000
30.09.13 By balance c/d 7,36,000
Total 9,20,000 Total 9,20,000

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Date Particulars ` Date Particulars `


01.10.13 To balance b/d 7,36,000 30.09.14 By Depreciation (7,36,000 20%) 1,47,200
30.09.14 11,50,000
By Happy ( 70%70%70%) 1,97,225
2
30.09.14 By Loss on takeover (bal. figure) or [(
97,175
of 5,88,800) 2,94,400 1,97,225]
By balance c/d ( of 5,88,800) 2,94,400
Total 5,88,800 Total 5,88,800
01.10.14 To balance b/d 2,94,400 30.09.15 By Depreciation (2,94,400 20%) 58,880
30.09.15 By balance c/d 2,35,520
Total 2,94,400 Total 2,94,400

Note: Computation of Takeover Value of Tractor


Particulars `
Cost of the Tractor (1 Tractor) 11,50,000 2 5,75,000
Depreciation for Year 1 5,75,000 30% (1,72,500)
Depreciation for Year 2 (5,75,000 1,72,500) = 4,02,500 30% (1,20,750)
Depreciation for Year 3 (4,02,500 1,20,750) = 2,81,750 30% (84,525)
Takeover Value of Tractor 1,97,225

3.Happy A/c
Date Particulars ` Date Particulars `
30.09.12 To Bank A/c 2,65,000 01.10.11 By Tractor A/c 6,50,000
30.09.12 To Balance c/d (bal.fig) 4,50,000 01.10.11 By Interest (6,50,000 10%) 65,000
Total 7,15,000 Total 7,15,000
30.09.13 To Bank 2,45,000 01.10.12 By Balance b/d 4,50,000
30.09.13 To Balance c/d 2,50,000 01.10.12 By Interest 45,000
Total 4,95,000 Total 4,95,000
30.09.14 To Tractor A/c (take over) 1,97,225 01.10.13 By Balance b/d 2,50,000
30.09.14 To Balance c/d 77,775 01.10.13 By Interest 25,000
Total 2,75,000 Total 2,75,000
31.12.14 To Bank A/c 81,275 01.10.14 By balance b/d 77,775
31.12.14 By Interest (77,77518% 3/12) 3,500
Total 81,275 Total 81,275

Question 5(b): Accounting for Investments ExInterest & CumInterest Transactions 8 Marks
Mr. Chatur had 12% Debentures of Face Value ` 100 of M/s. Unnati Ltd as Current Investments.
He provides the following details relating to the Investments.
01.04.2014 Opening Balance 4,000 Debentures costing `98 each
01.06.2014 Purchased 2,000 Debentures @ `120 cum Interest
01.09.2014 Sold 3,000 Debentures @ ` 110 cum interest
01.12.2014 Sold 2,000 Debentures @ ` 105 ex interest
31.01.2015 Purchased 3,000 Debentures @ ` 100 ex interest
31.03.2015 Market Value of the Investments ` 105 each

Interest due dates are 30th June and 31st December.

Mr. Chatur closes his books on 31.03.2015. He incurred 2% Brokerage for all his transactions. Show Investment Account in the
Books of Mr. Chatur, assuming FIFO Method is followed.

Solution: Similar to Page No.A.5.49, Q.No.2 [N 95]

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Investment in 12% Debentures of M/s Unnati Ltd A/c (in Chaturs Books)
Date Particulars ` FV ` Int. ` Cost Date Particulars ` FV ` Int. ` Cost
01.04.14 To bal. b/d 4,00,000 (4,00098) 30.06.14 By Bank 36,000
3,92,000 Int recd (WN 1b)
01.06.14 To Bank 2,00,000 10,000 2,34,800 01.09.14 By Bank 3,00,000 6,000 3,17,400
(WN 2) (WN 3)
01.09.14 To P&L 23,400 01.12.14 By Bank 2,00,000 10,000 2,05,800
Profit tfr (WN 3)
31.01.15 To Bank 3,00,000 3,000 3,06,000 01.12.14 By P&LLoss 9,600
(100 + 2%) transfer
31.03.15 To P&L 45,000 31.12.14 By Bank 6,000
Interest tfr Int recd (WN 1e)
31.03.15 By P&L 3,400
(WN 4)
31.03.15 By bal.c/d 4,00,000 4,20,000
Total 9,00,000 58,000 9,56,200 Total 9,00,000 58,000 9,56,200

Working Notes: 1.Computation of Interest @ 12% on various dates


Period Interest Amount
Date Particulars FV (`)
(Months) @ 12% p.a. (`)
(a) 01.06.2014 Interest on CumInterest Purchase (2,000 100) 2,00,000 5 10,000
(b) 30.06.2014 Interest received on Holding (4,00,000 + 2,00,000) 6,00,000 6 36,000
(c) 01.09.2014 Interest on CumInterest Sale (3,000 100) 3,00,000 2 6,000
(d) 01.12.2014 Interest on ExInterest Sale (2,000 100) 2,00,000 5 10,000
(e) 31.12.2014 Interest received on Holding (6,00,000 5,00,000) 1,00,000 6 6,000
(f) 31.01.2015 Interest on ExInterest Purchase (3,000 100) 3,00,000 1 3,000

2. Computation of Cost of Purchase


Particulars `
Purchase Value (2,000 120 + Brokerage @ 2% of 2,40,000 ) 2,44,800
Less: Interest (WN 1a) (2,000 100 12% 5/12 ) 10,000
Cost of Debentures 2,34,800
Cost per Debenture (2,34,8002,000) 117.40

3. Computation of Profit or (Loss) on Sale


Particulars Cum Interest Sale 01.09.2014 Ex Interest Sale 01.12.2014
Sale Proceeds (3,000 110) 2% Brokerage (2,000 105) 2% Brokerage
= 3,23,400 = 2,05,800
Less: Interest (for Cum Int Sale) (WN 1c) = 6,000 N.A
Net Sale Proceeds 3,17,400 2,05,800
Less: Cost of Debentures Out of OB, i.e. (3,000 ` 98) = 2,94,000 (On FIFO Basis) (1,000 ` 98)+
(1,000 ` 117.4) = 2,15,400
Profit / (Loss) on Sale Profit = 23,400 Loss = (9,600)

4. Valuation of Current Investments:


As on 31.03.15, Cost = ` 4,23,400, computed by balancing the A/c or [(1,000 ` 117.40) + (3,000 ` 102)].
However, Market Value = 4,000 ` 105 = 4,20,000, which is lower than cost.
Hence, Market Value is considered for Inventory Valuation.
Loss on Valuation (being Current Investments) is transferred to P&L.

Question 6: Partnership Accounts Admission cum Retirement Final Accounts, Time Proportion Analysis 16 Marks
A and B who carry on Partnership Business in the name of M/s. AB Ltd, closes their Firms account as on 31st March each year.
Their Partnership agreement provides:

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(i) Profit & Loss sharing A: 2/3 and B: 1/3.


(ii) On Retirement or Admission of Partner:
(a) If the change takes place during any accounting year, such Partners Share of Profits or Losses for the period up to
retirement or from admission, is to be arrived at, by apportionment on a time basis except otherwise stated for
specific item(s).
(b) No account for Goodwill is to be maintained in the Firms books.
(c) Any balance due to an Outgoing Partner is to carry interest @ 9% p.a. from the date of his retirement to the date
of payment.

The Trial Balance of the Firm as on 31.03.2015 was as follows:


Particulars (Dr.) Amount ` (Cr.) Amount `
Capital Account A 24,000
B 12,000
C Cash brought in on 30.09.2014 9,000
Plant and Machinery at cost 22,000
Depreciation Provision up to 31.03.2014 4,400
Motor Car at Cost 30,000
Depreciation Provision up to 31.03.2014 6,000
Purchases 84,000
Stock as on 31.03.2014 15,500
Salaries 18,000
Debtors 5,400
Sales 1,20,000
Travelling expenses 800
Office Maintenance 1,200
Conveyance 500
Trade Expenses 1,000
Creditors 10,100
Rent and Rates 3,000
Bad Debts 900
Cash in Hand and at Bank 3,200
Total 1,85,500 1,85,500

A retired from the Firm on 30th September 2014 and on the same day C an Employee of the Firm was admitted as Partner.
Further, Profits or Losses shall be shared B: 3/5 and C: 2/5. Necessary Accounting Entries adjustments were pending up
to 31.03.2015. You are given the following further information:

(i) The value of Firms Goodwill as on 30th September 2014 was agreed to `15,000.
(ii) The Stock as on 31st March 2015 was valued at ` 18,550.
(iii) Partners Drawings which are included in Salaries: A ` 2,000, B ` 3,000 and C ` 1,000.
(iv) Salaries also includes ` 1,500 paid to C prior to his being admitted as a Partner.
(v) Bad Debts of ` 500 related to the period upto 30th September 2014.
(vi) As on 31st March 2015, Rent paid in Advance amounted to ` 600 and Trade Expenses accrued amounted to ` 250.
(vii) Provision is to be made for Depreciation on Plant and Machinery and on Motor Car at the rate of 10% p.a. on cost.
(viii) A Bad Debts provision, specially attributable to the second half of the year, is to be made @ 5% on Debtors as on 31st
March 2015.
(ix) Amount payable to A on retirement remained unpaid till 31st March 2015.

You are required to prepare:


(a) Trading and Profit & Loss Account for the year ended 31st March 2015.
(b) Partners Capital Account for the year ended 31st March 2015.
(c) Balance Sheet as on that date.

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Solution: Similar to Page No.A.6.46, Q.No.34 [RTP]


1. Trading Account for the year ended 31st March 2015
Particulars ` Particulars `
To Opening Stock 15,500 By Sales 1,20,000
To Purchases 84,000 By Closing Stock 18,550
To Gross Profit c/d (balancing figure) 39,050
Total 1,38,550 Total 1,38,550

2. Profit and Loss Account for the year ended 31st March 2015
Upto 1.10.14 to Upto 1.10.14 to
Particulars Particulars
30.9.2014 30.9.2015 30.9.2014 30.9.2015
To Salaries [Note (a)] 6,750 5,250 By Gross Profit b/d 19,525 19,525
To Trade Expenses (1,000 + 250) 625 625 (Time Basis 6 Months each)
To Rent and Rates (3,000 600) 1,200 1,200
To Bad Debts(given) 500 400
To Provision for Doubtful Debts 270
(5% on 5,400)
To Depreciation [Note (b)] 2,600 2,600
To Office Maintenance 600 600
To Conveyance 250 250
To Travelling Expenses 400 400
To Interest on As Loan 1,638
To Net Profit (balancing figure) 6,600 6,292
Total 19,525 19,525 Total 19,525 19,525

Allocation of Expenses
Note (a) Salary Note (b) Depreciation P&M Car
Particulars ` (a) Cost 22,000 30,000
As per Trial Balance 18,000 (b) Accum. Deprn upto 31.03.2014 4,400 6,000
Less: Partners Drawings (2,000 + 3,000 + 1,000) (6,000) (c) Deprn for 20142015 (on SLM) 2,200 3,000
Less: Cs Salary included in above (1,500) (d) Accum.Depreciation at year end 6,600 9,000
Total 10,500 (e) Net Book Value at year end 15,400 21,000

Hence,
I Half II Half Total Depreciation 5,200
Time Basis 50% 5,250 5,250 (a) I Half 2,600
Add: Cs Salary (Direct) 1,500 (b) II Half 2,600
Total 6,750 5,250

5. Partners Capital Account


Particulars A B C Particulars A B C
To Drawings 2,000 3,000 1,000 By balance b/d 24,000 12,000
To As Capital (Gw adjt) 4,000 6,000 By Cash 9,000
To As Loan A/c transfer 32,000 By Bs Capital (Gw adjt) 4,000
To balance c/d 5,000 2,000 By Cs Capital (Gw adjt) 6,000
Total 34,000 12,000 9,000 Total 34,000 12,000 9,000
By balance b/d 5,000 2,000
To As Loan A/c transfer 4,400 By P & L A/c (2:1) 4,400 2,200
(I Half Year)
To balance c/d 10,975 4,517 By P & L A/c (3:2) 3,775 2,517
(II Half Year)
Total 4,400 10,975 4,517 Total 4,400 10,975 4,517

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Note: Adjustment for Goodwill is as under


Particulars A B C
(a) On Creation (2:1 Ratio) 10,000 (Cr.) 5,000 (Cr.)
(b) On Reversal (3:2 Ratio) 9,000 (Dr.) 6,000 (Dr.)
Net 10,000 (Cr.) 4,000 (Dr.) 6,000 (Dr.)

7. As Loan A/c
Particulars ` Particulars `
To balance c/d 38,038 By Transfer from Capital A/c (32,000 + 4,400) 36,400
By Profit and Loss A/c (36,400 9% 6/12) 1,638
Total 38,038 Total 38,038

8. Balance Sheet as at 31st March 2015


Capital and Liabilities ` Properties and Assets `
Capital Accounts: NonCurrent Assets:
B 10,975 Plant and Machinery (Cost) 22,000
C 4,517 15,492 Less: Accumulated Depreciation (6,600) 15,400
Car (Cost) 30,000
Less: Accumulated Depreciation (9,000) 21,000
NonCurrent Liabilities: Current Assets:
As Loan A/c 38,038 Stock 18,550
Debtors 5,400
Current Liabilities: Less: Provn for Doubtful Debts (270) 5,130
Creditors 10,100 Cash and Bank 3,200
Trade Expenses Payable 250 Prepaid Rent 600
Total 63,880 Total 63,880

Question 7 (a): Accounting for NotforProfit Organisations 4 Marks


From the following information of M/s. Officers Sports Club, (a NonProfit Organization) calculate
(i) Total Cost of Sports Material Consumed in the Club, and
(ii) Sale Value of Sports Material during the year 201415.

Particulars `
Opening Balance of Sports Material as on 01.04.2014 56,800
Closing Balance of Sports Material as on 31.03.2015 32,900
Sports Material purchased in Cash 23,500
Payment made to Creditors of Sports Material 64,300
Creditors for Sports Material Opening 23,200
Closing 29,400

Out of the Total Sports Material used during the year, 40% was consumed by the Club and the remaining was sold at a Profit of
20% on Cost.

Solution: Similar to Page No. A.4.64 Q.No.39 (Working Notes 4,6) and Other Illustrations

1. Creditors for Sports Materials A/C


Particulars ` Particulars `
To Bank Payment 64,300 By balance b/d (Opening Balance) 23,200
To balance c/d (Closing Balance) 29,400 By Sports Materials Purchased (b/f) 70,500
Total 93,700 Total 93,700

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2. Sports Material Stock A/c


Particulars ` Particulars `
To balance b/d (Opening Stock) 56,800 By Sports Materials Consumed (1,17,900 40%) 47,160
To Purchases By Bank (Sale Proceeds of Sports Materials)
Cash / Bank 23,500 Cost (1,17,900 60%) = 70,740 + 20% Profit 84,888
Credit (as above) 70,500 By balance c/d (Closing Stock) 32,900
To Profit on Sale of Sports Materials, 14,148
transferred to Income & Expenditure A/c
Total 1,64,948 Total 1,64,948
Note:
Cost of Sports Materials Consumed & Sold = Opening Stock + Purchases () Closing Stock
= (56,800 + 23,500 + 70,500 32,900) = ` 1,17,900

Question 7 (b): Average Due Date 4 Marks


Form the following details, find out the Average Due Date:
Date of Bill Amount (`) Usance of Bill
29th January 2014 10,000 1 Months
20th March 2014 8,000 2 Months
12th July 2014 14,000 1 Months
10th August 2014 12,000 2 Months

Solution: Similar to Page No.A.2.6, Q.No.8 [N 10]

Computation of Average Due Date (Note: Base Date = 03rd March)


Bill Date Term Due Date No. of Days from Base Date Amt Product
Col. (1) Col. (2) Col. (3) Col. (4) Col. (5) (6) = (4)(5)
29th January 1 month 3rd Mar 0 10,000 0
20th March 2 months 23rd May 28 + 30 + 23 = 81 8,000 6,48,000
12nd July 1 month 14 Aug (15th Aug
th
28 + 30 + 31 + 30 + 31+ 14 = 164 14,000 22,96,000
= Public Holiday)
th
10 August 2 months 13th Oct 28 + 30+31+30+ 31 + 31+ 30 + 13 = 224 12,000 26,88,000
Total 44,000 56,32,000
Total of Products 56,32,000
Average Due Date = Base Date = 3rd March + = 3rd March + 128 days = 9th July 2014
Total of Amounts 44,000

Question 7 (c): AS9 Revenue Recognition Treatment in Special Cases Sale of Goods 4 Marks
Given the following information of M/s. Paper Products Ltd.
(i) Goods of ` 60,000 were sold on 20.03.2015 but at the request of the Buyer these were delivered on 10.04.2015.
(ii) On 15.01.2015 goods of ` 1,50,000 were sent on consignment basis of which 20% of the goods unsold are lying with the
consignee as on 31.03.2015.
(iii) ` 1,20,000 worth of goods were sold on approval basis on 01.12.2014. The period of approval was 3 months after which
they were considered sold. Buyer sent approval for 75% goods up to 31.01.2015 and no approval or disapproval received
for the remaining goods till 31.03.2015.
(iv) Apart from the above, the Company has made Cash Sales of ` 7,80,000 (Gross). Trade Discount of 5% was allowed on the
Cash Sales.
You are required to advise the Accountant of M/s. Paper Products Ltd, with valid reasons, the amount to be recognized as
Revenue in above cases under AS9 and also determine the total revenue to be recognized for the year ending 31.03.2015.
Solution: Refer Page No. B.6.7 Para 3

Situation Treatment Revenue recognised


Revenue should be recognised notwithstanding that physical delivery
Goods Sold, delivery
has not been completed so long as there is every expectation that ` 60,000
delayed at Buyers request
delivery will be made.

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Situation Treatment Revenue recognised


Revenue on Consignment Sales is recognised only when goods are 80% ` 1,50,000
Consignment Sales sold by the agent to a third party. = ` 1,20,000
Note: Cost of Stock with Consignee should be taken into account
Revenue should not be recognised until the time period for
rejection has elapsed or where no time has been fixed, a
Goods sold on approval
reasonable time has elapsed. `1,20,000
basis
3 Months period has elapsed for all goods. Hence, entire revenue
should be recognised.
Trade Discounts and Volume Rebates received do not fall within the
definition of Revenue, since they represent a reduction of cost. 7,80,000 5%
Trade Discounts
Hence, these Discounts and Volume Rebates given should be = ` 7,41,000
deducted to determine revenue.
Total ` 10,41,000

Question 7 (d): Accounting Basics and EEnvironment 4 Marks


What factors are to be considered at the time of choosing an appropriate Accounting Software for an organization?

Solution: Similar to Page No.A.1.8. Q.No. 7 M 08, N 09, N 11, M 13

1. Business Requirements: The Enterprise should identify its business requirements and try to match its requirement
with functionalities offered by different software providers.
2. Reports: Software which is able to provide all the requisite reports (both routine and exception reporting) in a format
understandable to the User, should be preferred.
3. Ease of Use: Software which is easier to use (both interface and performancewise), should be considered. Software
which are very high on GUI may fall short on performance (speed) while handling high volume data.
4. Cost: Packages having more features cannot be opted because of the prohibitive high costs.
5. Support: Vendor Support is essential for any software. A Stable Vendor with reputation and good track record will
always be preferred.
6. Regular Updates: Software which is constantly updated should be preferred against those Software where Vendors
do not update their Software regularly.

Question 7 (e): AS10 Accounting for Fixed Assed Determination of Cost 4 Marks
M/s. Versatile Limited purchased Machinery for ` 4,80,000 (inclusive of excise duty of ` 40,000). CENVAT Credit is available for
50% of the duty paid. The Company incurred the following other expenses for installation.
Particulars `
Cost of Preparation of Site for Installation 21,000
Total Labour Charges (200 out of the total of 600 men hours worked, were spent for installation of the machinery) 66,000
Spare Parts and Tools consumed in Installation 6,000
Total Salary of Supervisor (time spent for installation was 25% of the total time worked) 24,000
Total Administrative Expenses (1/10 relates to the Plant Installation) 32,000
Test Run and Experimental Production Expenses 23,000
Consultancy Charges to Architect for Plant Setup 9,000
Depreciation on Assets used for the installation 12,000

The Machine was ready for use on 15.01.2015 but was used from 01.02.2015. Due to this delay further expenses of ` 19,000
were incurred. Calculate the value at which the Plant should be capitalized in the books of M/s. Versatile Limited.

Solution:

Similar to Page No. B.7.5,Illus.No.17,18 [N 13] Also see Principles in Qn.16, 22, 23 of AS10

Cost of Fixed Asset (i.e. Machine) is calculated as under

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Particulars `
Purchase Price (` 4,80,000 less Excise Duty 40,000) 4,40,000
Add: Non Refundable Duties 50% of Excise Duty where CENVAT credit not available = 50% of ` 40,000 20,000
Site Preparation Cost 21,000
200
Labour Charges ` 66,000 22,000
600
Spares and Tools in Installation 6,000
Salary of Supervisor (24,000 25%) 6,000
Admin Expense attributable to Installation (apportioned costs are excluded) Nil
Test Run & Experimental production (Indirect Element) 23,000
Consultancy Charges to Architect for Plant setup 9,000
Depreciation on Asset used for Installation 12,000
Expenses due to delay in use (Excluded as it is abnormal) Nil
Total Capitalized Cost of Asset 5,59,000

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Additional Questions for Practice CA Inter (IPC) Group I Accounting


Question 1: Chapter 3: Accounts from Incomplete Records RTP
Mr. H had ` 1,65,000 in the Bank Account on 1.1.2014 when he started his business. He closed his accounts on 31st March
2015. His single entry books (in which he did not maintain any account for the bank) showed his position as follows: (Amt in `)

Particulars 31.3.2014 31.3.2015


Cash in Hand 1,100 1,650
Stock in Trade 10,450 15,950
Debtors 550 1,100
Creditors 2,750 1,650

On and from 1.2.2014, he began drawings ` 385 per month for his Personal Expenses from the Cash Box of the business. His
account with the bank had the following entries:
Particulars Deposits Withdrawals
1.1.2014 1,65,000
1.1.2014 to 31.3.2014 1,22,650
1.4.2014 to 31.3.2015 1,26,500 1,48,500

The above withdrawals included payment by cheque of ` 1,10,000 and ` 33,000 respectively during the period from 1.1.2014 to
31.3.2014 and from 1.4.2014 to 31.3.2015 respectively for the purchase of Machineries for the business. The deposits after
1.1.2014 consisted wholly of sale price received from the customers by cheques.

Draw up Mr. Hs Statement of Affairs as at 31.3.2014 and 31.3.2015 respectively and work out his Profit or Loss for the year
ended 31.3.2015.

Solution: 1. Statement of Affairs as on 31st March 2014


Liabilities ` Assets `
Capital (balancing figure) 1,61,700 Machinery 1,10,000
Sundry Creditors 2,750 Stock 10,450
Debtors 550
Cash at bank (1,65,000 1,22,650) 42,350
Cash in hand 1,100
Total 1,64,450 Total 1,64,450

2. Statement of Affairs as on 31st March 2015


Liabilities ` Assets `
Capital (Balancing figure) 1,80,400 Machinery (1,10,000 + 33,000) 1,43,000
Sundry Creditors 2,750 Stock 15,950
Debtors 1,100
Cash at Bank (OB. 42,350 + 1,26,500 1,48,500) 20,350
Cash in hand 1,650
Total 1,82,050 Total 1,82,050

3.Profit and Loss for the Period


1.1.2014 to 31.3.2014 1.1.2014 to 31.3.2015
Particulars
(3 Months) (12 Months)
Closing Capital as per Statement of Affairs above 1,61,700 1,80,400
Add: Drawings (From Feb 2014) 2 385 = 770 12 385 = 4,620
1,62,470 1,85,020
Less: Opening Capital At Bank = 1,65,000 1,61,700
Profit / (Loss) Loss (2,530) Profit 23,320

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Question 2: Chapter 4: Financial Statements of NotForProfit Organizations RTP


From the following information, prepare Opening and Closing Balance Sheet of a Club:
Particulars 31st March 2015 31st March 2016
Building (subject to 10% Depreciation for the current year) 60,000 ?
Furniture (subject to 10% Depreciation for the current year) 20,000
Stock of Sports Materials 5,000 2,000
Prepaid Insurance 3,000 6,000
Outstanding Subscription 12,000 8,000
Advance Subscription 6,000 4,000
Outstanding Locker Rent 6,000
Advance Locker Rent received 2,000
Outstanding Rent for Godown 6,000 3,000
12% General Fund Investments 2,00,000 2,00,000
Accrued Interest on above 4,000
Cash Balance 1,000 64,000
Bank Balance 2,000
Bank Overdraft 2,000
Entrance Fees received ` 20,000, Life Membership Fees received ` 20,000, Surplus from Income & Expenditure A/c ` 60,000. It
is the policy of the club to treat 60% of Entrance Fees and 40% of Life Membership Fees as of revenue nature. The Furniture
was purchased on 1st April 2015.

Solution: Balance Sheet as at 31st March 2015


Liabilities ` Assets `
Capital Fund (Balancing Figure) 2,71,000 Non Current Assets: Building 60,000
Current Liabilities: O/s Rent for Godown 6,000
Current Assets: Stock of Sports Materials 5,000
Advance Subscription 6,000 Prepaid Insurance 3,000
Outstanding Subscription 12,000
Bank Balance 2,000
Cash Balance 1,000
Total 2,83,000 Total 2,83,000

Balance Sheet as at 31st March 2016


Liabilities ` Assets `
Capital Fund: NonCurrent Assets :
Opening Balance 2,71,000 Building: Cost 60,000 less Deprn (6,000) 54,000
Add: Entrance Fees [` 20,000 x 40%] 8,000 Furniture: Cost 20,000 less Deprn (2,000) 18,000
Add: Life Membership Fees [` 20,000x60%] 12,000 12% General Fund Invts (assumed LT) 2,00,000
Add: Surplus 60,000 Current Assets:
Closing Balance of Capital Fund 3,51,000 Stock of Sports Materials 2,000
Current Liabilities: Prepaid Insurance 6,000
Outstanding Rent 3,000 Outstanding Subscription 8,000
Advance Subscription 4,000 Outstanding Locker Rent 6,000
Advance Locker Rent 2,000 Accrued Interest on 12% GF Invts 4,000
Bank Overdraft 2,000 Cash Balance 64,000
Total 3,62,000 Total 3,62,000

Question 3: Chapter 5: Accounting for Hire Purchase Transactions RTP


(a) On 1.1.2013 Shaan Ltd purchased a Machine on hire purchase basis. The terms of agreement provided for 40% as cash
down payment and the balance in three instalments of ` 1,63,000 on 31.12.2013, ` 1,20,000 on 31.12.2014 and ` 1,10,000 on
31.12.2015. The rate of interest charged by the Vendor is 10% p.a. compound annually.
You are required to calculate the Cash Price and Periodic Interest charged by the Hire Vendor.

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(b) On 1.1.2012, Beeta Ltd purchased a Machine from Yama Ltd on hire purchase basis. The terms of agreement provided for
40% as cash down payment and the balance in three instalment of ` 1,30,000 on 31.12.2012, ` 1,42,000 on 31.12.2014 and
`1,10,000 on 31.12.2015. The rate of interest charged by the vendor is 10% p.a. compounded annually. You are required to
calculate the Cash Price when 2nd instalment is payable after two years.
Solution: Case (a) Statement Showing the Computation of Cash Price and Periodic Interest
End of Balance due after Instalment Cumulative Interest at 10% Paid for
Instalment No. Instalment Amount Instalment p.a Principal
10
(1) (2) (3) (4) = (2) + (3) (5) = (4) (6) = (3) (5)
110
3 NIL 1,10,000 1,10,000 10,000 1,00,000
2 1,00,000 1,20,000 2,20,000 20,000 2,00,000
1 2,00,000 1,63,000 3,63,000 33,000 3,30,000
0 3,30,000 3,30,000 30,000 3,00,000

Let Cash Price be X. So, X = ` 3,00,000 + 40% of X


3,00,000
0.6 X = ` 3,00,000 So, X = = ` 5,00,000 Cash Price = ` 5,00,000
0.6

Case (b): Statement Showing the Computation of Cash Price and Periodic Interest
End of Balance due after Instalment Cumulative Interest at 10% Paid for
Instalment No. Instalment Amount Instalment p.a Principal
10
(1) (2) (3) (4) = (2) + (3) (5) = (4) (6) = (3) (5)
110
3 Nil 1,10,000 1,10,000 10,000 1,00,000
2 1,00,000 1,42,000 2,42,000 22,000 2,20,000
2,20,000 2,20,000 20,000 2,00,000
1 2,00,000 1,30,000 3,30,000 30,000 3,00,000
Let Cash Price be X. So, X = ` 3,00,000 + 40% of X
3,00,000
0.6 X = ` 3,00,000 So, X = = ` 5,00,000 Cash Price = ` 5,00,000
0.6

Question 4: Chapter 6: Partnership Accounts Basics RTP


R and G are Partners sharing Profits and Losses in the ratio of 3:2 after allowing ` 1,000 p.m. Salary for each Partner. However,
the accounts have not been prepared for the last three years. From the following details, you are required to calculate the
distribution of profits between the Partners in total for the three years.
Particulars ` Particulars `
Assets as at the end of 3rd year 1,60,000 Capital on commencement:
Liabilities as at the end of 3rd year 40,000 R 50,000
Drawings for three years in addition to Salaries: G 40,000
R 30,000 Introduction of fresh capital during three years
G 22,000 R 10,000
Solution: 1. Computation of Profits for 3 years
Particulars ` `
rd
Assets at the end of the 3 year 1,60,000
Less: Liabilities at the end of the 3rd year (40,000)
1,20,000
Add: Drawings including Partnership Salary: R [30,000 + (1,000 x 12 x 3)] 66,000
G [22,000 + (1,000 x 12 x 3)] 58,000 1,24,000
2,44,000
Less: Opening Capital: R 50,000
G 40,000 (90,000)
1,54,000
Less: Introduction of Capital by R (10,000)
Net Profit 1,44,000

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2. Profit and Loss Appropriation Account for 3 years


Particulars ` Particulars `
To Partners Salary: R (1,000 x 12 x 3) 36,000 By Net Profit for three years 1,44,000
G (1,000 x 12 x 3) 36,000
To Share of Profit: R 43,200
G 28,800 72,000
Total 1,44,000 Total 1,44,000

Question 5: Chapter 6: Partnership Accounts Basics RTP


T and W are equal Partners in Timber Business. The Balance Sheet of their Firm as on 31st March 2015 was as under:
Liabilities ` Assets `
Capital Accounts: T 1,60,000 Fixed Assets 2,50,000
W 1,60,000 Stocks 65,200
Creditors & Other Payables 50,000 Cash & Bank 54,800
Total 3,70,000 Total 3,70,000
On 1st April 2015, P is admitted as an equal partner. Prior to his admission, the Partners agreed to bring into the books of the
Firm, Stocks worth ` 80,000 that was received free of cost from a Business Associate. Consequent to Ps entry into the Firm
the Capital Base of the Firm was expanded to ` 6 Lakhs with all the Partners agreeing to adopt the proportionate capital
principle. P brought in the agreed sum of ` 2,80,000 (` 2,00,000 towards Capital and ` 80,000 towards his share of Goodwill).
The Partners decided not to raise Goodwill in the books of accounts.
You are requested to show Capital Accounts of the three Partners and the Balance Sheet of the Firm as on 1st April 2015.

Solution: 1. Partners Capital Accounts (Amount in `)


Particulars T W P Particulars T W P
To T & W (Goodwill) 80,000 By balance b/d 1,60,000 1,60,000
To Bank (for cap Adjt.) 40,000 40,000 By Bank 2,80,000
To Balance c/d 2,00,000 2,00,000 2,00,000 By P (Goodwill) 40,000 40,000
By Stock A/c 40,000 40,000
Total 2,40,000 2,40,000 2,80,000 Total 2,40,000 2,40,000 2,80,000

2. Balance Sheet of M/s T, W & P as on 1st April 2015


Liabilities ` Assets `
Capital Accounts: T 2,00,000 Fixed Assets 2,50,000
W 2,00,000 Stocks (65,200 + 8,00,000) 1,45,200
P 2,00,000 Cash & Bank (54,800 + 2,80,000 80,000) 2,54,800
Creditors & Other Payables 50,000
Total 6,50,000 Total 6,50,000

Question 6: Chapter 8: Final Accounts of Companies RTP


Futura Ltd had the following items under the head Reserves and Surplus in the Balance Sheet as on 31st March:
Amount ` in Lakhs
Securities Premium Account 80
Capital Reserve 60
General Reserve 90
The Company had an Accumulated Loss of ` 250 Lakhs on the same date, which it has disclosed under the head Statement of
Profit and Loss as Asset in its Balance Sheet. Comment on accuracy of this treatment in line as per Schedule III.
Solution:
1. Principle:
(a) As per Note 6 (B) Part I of Schedule III, Debit Balance of Statement of Profit and Loss (after all allocations and
appropriations) shall be shown as a negative figure under the head Surplus.
(b) Similarly, the balance of Reserves and Surplus, after adjusting negative balance of Surplus, shall be shown under
the head Reserves and Surplus even if the resulting figure is in the negative.

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2. Analysis and Conclusion:


(a) Here, the Debit Balance of Profit and Loss i.e. ` 250 Lakhs exceeds the total of all the Reserves, i.e. ` 230 Lakhs.
(b) So, balance of Reserves and Surplus after adjusting Debit Balance of Profit and Loss, is negative by ` 20 Lakhs,
which should be disclosed under Reserves and Surplus as a negative item.
(c) Thus the treatment given by the Company is incorrect.

Question 7: AS 2 Inventories RTP


A Company had 5,000 units of Stock A, costing ` 50 each on 31st March. Out of this Stock, 3,000 units are to be supplied
under a firm contract at ` 45 each. Show how the valuation will be done of such stock when
(i) the General Selling Price is ` 49 each.
(ii) the General Selling Price is ` 52 each.
Solution: Valuation of Stock as on 31st March
Quantity When General Selling Price = ` 49 pu When General Selling Price = ` 52 pu
3,000 units (Firm Contract) Least of ` 50 Cost vs ` 45 NRV, so ` 45 pu Least of ` 50 Cost vs ` 45 NRV, so ` 45 pu
2,000 units (Balance Qtty) Least of ` 50 Cost vs ` 49 NRV, so ` 49 pu Least of ` 50 Cost vs ` 52 NRV, so ` 50 pu
Total Value of Inventory (3,000` 45)+(2,000` 49) = ` 2,33,000 (3,000` 45)+(2,000` 50) = ` 2,35,000

Question 8: AS 10 Fixed Assets RTP


X Ltd purchased ` 5 Lakhs worth of land for a Factory Site. The Company demolished an old building on the property and sold
the material for ` 10,000. Company incurred additional cost and realized salvaged proceeds during the period as follows:
Legal Fees for Purchase Contract and recording ownership ` 25,000
Title Guarantee Insurance ` 10,000
Cost for Demolition of Building ` 50,000
Compute the balance to be shown in the Land Account in Balance Sheet on 31st March.

Solution: Cost of Land = 5,00,000 + Legal Fees 25,000 + Title Insurance 10,000 + Net Cost of Demolition 50,000
less Salvage Value (10,000) = Total ` 5,75,000

Question 9: AS 13 Investments RTP


X Ltd on 112015 had made an investment of ` 600 Lakhs in the Equity Shares of Y Ltd, of which 50% is made in the long
term category and the rest as Temporary Investment. The Realizable Value of all such investment on 3132015 became ` 200
Lakhs as Y Ltd lost a case of copyright. How will you recognize the reduction in Financials for the year ended on 3132015?
Solution:
1. Classification: Irrespective of the fact that Investment has been held by X Limited only for 3 months (from 1.1.2015
to 31.3.2015), AS 13 lays emphasis on intention of the Investor to classify the investment as Current or Long Term
even though the Long Term Investment may be readily marketable. Hence, it is appropriate to classify the above into
Long Term (NonCurrent) & Temporary (Current) Investment.

2. Valuation: In the given case, the realizable value of all such investments on 31.3.2015 became ` 200 Lakhs i.e. ` 100
Lakhs each for Current Investment and Long Term Investment. The treatment is as under
Nature Long Term Temporary
Valuation Cost, adjusted for permanent decline in value, if any. Lower of Cost or Market Value
(a) Here, Y Limited lost a case of copyright which has drastically (a) Temporary Investments
reduced the realizable value of its Shares to one third. Losing the should be shown at
case of copyright may affect its business and performance. Realizable Value, i.e. ` 100
(b) So, it will be appropriate to reduce the Carrying Amount of Long Lakhs.
Accounting
Term Investment by ` 200 Lakhs and shown the Investments at (b) The reduction of ` 200
Treatment
` 100 Lakhs, considering the downfall in the value of Shares as Lakhs in the Carrying Value
decline other than temporary. of Current Investment will
(c) The reduction of ` 200 Lakhs in the Carrying Value of Long Term be debited in the Statement
Investment will be debited in the Statement of Profit & Loss. of Profit and Loss.

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STUDENTS NOTES

May 2015.24