Account Past Questions Compilation (2009june - 2020 Dec.)

COMPILED BY KISAN JOSHI,
CAP III, CA ASPIRANTS-ICAN
CHAPTERWISE COMPILATION OF
FUNDAMENTALS OF ACCOUNTING
(CAP I)
[2009 JUNE -2020 DECEMBER]
Source- Suggested provided by ICAN
COMPILED BY
KISAN JOSHI,
CA ASPIRANTS-ICAN
kisanjoshi001@gmail.com
“To succeed in your mission, you must have single-minded devotion to your goal.”
“Small aim is a crime; have great aim” - APJ Abdul Kalam
“what we think,we became-Buddha” 1

TABLE OF CONTENT
Chapter 1 Fundamentals of Accounting: Introduction
Chapter 2 Accounting Systems and Process
 Double Entry Accounting System
 Cash Book
 Subsidiary Book
 Control and Non Consumable
 Bank Reconciliation Statement
 Rectification of Errors
Chapter 3 Capital and Revenue Concept and Depreciation
Chapter 4 Accounting Treatment of Inventory
Chapter 5 Accounting for Special Transactions
 Consignment Accounting
 Joint Venture Account
 Bills of Exchange
 Royalty
Chapter 6 Preparation of Financial Statement
Chapter 7 Not for Profit Organizations
Chapter 8 Partnership Accounts
Theory Questions and Answer

Chapter 1 Fundamental of Accounting: Introduction
No Numerical have been asked from this chapter.

Chapter 2 Accounting system and process
Numerical Questions and Answers
1. PAD Concern issued a cheque of NRs. 2,500 to make payment to its suppliers on 5th January 2009. But the cheque
was dishonoured from the bank and the cheque was referred to the drawer. The concern had not prepared bank
reconciliation statement since last week, so that it could not guess the exact amount of balance in its bank account.
You are required to find why the cheque dishonored? (Bank Reconciliation Statement)
Amount NRs.
Balance as per cash book 3,250
Wrong credit given by the bank 150
st nd
Cheque sent for deposit on 31 December 2008 was cleared only on 2
January 2009 3,000
Cheque received from customers dishonored by bank but
not recorded in the cash book 1,500
Dividend directly deposited in the bank account 2,500
Annual fee charged by the bank but omitted to be recorded in the cash
book. 200
Telephone bill directly paid by the bank as per the standing Instruction 750
A cheque amounting to NRs. 4,250 was issued which was recorded as NRs. 2,450 in the cash
book. 10 (June2009)
Answer
Statement of Bank Reconciliation
Statement As on 5th January 2009
Particulars NRs. NRs.
Balance As per Cash Book 3,250
Add:
Wrong credit given by the bank 150
Dividend directly deposited into the bank 2,500 2,650
Less:
Annual fee charged by the bank 200
Customers cheque dishonored by bank 1,500
Cheque issued wrongly ( 4250-2450) 1,800
Telephone bill paid by the bank as per the standing instruction 750 4,250
Balance as per Bank Pass Book 1,650
Since the actual balance with bank on 5th January 2009 was NRs. 1,650 only, it was therefore the bank dishonored the
cheque of NRs. 2,500.
2. On 31st Ashad 2066, a book keeper finds the difference in the Trial Balance and he puts it in the suspense
account. Later on he detects the following errors:
a. Rs.50,000 received from A was posted to the debit of his account.

b. Rs.20,000 being purchases returns were posted to the debit of purchases account.
c. Discount of Rs.8,000 received were posted to the debit of discount account.
d. Rs.9,060 paid for repairs of motor car was debited to motor car account as Rs.7,060.
e. Rs.40,000 paid to B was debited to A's Account.
Give journal entries to rectify the above errors and ascertain the amount transferred to suspense account on
31st Ashad, 2066 by showing the suspense account, assuming that the suspense account is balanced after the
above corrections. 5 (Dec.2009) (Rectification of Errors)
Answer:
Rectification Entries
Rs. Rs.
(i) Suspense Account Dr. 100000
To A's account 100000
(Being the rectification of error by which amount
received from A was wrongly debited to his account)
(ii) Suspense Account Dr. 40000

To Purchases Account 20000
To Purchases Returns Account 20000
(Being the rectification of error by which purchases
returns had been wrongly posted to the purchases
account)
(iii Suspense Account Dr. 16000

) To Discount Account 16000
(Being the rectification or error by which discount
received was wrongly debited to discount account)
(iv) Motor Car Repairs Account Dr. 9060

To Motor Car 7060
Account To Suspense 2000
Account
(Being the rectification of error by which motor car
repair expenses Rs.9060 wrongly debited to motor
car account as Rs.7060)
(v) B'S account Dr. 40000
To A's account 40000
(Being the rectification of error by which amount
paid to B had been wrongly debited to A)
Suspense Account
Rs. Rs.
To A'C A/C 100000 By Difference in trial balance 154000
(balancing figure)
To Purchase a/c 20000 By Motor Car Repairs A/C 2000
To Purchase Returns A/C 20000
To Discount A/C 16000
156000 156000
3. From the following particulars prepare a Bank Reconciliation Statement as on 31st December, 2009: 10
(June 2010) (Bank Reconciliation Statement)
i) Cash book of a firm showed a balance of NRs. 10,000 (Debit balance).
ii) Cheques had been issued for NRs. 6,000, out of which cheques worth NRs. 4,500 were presented for
payment.
iii) Cheques worth NRs. 1,500 were deposited in the bank on 28th December, 2009 but had not been
credited by the bank. In addition to this, one cheque for NRs. 500 was entered in the cash book on
30th December, 2009 but was banked on 31st January, 2010.
iv) A cheque from Mohan for NRs. 800 was deposited in the bank on 26th December, 2009 but was
dishonoured and the advice was received on 2nd January, 2010.
v) Pass book showed bank charges of NRs. 100 debited by the bank.
vi) One of the debtors deposited a sum of NRs. 1,000 in the bank account of the firm on 20th December,
2009 but the intimation in this respect was received from the bank on 2nd January, 2010.
Answer:
Bank Reconciliation Statement as on 31st December 2009
Particul Rs Rs
ars
Bank Balance (Dr.) as per cash book 10,000

Add:
Cheques issued but not yet presented for payment (6000-4500) 1,500
Cheque directly deposited by customer not yet recorded in cash book
1,000 2,500
12,500
Less:
Cheques deposited ut not yet credited by bank 1,500
Cheques received and recorded in cash book but not yet deposited into
bank. 500
Cheques dishonoured by bank (dishonoured entry not yet passed in the
cash book) 800
Bank charges not recorded in cash book 100 2,900
Bank balance (Cr.) as per pass book 9,600
4. The trial balance of Mr. W & H failed to agree and the difference Rs. 20,750 was put into suspense pending
investigation which disclosed that:
a. Purchase returns day book had been correctly entered and totaled at Rs. 6,160 but had not been posted to the
ledger.
b. Discounts received Rs. 1,320 had been debited to discounts allowed.
c. The Sales account had been under added by Rs. 10,000.
d. A credit sale of Rs. 1,470 had been debited to a customer account atRs.1,740.
e. A vehicle bought originally for Rs. 7,000 four years ago and depreciated to Rs. 1,200 had been sold for Rs.
1,500 in the beginning of the year but no entries, other than in the bank account had been passed through the
books.
f. An accrual of Rs. 560 for telephone charges had been completely omitted.
g. A bad debt of Rs. 1,560 had not been written off and provision for doubtful debts should have been maintained
at 10% of debtors which are shown in the trail balance at Rs, 23,390 with a credit provision for bad debts at
Rs. 2,320.
h. Tools bought for Rs. 1,200 had been inadvertently debited to purchases.
Pass rectification entries without narration to correct the above errors before preparing annual accounts 5
(Dec.2010) (Rectification of Errors)

Answer:
Date Particulars L.F. Dr. Rs. Cr. Rs.
(i) Suspense A/c Dr 6,160
To Return Outward A/c 6,160
(ii) Suspense A/c Dr 2,640

To Discount Allowed A/c 1,320
To Discount Received A/c 1,320
(iii) Suspense A/c To Dr 10,000

Sales A/c 10,000
(iv) Suspense A/c Dr 270

To Customer A/c 270
(v) Suspense A/c Dr 1,500

To Vehicle A/c 1,200
To Profit on Sale of Vehicle A/c 300
(vi) Telephone Charges A/c Dr 560

To Outstanding Expenses A/c 560
(vii) Bad Debts A/c Dr. 1,560

To Sundry Debtors A/c 1,560
Provision for Doubtful Debts A/c Dr 164 164

To Profit & Loss A/c

(viii) Loose Tools A/c 1200
To Purchases A/c 1200
Working note:
i) sundry debtors as per books Rs.23390
Less:Deductions:
Provision
vide item (iv) Rs. 270
Bad Debts Rs. 1,560 Rs. 1,830
Rs. 21,560

5. Following errors were found in the books of Sri Ganesh Traders. Give the necessary journal entries to correct
them: 5 (June 2011)
i. A purchase of goods from Mr. Ram amounting to Rs. 15,000 has been wrongly entered through
the Sales Book.
ii. A credit sale of goods worth Rs. 12,000 to Mr. Ramesh has been wrongly passed through the
Purchase Book.
iii. On 32nd Ashadh, 2067 goods of the value of Rs. 30,000 were returned by Mr. Hari Saran and were
taken into stock on the same date but no entry was passed in the books.
iv. An amount of Rs. 20,000 due from Mr. Mahesh, which had been written off as a bad debt in a
previous year, was unexpectedly recovered and had been posted to his personal account.
v. A cheque for Rs. 10,000 received from Mr. Man Mohan was dishonoured and had been posted to
the debit of Sales Returns Account.
(Journal Entries)
Answer:
Journal entries in the books of Sri Ganesh Traders:
Particulars Debit Credit

Rs. Rs.
Purchases A/c 15,000
Sales A/c 15,000
To Mr. Ram 30,000
(Being correction of wrong entry in the sales book for a purchase of goods
from Mr. Ram)
Mr. Ramesh 24,000

To Purchases A/c 12,000
To Sales A/c 12,000
(Being correction of wrong entry in the purchases book for a credit
sale of goods to Mr. Ramesh)
Return Inwards A/c 30,000

To Mr. Hari Sharan 30,000
(Being entry of goods returned by Mr. Hari Sharan and taken to stock
omitted from records, now rectified)
Mr. Mahesh 20,000

To Bad Debts Recovered A/c 20,000
(Being correction of wrong credit to personal account in respect of
recovery of previously written off bad debts)
Mr. Man Mohan 10,000

To Sales Return A/c 10,000
(Being correction of wrong debit to sales return account for dishonoured
cheque received from Mr. Man Mohan)
6. Prepare a bank reconciliation statement from the following particulars: 5 (June 2011)

The cash book of a firm showed a bank balance of Rs. 30,000 as on 31 st December, 2010 and following
information were provided to you:
i. Cheques have been issued for Rs. 25,000 out of which cheques worth Rs. 20,000 only were presented for
payment.
ii. Cheques worth Rs. 7,000 were paid on 28th December but had not been credited by the bank. One cheque for
Rs. 2,500 was entered in the cash book on 30th December but was banked on 3rd January, 2011.
iii. A cheque from Mohan for Rs. 2,000 was paid in on 26th December but was dishonoured and the advice was
received on 2nd January, 2011.
iv. Bank Statement showed bank charges of Rs. 100 debited by the bank. It also showed Rs. 4,000 collected by
the bank as interest.
v. One of the debtors deposited a sum of Rs. 2,500 in the account of the firm on 20th December. Intimation in
this respect was received from the bank on 2nd January, 2011.
(Bank Reconciliation Statement)
Answer:
Bank Reconciliation Statement of a Firm as on 31st Dec 2010
Particulars Rs. Rs.
Bank balance as per cash book 30,000
Add: Cheques issued but not presented for payment 5,000 (Rs.25,000-20,000)
Interest collected by the bank but not recorded in the cash book 4,000
Amount deposited by the customer directly in to the bank 2,500
--------- 11,500
41,500
Less: Cheques paid into bank but not credited 7,000
Cheque entered in the Cash Book but omitted to be banked 2,500
Cheque from Mohan paid into bank dishonoured 2,000
Bank Charges 100 11,600
Balance as per bank statement 29,900

======
7. The April 30 bank statement for Binoy Company showed a balance of Rs. 6,873.40 On this date
the Cash Account in the company‟s ledger was Rs 2,994.70. Your review reveals:
i) Cheque under collection on April 30: Rs. 298.70.
ii) Outstanding cheques: Rs. 1,718.
iii) A cheque for Rs 2,194.90 issued to a supplier was recorded by the bank as Rs. 2,914.90.
iv) A bill receivable of Rs 5,000 and interest of Rs 300 collected by the bank have not been recorded in the
company‟s accounts.
v) A cheque for Rs. 730.60 received from a customer was returned by the bank owing to lack of funds with
the bank.
vi) Bank service charges: Rs. 90.
vii) In accordance with the company‟s standing instruction, on April 23 the bank paid insurance premium of
Rs. 1,300 for the company‟s car.
Required: 5 (Dec.2011) (Bank Reconciliation Statement)
(a) Prepare a Bank Reconciliation Statement for Binoy Company for April.

(b) Prepare any journal entries necessary for Binoy Company as on April 30.
Answer:
a.
Bank Reconciliation Statement of Binoy Company as on

30st April XXXX
Particulars Rs. Rs.
Bank balance as per cash book 2,994.70

Add: Cheque issued but not presented for payment 1,718
Add: Bills receivable & interest collected by bank 5,300
Less: Cheque deposited but not cleared 298.70
Wrong recording of cheque issued by bank 720
Bank Charges 90
Insurance premium paid by bank 1,300
Customer cheque dishonoured by the bank 730.60 3,139.30
Bank balance as per the statement 6,873.40
=======
b. Journal Entries
Bank A/c Dr. 5,300

To Bills Receivable 5,000
To Interest Received 300
( Being bill & interest received by the bank)
Bank Charges A/cDr. 90

To Bank A/c 90
( Being bank charges recorded)
Insurance Expenses A/c Dr 1,300

To Bank A/c 1,300
( Being insurance charges paid by the bank)
Customer A/c Dr 730.60

To Bank A/c 730.60
(Being cheque dishonoured by the bank)
8. From the information given below, prepare a Bank Reconciliation Statement as at 31 st December, 2011
for Messrs New Steels Limited: 5(Dec.2012/June2013) (Bank Reconciliation Statement)

Particulars Rs.
i) Bank overdraft as per Cash Book on 31st December, 2011 245,900
ii) Interest debited by bank on 26th December, but not advice
received 27,870
iii) Cheques issued before 31st December, but not yet presented for
payment 66,000
Subsidy received from the government directly credited by the bank but 42,500
not advised to the company
v) Drafts deposited in the bank, but not credited till 31st December 13,500
vi) Bills for collection credited by the bank till 31st December, but
not advice received by the company 83,600
vii) Amount wrongly debited to company account by the bank, for
which no details are available 7,400
Answer:
Bank Reconcilitation statement31st December, 2011
Particulars Rs. Rs.
Add: Interest charged by the bank 27,870

Draft deposited in bank but not yet credited 13,500
Overdraft Wrong debit by the bank under verification 7,400 48,770
as per
294,670
Cash Book
Less: Cheques issued but not yet presented 66,000
245,900
Subsidy received from the government not recorded in cash book 42,500
Bills for collection credited in bank, not yet entered in the cash book 83,600 192,100
Overdraft as per Pass Book 102,570
9. From the fo9. Following particulars, prepare a bank reconciliation statement of Imperial Co. as on 30 th
September 20X1 assuming accounting year ends on 30th September 20X1.
6 (Dec.2012) (Bank Reconciliation Statement)
i) Overdraft balance on 30th September 20X1, as per bank statement is Rs. 13,095.
ii) Cheque for Rs. 1,015 received and recorded in the bank column but not sent to bank for collection
iii) Several cheques were drawn in the last week of September totaling to Rs. 15,075. Of these cheques totaling
to Rs. 9,074 were cashed. Similarly, several cheques totaling Rs. 9,400 were sent for collection. Of these
cheques, cheques of the value of Rs. 1,500 were credited on 5th October and Rs. 2,050 were credited on 7th
October. The remaining being credited before 30th September.
iv) Chamber of Commerce fee of Rs. 250 was paid by the bank but was not recorded in the cash book.
v) Interest of Rs. 1,400 was charged by the bank but was not recorded in cash book.
Answer:

Answer:
a)
Bank Reconciliation statement as at 30 .09.20X1
Particulars Rs.
Overdraft as per Bank Statement 13,095
Add: Cheques issued but not presented (15,075 – 9,074) (+)6,001
Less: Chamber fee not recorded in Cash Book (-) 250
Less: Cheques deposited but not collected Cheques (-)3,550
recorded in cash Book but Not deposited
(-)1,015
Less: Interest charged by bank not recorded
in Cash Book (-)1,400
Overdraft as per Cash Book 12,881
10. The trial balance of ABC Ltd. as on December 31, 2011 did not agree. The difference was put to a
suspense account, during the next trading period the following errors were discovered:
i) The total of the sales-book of one page Rs. 6,531 was carried forward to the next page as Rs. 6,351.
ii) Goods returned by a customer for Rs. 1,200, but entered in purchases return book.
iii) Personal car expenses amounting to Rs. 250 were debited to trade expenses.
iv) Sales returns book was under cast by Rs. 2,750.
v) Rs. 50 discount allowed by a supplier was wrongly posted to debit side of discount account.
vi) An item of purchases of Rs. 151 was entered in purchases book as Rs. 15 and posted to supplier‘s account as
Rs.51.
Required:
Give journal entries with narration to rectify the errors through profit & loss adjustment account in a way so as to show
current year‘s profit or loss correctly. 6 (Dec.2012) (Bank Reconciliation Statement)
Answer:
Journal of ABC
Ltd
Date Particulars L.F. DR. (Rs) Cr. (Rs)
(i) Suspense A/c Dr. 180
To profit & Loss Adjustment A/c 180
(Being total of sales book of one page Rs. 6,531 carried
forward wrongly as Rs. 6,351 now rectified)
(ii) Profit and Loss Adjustment A/c Dr. 2,400
To Customer‘s A/c 2,400
(Being goods returned by a customer, wrongly entered in
purchase Return Book last year now rectified)
(iii) Drawing A/c Dr. 250
To profit and loss Adjustment A/c 250
(Being personal car expenses wrongly debited to
trade expenses last year now rectified)
(iv) Profit and Loss Adjustment A/c Dr. 2,750
To Suspense A/c 2,750
(Being sales return book undercast last year now rectified)
(v) Suspense A/c Dr. 100

To Profit and Loss Adjustment A/c 100
(Being discount received Rs. 50 wrongly debited to
discount account now rectified)
(vi) Profit and Loss Adjustment A/c Dr. 136
To Supplier‘s A/c 100
To Suspense A/c 36
(Being purchase A/c short debited by Rs. 136 and
supplier A/c short credited by Rs. 100 now rectified)
11. From the following information,prepare Bank Reconciliation Statement of ABC

Limited for the year ended 31stAshadh, 2073: 7 (June2017) (Bank Reconciliation Statement)
a. Bank statement of company shows debit balance of Rs. 102,570.

b. Interest amounting Rs. 27,870 debited by the bank on 26 thAshadh, 2073 but no advice of debit
received yet.
c. A cheque from Sudarshan for Rs. 4,000 was deposited in the bank on 28thAshadh but was dishonoured
and advice received on 12thShrawan, 2073.
d. Bills payable amounting Rs. 83,600 paid by bank till 31stAshadh as per the instructions of the
company but no advice received by the company till 8thShrawan, 2073.
e. VAT Rs. 42,500 refunded by the government directly into bank account.
f. Transfer by bank to another account of the company Rs. 2,100 without advice of the company.
Out of the cheques amounting Rs. 24,000 deposited for collection up to 31 stAshadh, 2073, cheques
of Rs. 18,600 were only collected.
Answers:
Particulars Amount Rs
Debit balance as per pass book (1,02,570)
Add, Interest debited by bank but not recorded in cash book 27,870
Chequedishonoured but advice not received 4,000
Amount transfered to other bank 2,100
Bills payable directly paid by bank 83,600
Cheques deposited but not collected (24,000 - 18,600) 5,400
Less, VAT refunded directly to the bank (42500)
Credit balance as per cash book (Overdraft) (22,100)
12. From the following information, prepare Bank Reconciliation

Statement of XYZ Pvt. Ltd. for the year ended Ashadh 31, 2074: 7 (June2018)
(Bank Reconciliation Statement)
a. Bank statement of the company shows overdrawn balance of Rs. 12,000.
b. A cheque of Rs. 1,560 in favor of Mr. Ram has been issued in Ashadh 27, 2074 but only
encashed at bank on Shrawan 5, 2074.
c. A cheque of Rs. 1,500 issued and cleared on Ashadh 24, 2074 to NEA for electricity charges
has been entered as Rs. 1,800 by the company.
d. Interest amount has been credited by the bank of Rs. 2,500 on Ashadh 31, 2074 but no advice
received by the company.
e. The company has issued standing order to pay telephone expenses of Rs. 1,000 to Telecom on
Ashadh 15 every month but bank has not made any payment yet.
f. A party paid amount directly to the bank on Ashadh 25 of Rs. 2,000 but the company has
received advice of credit on Shrawan 3, 2074.

g. Bank has deducted monthly installment of loan amounting Rs. 27,000 from the account on
Ashadh 27, 2074 and advice was received from the bank on Ashadh 28, 2074; however, no
transaction is recorded by the company.
h. A Cheque was sent for collection Rs. 15,000 on Ashadh 27, 2074, which was dishonored and
return back by bank with advice on Ashadh 29, 2074 and new cheque was given by the customer
on Shrawan 1, 2074 which was cleared on Shrawan 2, 2074 by the bank.
i. Bank has charged Rs. 200 as annual fee but advice of charge was received on Shrawan 3, 2074.
j. Dividend of Rs. 1,500 directly deposited into bank Account on Ashadh 14, 2074 and the company
only knows about it after obtaining bank statement on Shrawan 7, 2074.
Answer:
Bank Reconciliation Statement of XYZ Pvt. Ltd.

As at Ashadh end 2074
S.N. Particulars Amount (Rs.) Total Amount
(Rs.)
1 Balance as per Bank Statement (Overdrawn) -12,000
Adjustments
Add: Repayment of loan not recorded by the company 27,000
Add: Bank Charge deducted by bank but not recorded by 200
the company
Sub-total 27,200 27,200
Less: Cheque issued but not presented in bank 1,560
Less: Over charged payment of Electricity expenses 300
Less: Amount directly deposited into bank account but 2,000
not accounted by the company
Less: Payment not made by the bank 1,000
Less: Dividend deposited into bank but not recorded by 1,500
the company
Less: Interest income not recorded by the company 2,500
Sub-total 8,860 -8,860
2 Balance as per Bank Ledger 6,340

Chapter 3 Capital and Revenue Concept and Depreciation
Numerical Questions and Answer.
1. Minimax Ltd. purchased a machine for NRs. 400,000 on 01-04-2064. Depreciation was
to be charged at 15% per annum on Straight Line Method.
On 01-01-2065, following expenses were incurred:
NRs. 100,000 for a modification to improve its production capacity
NRs. 20,000 for replacement of a damaged part.
Prepare Machinery Account for the year ending 31-03-2065. 5 (2009 June)
Answer
Minimax Ltd.
Debit Machinery Account for the year ending 31-03-2065 Credit
Date Particulars Amount Date Particulars Amount
1/4/2064 To Bank A/c 400,000 31/3/2065 By Depreciation 63,750
(Purchase) [(400,000X15%)+
(100,000X15%X3/12)]
1/1/2065 To Bank A/c 100,000 31/3/2065 By Balance C/F 436,250
(Modification)
Total 500,000 Total 500,000
Notes: NRs. 20,000 incurred for replacement of a damaged part is Revenue Expenditure.
2. On 01.07.2005 a company purchased a machine for Rs.3,90,000 and spent Rs.10,000 on its installation. It
decided to provide depreciation @ 15% per annum, using written down value method. On 30.11.2008 the
machine was dismantled at a cost of Rs.5,000 and then sold for Rs.1,00,000. On 01.12.2008 the company
acquired and put into operation a new machine at a total cost of Rs.7,60,000. Depreciation was provided on
the new machine on the same basis as had been used in the case of the earlier machine. The company closes
its books of account every year on 31st March. Prepare Machinery Account and Depreciation Account for
four accounting years ended on 31.03.2009. 10 (Dec.2009)
Answer:
Machinery Account
Date Particulars Rs. Date Particulars Rs.
01.07.'05 To Bank – Purchase 3,90,000 31.03.'06 By Depreciation 45,000
- 9 months
To Bank - Installation 10,000 31.03.'06 By Balance c/d 3,55,000
4,00,000 4,00,000
01.04.'06 To Balance b/d 3,55,000 31.03.'07 By Depreciation 53,250
31.03.'07 By Balance c/d 3,01,750
3,55,000 3,55,000
01.04.'07 To Balance b/d 3,01,750 31.03.'08 By Depreciation 45,262.50
31.03.'08 By Balance c/d 2,56,487.50
3,01,750 3,01,750
01.04.'08 To Balance b/d 2,56,487.50 30.11.'08 By Depreciation 25,648.75
– 8 months

30.11.'08 To Bank 5,000 30.11.'08 By Bank - Sale 1,00,000

– Dismantling charge
01.12.'08 To Bank – Purchase 7,60,000 30.11.'08 By P/L A/c 1,35,838.75
– Loss on disposal
31.03.'09 By Depreciation 38,000
– 4 months
31.03.'09 By Balance c/d 7,22,000
10,21,487.50 10,21,487.50
01.04.'09 To Balance b/d 7,22,000
Depreciation Account
31.03.'06 To Machinery A/c 45,000 31.03.'06 By P/L A/c 45,000

31.03.'08 To Machinery A/c 45,262.50 31.03.'08 By P/L A/c 45,262.50

30.11.'08 To Machinery A/c 25,648.75 30.11.'08 By P/L A/c 25,648.75

63,648.75 63,648.75
Working note:
Calculation of loss on disposal of old machine; Rs. Rs.
Written down value as on 01.04.'08 2,56,487.50
Depreciation for 8 months 25,648.75

Written down value as on 30.11.'08 2,30,838.75
Add: Dismantling charges 5,000 2,35,838.75

Sales Proceeds of machine 1,00,000
Loss on disposal of machine 1,35,838.75
3. A firm purchased, on 1st January, 2005, certain Machinery for NRs. 1,940,000 and spent NRs. 60,000
on its installation. On 1st July in the same year additional Machinery costing NRs. 1,000,000 was
acquired. On 1st July, 2007 the machinery purchased on 1st January, 2005 having become obsolete was
auctioned for NRs. 800,000 and on the same date fresh machine was purchased at a cost of NRs.
1,500,000.
Depreciation was provided for annually on 31st December at the rate of 10% per annum on the original
cost of the asset. In 2008 however, the firm has changed this method of providing depreciation and
adopted the method of writing off 20% on the written down value.
Give the Machinery account as it would stand at the end of each year from 2005 to 2009. 10 (June 2010)
Answer:
Working Note:
Loss on sale of machinery purchased on 1st January 2005
Particulars (NRs)

Cost 2,000,000
Depreciation for 2005 200,000
1,800,000
Depreciation for 2006 200,000
1,600,000
Depreciation for 2007 (Half year) 100,000
Written down value 1,500,000
800,000
Sale Proceeds
Loss on Sale 700,000
Dr. Machinery a/c Cr. (Figures in NRs.)

Date Particulars NRs. Date Particulars NRs.
2005 2005
1-Jan To Bank Account 1,940,000 31-Dec By Depreciation A/C
(Cost of New Machinery Purchased) (Rs. 200000+50000) 250,000
To Bank Account 60,000 31-Dec By Balance C/D
(Erection Charges) (1800000+950000) 2,750,0
00
1-Jul To Bank account 1,000,000
(Cost of New Machinery Purchased) -
3,000,000 3,000,0
00
2006
1-Jan To Balance B/D 2,750,000 31-Dec By Depreciation A/C 300,000
(Rs. 200000+100000)
- 31-Dec By Balance C/D 2,450,0
00
2,750,000 2,750,0
00
2007 2007
1-Jan To Balance B/D 2,450,000 1-Jul By Bank Account 800,000
1-Jul To Bank Account 1,500,000 By PL Account 700,000
(Cost of New Machinery Purchased) (Loss on Sale - W.N.)
By Depreciation A/C 275,000
(Rs. 100000+Rs. 100000 + Rs.
75000)
- By Balance C/D 2,175,0
00
3,950,000 3,950,0
00
2008 To Balance B/D 2,175,000 2008 By P/L adjustment
1-Jan 31-Dec (Rs. 249,000

174,000+ 75,000)
2008 By Depreciation A/C

31-Dec
(Rs.115,200+270,000) 385,200
31-Dec By Balance C/D 1,540,8
00
2,175,000 2,175,0
00
2009 2009
1-Jan To Balance B/D 1,540,800 31-Dec By Depreciation A/C
(Rs. 216,000+ 92,160) 308,160
By Balance C/D 1,232,6
40
1,540,800 1,540,8
00
Calculation of Short depreciation
Date Particulars Under SLM Under WDV

1-7-05 Machine II (at cost) 1,000,000 1,000,000
31-12-05 Depreciation (50,000) 100,000
1-1-06 Book Value 950,000 900,000

31-12-06 Depreciation (100,000) (180,000)
1-1-07 Book Value 850,000 720,000
31-12-07 Depreciation (100,000) (144,000)
1-1-08 Book Value 750,000 576,000
Difference = 174,000
Short depreciation machine III
Date Particulars NRs. NRs.

1-7-07 Cost 1,500,000 1,500,000
31-12-07 Depreciation (75,000) 150,000
1-1-08 Book Value 1,425,000 1,350,000
Difference = 75,000
Total Short == 249,000
4. Well Done Limited purchased on 1st January, 2007 a plant for Rs. 1,000,000. On 1st July in the same year
additional plant costing Rs. 500,000 was purchased. On 1st July, 2008 the plant purchased on 1st January,
2007 having become obsolete, was sold for Rs. 400,000. On 1st July, 2009 a fresh plant was purchased for Rs.
1,200,000 and the plant purchased on 1st July, 2007 was sold for Rs. 420,000 on the same date.
Depreciation is to be provided at 10 % per annum on the WDV every year.
You are required to prepare Plant Account and Plant Disposal Account for three years ending 31 st
December, 2009. 10 (Dec.2010)

Answer:
Plant Account

1.1.'07 To Bank 1,000,000 31.12.'07 By Depreciation 125,000
1.7.'07 To Bank 500,000 By Balance c/d 1,375,000
1,500,000 1,500,000
1.1.'08 To Balance b/d 1,375,000 1.7.'08 By Plant disposal A/c 855,000
31.12.'08 By Depreciation 92,500
By Balance c/d 427,500
1,375,000 1,375,000
1.1.'09 To Balance b/d 427,500 1.7.'09 By Plant disposal A/c 406,125
1.7.'09 To Bank 1,200,000 31.12.'09 By Depreciation 81,375
By Balance c/d 1,140,000
1,627,500 1,627,500
1.1.'10 To Balance b/d 1,140,000
Plant Disposal Account

1.7.'08 To Plant A/c 855,000 1.7.'08 By Bank 400,000
31.12.'08 By P/L A/c – Loss 455,000
855,000 855,000
1.7.'09 To Plant A/c 406,125 1.7.'09 By Bank 420,000
31.12.'09 To P/L A/c – Profit 13,875
420,000 420,000
Working Notes:
1. Depreciation for 1st year: Rs.

For 1st Plant (1,000,000 × 10%) 100,000
For 2nd Plant (500,000 × 10% × 6/12) 25,000
Total 125,000
2. Depreciation for 2nd year

For 1st Plant (900,000 × 10% × 6/12) 45,000
For 2nd Plant (475,000 × 10%) 47,500
Total 92,500
3. Depreciation for 3rd year

For 2nd Plant (427,500 × 10% × 6/12) 21,375
For 3rd Plant (1,200,000 × 10% × 6/12) 60,000
Total 81,375

5. A provision for Depreciation and Repairs and Renewals was made every year at 15% of the
original cost of a machine purchased at Rs. 50,000. The provision for Depreciation and Repairs
and Renewals Account that was opened for the purpose was, therefore, debited with the actual
costs of repairs and renewals which were as stated below:
1st year –Rs. 1,500,
2nd year- Rs. 1,600,
3rd year – Rs. 2,100,
4th Year – Rs.3,000 and
5th year –Rs.4,200.
At the end of 5th year, the machine was sold out at Rs.20,000 after utilizing a few of its
parts value at Rs.4,000 in installing in its place a new machine purchased at Rs 75,000.
The resulting loss in the disposal of the old machine was debited to revenue.
Write up “Provision for Depreciation and Repairs and Renewals Account” for the
5 years and the Old and New Machine Account at the end. 10 (June 2011)
Answer:
Provision for Depreciation and Repairs and Renewals

st
1 year To Repairs A/c 1,500 1st year By Profit & Loss A/c 7,500
To Balance c/f 6,000
7,500 7,500
2 nd To Repairs A/c 1,600 2nd year By Balance b/f 6,000
Year
To balance c/f 11,900 By Profit & Loss A/c 7,500
13,500 13,500
rd
3 year To Repairs A/c 2,100 3rd year By Balance b/f 11,900
To Balance c/f 17,300 By Profit & Loss A/c 7,500
19,400 19,400
th
4 year To Repairs A/c 3,000 4th year By Balance b/f 17,300
To Balance c/f 21,800 By profit & Loss A/c 7,500
24,800 24,800
5th year To Repairs A/c 4,200 5th year By Balance b/f 21,800
To Old Machinery A/c 25,100 By Profit & Loss A/c 7,500
29,300 29,300
Old Machinery A/c

Date Particulars Rs Date Particulars Rs.
5th year To Balance b/d 50,000 5th year By New Machinery A/c 4,000
By Bank A/c 20,000
By provision for
Depreciation and Repairs
and Renewals A/c 25,100
By Profit & Loss A/c 900
50,000 50,000
New Machinery A/c

5th year To Old Machinery A/c 4,000 5th year By Balance c/d 79,000
To Bank A/c 75,000

79,000 79,000
6. On 1st January, 2008 Mr. Hari Om purchased 6 machines costing Rs. 1,50,000 each. His

1.1.'10 To Machinery A/c 150,000 1.1.'10 By Provision for dep. a/c 30,000
31.12.'10 To Profit & Loss a/c 5,000 1.1.'10 By Bank a/c 125,000
155,000 155,000
st
accounting year ends on 31 December. Depreciation at the rate of 10% on initial cost has
been charged to profit and loss account and credited to a separate depreciation provision
account.
On 1st January, 2009 one machine was sold for Rs. 1,25,000 and on 1st July of the same year,
an improved model costing Rs. 2,80,000 was purchased. Again on 1st January, 2010 another
machine (purchased on 2008) was sold for Rs. 1,25,000. The depreciation rate for the new
machine was decided to be same as old machines.
You are required to prepare for 3 years: 10 ( Dec.2010)
a. The Machinery Account;
b.The Machinery Disposal Account; and
c. Provision for Depreciation Account.
Answer: Machinery Account
Date Particulars Rs. Date Particulars Rs

.
1.1.'08 To Bank 900,000 31.12.'08 By Balance c/d 900,000
900,000 900,000
1.1.'09 To Balance b/d 900,000 1.1.'09 By Machinery disposal a/c 150,000
1.7.'09 To Bank 280,000 31.12.'09 By Balance c/d 1,030,000
1,180,000 1,180,000
1.1.'10 To Balance b/d 1,030,000 1.1.'10 By Machinery disposal a/c 150,000
31.12.'10 By Balance c/d 880,000
1,030,000 1,030,000
1.1.'11 To Balance b/d 880,000
Machinery Disposal Account

1.1.'09 To Machinery A/c 150,000 1.1.'09 By Provision for dep. a/c 15,000
1.1.'09 By Bank a/c 125,000
31.12 By Profit & Loss a/c - loss 10,000
'09
150,000 150,000
Note: Machinery (asset) disposal account is not a continuous account like machinery account. It must be prepared
separately every time an asset is sold.

Provision for Depreciation Account

31.12.'08 To Balance c/d 90,000 31.12.'08 By Depreciation a/c 90,000
1.1.'09 To Machinery disp. a/c 15,000 1.1.'09 By Balance b/d 90,000
179,000 179,000
1.1.'10 To Machinery disp. a/c 30,000 1.1.'10 By Balance b/d 164,000
252,000 252,000
1.1.'11 By Balance b/d 222,000
Working notes:
(i) Loss on disposal:

Rs.
Cost of the machine 150,000
Less: Depreciation @ 10% for 1 year 15,000
Book value 135,000
Sales value 125,000
Loss on sales 10,000
(ii) Profit on disposal:
Rs.
Cost of the machine 150,000

Less: Depreciation @ 10% for 2 year 30,000
Book value 120,000
Sales value 125,000
Profit on sales 5,000
(iii) Depreciation for 2009:
Rs.
Old machines (Rs. 150,000 × 5 × 10%) 75,000

New machine (Rs. 280,000 × 10% × 1/2 ) 14,000
Total depreciation 89,000
(iv) Depreciation for 2010:
Rs.
Old machines (Rs. 150,000 × 4 × 10%) 60,000

New machine (Rs. 280,000 × 10%) 28,000
Total depreciation 88,000
7. The following particulars are available from the books of a public company having a
large fleet of vehicles:
Balance in the Provision for Repairs and Renewals
Account as on 32.3.2067 Rs. 115,000

Actualrepairs charged incurred during the year ended
32.3.2067 Rs. 75,000
32.2.2068 Rs. 32,000
The company makes an annual provision of Rs. 40,000 on repairs and renewals.
Draw up the Provision for Repairs and Renewal Accounts for the years 2066/2067
and 2067/2068. 5 (June2012)
Answer:
Provision for Repairs and Renewal A/c
Dr. Cr.
32.3.2067 To Repairs A/c 75,000 1.4.2066 By Balance b/d
(balancing figure) 1,50,000
32.3.2067 To Balance c/d 1,15,000 32.3.2067 By Profit and Loss A/c 40,000
1,90,000 1,90,000
32.3.2068 To Repairs A/c 32,000 1.4.2067 By Balance b/d 1,15,000
32.3.2068 To Balance c/d 1,23,000 32.3.2068 By Profit and Loss A/c 40,000
1,55,000 1,55,000
8. Arun and Anand were in need of funds. On 1st January, Arun drew a bill for Rs. 2,00,000 for 3 months on Anand.
On 4th January Arun got the bill discounted at 10% p.a. and remitted half of the proceeds to Anand. At maturity,
Anand could not meet the bill, instead Arun accepted Anand‘s bill of Rs. 1,20,000 at 12% p.a. Out of this, Rs.
19,600 was paid to Arun after deducting Rs. 400 discounting charges. Due to Financial crisis, Arun became
insolvent and the bill drawn on him was dishonoured and his estate paid 50%. Days of grace for discount purposes
may be ignored.
Give journal entries in the books of Arun. Also prepare Anand‘s Account in Arun‘s books and Arun‘s Account in
the books of Anand. 5 (Dec.2012)
Answer: Arun’s Journal
Date Particulars L.F. Dr. (Rs) Cr. (Rs)

Jan. 1 Bills Receivable A/c Dr. 2,00,000
To Anand 2,00,000
(Being the bill for Rs 2,00,000 drawn on Anand)
Jan. 4 Bank A/c Dr. 1,95,000
Discount A/c Dr. 5,000
To Bills Receivable A/c 2,00,000
(Being the bill discounted @ 10% p.a.)
Jan. 4 Anand Dr. 1,00,000
To Bank A/c 97,500
To Discount A/c 2,500
(Being half the proceeds sent to Anand
)
April 4 Anand Dr. 1,20,000
To Bills payable A/c 1,20,000
(Being for the bill of Anand accepted )
April 4 Bank A/c Dr. 19,600
Discount A/c Dr. 400
To Anand 20,000
(Being proceeds received from Anand)
July 7 Bills payable Dr. 1,20,000

A/c To 1,20,000
Anand
(Being the bill dishonored)
Anand Dr. 1,20,000
To Bank A/c 60,000
To Deficiency A/c 60,000
(Being 50% payments made to Anand and unpaid
balance transferred to deficiency A/c
Dr. Anand’s Account in the books of Arun Cr.
Particulars Rs Particulars Rs
To Bank A/c 97,500 By Bills Receivable A/c 2,00,000
To Discount A/c 2,500 By Bank A/c 19,600
To Bills payable 1,20,000 By Discount A/c 400
To Bank A/c 60,000 By Bills Payable A/c 1,20,000
To Deficiency 60,000
3,40,000 3,40,000
Dr Arun’s Account in the Books of Anand Cr.
To Bills payable A/c 200,000 By Bank A/c 97,500
To Bank A/c 19,600 By Discount A/c 2,500
To Discount A/c 400 By Bills Receivable A/c 120,000
To Bills Receivable A/c 120,000 By Bank A/c 60,000
By Bad Debts A/c 60,000
340,000 340,000
9.
9. The plant and machinery account of a company had a debit balance of Rs. 147,390 on 1 st January, 20X4. The
company was incorporated in 20X1 and has been following the practice of charging full year‘s depreciation
every year in diminishing balance system @ 15% p.a. In 20X4, it was, however decided to change the method
from diminishing balance system to straight line with retrospective effect from 20X1 and to give effect of the
change while preparing final accounts for the year ended 31 st December 20X4, the rate of depreciation
remaining same as before. In 20X4, new machine was purchased at a cost of Rs. 50,000. All other machineries
were acquired in 20X1. Show the plant and machinery account from 20X1 to 20X4. 5 (Dec.2012)
Answer:
Plant & Machinery Account
Date Particulars Rs Date Particulars Rs

01.01.X1 To bank A/c 240,000 31.12.X1 By Depreciation A/c (@15%) 36,000
240,000 240,000
01.01.X2 To Balance b/d 204,000 31.12.X2 By Depreciation A/c (@ 15%) 30,600

204,000 204,000
01.01.X3 To balance b/d 173,400 31.12.X4 By Depreciation A/c (@15%) 26,010

173,400 173,400

01.01.X4 To Balance b/d 147,390 31.12.X4 By Depreciation A/c 43,500

(W.N 1)
To Bank A/c 50,000 By PL A/c (Short Prov. due to change in 15,390
(Purchase) method)
197,390 197,390
Working Notes:
Working Note 1, Depreciation

Cost as on 1.1.20X1 = Rs 1, 47,390 * 100/85* 100/85* = Rs
100/85 240,000
Short provision of depreciation
Depreciation to be charged on SLM Method 108,000
(15% on Rs 2, 40,000*3)
Depreciation already charged on diminishing Balance 92,610
system
(Rs 36,000 + Rs 30,000 + Rs 26,010)
Further depreciation to be charged due to change in method 15,390
10. On 1st January, 1994, a firm purchased certain machinery for Rs. 58,200 and spent Rs. 1,800 on its erection. On
July 1, 1994, another machinery for Rs. 20,000 was acquired. On 1stJuly, 1996, the machinery purchased on 1st
January, 1994 having become obsolete was auctioned for Rs. 28,600 and on the same date fresh machinery was
purchased at a cost of Rs. 40,000.
Depreciation was provided annually on 31st December at the rate of 10 per cent on written down value. In
1997,however, the firm changed this method of providing depreciation and adopted the method of providing 5 per
cent annum depreciation on the original cost of the machinery with retrospective effect.
Prepare Machinery Account for relevant years. 5 (June2013)
Answer:
Machinery Account
Dr. Cr.
1994 Rs. 1994 Rs.
Jan. 1st To Bank 58,200 Dec.31 By Depreciation A/c 7,000
Jan 1 To Bank-erection chargers 1,800 By balance c/d 73,000

July 1 To Bank 20,000
80,000 80,000
1995 1995
Jan. 1 To Balance b/d 73,000 Dec.31 By Depreciation A/c 7,300


73,000 73,000
1996 1996
Jan.1 To Balance b/d 65,700 July 1 By Depreciation 2,430
July 1 To Bank 40,000 By Bank 28,600
Dec.31 By Depreciation A/c 3,710

By Balance C/d 53,390
1,05,700 1,05,700
By Profit and Loss A/c 17,570
1997 1997
Jan. 1 To Balance b/d 53,390 Dec.31 By Depreciation A/c 3,000 To
Profit and Loss A/c By balance C/d 53,500
(Excess Dep .Written back) 3,110
56,500 56,500
Working Notes:
1) Book Value of Machines:
Machine Machine Machine
I II III
Cost 60,000 20,000 40,000
Depreciation for 1994 6,000 1,000
Written down value 54,000 19,000
Depreciation for 1995 5,400 1,900
Written down value 48,600 17,100
Depreciation for 1996 2,430 1,710 2,000
Written down value 46,170 15,390 38,000
Sales Proceeds 28,600
Loss on sales 17,570
2) Written down value on the basis of 5% depreciation on straight line as at 31st Dec. 1996
Machine Machine
II III
Cost 20,000 40,000
Depreciation for 2-1/2 years 2,500
Depreciation for ½ year 1,000
17,500 39,000
Total Rs. 56,500
3) The book value appearing in the books is Rs. 53,390 Rs. 3,110 has to be written back to make this
figure Rs. 56,500
Note: The rate of 10% is assumed to be per annum.

11. On 31st December, 2011, plant and machinery account and the corresponding depreciation
provision account of Khetan International Concern, broken down by year of purchase was as
follows:
Year of Plant and Machinery at Accumulated Depreciation

Purchase Cost Provision
1995 20,000 20,000
2001 30,000 30,000
2002 1,00,000 95,000
2003 70,000 59,500
2010 50,000 7,500
2011 30,000 1,500
3,00,000 2,13,500
Depreciation is at the rate of 10% per annum on cost. It is the firm’s policy to assume that
all purchases, sales or disposal of plant occurred on 30th June in the
relevant year for the purpose of calculating depreciation, irrespective of the precise date
on which these events occurred.
During 2012 the following transactions took place:
a. Purchase of plant and machinery amounted to Rs. 1,50,000.
b. Plant that had been bought in 2001 for Rs. 17,000 was scrapped.
c. Plant that had been bought in 2002 for Rs. 9,000 was sold for 500.
d. Plant that had been bought in 2003 for Rs. 24,000 was sold for Rs. 1,500. You
are required to:
Calculate the provision for depreciation of plant and machinery for the year ended 31 st
December, 2012. In calculating this provision you should bear in mind that it is the firm’s
policy to show any profit or loss on the sale or disposal of plant as a
completely separate item in the Profit and Loss Account. 3
Prepare the following ledger accounts of fiscal year 2012:
Plant and machinery Account (at cost) ; 2
Depreciation provision Account; 2
Sales or disposal of plant and machinery Account. 3 (June 2014)
Answer:
Calculation of provision for depreciation of plant and machinery of Khetan International Concern for the
year ended 31st December, 2012.
Answer:
Plant
purchased in: Rs.
Rs.
1995 Nil
2001 Nil
2002 5,000
1/2 year at 10% on Rs. 24,000 1,200
2003
1 year at 10% on Rs. 46,000 4,600 5,800
2010 10% on Rs. 50,000 5,000
2011 10% on Rs. 30,000 3,000
2012 1/2 year at 10% on Rs. 1,50,000 7,500
26,300

i.
Khetan International Concern
Plant and Machinery Account (For 2012) at Cost
Rs. Rs.
To Balance b/d 3,00,000 By Disposals Account
To cash/ bank 1,50,000 Scrapped 17,000
Sold 33,000
By balance c/d 4,00,000
4,50,000 4,50,000
ii.

Depreciation Provision Account (For 2012)
Rs. Rs.
To Disposal Account: By Balance c/d 2,13,500
Scrapped- 2001 17,000 By Profit and Loss A/C 26,300

Sold- 2002 assets 9,000
Sold- 2003 assets 21,600 47,600
To Balance c/d 1,92,200

2,39,800 2,39,800
iii.

Sale or Disposal of Plant and Machinery Account (For 2012)
Rs. Rs.
To Plant and Machinery By Provision for Depreciation 47,600
Scrapped 17,000 By Cash- sales Proceeds 2,000
Sold 33,000 By loss on sales 400
50,000 50,000
Working Note:
Depreciation provision on Scrapped/sold assets
Value Depreciation Provision
Scrapped Assets 2001 100% 17000 17000

Sold Assets 2002 100% 9000 9000
Sold Assets 2003
Up to precious year 85% 24000 20400
Provision of year 2012 1200
21600
12. You are the accountant of Sichuan Textile Ltd. On 1stAugust 2010 the company purchased a machine for Rs.
3,900,000 and spent Rs. 100,000 on its installation. The management decided to provide depreciation @15%
p.a. using written down value method. On 30th November 2013, the machine was dismantled at a cost of Rs.
50,000 and then sold for Rs.1,000,000. On 1st December 2013 the company acquired and put into operation
a new machine at a total cost of Rs. 7,600,000. Depreciation was provided on the new machine on the same
basis as had been used in case of the earlier machine.
You close the books of account every year on 31st March.
Prepare Machinery Account for four accounting years ended 31 st March 2014. 5 (Dec.2014)
Answer:
Machinery A/C
2010 To Bank 3,900,000 2011 March By Depreciation 400,000

July 1 To Bank (Exp) 100,000 31 By Balance c/d 3600,000
4,000,000 4,000,000
2011 To Balance b/d 3,600,000 2012 By Depreciation 540,000
April 1 March 31 By Balance c/d 3,060,000
3,600,000 3,600,000
2012 To Balance b/d 3,060,000 2013 March By Depreciation 459,000
April 1 31 By Balance c/d 2,601,000
3,060,000 3,060,000
2013 To Balance b/d 2,601,000 2013 Nov 30 By Depreciation 260,100
April 1 To Bank 50,000 By Bank A/C 1,000,000
(Dismantling)
30th To Bank (New By P/L A/C (Loss on
Nov Machine) Disposal)
Dec 1 7,600,000 2014March3 By Depreciation 1,390,900
1 By Balance C/d 380,000
7220,000
10,251,000 10,251,000
13. X Ltd. purchased a machine for Rs. 60,000 on 1 January 2011. Depreciation is provided @
10% p.a. using diminishing balance method. Prepare the machinery account for the year 2013
if this machine was destroyed by fire on 1 July 2013 and its setup was sold for Rs. 600, and
the insurance company paid Rs. 28,000
only. 5(June2015)
Machine Account
Dr. Cr.
1/1/2013 To Balance c/d 48,600 1/7/2013 By Depreciation A/c 2,430
By Bank A/c (Scrap) 600
By Bank A/c (Claim) 28,000
By P & L A/c (Loss) 17,570
48,600 48,600
Working Note
Calculation of book value as on 1/7/2013 Amount (Rs`)
(a) Original cost as on 1/1/2011 60,000
(b) Less: Depreciation for 2011 6,000
(c) Book value as on 1/1/2012 54,000
(d) Less: Depreciation for 2012 5,400

(e) Book value as on 1/1/2013 48,600
14. The Machinery Account of a Factory showed a balance of Rs. 1,90,000 on 1st January,
2015. Its accounts were made up on 31st December each year and depreciation is written off
at 10% p.a. under the Diminishing Balance Method.
On 1st June 2015, a new machinery was acquired at a cost of Rs. 28,000 and installation
charges incurred in erecting the machine works out to Rs. 892 on the same date. On 1st June,
2015 a machine which had cost Rs. 4,374 on 1st January 2013 was sold for Rs. 750. Another
machine which had cost Rs. 437 on 1st January, 2014 was scrapped on the same date and it
realized nothing.
Write a plant and machinery account for the year 2015, allowing the same rate of
depreciation as in the past calculating depreciation to the nearest multiple of a
Rupee. 5 (June2016)
Answers:
Plant and Machinery A/C
Dr Cr.
Particulars Amount Particulars Amount
Rs. Rs.
2015 2015
Jan 01: To Balance B/d 1,90,000 June 1: By Bank 750

By Depreciation on sold machine (WN
June 1: To Bank ( 28000+892) 28,892 1) 148
By loss of sale of machine (WN 1) 2,645
By Depreciation on scrapped machine

(WN 2) 16
By loss on scrapped machine (WN 2) 377
December 31: By Depreciation- WN 3 20,292
December 31: By Bal c/d (bal fig) 1,94,664
2,18,892 2,18,892
Working Notes :
WN1 : Calculation of loss on sale of Machine on June 01, 2015
Cost on 1-1-2013 4,374
Less : Depreciation @ 10% on Rs. 4,374 (437)

W.D.V. on 31-12-2013 3,937

W.D.V. on 31-12-2014 3,543
Less : Depreciation @ 10% on Rs. 3,543 for 5 months (148)

3,395
Less : Sale proceeds on 1-6-2015 (750)

Loss 2,645
WN 2: Calculation of loss on scrapped Machine on June 01, 2015
Cost on 1-1-2014 437

W.D.V. on 31-12-2014 393
Less : Depreciation @ 10% on Rs. 393 for 5 months (16)

377
Less : Sale proceeds on 1-6-2015 -
Loss 377
WN 3: Computation of Depreciation
WDV of machines on 1.1. 2015 1,90,000

Less: WDV on 1.1. 2015 of
Machine sold ( WN1) (3,543)
Machine scrapped (WN 2) (393)

WDV on 1.1. 2015 of other machineries 1,86,064
Depreciation on 186,064 for 12 months @10% 18,606
Depreciation for 7 months on 28892 1,685
20,292
.
15. A transport company bought four trucks at Rs. 4,000,000 each on 1st January, 2015. The company expected
to fetch scrap value of Rs, 500,000 for each vehicle at the end of 10 th year. The company had followed
SLM method of calculating depreciation until 31st December, 2016 and has decided to change the method
from 1st January, 2017 onwards to WDV @ 20%. One of the trucks was sold on 31 st December, 2016 at
Rs. 3,000,000. Prepare Truck Account and Depreciation Account for the year ending 31st December,
2015, 2016, 2017 without giving retrospective effect. 7
(Dec.2017)
Answer:
Truck Account
Date Particula Amount Date Particulars Amount

rs
1/1/2015 To Bank 16,000,000.00 31/12/2015 By Depreciation 1,400,000.00
By B/L C/d 14,600,000.00
16,000,000.00 16,000,000.00
1/1/2016 TO B/c b/d 14,600,000.00 31/12/2016 By Depreciation 1,400,000.00

31/12/2016 By Bank (Sales of One 3,000,000.00
Truck)
By Loss on Sale of Truck 300,000.00
By B/L C/d 9,900,000.00
14,600,000.00 14,600,000.00
1/1/2017 TO B/c b/d 9,900,000.00 31/12/2017 By Depreciation (20% 1,980,000.00

WDV)
By B/L C/d 7,920,000.00
9,900,000.00 9,900,000.00
Depreciation a/c
31/12/2015 To Truck 1,400,000.0 31/12/2015 By P/L Account 1,400,000.00
A/C 0

A/C 0

A/C 0
Working Note:
Particulars No. Pric Amount
e
4 4,000,000.00 16,000,000.00
Scrape Value 4 500,000.00 2,000,000.00
3,500,000.00 14,000,000.00
Dep Per Year (SLM) 350,000.00 1,400,000.00
Gain or Loss on sale of One Truck
Cost 4,000,000.00

Depreciation (Year 1) 350,000.00

Depreciation (Year 2) 350,000.00
BV as on 31st Dec 2016 3,300,000.00
Sale Price 3,000,000.00
Loss on Sale of Truck 300,000.00
b)
16. ABC Pvt. Ltd. has a policy of providing depreciation on straight line method and
assets are considered to be in put to use from the beginning of following month
irrespective of capitalized date of asset.
Company’s assets register shows following property, plant and equipment as on
Ashadh end 2075;
Date of Asset Cost of Useful Life Scrap Value

Purchase Assets (Rs.) (Rs.)
2071/04/01 Plant & Mahinery A 157,000 10 7,000
2072/07/30 Plant & Mahinery B 35,000 4 5,000
2073/05/15 Plant & Mahinery C 140,000 8 20,000
2074/09/01 Plant & Mahinery D 200,000 10 10,000
On Kartik end 2074, a machine which was purchased in 2071 was disposed off for Rs. 110,000
and on the Baisakh end 2075, a machine installed in 2072 was destroyed in an accident and Rs.
15,000 was received from the insurers in settlement of the claim.
At the Ashadh end 2075, the company had revalued its assets and there was 20% upward change
in revalued amount on the assets having more than 7 years of remaining useful life and 10%
downward change in revalued amount on the assets having 7 years or less remaining useful life at
the time of revaluation.
Required:
Prepare Plant & Machinery Account for the financial year 2074/75. 10 (Dec.2018)
Answer:
ABC Pvt. Ltd.

Plant and Machinery Account
Dr.
Cr.
2074/04/01 To, Balance b/d (Note 263,250 2074/07/30 By, Bank A/c (Sale) 110,000
1)
2074/07/30 To, Profit/Loss A/c 1,750 2075/01/30 By, Bank A/c (Claim) 15,000
(Note 2)
2074/08/01 To, Bank A/c 200,000 2075/01/30 By, Profit/Loss A/c 1,250
(Note 2)
2075/03/31 To, Revaluation 38,100 2075/03/31 By, Depreciation A/c 35,750
Reserve A/c (Note 3)
2075/03/31 To, Profit/Loss A/c 11,250
(Note 3)
2075/03/31 By, Balance c/d 329,850
503,100 503,100

2075/04/01 To, Balance b/d 329,850
Working Notes:
1. Calculation of book value of Plant & Machines as on 2074/04/01
Date placed in Asset Cost of assets Depreciation Book value as

use already provided on 2074/04/01
2071/05/01 Plant & Mahinery A 157,000 43,750.00 113,250.00
2072/08/01 Plant & Mahinery B 35,000 12,500.00 22,500.00
2073/06/01 Plant & Mahinery C 140,000 12,500.00 127,500.00
Total 327,000 68,750.00 263,250.00
2. Calculaion of profit/loss on disposal of plant & machinery
Particulars Plant & Mahinery A Plant &

Mahinery B
3. Calcul
Cost 157,000 35,000
Less: Depreciation up to date of disposal 48,750 18,750
i) calcuation
of Book value 107,000 16,250 depreciation
for Sales Proceed/Claim 110,000 15,000 the year 2075
Profit/(Loss) 1,750 (1,250)
Asset Date placed in use Cost Depreciation
Plant & Mahinery A 2071/05/01 157,000 5,000
Plant & Mahinery B 2072/08/01 35,000 6,250
Plant & Mahinery C 2073/06/01 140,000 15,000
Plant & Mahinery D 2074/10/01 200,000 9,500
Total 35,750
• Calculation of profit on revaluation
Particulars P/M – A P/M – B P/M - C P/M - D

Useful life 10 4 8 10
Date placed in use 01/05/2071 01/08/2072 01/06/2073 01/10/2074
Remaining useful life as on Ashad end
- - 6.167 9.5
2075 (Year)
Remaining Book value as on Ashad end
- - 112,500 190,500
2075
Revaluation Change -10% 20%
Profit (loss) on revaluation (11,250) 38,100
17. In the books of accounts of Lalitpur Company, written down value of plant and machinery as on 2075
Ashadh end is Rs. 705,000. Over the years the company has purchased following assets:
Date of Purchase Plant & Machinery Amount

2071/04/01 Plant A ?
2072/12/21 Plant B 150,000

2075/10/01 Plant C 200,000
The company has been following straight line basis with the life of assets 10 years for plant and
machinery and charging full year’s depreciation on additions. On
2075/04/01, the company has decided to change the method and rate of depreciation to 15% written
down value basis with retrospective effect from 2071/04/01, the adjustment being made in the
accounts for the year ending 2076 Ashadh end. Calculate the difference in depreciation to be adjusted
in the plant and machinery being made in accounts for the year ending 2076 Ashadh end and prepare
plant and machinery account for fiscal year 2075/76. (Consider nearest rupees in the calculation) (10
marks) (Dec.2019)
Answer:
A. Computation of Written down value of Plant B as on 2075 Ashad end
Cost of Plant B 150,000

Less: Depreciation for 3 years (2072-2075)
(150,000*10%*3 years) 45,000
Written down value of Plant B as on Ashad end 2075 105,000
B. Computation of Cost of Plant A
Written down value of Plant A & B as on 2075 Ashad end 705,000
Less: Written down value of Plant B as on 2075 Ashad end 105,000
Written down value of Plant A as on 2075 Ashad end 600,000
Add: Depreciation for 4 year (2071-75) 400,000

(600,000*100/60*10*4 years)
Cost of Plant A 1,000,000
C. Depreciation on Written Down Value basis
Fiscal Particulars Plant A Plant B

Year
2071/72 Cost 1,000,000
Less: Depreciation (15%) 150,000
WDV 850,000
2072/73 Cost 150,000
Less: Depreciation (15%) 127,500 22,500
WDV 722,500 127,500
2073/74 Less: Depreciation (15%) 108,375 19,125

WDV 614,125 108,375
2074/75 Less: Depreciation (15%) 92,119 16,256
WDV 522,006 92,119
Total Depreciation charged till 2075 Ashadh end 477,994 57,881

D. Difference of depreciation charged under different methods till 2075 Ashadh end
Particulars Plant A Plant B
Depreciation charged as per Straight Line basis 400,000 45,000
Depreciation as per Written Down Value basis 477,994 57,881
Deficit of depreciation to be adjusted as on 2076 Ashadh end (77,994) (12,881)

E. Depreciation for Fiscal Year 2075/76 under Written Down Value Basis
S.N. Particulars Plant A Plant B Plant C
1 WDV/Cost 522,006 92,119 200,000
2 Depreciation (15%) 78,301 13,818 30,000

F. Plant and Machinery Account for Fiscal Year 2075/76
Plant & Machinery Account
Dr. Cr.
2075/04/01 To Balance 705,000 2075/04/01 By Profit and Loss 90,875

b/d A/c (Adjustment for
Depreciation)
2075/10/01 To Bank 200,000 2076/03/31 By Depreciation 122,119
2076/03/31 By Balance c/d 692,006
905,000 905,000
2076/04/01 To Balance 692,006

b/d
18. ABC Ltd. which depreciates its machinery at 10% on diminishing balance methodhad on 1st Shrawan, 2075 Rs.
486,000 balance in the Machinery Account. During F/Y 2075-76, part of machinery purchased on 1st Shrawan,
2073 for Rs. 60,000 was sold for Rs. 40,000 on 1st Magh, 2075 and a new machinery at the cost of Rs. 70,000
was purchased and installed at the same date; installation charges being Rs. 5,000. The company wants to change
its method of depreciation from diminishing balance method to straight line method with effect from 1st Shrawan,
2073 and adjust the difference before 31st Ashadh, 2076. The rate of the depreciation remains the same as before.
Show the machinery account for F/Y
2075-76. (2020 DEC.) 10 marks

Answer:
ABC Ltd.
Machinery AccountF/Y 2075-76

2075-4-1 To Balance b/d 486,000 2075-10-1 By Bank 40,000
2075-10-1 To Bank 75,000 2075-10-1 By Profit & Loss
(WN 1) 6,170
2075-10-1 By Depreciation
(WN 3) 60,180
2076-3-31 By Profit & Loss

(Additional dep.) 5,400
2076-3-31 By Balance c/d 449,250
561,000 561,000
Working Notes:
1. Calculation of Loss on Sale of Machinery: Rs.

Cost on 1st Shrawan, 2073 60,000
Less: Depreciation for F/Y 2073-74 6,000
54,000
Less: Depreciation for F/Y 2074-75 5,400
48,600
Less: Depreciation for 6 months of F/Y 2075-2076 2,430
46,170
Less: Sale Proceeds 40,000
Loss on Sale 6,170
2. Additional Depreciation:
Cost of Machinery as on Shrawan 1, 2073
= 486,000 X 100/90 X 100/90
= Rs. 600,000.
Out of this, part of machinery purchased for Rs. 60,000 was sold on 1st Magh, 2075. Therefore,
additional depreciation should be calculated for the remaining machinery worth Rs. 540,000.
Depreciation for 2 years
(F/Y 2073-74 & F/Y 2074-75) @ 10% on Rs. 540,000 108,000

Less: Depreciation charged for 2 years under diminishing
balance method (54,000+48,600) 102,600
Additional Depreciation due to change in Accounting Policy 5,400
3. Depreciation in F/Y 2075-76:

On machinery sold (from W Note 1) 2,430
On Machinery Purchased and Installed 3,750
(75,000*10%*6/12)
On Machinery brought from Previous Years 54,000
60,180

Chapter 4 Accounting Treatment of Inventory
Numerical Questions and Answers.
1. The Head Office sends goods to Branch at 20% profit on cost. Freight and duties amounting to 10% on
invoice value being paid by Branch. Branch sells at 20% gross margin on selling prices.The stock taking
date is 30.06.2009 but stock was taken on 10.07.2009. The value of stock was agreed to be the cost to
Head Office which is increased by actual expenses incurred by the Branch less Rs.6,000. The value of
stock as on 10.07.2009 amounted to Rs.64,600 (at Branch cost). Stock amounting to Rs.6,000 (at invoice
value) was received from Head Office on 05.07.2009. Sales made on 06.07.2009 was Rs.10,000. Ascertain
the value of stock as on 30.06.2009. 10 (2009 Dec.)
Answer:
Statement Showing Valuation of Stock as on 30.06.2009
Rs. Rs.
Stock as on 10.07.2009 64,600
Less: Stock received on 05.07.2009:
Invoice Value 6,000
Expenses @ 10% 600 6,600
58,000
Add: Cost of goods sold on 06.07.2009:
Sales Value 10,000
Less: Profit 2,000 8,000
66,000
Less: Profit included in Branch Stock 10,000
Agreed Reduction 6,000 16,000
Value of Stock as on 30.06.2009 50,000
Working note:
Calculation of Profit included in Branch Stock:
Rs.
Let, Cost to Head Office be 100
Mark up while invoicing 20
Invoice Price 120
Branch Expenses @ 10% 12
Branch Cost 132
Unrealized Profit in Branch Cost = 20/132
Therefore, unrealized profit on total stock: 10,000
Rs.(66,000 × 20/132)
2. The following information was available from the records of U & Me company:
Particulars At Cost (NRs) At Retail (NRs)

Beginning Inventory 7,000 9,000
Purchases 34,000 53,000
Purchase Returns & Allowances 1,000 2,000
Sales 47,000
Sales Returns Allowances 5,000
Estimate the ending inventory of the company at cost. 5 (June 2010)
Answer:
b)
Cost(Rs) Retail(Rs)
Beginning inventory 7,000 9,000
Purchases 34,000 53,000

Less purchase returns& allowances 1,000 2,000
Goods available for sale 40,000 60,000
Ratio of cost to Retail =40,000/60,000 =

2/3 Now, Net sales = Rs. 47,000-5,000 =
Rs.42,000
Cost of net sales =42,000×2/3=Rs. 28,000
Closing inventory at cost = Rs. 40,000-28,000 =Rs. 12,000
3. From the following particulars ascertain the value of stock as on 31st March, 2011.
Rs.
Stock as on 1.4.2010 213,750

Purchases 1,143,750
Manufacturing Expenses 225,000
Administrative Expenses 45,000
Selling and Distribution Expenses 90,750
Financial Charges 32,250
Sales 1,867,500
At the time of valuing stock as on 31st March, 2010, a sum of Rs. 26,250 was written off
on a particular item, which was originally purchased for Rs. 75,000 and was sold
during the year for Rs. 67,500. Barring the transaction relating to this item, the gross
profit earned during the year was 20 percent on sales.
5 (Dec.2010)
Answer:
Statement of Stock in Trade as on 31st March, 2011.
Particulars Rs. Rs.

Stock as on 01.04.2010 213,750
Less: Value of abnormal stock Rs.(75,000 – 26,250) 48,750 165,000

Purchases 1,143,750
Manufacturing Expenses 225,000
1,533,750
Cost of goods sold:
Sales as per books 1,867,500
Less: Sale of abnormal item 67,500
Sale at normal selling price 1,800,000
Less: Gross Profit @ 20% 360,000 1,440,000
Value of Stock as on 31st March,2011 93,750
4. Following information are obtained from the books of a retail business for the year
ended 31st March, 2011.
Rs.
Goods received from suppliers (subject to trade discount and taxes) 15,75,500
Trade Discount: 3%
Sales Tax: 11%
Packaging and Transportation Charges 87,500
Sales during the year 22,45,500
Closing Inventories (at Sales Value) 2,35,000
Find out the historical cost of inventories using adjusted selling price method. 5 (June 2011)
Answer:
Valuation of Closing Inventories:
Particulars Rs.
1. Determination of cost of purchases:
Goods received from suppliers 1,575,500
Less: Trade discount 3% 47,265

1,528,235
Add: Sales Tax 11% 168,106
1,696,341
Add: Packaging and transportation charges 87,500

1,783,841
2. Determination of Gross Profit margin:
Sales during the year 2,245,500
Closing inventories at selling price 235,000

2,480,500
Less: Purchase price 1,783,841
Gross Profit 696,659
Gross Profit Margin 28.09%
3. Valuation of Closing Inventory:
Closing inventories at selling price 235,000
Less: Gross Profit @ 28.09% 66,012
Value of Inventory 168,988
5. The stock of Prabhat Trading Concern Ltd. was physically verified on 24th March,
2012 and was valued at Rs. 2,000,000. Goods are normally sold by the trader at a
profit of 25% on cost. After stock taking; sales of Rs. 2,216,000 have been taken
place till 31st March, 2012 which includes:
a. Sales of Rs. 108,000 at 20% above the normal selling price.
b. Sales of Rs. 108,000 at 10% below the normal selling price.
Determine the value of closing stock to be taken to the balance sheet of Prabhat Trading
Concern Ltd. as on 31st March, 2012. 5 (June2012)
Answer:
Statement showing the valuation of stock as at 31st March, 2012
Particulars Rs. Rs.

th
Value of stock as at 24 March 2,000,000
Less: Cost of goods sold:
Normal sales [80% of (Rs. 2,216,000 – Rs. 216,000) 1,600,000
Abnormal sales (i) [80% of (Rs. 108,000 / 120 × 100) 72,000
Abnormal sales (ii) [80% of (Rs. 108,000 / 90 × 100) 96,000
1,768,000
Value of closing stock to be taken to Balance Sheet 232,000
6. The closing stock on 31st December, 2011 was Rs. 200,000. There was a loss by fire
of Rs. 50,000 on December 10, 2011. Show how you will treat below given
cases in the financial statement: 5 (June2012)
a. Stock was not insured at all.
b. Stock was fully covered by insurance.
c. Stock was partly covered by insurance and the claim of Rs. 30,000 was
accepted by the insurance company.
Answer:
In all the three cases, stock at end Rs. 200,000 and stock destroyed by fire Rs.
50,000 will appear in the credit side of the trading account as a result of the
following journal entry:
Stock A/c Dr 200,000

Stock destroyed by fire A/c Dr 50.000
To Trading A/c 250,000
Further entries will have to be made in each case as stated below:
(a) When goods are not insured at all:

Profit and Loss A/c Dr 50,000
To Stock destroyed by fire A/c 50,000
(b) When goods are fully insured and the insurance company admits the claim in full:
Insurance company A/c Dr 50,000
(c) When the company insures fully or partly, if the claim admitted by the insurance company is less
than the value of stock destroyed by fire:
Insurance company A/c Dr 30,000

Profit and Loss A/c Dr 20,000
7. A trader prepared his accounts on 31st March each year. Due to some unavoidable reasons, no stock taking
could be possible till 15th April, 2012 on which date the total cost of goods in his godown came to Rs.
50,000. The following facts were established between 31st March to 15th April, 2012:
i) Sales Rs. 41,000 (including cash sales Rs. 10,000)

ii) Purchases Rs. 5,034 (including cash purchases Rs. 1,990)
iii)Sales return Rs. 1,000.
iv) On 15th March, goods of the face value of Rs. 10,000 were sent on sale basis to a customer, the period of
approval being four weeks. He returned 40% of the goods on 10th April, approving the rest; the customer was
billed on 16th April.
v) The trader had also received goods costing Rs. 8,000 in March, for sale on consignment basis; 20% of the
goods had been sold by 31st March, and another 50% by the 15th April. These sales are not included in above
sales.
Goods are sold by the trader at a profit of 20% on sales.
You are required to ascertain the value of inventory as on 31 st March, 2012. 10 (Dec.2012)
Answer:
Statement of valuation of stock on 31st March,2012
Value of stock as on 15th April, 2012 50,000

Add: Cost of sales during the period from 31st March 2012 to 15th April
2012
Sales (Rs. 41,000 - Rs. 1,000) 40,000
Less: Gross Profit (20% of Rs. 40,000) 8,000 32,000
Cost of goods sent on approval basis
(80% of Rs. 6,000) 4,800 86,800
Less: Purchases during the period from
31st March 2012 to 15th April 2012
5,
034
Unsold stock out of goods received on
consignment basis (30% of Rs. 8,000) 2,400 7,434
79366
8. Determine the value of stock to be taken to the Balance Sheet of JPT Ltd. as at
31st March, 2013 from the following information: 10 (June 2013)
The stock was physically verified on 7th April and was valued at Rs. 4,00,000. After 31st March the
following transactions had taken place till the date of stocking taking:
a. Purchases Rs. 2,00,000 out of which 20% goods were returned.
b. Sales of good units Rs. 2,00,000 out of which 20% goods were returned by the customers.
c. Sales of defective units Rs. 1,80,000 at 10% less than the normal selling price.
d. On 26th March, goods of the sale value of Rs. 2,00,000 were sent on sale or return basis to a
customer, the period of approval being two weeks. He returned 20% of the goods and approved 80%
of the remaining on 6th April.
e. On 27th March, goods of sales value Rs. 2,00,000 were sent on consignment basis. 80% of these
goods had been sold on 6th April.
f. On 28th March, goods costing Rs. 2,00,000 were received for sale on consignment basis. 80% of these
goods had been sold on 6th April.
Notes:
1. Goods are sold by the trader at the profit of 25% on cost.
2. The sales referred to in (iv), (v) and (vi) are not included in (ii) above.
Answer:
Statement showing the valuation of Stock as on 31st March, 2013
A. Stock as per physical verification as at 7th April 4,00,000

B. Less: Cost of Net goods purchased after 31st March till stock taking (Rs.
2,00,000 – 20% of Rs. 2,00,000) 1,60,000
C. Add: Cost of Net goods sold after 31st March till stock taking Good
Units: [80% of (Rs. 2,00,000 – 20% of Rs. 2,00,000)] Defective 1,28,000
Units: [80% of (Rs. 1,80,000 + 1/9th of Rs. 1,80,000)] 1,60,000
D. Add: Cost of goods lying with others on our behalf as on 31 st March Goods
sent as approval [80% of (Rs. 2,00,000 – 20% of Rs. 2,00,000 Goods sent 1,28,000
on consignment [80% of Rs. 2,00,000] 1,60,000
E. Less: Cost of goods lying with us as on behalf of others
Goods received for sale on consignment basis [20% of Rs. 2,00,000] 40,000
F. Stock as per books as at 31st March
7,76,000
Notes:
(i) No adjustment has been made in respect of goods returned by customers to whom goods were sent
on approval basis since these goods are already included in the stock given as on 7 th April.
(ii) No adjustment has been made in respect of goods sold out of those received for sale on
consignment basis since these goods are not included in the stock given as on 7 th April.
9. Cost of inventory obtained from physical count on 30 June, 2016 Rs. 154,892. This figure does not
include any amounts for the two items below:
a. An inventory line which had cost Rs. 31,825 was found to be damaged. Remedial work
costing Rs. 2,300 is needed to enable the items to be sold for Rs. 34,700. Selling expenses of
Rs. 2,640 would also be incurred in selling these items.
b. Goods sent to customer on approval in May 2016 were not included in the inventory. The
sale price of the goods was Rs. 35,888 and the cost Rs. 35,066. The customer notified his
acceptance of the goods in July 2016.
Compute the adjusted closing inventory as on 30 June, 2016 from the above information. Give
detailed explanation for all your treatments. 5 (Dec.2016)
Answer:
Statement of adjusted inventory as on 30 June, 2016
Particulars Amount (Rs)

Cost of inventory obtained from physical count on 30 June, 2016 154,892
Add- Net realizable value of damaged items 29,760
Add- Cost of goods sent on approval lying with customer. 35,066
Adjusted cost of Inventory 219,718
Working Note-1
Cost of Damaged goods =Rs.31,825

Computation of Net Realizable value of damaged goods
Selling price =Rs. 34,700

Less: Cost of remedial work needed to enable the items to be sold =Rs. 2,300
Less: Expenses to be incurred in selling these items = Rs.
2,640
NRV =Rs. 29,760
Damaged items should be taken at cost or NRV whichever is lower, hence it is taken at NRV
Rs. 29,760
Working Note-2
Goods were sent on approval basis on May 2016, but the customer notified his acceptance of
the goods only in July 2016 hence as on 30 June it should be counted as stock though
physically it is lying in the customer’s premises.
10. Determine the value of stock to be taken to the Statement of Financial Position of M/s Patan Pvt.
Ltd. as at Ashadh end 2076. (10 marks) (Dec.2019)
The stock was physically verified on Shrawan 23, 2076 and was valued at Rs. 650,000. After the year
end the following transactions had taken place till the date of stock taking:
i. The company ordered goods of Rs. 280,000 on Ashadh 24, 2076, which was dispatched by the supplier in
two shipments of equal amount. First shipment was received on Ashadh 28, 2076 and second shipment was
received on Shrawan 12, 2076. Out of total purchases 30% of goods were returned.
ii. Sales of goods from store Rs. 250,000 out of which 20% were returned by the customer.
iii. Sales of defective goods Rs. 70,000 at 25% less than the normal selling price.
iv. On Ashadh 27, 2076, goods of the sales value of Rs. 300,000 were sent on sale or return basis to a customer,
the period of approval being two weeks. Customer accepted 70% of goods and return the rest within the
approval period.
v. On 28th Ashadh 2076, 1,500 units of goods were sent on consignment basis. 200 units of goods were lost on
the way and out of remaining goods 80% of these goods had been sold on Shrawan 23, 2076. Selling price of
each unit is Rs. 200.
vi. On the Ashad 2076, goods costing Rs. 175,000 were received for sale on consignment basis. 90% of these
goods had been sold on Shrawan 23, 2076.
vii. Goods amounting Rs. 75,000 were damaged by the fire on Shrawan 12, 2076.
viii. The company has a policy of charging 25% markup on sales of normal goods and 10% markup on defective
goods.
Answer:
Statement showing the valuation of stock as on Ashadh end 2076
S.N. Particulars Amount (Rs.)
Stock as per physical Verification as on Shrawan 23, 2076 650,000
Adjustments:
1 Less: Cost of Net goods purchased after Ashadh end, 2076 (140,000 * 70%) (98,000)
2 Add: Cost of net goods sold after Ashadh end, 2076 (250,000 * 80% * 75%) 150,000

3 Add: Cost of net defective goods sold after Ashadh end, 2076 (70,000 / 75% 84,000
* 90%)
4 Add: Cost of goods lying with others on our behalf as on Ashadh end, 2076
Goods sent on approval basis (300,000 * 70% * 75%) 157,500
Goods sent on consignment (1300 * 200 * 75%) 195,000
5 Less: Cost of good lying with us on behalf of others as on Ashadh end, 2076
Goods received for sales on consignment basis (175,000 * 10%) (Note) (17,500)
6 Add: Goods damaged by fire 75,000
Stock as per books as at Ashadh end, 2076 1,196,000
Note: Consignment Stock lying in stock as on 23/4/2076 was only 10% of Rs. 175,000 therefore only Rs.
17,500 should be deducted.
Chapter 5 Accounting For Special Transaction
Consignment
1. Mr. X of Biratnagar purchased 10,000 meters of cloth for Rs 200,000 of which 5,000 meters were sent on
consignment to Mr. Y of Pokhara at selling price of Rs. 30 per meter. X paid Rs 5,000 for freight and Rs.
500 for packing. Y sold 4,000 meters of Rs 40 per meter and incurred Rs 2,000 for selling expenses. Y is
entitled to a commission of 5% on total sale proceeds plus further 20% on any surplus price realized over Rs
30 per meter. 3,000 meters were sold at Biratnager @ Rs 30 per meter less Rs 3,000 for expenses and
commission. Owing to fall in market price, the stock of cloth in hand is to be reduced by 10 percent.
You are required to prepare: 10 (June2013)

i) Consignment Account
ii) Trading and Profit and Loss Account in books of X and
iii) X‘s Account in books of Y
Answer:
Consignment to Pokhara Account
Particulars Rs. Particulars Rs.
To Goods sent on 150,000 By Y‘s A/c(Sales) 160,000
Consignment A/c(5,000* Rs
30)
To Cash A/c (Expenses) 5,500 By Goods sent on 50,000
Consignment A/c(5,000*Rs
10)
To Y‘s A/c (Expenses) 2,000 By Consignment Stock 18,990
(WN 2)
To Y‘s A/c(Commission) 16,000
(WN 1)
To Profit on Consignment t/t 55,490
Profit & loss A/c
228,990 228,990
Trading and Profit and Loss Account

To Purchase 200,000 By Sales 90,000
To Gross Profit c/d 26,000 By Goods sent on Consignment 100,000
By Closing Stock
Cost( 2000*Rs 20)
40,000 36,000
Less: 10%
4,000
226,000 226,000
To Expenses 3,000 By Gross Profit b/d 26,000
To Net Profit 78,490 By consignment to Pokhara( 55,490
Profit)
81,490 81,490
X’s Account in the Books of Y

To Cash A/c (Selling Expenses) 2,000 By Cash A/c (Sales) 160,000
To Commission A/c 16,000
To Balance c/d 142,000
160,000 160,000
Working Notes:
WN 1: Commission Payable:
5% on Rs. 160,000 Rs. 8,000
20% on Rs. 40,000 Rs. 8,000

Rs. 16,000
WN 2: Consignment Stock
1000 meters @ Rs. 20 Rs. 20,000
Add: Expenses ((1/5 of Rs 5500) Rs. 1,100
Value of Stock Rs. 21,100
Less: 10% Rs. 2,110
Rs.18,990
2. Shri Mehta of Birgunj consigns 1,000 cases of goods costing Rs. 100 each to Shri Sundar of
Kathmandu. Shri Mehta pays the following expenses in connection with consignment:
Rs.
Carriage 1,000
Freight 3,000
Loading charges 1,000
Shri Sundar sells 700 cases at Rs. 140 per case and incurs the following expenses:
Rs.
Clearing charges paid to transporter 850
Warehousing and storage 1,700
Packing and selling expenses 600
It is found that 50 cases have been lost in transit and 100 cases are still in transit. Shri Sundar is entitled to
a commission of 10% on gross sales.
Draw up Consignment Account and Shri Sundar’s Account in the books of ShriMehta.(3+2=5)
(Dec.2013)
Answer:
In the books of Shri Mehta Consignment of

Kathmandu Account
Dr. Cr.
Rs. Rs.
To Goods sent on Consignment 1,00,000 By Shri Sundar (Sales) 98,000
To Bank (Expenses) 5,000 By Loss in Transit 5,250
50 cases @ Rs. 105 each
To Shri Sundar (Expenses) 3,150
To Shri Sundar (Commission) 9,800 By Consignment Stock
To Profit on Consignment 11,700 In hand 150 @ Rs. 106 each 15,900
to Profit & Loss A/c
In transit 100 @ Rs. 105 each 10,500 26,400
1,29,650 1,29,650
Sundar’s Account
Rs. Rs.

To Consignment to Kathmandu A/c 98,000 By Consignment A/c (Expenses) 3,150
By Consignment A/c 9,800

(Commission)
98,000 98,000
Working Notes:
i) Consignor’s expenses on 1,000 cases amounts to Rs. 5,000; it comes to Rs. 5 per case.
The cost of cases lost will be computed at Rs. 105 per case.
ii) Sundar has incurred Rs. 850 on clearing 850 cases, i.e., Rs. 1 per case; while valuing
closing stock with the agent Rs. 1 per case has been added to cases in hand with the
agent. i.e. 106 each.
3. Hanuman Das Traders of Kathmandu purchased 10,000 pieces of Sarees @ Rs. 100 per Saree. Out of these
Sarees, 6,000 Sarees were sent on consignment to Shrestha Traders of Nuwakot at the selling price of Rs. 120
per Saree. The consignors paid Rs. 3,000 for packaging and frieght. Shrestha Traders sold 5,000 Sarees at Rs.
125 per Saree and incurred Rs. 1,000 for selling expenses and remitted Rs. 5,00,000 to Kathmandu on account.
They are entitled to a commission of 5% on total sales plus a further 20% commission on any surplus price
realised over Rs. 120 per Saree.
Owing to fall in market price, the value of stock of Sarees in hand is to be reduced by 10%.
Prepare the Consignment Account in the books of Hanuman Das Traders. 5 (Dec.2015)
Answer:
In the Books of Hanuman Das Traders
Consignment Account
Rs. Amount R Amount
Rs. s. Rs.
To Goods Sent on Consignment 7,20,000 By Shrestha Traders (sales) 6,25,000
(6000*120) (5000*125)
To Bank (expenses) 3,000
To Shrestha Traders By Consignment
Loading (6000*20) 1,20,000
Selling Expenses 1,000
37,250 By stock on
Commission (5% of 625000, 36,250 consignment 1,08,450
and 20% of (5*5000)) ((1000*120) +
(3000/6000*1000))*0.9
To stock reserve 18,000
(1000*20*0.90)
To Net Profit 75,200
8,53,450 8,53,450
4. M/S Soniya Pvt. Ltd. consigned 500 Washing Machine costing Rs. 40,000 per Washing Machine to M/S Birat
Store at Biratnagar on 1stShrawan, 2072. M/S Soniya Pvt. Ltd., made payments for following expenses relating
to this consignment:
Transportations Rs. 270,000
Transit insurance Rs. 142,500
Loading charges Rs. 75,000

M/S Birat Store received the delivery of 490 Washing Machine. As per the accounts sales provided by the consignee
dated Poush end, 2072 showed that 375 Washing Machine were sold for Rs. 19,500,000. M/S Birat Store
incurred Rs. 300,000 for local taxes, Rs.75,000 for unloading charges, and Rs. 145,000 for godown rent. M/S
Birat Store incurred Rs. 250,000 for repair and maintenance expenses of damaged Washing Machine remained as
stock as at Poush end, 2073. M/S Birat Store is entitled commission @ 5% on sales. Insurance company admitted
only Rs.150,000. You are required to prepare Consignment Account and
M/S Birat Store Account in the books of M/S Soniya Pvt. Ltd. 10 (June2016)
Answers:
In the Books of M/S Soniya Pvt. Ltd.
Consignment Account to M/S Birat Store
Amount Amount
Particulars Rs. Amount Rs. Particulars Rs. Amount
Rs.
To, Goods sent on
Consignment A/C 20,000,000 By, M/S Birat Store 19,500,000
By, Insurance Co. 150,000
To, Bank/Cash A/C By, Profit & Loss A/C 259,750
Transportation 270,000 (Abnormal Loss)
Transit Insurance 142,500
Loading Charges 75,000 487,500 By, Consignment Stock 4,800,135
To, M/S Birat Store
Unloading Charges 75,000
Local Taxes 300,000

Repair and Maintenance
Expenses 250,000
Godown Rent 145,000
Commission on sales 975,000 1,745,000

To, General Profit and Loss
A/C 2,477,385
Total 24,709,885 Total 24,709,885
Working Notes:
1. Abnormal Loss:
Cost of 10 Washing Machine 400,000
(10 Unit @ Rs. 40,000)

Add: Proportionate expenses incurred by the consignor
(10 UnitsX487500/500) 9,750
409,750
Less: Insurance Claim 150,000
Total abnormal loss 259,750
2. Valuation of Stock
115 Unit @ Rs 40,000 4,600,000

Add: Proportionate expenses incurred by the Consignor
(115 UnitsX487,500/500) 112,125
Add: Proportionate expenses incurred by the consignee
(115 UnitsX375,000/490) 88,010
.........................
4,800,135
Proportionate Expenses incurred by Consignee for the purpose of valuation of closing stock
Unloading charges 75,000
Local Taxes 300,000
Total 375,000
M/S Birat Store A/C
Amount Amou Amount Amou

Particulars Rs. nt Rs. Particulars Rs. nt Rs.
To, Consignment to By, Consignment to M/S Birat
M/S Birat Store A/C 19,500,000 Store A/C 1,745,000
(For Sale of 375 Unit
of Washing Machine) Unloading Charges 75,000
300,000
Local Taxes
Repair and Maintenance
250,000
Expenses
145,000
Godown Rent
975,000
Commission on sales
By, Balance c/d

17,755,00
0
Total 19,500,000 Total 19,500,00

0
5. Nepalgunj consigned to Shyam of Kathmandu, goods to be sold at invoice price which represents 125% of cost.
Shyam is entitled to a commission of 10% on sales at invoice price and 25% of any excess realised over invoice
price. The expenses on freight and insurance incurred by Ram were Rs. 10,000. The account sales received by Ram
shows that Shyam effected sales aggregating to Rs. 100,000 in respect of 75% of the consignment. His selling
expenses to be reimbursed were Rs. 8,000. 10% of the consignment goods of the value of Rs. 12,500 were destroyed
in fire at the Kathmandu godown and the insurance company paid Rs. 12,000 net of salvage. Shyam remitted the
balance in favor of Ram.
Prepare Consignment Account and the Account of Shyam in the books of Ram
along with necessary workings. 10 (Dec.2017)
Answer:
In the books of Ram Consignment to Kathmandu Account

To, Goods sent of 125,000 By, Shyam‟s A/C (Sales) 100,000
Consignment A/C
(Working Note 1)
10,000 By, Loss due to Fire A/C 11,000
To, Bank A/C (Freight & (Working Note 5)
Insurance)
8,000
To, Shyam‟s A/C (Expenses By, Consignment Stock A/C 20,250
incurred) (Working Note 3)
To, Shyam‟s A/C 10,937.50

(Commission) By, Goods sent on 25,000
(Working Note 2) Consignment
[125,000 X 20/100]
To, Consignment Stock 3,750
Reserve A/C (Working Note By, Profit and Loss Account 1,437.50
4) (Loss)
157,687.50 157,687.50

To, Consignment to 100,000 By, Consignment to 8,000
Kathmandu A/C (Sales) Kathmandu A/C (Expenses)
To, Loss due to fire A/C 12,000 By, Consignment to Kathmandu 10,937.50
(Insurance Claim) A/C (Commission)
(Working Note 2)
By, Bank A/C (Balance 93,062.50

remitted)

112,000 112,000
Working Note 1:
Invoice value of 10% goods sent on consignment but destroyed by Fire = 12,500
Invoice value of 100% goods sent on consignment = 125,000
Working Note 2:
Consignee (Shyam) Commission: = 100,000
Sales proceeds received by Ram from 75% of consignment
Invoice value of 75% of the Consignment (125,000 X 75%) = 93,750
Excess sales price realized by Shyam (A-B) = 6,250
25% commission on excess sales price realized of Rs. 6,250 = 1,562.50

10% commission on invoice value of Rs. 93,750 = 9,375
Total Consignee‟s Commission = 10,937.50
Working Note 3:
Calculation of unsold stock = 100% - 75% (Sold) – 10% (Destroyed) = 15% of invoice value
Invoice value of unsold stock (125,000 X 15/100) = 18,750
Add: Proportionate Freight and Insurance (10,000 X 15/100) = 1,500
Total Invoice value of stock lying on consignment = 20,250
Working Note 4: = 3,750

Stock reserve on unsold stock (18,750 X 25/125)
Working Note 5:
Abnormal Loss (Loss due to Fire) = 10,000
Cost price of goods destroyed (Rs. 12,500 X 80/100)
Add: Proportionate Freight and Insurance (10,000 X 10/100) = 1000
Total cost of abnormal loss = 11,000
6. Ram of Mr. Gupta of Birgunj purchased 1,000 meters of cloth for Rs. 200,000. Out of total purchase he
sends 500 meters of cloth on consignment to Mr. Prakash of Pokhara at the selling price of Rs. 300 per
meter. Mr. Gupta paid Rs. 5,000 for freight and Rs. 500 as loading expenses. Mr. Prakash sold 400 meters of
cloth at Rs. 400 per meter. Mr. Prakash incurred Rs. 2,000 as selling expenses. Mr. Prakash is entitled to a
commission of 5% on total sale proceeds plus a further 20% on any surplus price realized over Rs. 300 per
meter. Owing to fall in the market price, the stock of cloth in hand is to be reduced by 10%. You are
required to prepare Consignment Account in the Books of the Mr. Gupta and Mr. Gupta’s Account in the
books of Mr. Prakash. 10 (June2018)
Answer:
In the Books of Mr. Gupta

Consignment to Pokhara Account
Dr. Cr.
Amount Amount

To Goods sent on
consignment A/C By Prakash's A/C (Sales) 160,000
(500x Rs. 300) 150,000 (400x Rs.400)

To Cash By Goods sent on
A/C 5,500 consignment A/C
(Expenses)
To 2,000 (500x Rs. 100) 50,000
Prakash's
A/C 16,000 By Consignment Stock
(Expenses)
To Prakash's 20,000
A/C 55,490 (100x Rs. 200)
(Commission Add: Proportionate Expenses 1,100
Expenses) (5000+500=5500x100/500)
To Profit & Less: 10% (Owing to Fall in
Loss A/C (Profit (2,110) 18,990
price)
on Consignment
A/C)
Total 228,990 Total 228,990
In the Books of Mr. Prakash

Mr. Gupta's A/C
Dr. Cr.
Particulars Amount Rs. Particulars Amount Rs.
To Cash A/C (selling
Expenses) 2,000 By Cash A/C (Sales) 160,000
To Commission A/C 16,000
To Balance c/d 142,000
Total 160,000 Total 160,000
7. M/s S Pvt. Ltd. consigned 50 Machines costing Rs. 400,000 per Machine to M/s B Store on 1st Shrawan, 2076. M/s S
Pvt. Ltd., made payments for the following expenses relating to this consignment:
\
Transportations Rs. 270,000
Transit insurance Rs. 142,500
Loading charges Rs. 75,000
M/s B Store received the delivery of 49 Machines in normal condition. As per the accounts sales provided by the consignee
dated Poush end, 2076 showed that 38 Machines were sold for Rs. 19,500,000. M/s B Store incurred Rs. 300,000 for local
taxes, Rs. 75,000 for unloading charges, and Rs. 145,000 for store rent. M/s B Store incurred Rs. 250,000 for repair and
maintenance expenses of damaged machines remained as stock as at Poush end, 2076. M/s B Store is entitlescommission

5% on sales. Insurance company admitted only Rs. 150,000. You are required to prepare Consignment Account and M/s B
Store Account in the books of M/s S Pvt. Ltd
Answer:
In the Books of M/s S Pvt. Ltd.
Consignment to M/s B Store Account
Particulars Amount (Rs.) Amount (Rs.) Particulars Amount Amount (Rs.)

(Rs.)
To Goods sent on By M/s B Store 19,5000,000
Consignment A/C
20,000,000 By Insurance Co. 150,000
By Profit & Loss A/C
To Bank/Cash A/C:
(Abnormal Loss)
Transportation
270,000 (WN 1) 259,750
Transit Insurance
142,500 By Consignment Stock
Loading Charges (WN 2)
75,000 487,500 4,591,434
To M/s B Store:
Unloading Charges
75,000
Local Taxes
300,000
Store Rent
145,000
Repair and
Maintenance
Expenses 250,000
Commission on sales 975,000 1,745000
To Transfer to Profit 2,268,684
and Loss A/C
24,501,184 24,501,184
In the Books of M/s S Pvt. Ltd.
M/s B Store A/C
(Rs.) (Rs.)
To Consignment Sales 19,500,000 By Unloading charges 75,000
By Local Taxes 300,000
By Store Rent 145,000
By Repair and Maintenance Expenses 250,000
By Commission on sales 975,000
By Balance c/d 17,755,000
19,500,000 19,500,000
Working Notes:
1. Abnormal Loss:
Cost of 1 machine (1 Unit @ Rs. 400,000) 400,000

(1 Unit X Rs. 487,500/50) 9,750
409,750
Less: Insurance Claim 150,000
Total Abnormal loss 259,750
2. Valuation of stock
11 Units @ Rs 400,000 4,400,000
(11 Units X Rs. 487,500/50) 107,250
Add: Proportionate expenses incurred by consignee
(11 Units X Rs. 375,000/49) 84,184
Consignment stock 4,591,434
3. Expenses incurred by Consignee for the purpose of valuation of closing stock
Unloading charges 75,000
Local Taxes 300,000
Total 375,000
57
Joint Venture
1. Ram and Hari enter a joint venture to prepare a film for the government. The Government agrees to pay NRs.
200,000. Ram contributes NRs. 20,000 and Hari contributes NRs. 30,000. These amounts are paid into a
Joint Bank Account. Payments made out of the joint account were:
Purchase of equipment NRs. 12,000
Hire of equipment NRs. 10,000
Wages NRs. 90,000
Materials NRs. 20,000
Office expenses NRs. 10,000
Ram paid NRs. 4,000 as licensing fees. On completion, the film was found defective and
the Government made a deduction of NRs. 20,000. The equipment was taken over by
Hari at a valuation of Rs.4,000.
Separate books were maintained for the joint venture whose profits were divided in the
ratio of Ram 2/5 and Hari 3/5.
Prepare Joint Bank Account, Joint Venture Account and Co-venturer Accounts. 8 (2009 June)
Answer:
Joint Bank a/c
Particulars NRs. Particulars NRs.
To Ram To 20,000 By Joint Venture A/c- Equipment 12,000

Hari 30,000 Hire of equipment 10,000
To Joint Venture A/c 180,000 Wages Materials 90,000
Office expenses 20,000
By Ram 10,000
By Hari 39,200
48,800
Total 230,000 Total 230,000
58
Joint Venture a/c

To Joint Bank A/c-Equipment Hire By Joint Bank A/c-
of equipment 12,000 (NRs. 200,000-20,000) 180,000
Wages Materials 10,000 By Hari 4,000
Office expenses 90,000
To Ram (licensing fee) 20,000
Profit transfer. to 10,000
Ram 2/5 Hari 4,000
3/5 15,200
22,800
Total 184,000 Total 184,000

Ram a/c
To Joint Bank A/c- Repayment 39,200 By Joint Bank A/c By 20,000
Joint Venture A/c 4,000
(licensing fee)
By J V A/c ( profit) 15,200
Total 39,200 Total 39,200
Debit Hari A/c Credit

To Joint Venture A/c 4,000 By Joint Bank A/c By 30,000
(equipment taken over) Joint Venture A/c 22,800
To Joint Bank A/c- Repayment 48,800 ( profit)
2. Dilip and Raj are doing business separately as engineering contractors. They undertake jointly to build
and install new machinery for a company for a contract price of Rs.1,34,000. Out of total contract price
Rs.84,000 payable in installments in cash and the balance as fully paid shares in the new company. A
joint bank account is opened depositing Rs.45,000 by Dilip and Rs.20,000 by Raj. Dilip and Raj are to
share profits and losses in the proportion of 3/5 and 2/5 respectively. Their transactions were as
follows:
Rs
Advance Payment to suppliers for supply of materials 52,000
Value of materials supplied by suppliers 89,000
Balance amount paid to suppliers in full settlement 35,500
Paid wages 36,000
Materials purchased in cash 2,500
Materials supplied by Dilip from stock 9,250
Engineering consultant fees paid 3,250
59
Value of stock lost by fire and not covered by insurance 3,500
The contract was completed and the price duly received.
Dilip took all the shares at an agreed value of Rs.47,000 and Raj took the balance stock of materials
worth Rs.3,500 at an agreed value of Rs.2,750.Prepare the joint venture account showing the resultant
profit or loss, bank account and the accounts of Dilip and Raj. 10 (2009 Dec.)
Answer:
Joint Bank Account
Dr. Cr
Particulars Amount in Rs. Particulars Amount in Rs.

To Dilip 45,000 By Suppliers A/c- 52,000
To Raj 20,000 (Materials)
To Joint Venture A/c 84,000 By Suppliers A/c- 35,500
(Materials)
By Joint Venture A/c-

Wages 36,000
Materials 2,500
Consultation fees 3,250
By Dilip 4,400
By Raj 15,350
1,49,000
1,49,000
Joint Venture Account

Dr. Cr
60
To Supplier A/c-(Materials) 89,000 By Supplier A/c-(Discount 1,500

To Joint Bank A/c received)
Wages By Joint Bank A/c- 84,000
Materials 36,000 By Shares Account 50,000
Consultation fees 2,500 By Raj (Materials) 2,750
To Dilip(Materials) 3,250 By Dilip (Loss) 2,850
To Shares A/c 9,250 By Raj (Loss) 1,900
3,000
1,43,000
143,000
Dilip A/c
Dr. Cr
To Shares A/c 47,000 By Joint Bank A/c 45,000
To Joint Venture A/c-loss 2,850 By Joint Venture A/c 9,250
To Joint Bank A/c
4,400
54,250 54,250
Raj A/c
Dr. Cr
To Joint Venture A/c 2,750 By Joint Bank A/c 20,000
To Joint Venture A/c-loss 1,900
To Joint Bank A/c-
15,350
20,000
20,000
61
3. Anish and Manish entered into a joint venture to purchase, recondition and sell second hand cars. Anish
purchased for cash 100 cars at an average price of Rs. 35,000 during the period from 1st October 2009
to 31st March, 2010.
Manish, during the same period reconditioned the cars by spending the following amounts:
Rs.
Spare parts used 180,000
Painting 200,000
Air-conditioning of 10 cars 300,000
Testing charges 20,000
Insurance 60,000
Labour charges 1,040,000
Anish and Manish sold the cars, the details of which are as under:
Sold by
Anish Manish
A.C.cars 5 4
Non- A.C. cars 35 46
A.C. cars were sold for Rs. 175,000 each while non-A.C. cars were sold as follows:
i) 35 cars @ Rs. 125,000 each by Anish,
ii) 35 cars @ Rs. 110,000 each and 11 cars @ Rs. 80,000 each by Manish.
During testing, 1 Non-A.C. car met with a major accident and the insurance company paid the actual
cost of the reconditioned car as amount of the claim; Manish receiving the amount.
Prepare Memorandum Joint Venture Account and Manish in Joint Venture Account in the books of
Anish. 10 (Dec.2010)
In the books of Anish Memorandum Joint

Venture Account
Dr. Cr.
To Anish By Anish
- purchase of cars, W.N. (i) 3,500,000 - sales of cars, W.N. (ii) 5,250,000
To Manish By Manish
- spare parts 180,000 - sales of cars, W.N. (ii) 5,430,000
- painting 200,000 By Manish
- airconditioning 300,000 - insurance claims, W.N. (i) 50,000
- testing 20,000 By closing stock, W.N. (iii) 480,000
- insurance 60,000
- labour charges 1,040,000
62
To Anish
- 50% of profit
2,
955,000 To Manish
- 50% of profit 2,955,000
11,210,000 11,210,000
Manish in Joint Venture Account

Dr. Cr.
To bank- purchase of cars 3,500,000 By bank- sale of cars 5,250,000
To Profit & Loss account
- share of profit 2,955,000 By balance c/d 1,205,000
6,455,000 6,455,000
To balance b/d 1,205,000
Working
Notes:
(i) Calculation of insurance claim: Rs.

Purchase price of 100 cars = Rs. 35,000*100
3,
500,000
Add: Amount spent on reconditioning other than amount spent on airconditioning:
Spare parts used 180,000
Painting 200,000
Testing charges 20,000
Insurance 60,000
Labour charges 1,040,000 1,500,000
Cost of 100 cars 5,000,000
Cost of one non-A.C. cars = Rs. 5,000,000/100 = Rs. 50,000
Hence, amount of the claim recovered from insurance company = Rs. 50,000
(ii) Sale by Anish:

5 A.C. cars = 5*Rs. 175000=875,000
35 Non-A.C. cars = 35*Rs. 125000 4,375,000

5,250,000
Sale by Manish
4 A.C. cars = 4*Rs. 175000 700,000
35 Non-A.C. cars = 35* Rs. 1,10,000 3,850,000
11 Non-A.C. cars = 11* Rs. 80,000 880,000
5,430,000
63
(iii) Calculation of Closing Stock:

Cost of one non-A.C. car is calculated as per working note (i) Rs. 50,000.
Cost of 8 non-A.C cars in stock = 8*50,000 400,000
Cost of air conditioning one car = Rs. 300,000 / 10 – Rs. 30,000
Cost of one A.C. car in stock = Rs. 50,000 + Rs. 30,000 80,000
Value of Closing Stock 480,000
4. A & B enter into a joint venture to prepare a film for the government. The government agree to pay Rs
2,00,000. A contributes Rs 20,000 and B contributes Rs 30,000. These amounts are paid into joint bank
account. Payments made out of joint bank account were as follows:
Purchase of equipment Rs. 12,000
Hire of equipment Rs. 10,000
Wages Rs. 90,000
Materials Rs. 20,000
Office Expenses Rs. 10,000
A paid license fees of Rs 4,000. On completion, the film was found defective and the government
made a deduction of Rs 20,000. The equipment were taken over by B at a valuation of Rs. 4,000.
Separate books were maintained for the joint venture whose profits were divided in the ratio of A
2/5 and B 3/5.
Prepare Joint Bank Account, Joint Venture Account and co-venturer Accounts. 10 (June 2011)
Answer:
Joint Bank Account
To A 20,000 By Joint Venture A/c –
To B 30,000 Equipment 12,000
To Joint Venture A/c 1,80,000 Hire of Equipment 10,000
Wages 90,000
Materials 20,000
Office Expenses 10,000
By A 39,200
By B 48,800
2,30,000 2,30,000
Joint Venture A/c

To Joint Bank A/c – By Joint Bank A/c 1,80,000
Equipment 12,000 By B(equipment taken over) 4,000
Hire of Equipment 10,000
Wages 90,000
Materials 20,000
To A (Licensing Fees) 4,000
64
To profit transfer to:

A 15,200
B 22,800
1,84,000 1,84,000
A A/c
To Joint Bank A/c - repayment 39,200 By Joint Bank Account 20,000
By Joint Venture A/c (license fees) 4,000
By Joint Venture A/c (profit) 15,200
39,200 39,200
B A/c
To Joint Bank A/c - repayment 48,800 By Joint Bank Account 30,000
To Joint Venture A/c (equipment 4,000 By Joint Venture A/c (profit) 22,800
taken over)
52,800 52,800
5. Mr. He and Ms. She entered into a joint venture to buy and sell LCD monitors on 1 st August, 2011.
On 1.8.2011; He sent a draft for Rs. 5,00,000 in favour of She and on 5.8.2011; She purchased 250 monitors
at a cost of Rs. 4,000 each. The monitors were sent to Mr. He by truck under freight to pay for Rs. 8,000
and were cleared by him on 12.08.2011. He effected sales in the following manner:
Date No. of units Sales price per unit (Rs.) Discount on sales price
13.08.2011 50 4,700 400 per
unit
30.09.2011 100 5,000 10%
30.10.2011 100 4,600 5%
On 15.11.2011, He settled the account by sending a draft in favour of She, profits being shared equally. She
does not maintain any books. Show in He's books:
i) Joint Venture with Ms. She Account; and

ii) Memorandum Joint Venture Account. 5 (Dec.2012)
Answer:
In the Books of He
Joint Venture with Ms. She Account
Date Particulars Rs. Date Particular Rs.
s
1.8.2011 To Bank Account 500,000 13.8.2011 By Bank Account (Sale 215,000
Proceeds)
12.8.2011 To Bank account 8,000 30.9.2011 By Bank Account (Sale 450,000
65
(Freight) Proceeds)
15.11.2011 To PL (Share of Profit) 47,000 30.10.2011 By Bank Account (Sale 437,000
Proceeds)
15.11.2011 To Bank Account
(Draft sent in settlement) 547,000
1,102,000 1,102,000
Memorandum Joint Venture Account

Particular Rs. Rs. Particular Rs.
s s
To She (250* Rs. 4,000) 1,000,000 By He- Sales (net)
To He (Freight) 8,000 50 monitors Rs. 4,300 215,000
To Profit 100 monitors @ Rs. 4,500 450,000
He 47,000 100 monitors @ Rs. 4,370 437,000
She 47,000 94,000
1,102,000 1,102,000
6. A of Birgunj and B of Kathmandu entered into a joint venture for purchase and sale of one lot of
mopeds. The cost of each moped was Rs. 3,600 and the fixed retail selling price was Rs. 4,500. The
following were the recorded transactions:
2011
Jan 1 A purchased 100 mopeds paying Rs.72,000 in cash and balance on credit.
A raised a loan from Janata Bank for Rs.50,000 at 18% p.a., interest repayable with loan
amount on 1.3.2011. A forwarded 80 mopeds to B incurring Rs.2,880 as forwarding and
insurance charges.
Jan. 7 B received the consignment and paid Rs. 720 as clearing charges.A sold 5 mopeds for cash.B
sold 20 mopeds for cash.
Feb. 1 B raised a loan of Rs. 150,000 from Citizen Bank, repayable with interest at 18% p.a on 1.3.2011.
B telegraphically transferred Rs. 150,000 to A incurring charges of Rs. 50. A paid balance
due for the mopeds.
Feb. 26 A sold the balance mopeds for cash.

B sold balance mopeds for
cash. A paid selling
expenses Rs. 5,000.
B paid selling expenses Rs. 20,000.
Mar. 1 Accounts settled between the venturers and loans repaid, profit being appropriated equally.
You are required to(4+3+3=10) (Dec.2014)

i. Show Memorandum Joint Venture A/c.
ii. Prepare Joint Venture with B A/c in A’s books; and
iii. Prepare Joint Venture with A A/c in B’s books.
You have to assume that each venturer recorded only such transactions as concluded by him.
Answer:
66
Memorandum Joint venture Account

for the period from January 01, 2011 to March 01, 2011
Amount Amount Rs.

Particulars Rs. Particulars
To A: 3,60,000 By Sales:
Cost of Mopeds
Forwarding and insurance charges 2,880 B (80*4500) 3,60,000
Interest (2 months) 1,500 A (20*4500) 90,000
(50000*18/100*2/12)
Selling expenses 5,000
To B:
Remittance charges 50
Interest (1 month) 2,250
(150000*18/100*1/12)
Clearing charges 720
Selling expenses 20,000
To Net Profit to 57,600

A : 28800
B : 28800
4,50,000 4,50,000
(ii)
In the Books of A Joint Venture with B

Account
Amount Amount
Jan 1 To Bank A/c Jan 7 By Bank A/c
(part payment 72,000 (sale proceeds 22,500
of cost) of 5 mopeds )
Jan 1 To Bank A/c Feb 1
(forwarding and 2,880 By Bank A/c 1,50,000
insuranc (remittance from B)
e
67
charges)
Feb 1 To Bank A/c Feb 26 By Bank A/c

(balance cost 2,88,000 (sale proceeds of 67,500
of purchases) 15 mopeds )
Feb 26 To Bank A/c Mar 1 By Bank A/c-
(selling 5,000 (cash received 1,58,180
expense on settlement )
s) (bal figure)
Mar 1 To Bank A/c ( interest)
(50000*18/10 1,500
0* 2/12)
Mar 1 To Profit and Loss A/c 28,800
(share of profit)
3,98,180 3,98,180
(iii)
In the Books of B Joint Venture with A

Account
Amou Amou
Date Particula nt Date Particulars nt
rs Rs. Rs.
Jan 7 To Bank A/c Jan 7 By Bank A/c
(clearing charges) 720 (sale proceeds of 90,000
20 mopeds )
Feb 1 To Bank A/c Feb 26 By Bank A/c
(Remittance) 1,50,000 (sale proceeds of 2,70,000
60 mopeds )
Feb 1 To Bank A/c
(remittance charges) 50
Feb 26 To Bank A/c 20,000
(selling expenses)
Mar 1 To Bank A/c ( interest) 2,250
(150000*18/100* 1/12)
To Profit and Loss A/c 28,800
(share of profit)
To Bank A/c
(cash paid on 1,58,180
settlement) (bal figure)
3,60,000 3,60,000
68
7. A of Kathmandu and B of Pokhara entered into a Joint Venture for the purpose of buying and selling
secondhand motor cars. A to make purchases and B to effect sales. B remitted a sum of Rs. 150,000 to A
towards the venture. A purchased 5 cars for Rs. 160,000 and paid Rs. 60,000 for their reconditioning and
sent them to Pokhara. He also incurred an expense of Rs. 5,000 in transporting the cars to Pokhara. B sold
4 cars for Rs. 240,000 and retained the fifth car for himself at an agreed value of Rs. 50,000. His expenses
were Insurance Rs. 1,000; Garage Rent Rs. 2,000; Brokerage Rs. 2,000; and Sundry Expense Rs. 400. Each
party’s ledger contains are record of his own transactions on joint venture.
Prepare a statement showing the result of the venture and joint venture accounts in the books B as it
finally appear, assuming that the matter was finally settled between the parties. 10 (Dec.2016)
Answer:
Joint Venture Account with A in the books of B
Dr. Cr.
(Rs.) (Rs.)
To Bank A/c (Remittance to A) 150,000 By Bank A/c (Sales) 240,000
To Bank A/c (Insurance) 1,000 By Vehicle A/c (Car purchase) 50,000
To Bank A/c (Garage Rent) 2,000
To Bank A/c (Brokerage) 2,000
To Bank Account (Sundry
Expense) 400
To Profit and Loss A/c (Share of
Profit) 29,800
To Bank A/c (Balance remitted to
A) 104,800
290,000 290,000
Memorandum Joint Venture Account

Dr. Cr.
Particulars Amount (Rs.) Particulars Amount (Rs.)
To A (Cost of car purchase) 160,000 By B (Sales) 240,000
69
To A (Reconditioning expense) 60,000 By B (Car taken) 50,000

To A (Transportation Expense) 5,000
To B (Insurance) 1,000
To B (Garage Rent) 2,000
To B (Brokerage) 2,000
To B Sundry Expense 400
To Profit transferred to
A
B 29,800
29,800
290,000 290,000
70
Bills of Exchange
1. From the following bills due on different dates, calculate the date on which a single payment of total
amount can be made. 7 (2009 June)
Dated NRs.
7th April due 17th May for 6,000
14th May due 22nd July for 12,000
5th June due 2nd August for 10,000
15th June due 30th August for 14,000
Answer
Calculation of Single Payment date of Bill of Exchange
No of days to 17th
Due date Amount May Product (amount * days)
17-May 6,000 - -
22-Jul 12,000 66 792,000
2-Aug 10,000 77 770,000
30-Aug 14,000 105 1,470,000
Total 42,000 3,032,000
Average days =
Product / Amount
= 42,000 / 3,032,000
= 72.19 = 72 days (Approx)
Therefore, 72 days from 17th May is the single payment date i.e. 28 th July
2. From the following particulars prepare customers control account in general ledger: 5 (2009 Dec.)
Rs.
Opening balance in Customers Ledger: (Dr.) 2,35,000
Opening balance in Customers Ledger: (Cr.) 3500
Goods sold during the year 7,65,000
Returns inwards 15,000
Cash/cheques received 5,90,000
Bills received 1,10,000
Discount allowed 9,000
71
Cheque received dishonored 5,000

Bills received dishonored 7,000
Bad debts 9,000
A debit of Rs.1,500 is to be transferred from customer’s ledger to supplier’s ledger. Similarly, a credit
entry of Rs.1,600 is to be transferred from supplier’s ledger to customer’s ledger. Closing credit
balance in customer’s ledger is Rs.3,000.
Answer:
General Ledger Customers control account
Dr. Cr.
Rs. Rs.
To Balance b/d 235000 By Balance b/d 3500
To General Ledger By General Ledger Control
Control A/C : A/C Bank / Cash 590000
Sales 765000 Returns Inwards 15000
Bank (Cheque dishonoured) 5000 Bills Receivable 110000
Bills Receivable 7000 Discount 9000
(dishonoured) Bad Debts 9000
Transfer (1500 + 1600) 3100
To Balance c/d 3000 By Balance c/d (Balancing figure) 275400

1015000 1015000
3. For goods sold, Nair draws the following bills on Roy who accepts the same as per terms:
Amount of the bill Date of drawing Date of acceptance Tenor
Rs
8,000 6-1-2010 9-1-2010 3 months after date
9,000 15-2-2010 18-2-2010 60 days
8,000 21-2-2010 21-2-2010 2 months
15,000 14-3-2010 17-3-2010 30 days after sight
Calculate the average due date . 5 (Dec.2010)

Answer:
Calculation of Average Due Date (April 9 is the starting point)

Amount of the Bill Due Date No. of days from Product ( Amount x
(Rs.) April 9 No. of Days)
72
8,000 9-4-2010 0 0
9,000 19-4-2010 10 90,000
8,000 24-4-2010 15 1,20,000
15,000 19-4-2010 10 1,50,000
40,000 3,60,000
No. of days = 3,60,000/40,000 = 9 days

Therefore, average due date is April 9+9 days = 18th April, 2010
4. A draws upon B three bills of exchange of Rs. 3,000, Rs. 2,000 and Rs. 1,000 respectively. A
week later his first bill was mutually cancelled and B agreeing to pay 50% of the amount in cash
immediately and for the balance plus interest Rs. 100, he accepted a fresh bill drawn by A. All
these bills were retained till maturity when all were duly met.
Give necessary journal entries recording the above transactions in the books of A. 5 (June2011)
Answer: Journal of A
Particulars Dr (Rs.) Cr. (Rs.)
Bills Receivable A/c Dr 6,000
To B 6,000
(three bills of Rs. 3,000, Rs. 2,000 and Rs. 1,000 drawn on
B and duly accepted by him received)
B Dr 3,000
To Bills Receivable A/c 3,000
(Bills received from B cancelled for renewal)
Bank A/c Dr 1,500
Bills Receivable A/c Dr 1,600
To B 3,000
To Interest A/c 100
(50% amount received on cancellation of the first bill along
with a new bill for 50% of the amount plus interest Rs.100)
Bank A/c Dr 4,600
(Amount received on maturity of second, third and new bill)
5. Amar draws upon Bikas three Bills of Exchange of Rs. 30,000, Rs. 20,000 and Rs. 10,000 respectively
which were duly accepted by Bikas. A week later first bill was mutually cancelled, Bikas agreeing to pay
50% of the amount in cash immediately and for the balance plus interest of Rs. 1,000, he accepted a fresh
bill drawn by Amar. This new bill was endorsed to Chakra who discounted the same with his banker for Rs.
15,000. The second bill was discounted by Amar at 5%. This bill on maturity was returned dishonoured
(Noting Charges Rs. 300). The third bill was retained till maturity when it was duly met.
Give the necessary journal entries for recording above transactions in the books of Amar. 5 (Dec.2011)
Answer:
Journal entries in the books of Amar
73
Particulars Dr. Cr.

Rs. Rs.
Bills Receivable A/c 60,000
To Bikas A/c 60,000
(Being three bills for Rs. 30,000, Rs. 20,000 and Rs. 10,000 drawn
on Bikas and duly accepted by him)
Bikas A/c 30,000

(Being bills received from Bikas cancelled for renewal)
Cash A/c 15,000

Bills Receivable A/c 16,000
To Bikas A/c To 30,000
Interest A/c 1,000
(Being 50% amount received on cancellation of the first bill, along
with a new bill for 50% of the amount plus interest)
Chakra A/c 16,000

(Being the bill endorsed in favour of Chakra)
Bank A/c 19,000

Discount A/c 1,000
(Being second bill for Rs. 20,000 discounted with the bank @ 5%)
Bikas A/c 20,300

To Bank A/c 20,300
(Being second bill for Rs. 20,000 discounted with the bank
dishonoured, noting charges Rs. 300 paid)
Bank A/c 10,000

(Being amount received on maturity of third bill)
6. Ramesh for the mutual accommodation of himself and Suresh draws upon the latter a bill at 3
months‟ date for Rs. 800 dated 1st January. The bill is discounted by Ramesh at 5% and half of the
proceeds are remitted to Suresh.Suresh at the same time draws a bill at three months on Ramesh for Rs.
400. After securing Ramesh‟s acceptance, the bill is discounted at 6% by Suresh who remits half the
proceeds to Ramesh. Suresh becomes bankrupt on 31st March and 25 paisa in the rupee is received on 15th
May as first and final dividend from his estate.Write up Journal entries in the books of Suresh. 5
74
(June2012)
Answer:
Dr. 800
800
Ramesh A/c
To Bills payable A/c
(Being acceptance of Ramesh‟s bill)
Bank A/c Dr. 395
Discount A/c Dr. 5
To Ramesh A/c 400
(Being the receipt of an acceptance from Ramesh)
Bills receivable A/c Dr. 400
To Ramesh A/c 400
(Being the receipt of an acceptance from Ramesh)
Bank A/c Dr. 394
Discount A/c Dr. 6
To Bills receivables A/c 400
(Being the amount received on discounting the bill)
Ramesh A/c Dr. 200
To Bank A/c 197
To Discount A/c 3
(Being the remittance of half the proceeds to Ramesh)
Bills payableA/c Dr. 800
To Ramesh A/c 800
(Being the dishonor of the bill on becoming bankrupt)
Ramesh A/c Dr. 600
To Bank A/c 150
To Deficiency A/c 450
(Being the payment of dividend of 25 paisa in the
rupee in full satisfaction of Ramesh‟s claim for
Rs.600)
7. Surendra draws on Rajendra a bill for Rs 45,000 on 1st June 2011 for 3 months. Rajendra accepts the
bill and sends it to Surendra who gets it discounted for Rs. 44,100. Surendra immediately remits Rs
14,700 to Rajendra. On the due date Surendra being unable to remit the amount due, accepts a bill for
Rs. 63,000 for 3 months which is discounted by Rajendra for Rs. 61,650. Rajendra sends Rs. 11,100 to
Surendra. On the due date, Surendra becomes insolvent, his estate paying 40 paise in the rupee. Give
Journal entries in the books of Surendra. 5 (June2013)
75
Answer:
Journal Entries in books of Surendra
Date Particulars Debit (Rs.) Credit
(Rs.)
2011 Bills Receivable A/c 45,000
June 1 To Rajendra 45,000
(Being acceptance received from Rajendra)
June 4 Bank A/c 44,100
Discount A/c 900
(Being bill discounted with bank)
June 4 Rajendra 15,000
To Bank A/c 14,700
To Discount A/c 300
(Being 1/3rd proceeds of the discounted bill
remitted to Rajendra)
Sept 4 Rajendra A/c 63,000
To Bills Payable A/c 63,000
(Being acceptance given to Rajendra)
Sept 4 Bank A/c 11,100
Discount A/c 900
To Rajendra 12,000
(Being amount received from Rajendra)
Dec 7 Bills Payable A/c 63,000
To Rajendra 63,000
(Being bill dishonored due to insolvency)
Dec 7 Rajendra 42,000

To Bank A/c 16,800
To Deficiency 25,200
(Being 40% share paid to Rajendra from our
estate)
Working Note: Calculation of discount to be borne by Surendra
Amount due by Surendra but not remitted to Rajendra (45,000-15,000) 30,000
Add: Amount received by Surendra from Rajendra
11,100
Total amount due to Rajendra 41,100
Discount to be borne = Rs. 1,350 *41,110/61,650 = Rs 900
8. Ravi and Yukta were friends and in need of funds. On 1st January, Ravi drew a bill for Rs. 2,00,000 for 3
months on Yukta. On 4th January, Ravi got the bill discounted at 10% p.a. and remitted half of the
proceeds to Yukta. On 1st April, Ravi could not send the required sum, instead, he accepted Yukta’s bill
for Rs. 1,20,000 for two months. On 4th April, the bill was discounted by Yukta at 12% p.a. Out of this
Rs. 7,800 were remitted to Ravi. At maturity of second bill, due to financial crisis, Ravi became insolvent
and only 50 Paise in a rupee could be recovered from his estate.
76
Prepare Journal Entries in the Books of Ravi. 5 (June2014)

Answer:
Journal Entries in the books of Ravi
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)

January Bills Receivable A/c 200,000
1 Dr. 200,000
To Yukta
(Being the acceptance of a bill received
from Yukta)
January Bank A/c 195,000
4 Dr. 5,000
Discount A/c 200,000
Dr.
To Bills Receivable A/c (Being
the bill discounted @ 10% p.a.)
January Yukta 100,000

4 Dr. 97,500
To Bank A/c 2,500
To Discount A/c
(Being half the proceeds remitted to
Yukta)
April 1 Yukta 120,000
Dr. 120,000
To Bills Payable A/c
(Being the acceptance of a bill given to
Yukta)
April 4 Bank A/c 7,800
Dr. 2,200
Discount A/c 10,000
Dr.
To Yukta
(Being Rs. 7,800 received from Yukta
and proportionate discount Rs. 2,200 (
i.e. Rs. 2,400 x Rs.
107,800/ Rs. 117,600) debited)
77
April 7 Bills Payable A/c 120,000

Dr. 120,000
To Yukta
(Being the second bill dishonoured on
being bankrupt)
Yukta 110,000
Dr. 55,000
To Bank A/c 55,000
To Deficiency A/c
(Being a dividend of 50 paise in rupee
paid to Yukta and the unpaid balance
transferred to Deficiency A/c)
78
Royalty
1. On Shrawan 1, 2062 PQR took a mining lease from GVK on a term that royalty was payable @ NRs. 20 per
ton of output with a minimum rent of NRs. 1,000,000 per annum. Short working, if any, of any year, was
recoupable during the subsequent year only.
The lease, however, stipulated that if in any year the normal rent was not attained due to strike, the
minimum rent was to be regarded as having been reduced proportionately having regard to the length of
stoppage. The output was as follows: 7 (2009 June)
Financial Year Output Remarks
2062-63 40,000 Tonnes -
2063-64 54,000 Tonnes -
2064-65 52,000 Tonnes Stoppage due to Strike for 3 Months
ANSWERS: In the Books of GVK Journal Entries
Debit Credit
S. No. Date Particulars NRs. NRs.
1 31/03/2063 PQR A/c Dr. 1,000,000
To Royalties Receivable A/c 800,000
To Royalties Suspense A/c 200,000
(Being rent receivable from PQR; Royalty
receivable being 800,000; Excess NRs. 200,00
credited to Royalties Suspense A/C)
2 31/03/2063 Bank A/c Dr. 1,000,000
To PQR A/c 1,000,000
(Being due amount received from PQR)
3 31/03/2063 Royalties Receivable A/c Dr. 800,000
To Profit & Loss A/c 800,000
(Being Royalties Receivable transferred to
Profit & Loss A/c)
4 31/03/2064 PQR A/c Dr. 1,000,000
Royalties Suspense A/c Dr. 80,000
To Royalties Receivable A/c 1,080,000
(Being Minimum Rent receivable from PQR
after adjusting NRs. 80,000 allowable against NRs.
1,080,000)
5 31/03/2064 Bank A/c Dr. 1,000,000
To PQR A/c 1,000,000
79
6 31/03/2064 Royalties Receivable A/c Dr. 1,080,000

To Profit & Loss A/c 1,080,000
Profit & Loss A/c)
7 31/03/2064 Royalties Suspense A/c Dr. 120,000
To Profit & Loss A/c 120,000
(Being Balance of Royalties Suspense, being
irrecoverable, transferred to PL A/c)
8 31/03/2065 PQR A/c Dr. 1,040,000
To Royalties Receivable A/c 1,040,000
(Being rent receivable from PQR; Royalty
receivable being 1,040,000)
9 31/03/2065 Bank A/c Dr. 1,040,000
To PQR A/c 1,040,000
10 31/03/2065 Royalties Receivable A/c Dr. 1,040,000
To Profit & Loss A/c 1,040,000
Profit & Loss A/c)
working note i)
Date Output Royalt Minimum Short working Amount

in y@ Rent Allowable Recouped Irrecoverable Receivable
Tonne NRs. from
s 20 Lessee
31/03/2063 40,000 800,000 1,000,000 200,000 - 1,000,000

31/03/2064 54,000 1,080,000 1,000,000 - 80,000 120,000 1,000,000
31/03/2065 52,000 1,040,000 1,000,000 - - - 1,040,000
ii) Strike for 3 months has no impact on Royalty as it is more than Minimum Rent.
2. An Engineer had patented a quick-boiling kettle and gave the Domestic Appliance Co., the right to
manufacture and sell under a licence for seven years. The stipulated terms were as follows:
i) A royalty of NRs. 4 to be paid on each kettle sold.
ii) A minimum payment of NRs. 20,000 per annum.
iii) The right to deduct in two following years any excess of minimum payment over the
calculated royalties in any year.
The number of kettle sold was:
Year ended 31st March, 2006 4,000
st
Year ended 31 March, 2007 4,500
80
Give the ledger account as they would appear in the books of the Domestic Appliances Co. to
record these transactions. 10 (June 2010)
Answer:
Royalty Account
06.3. To Engineer 16,000 06.3. 31 By PL A/c 16,000
31
07.3. 31 To Engineer 18,000 07.3. 31 By PL A/c 18,000
08.3. 31 To Engineer 20,000
08.3. 31 To Shortworkings A/c 1,600 08.3. 31 By PL A/c 21,600
21,600 21,600
09.3. 31 To Engineer 24,000
09.3. 31 To Shortworkings A/c 2,000 09.3. 31 By PL A/c 26,000
26,000 26,000
Shortworkings Account
2006 March 31 To Engineer 4,000 2006 March 31 By Bal c/d 4,000
2006 April 1 To Balance b\d 4000 2007 March 31 By Bal c/d 6,000
2007 March 31 To Engineer 2,000
2007 April 1 To Balance b/d 6000 2008 March 31 By Royalty 1,600

2008 March 31 By PL A/C 2,400
By Bal c/d 2,000
6,000
6,000
2008 April 1 To Balance b/d 2009 March 31 By Royalty 2,000
2,000
81

06 .03. 31 06 .03. 31 By Royalty 16,000
To Bank A/c 20,000 By S.W. 4,000
20,000 20,000
07 .03. 31 07 .03. 31 By Royalty 18,000
To Bank A/c 20,000 By S.W. 2,000
20,000 20,000
20,000 20,000
08 .03. 31 To Bank A/c 08 .03. 31 By Royalty
20,000 20,000
09 .03. 31 To Bank A/c 24,000 09 .03. 31 By Royalty 24,000
24,000 24,000
on
3. 1st January, 2008 Gadgets Limited, patentees of a new type of electric razor, issued a licence to Domestic
Utilities Limited for the manufacture and sale of the razors. On the same date, Domestic Utilities Limited
issued to Trimmers Limited a sub-licence for the same purpose.
The licence issued by Gadgets Limited provided for a royalty of Rs. 100 per razor sold, subject to a minimum
sum of Rs. 750,000 per annum, and the sub-licence issued by Domestic Utilities Limited provided for a
royalty of Rs. 150 per finished razor manufactured, subject to a minimum sum of Rs. 300,000 per annum.
Output Royalties Minimum Shortworkin Shortworkings Shortworkings Payment
Rent gs/ (Surplus) recouped not recouped
Working to
Note: Engineer
Year
2006 4,000 16,000 20,000 4,000 20,000
2007 4,500 18,000 20,000 2,000 20,000
2008 5,400 21,600 20,000 (1,600) 1,600 2,400 20,000
2009 6,500 26,000 20,000 6,000 2,000 24,000
Both the licence and sub-licence provided that, should the royalties for any calendar year be less than the
specified minimum, the shortworkings could be recouped out of royalties, in excess of the minimum, for
either of the two immediately following calendar year.
You are given the following information:
Sales by Domestic Sales by Stock held by

Year
Utilities Ltd. Trimmers Ltd. Trimmers Ltd.
2008 4,520 Razors 1,220 Razors 340 Razors
82

Prepare statements showing Royalty Payable A/c. Do not pass journal entries.
Answer :
In the Books of Domestic Utilities Ltd.

Statement of Royalty Payable
Sales Royalty Minimum Shortworkings (Rs) Royalty

Year Unit* (Rs) Rent (Rs) Payable (Rs)
Occurred Recoverable Irrecoverable
2008 5,740 574,000 750,000 176,000 - - 750,000
2009 8,970 897,000 750,000 - 147,000 - 750,000
2010 7,615 761,500 750,000 - 11,500 17,500 750,000
* Royalty must be paid on the sales made through sub lease also.
In the Books of Trimmers Ltd.

Statement of Royalty Payable
Shortworkings (Rs) Royalty

Year Output Royalty Minimum
Receivable
Unit* (Rs) Rent (Rs) Occurred Recoverable Irrecoverable (Rs)
2008 1,560 234,000 300,000 66,000 - - 300,000
2009 2,510 376,500 300,000 - 66,000 - 310,500
2010 2,280 342,000 300,000 - - - 342,000
* Sales + Closing Stock – Opening Stock.
Year Sales Closing Stock Opening Stock Output

2008 1,220 340 - 1,560
2009 2,790 60 340 2,510
2010 1,940 400 60 2,280
4. The Nepal Coal Ltd. holds a lease of a coal mine for a period of ten years commencing
from 1.1.2000. According to the lease, the company is to pay 75 paisa as royalty per
ton with a minimum rent of Rs. 15,000 per year. Short working can however be
recovered out of the royalty in excess of the minimum rent of the next two years only.
In the year of strike, the minimum rent is to be reduced to 60%. The output for the six
83
years has been as under.

1st Year 10,000 tons.
2nd Year 12,000 tons.
3rd Year 28,000 tons.
4th Year 25,000 tons.
5th Year 50,000 tons.
6th Year 15,000 tons. (strike)
Write up necessary ledger accounts in books of Nepal Coal Ltd. 10 (June2012)
Analysis Table
Year Output Royalty Minimum Short Short Short Payment
Rent Working Working Working
recouped Transferred
1st Year 10,000 7,500 15,000 7,500 - - 15,000
2nd Year 12,000 9,000 15,000 6,000 - - 15,000
3rd Year 28,000 21,000 15,000 - 6,000 1,500 15,000
4th Year 25,000 18,750 15,000 - 3,750 2,250 15,000
5th Year 50,000 37,500 15,000 - - - 37,500
6th Year 15,000 11,250 9,000 - - - 11,250
Royalty Account
Rs. Rs.
1st Year To Landlord A/c 7,500 1st Year By Production A/c 7,500
2nd To Landlord A/c
9,000 2nd By Production A/c
9,000
Year Year
3rd Year To Landlord A/c 3rd By Production A/c
21,000 21,000
Year
4th Year To Landlord A/c 4th Year By Production A/c
18,750 18,750

37,500 37,500

11,250 11,250
Rs. Rs.
st st
1 Year To Landlord A/c 7,500 1 Year By Balance c/d By 7,500
2nd To Balance b/d
7,500 2nd Balance c/d
13,500
Year To Landlord A/c 6,000 Year
84
13,500 13,500
3rd Year To Balance b/d 13,500 3rd By Landlord A/c 6,000
Year
By Profit and Loss A/c 1,500
By Balance c/d
6,000
By Landlord A/c
13,500 By Profit and Loss A/c 13,500
4th Year To Balance b/d 6,000 4th Year 3,750
2,250
6,000 6,000
Landlord Account
Rs. Rs.
1st Year To Bank a/c 15,000 1st Year By Royalties A/c 7,500
By Shortworking A/c 7,500
15,000 15,000
2nd To Bank A/c 15,000 2nd By Royalties A/c 9,000
Year Year
By Shortworking A/c 6,000
To Shortworking 15,000 15,000
3rd Year A/c 6,000 3rd By Royalties A/c 21,000
To Bank A/c Year
15,000
To Shortworking 21,000 21,000
4th Year A/c 3,750 4th Year By Royalties A/c 18,750
To Bank A/c
15,000
To Bank A/c To 18,750 18,750
5th Year Bank A/c 37,500 5th Year By Royalties A/c 37,500
6th Year 6th Year By Royalties A/c

11,250 11,250
5. The B Brick Company holds a lease of land to produce bricks for a period of ten years, commencing from
1st January, 2004. According to lease, the company is to pay Rs. 250 per thousand units of bricks with a
minimum rent of Rs. 250,000 per year. Shortworking can, however, be recovered out of the royalty in
excess of the minimum rent of next two years only. For the year of strike the minimum rent is to be reduced
to 60%. The output in number of bricks in thousand for the 6 years is as under. 2004 – 400, 2005 – 800,
2006 – 1,200, 2007 – 1,600, 2008 – 2000, and 2009– 1,000 (Strike).
10 (June2015)
Answer:
Analysis of Royalties Payable
85
Ye Outpu Actual Minim Surplus Shortworking Amount

ar t no. of Royalties @ um Suffered Recouped Written C/F Payable
bricks Rs. 250 per Rent off
in ‘000 thousand
2004 400 100,000 250,000 - 150,000 - - 150,000 250,000

2005 800 200,000 250,000 - 50,000 - - 200,000 250,000
2006 1,200 300,000 250,000 50,000 - 50,000 100,000 50,000 250,000
2007 1,600 400,000 250,000 150,000 - 50,000 - - 350,000
2008 2,000 500,000 250,000 250,000 - - - - 500,000
2009 1,000 250,000 150,000 - - - - - 250,000
(Strik
e)
In the books of B Bricks Company
Royalties Account
Dr. Cr.

2004 To, Landlord A/c 100,000 2004 By, Profit and Loss A/c 100,000
Note: It assumed that the Company does not prepare a Manufacturing A/c or a Trading
A/c. It prepars only Profit and Loss A/c. Therefore, all actual royalties are transferred to
Profit and Loss Account.
Shortworking Account
Dr. Cr.
2004 To, Landlord A/c 150,000 2004 By, Balance c/d 150,000
2005 To, Balance b/d 150,000 2005 By, Balance c/d 200,000
To, Landlord A/c 50,000
200,000 200,000
2006 To, Balance b/d 200,000 2006 By, Landlord A/c 50,000
By, Profit and Loss A/c 100,000
86
By, Balance c/d 50,000

200,000 200,000
2007 To, Balance b/d 50,000 2007 By, Landlord A/c 50,000
Landlord Account
Dr. Cr.

2004 To, Bank A/c 250,000 2004 By, Royalties A/c 100,000
By, Shortworking A/c 150,000
250,000 250,000
By, Shortworking A/c 50,000
250,000 250,000
To, Shortworking A/c 50,000
300,000 300,000
To, Shortworking A/c 50,000
400,000 400,000
6. ABC Company obtained from B & Co. Ltd. a lease of some coal bearing land, the terms being a royalty of Rs. 15 pe
of coal raised subject to minimum rent of Rs. 75,000 per annum with a right to recoupment of shortcoming over the
four years of the lease. From the followings details show (i) Royalties Account;
ii) Shortworkings Account; and (iii) B & Co. Ltd. Account. 10 (Dec.2018)
Year 2071 2072 2073 2074 2075

Sales (tons) 2,000 3,500 4,800 5,600 8,000
Closing stocks (tons) 300 400 600 500 800
Answer:
a) Working notes:
87
1. Calculation of Production & royalities

year Sales Closing stock Opening stock Production(tons) Royalities
(1) (2) (3) (4)=(1)+(2)-(3)
2071 2,000 300 - 2,300 34,500
2072 3,500 400 300 3,600 54,000
2073 4,800 600 400 5,000 75,000
2074 5,600 500 600 5,500 82,500
2075 8,000 800 500 8,300 1,24,500
2. Analysis of Royalities Payable

Minimum Shortworking
Actual Rent Surplus
year outpu Royalities@Rs. Suffered Recouped Written C/F Amou
t 15 per ton off nt
tons Payabl
e
2071 2,300 34,500 75,000 - 40,500 - - 40,500 75,000
2072 3,600 54,000 75,000 - 21,000 - - 61,500 75,000
2073 5,000 75,000 75,000 - - - - 61,500 75,000
2074 5,500 82,500 75,000 7,500 - 7,500 54,000 - 75,000
2075 8,300 124,500 75,000 49,500 - - - - 124,500
In the Books of ABC company Royalities Account

Dr. Cr.
2071 To B & Co. Ltd a/c 34,500 2071 By Manufacturing a/c 34,500
2075 To B & Co. Ltd a/c 1,24,500 2075 By Manufacturing a/c 1,24,500
Shortworking account
Dr. Cr.
88
2071 To B & Co. Ltd a/c 40,500 2071 By Balance c/d 40,500
2072 To Balance b/d 40,500 2072 By Balance c/d 61,500
To B & Co. Ltd a/c 21,000
61,500 61,500
2073 To Balance b/d 61,500 2073 By Balance c/d 61,500
2074 To Balance b/d 61,500 2074 By B & Co. Ltd a/c 7,500
By Profit & Loss a/c 54,000
61,500 61,500
B & Co. Ltd account

Dr. Cr.
2071 To Bank a/c 75,000 2071 By Royalities a/c 34,500
By Shortworking a/c 40,500
75,000 75,000
By Shortworking a/c 21,000
75,000 75,000
To Shortworking a/c 7,500 82,500
82,500
2075 To Bank a/c 1,24,500 2075 By Royalities a/c 1,24,500
89
Chapter 6 Preparation of Financial Statement
Numerical Questions and Answers.
1. From are the following balances extracted from the books of Mr. B. Birat, prepare
Trading and Profit & Loss Account for the year ended Ashadh 31, 2065 and the Balance
Sheet as on that date: 20 (June2009)
NRs. NRs.
Purchases 4,000,000 Land 1,000,000
Sales 4,300,000 Motor Car 200,000
Sundry Debtors 225,000 Return Outwards 12,500
Building 100,000 Return Inwards 22,000
Furniture 50,000 Cash in Hand 8,000
Sundry Creditors 180,000 Cash at Bank 9,800
Wages 46,000 Bank Loans 450,000
Salaries 56,000 Bills Payable 18,000
Insurance 18,000 Opening Stock 228,000
Rent 40,500 Freight Inwards 8,000
Investment 100,000 Freight Outwards 7,000
Postage & Telegram 1,800 Office Electricity 8,000
Traveling & Conveyance 2,400 Office Expenses 15,000
Interest on Bank Loans 25,000 Sundry Income 10,000
Adjustments required:
a) Stock as on Ashadh 31, 2065 was valued at NRs. 450,000.
b) The market value of investment as on 31.03.2065 amounted to NRs. 120,000.
c) Interest accrued on investment amounted to NRs. 5,000.
d) Charge depreciation on Building @ 5%, Furniture @ 25% and Vehicle @ 20%.
e) Outstanding Salaries amounts to NRs. 5,500; whereas, Prepaid Rent amounts to
NRs. 7,500.
f) Of the Sundry Debtors, NRs. 2000 is bad and should be written off.
Answer
90
COMPILED BY KISAN
JOSHI,
CAP III, CA ASPIRANTS-
ICAN
r. B Birat.
Trading and Profit & Loss Account For

the Year Ended Ashadh 31, 2065
.
B
i
M
Debit Credit
Particulars NRs. NRs. Particulars NRs. NRs.
To Opening Stock 228,000 By Sales 4,300,000
To Purchases 4,000,000 Less: Return Inwards 22,000 4,278,000
Less: Return Outwards 12,500 3,987,500 By Closing Stock 450,000
To Wages 46,000
To Freight Inwards 8,000
To Gross Profit C/F 458,500
Total 4,728,000 Total 4,728,000
To Salaries 56,000 By Gross Profit B/F 458,500
Add: Outstanding 5,500 61,500 By Sundry Income 10,000
To Insurance 18,000 By Int on Investment 5,000
To Rent 40,500
Less: Prepaid 7,500 33,000
To Freight Outwards 7,000
To Postage & Telegram 1,800
To Travelling & Convey 2,400
To Office Electricity 8,000
91
COMPILED BY KISAN
JOSHI,
CAP III, CA ASPIRANTS-
ICAN
To Office Expenses 15,000

To Int on Bank Loans 25,000
To Depreciation:
Building 5,000
Furniture 12,500
Motor Car 40,000 57,500
To Bad Debts 2,000
To Net Profit C/F 242,300
Total 473,500 Total 473,500
92
Balance Sheet of Mr. Birat as on 31st Ashad
Equity & Liabilities NRs. NRs. Assets NRs. NRs.
Capital 1,200,000 Fixed Assets:
Add: Net Profit of the Year 242,300 1,442,300 Land 1,000,000
Bank Loans 450,000 Building 100,000
Bills Payable 18,000 Less: Depreciation 5,000 95,000
Sundry Creditors 180,000 Furniture 50,000
Outstanding Salaries 5,500 Less: Depreciation 12,500 37,500
Motor Car 200,000
Less: Depreciation 40,000 160,000
Sundry Debtors 225,000
Less: Bad Debts 2,000 223,000
Investment 100,000
Closing Stock 450,000
Prepaid Rent 7,500
Accrued Interest 5,000
Cash in Hand 8,000
Cash at Bank 9,800
Total 2,095,800 Total 2,095,800
Working Notes:
Since there is no Trial Balance given, it is advisable to prepare Trial Balance. Alternatively, difference may be calculated
and be shown as Capital:
Trial Balance as on Ashadh 31, 2065
Debit Credit
Account NRs. Account NRs.
Purchases 4,000,000 Sales 4,300,000
Land 1,000,000 Return Outwards 12,500
Building 100,000 Bank Loans 450,000
Furniture 50,000 Bills Payable 18,000
Motor Car 200,000 Sundry Creditors 180,000
Return Inwards 22,000 Sundry Income 10,000
Cash in Hand 8,000 Balancing Figure (Capital) 1,200,000
Cash at Bank 9,800 Note: Balancing figure may be
Sundry Debtors 225,000 calculated in different
manner also.
Wages 46,000
Salaries 56,000
Insurance 18,000
Rent 40,500
Opening Stock 228,000
Chaitanya Institute of Management, New Baneshwor, Shankhmul, Contact: 01-4782427, 9851246100
Freight Inwards 8,000
Freight Outwards 7,000
Postage & Telegram 1,800
Travelling & Conveyance 2,400
Office Electricity 8,000
Investment 100,000
Interest on Bank Loans 25,000
Total 6,170,500 Total 6,170,500
2. Mr. X reports the following accounts on his income statement:
Sales NRs 69,000

Advertisement expenses NRs 3,500
Salaries expenses NRs 39,000
Rent expenses NRs 10,000
These accounts represent two years of revenue and expenses. Mr X provides the following
additional data:
i) Sales in the 2nd year are double those of the 1st year
ii) Advertising expenses of Rs 500 is for opening promotion and balance for weekly
advertisement in the newspaper.
iii) Salaries represent one employee for the first nine month and then two employees for the
remainder of the time .Each is paid the same salary. No raises have been granted.
iv) Rent has not changed during the period.
Prepare Income statements for Year 1st and Year 2nd. 8 (June2009)
Answer Income Statements

Particulars Year 1(In Rs.) Year 2(In Rs.)
Sales 23,000 46,000
Less: Advertisement expenses (2,000) (1,500)
Less: Salaries expenses (15,000) (24,000)
Less: Rent expenses (5,000) (5,000)
Surplus/(deficit) 1000 15500
Working Notes:
Calculation of Sales for Year 1 and Year 2
Let sales in 1st year is X.
X + 2X = 69,000
Or, 3X = 69,000
X = 23,000
Year 1 sales = NRs. 23,000 Year 2 sales = NRs.46,000

Calculation of Advertisement Expenses for Year 1 and Year 2
Two years weekly advertisement expenses= Total Exps – Opening Promotional Exps
= NRs. 3,500-500
= NRs. 3,000
Year 1 advertisement expenses = 500+ 3,000/2 = NRs. 2,000

Year 2 advertisement expenses = 3,000/2 = NRs. 1,500
24*X*1 + (24-9)* X * 1 = NRs. 39,000

Or, 39X = 39,000
X = 1,000
Salaries expenses for Year 1 = 12 * 1,000 + 3 * 1,000 = NRs.15,000

Salaries expenses for Year 2 = 12 *1,000 * 2 = NRs. 24,000
Calculation of Rent Expenses for Year 1 and Year 2 Rent

expense for Year1 = NRs. 10,000/2= NRs. 5,000
Rent expense for Year2 = NRs. 10,000/2= NRs. 5,000
3. From the following Trial Balance of Atmaram as at 31st March, 2009, you are required to prepare a Trading and
Profit and Loss Account for the year ended 31st March, 2009 and a Balance Sheet as at that date: 20
(2009 DEC.)
Trial Balance for the year ended 31st March, 2009
Particulars Dr Cr
Rs. Rs.
Atmaram's Capital Account 1,81,000
Atmaram's Drawings Account 36,000
Plant and Machinery (balance as at 01.04.2008) 1,20,000
Plant and Machinery (purchased on 01.10.2008) 25,000
Stock on 01.04.2008 95,000
Purchases 7,82,000
Return Inwards 12,000
Furniture and Fixtures 15,000
Freight and Duty 2,000
Carriage Outwards 500
Rent, Rates and Taxes 24,600
Printing and Stationery 3,800
Trade Expenses 5,400
Sundry Creditors 40,000
Sales 9,80,000
Return Outwards 3,000
Postage and Telegrams 800
Provision for Doubtful Debts 400
Discounts 1,800
Rent of premises sub-let for a year up to 30.09.2009 7,200
Insurance Charges 2,700
Salaries and Wages 31,300
Cash Balance 36,700
Total 12,13,400 12,13,400
Other relevant informations are as follows:
a. Stock on 31.03.2009, was valued at Rs.94,600

b. Write off Rs.600 as bad debts.
c. The provision for doubtful debts is to be maintained at 5% on sundry debtors.
d. Create a provision for discounts on debtors and reserve for discounts on creditors at 2%.
e. Provide for depreciation on furniture and fixtures at 5% per annum, and on plant and machinery at 20%
per annum.
f. Insurance unexpired was Rs.100.
g. A fire occurred on 25.03.2009 in the godown and stock of the value of Rs.5,000 was destroyed. It was
fully insured and the Insurance Company admitted the claim in full.
Answer:
Mr. Atmaram
Trading and Profit and Loss Account for the year ended 31 st March, 2009
Rs. Rs.
To Purchases 7,82,000 Less: Returns 12,000 9,68,000
Less: Return 3,000 7,79,000 By Insurance Co. 5,000
To Freight and Duty 2,000 By Closing Stock 94,600
To Gross Profit c/d 1,91,600
10,67,600 10,67,600
To Salaries & Wages 31,300 By Gross Profit b/d 1,91,600
To Rent, Rates & Taxes 24,600 By Discount 1,800
By Reserve for
Discount on
To Printing & Stationeries 3,800 Creditors 800
To Trade Expenses 5,400 By Rent Received 7,200
To Postage and telegrams 800 Less: Advance 3,600 3,600
To Insurance Charges 2,700
Less: Unexpired 100 2,600
To Carriage Outwards 500
To Depreciation:
Plant & Machinery 26,500

Furniture & Fixtures 750 27,250
To Provision for D. Debts:
Required 1,000
Add: Bad Debts 600
1,600
Less: Existing Provision 400 1,200
To Provision for Discount
on Debtors 380
To Net Profit transferred to
Capital Account 99,970
1,97,800 1,97,800
4. Green & Co. has two departments ―P‖ and ―Q‖. Department ―P‖ sells goods to Department
―Q‖ at normal selling prices. From the following particulars prepare Departmental Trading and Profit and
Loss Account for the year ended 31st December, 2009.
Particulars Department ―P‖ Department ―Q‖
(NRs.) (NRs.)
Stock on 01.01.2009 100,000 -
Purchases 2,300,000 200,000
Goods from Department ―P‖ - 700,000
Wages 100,000 160,000
Travelling Expenses 10,000 140,000
Printing and Stationery 20,000 16,000
Stock on 31.12.2009 – At cost to the Department 500,000 180,000
Sales - Outside 2,300,000 1,500,000
The following expenses incurred for both the Departments were not apportioned between the
Departments:
Salaries NRs. 270,000
Advertisement expenses NRs. 90,000
General expenses NRs. 800,000
Depreciation @ 25% on the machinery value of NRs. 48,000.
Advertisement expenses are to be apportioned in the turnover ratio. Salaries in 2:1 ratio and Depreciation
in 1:3 ratio between the Departments ―P‖ and ―Q‖. General expenses are to be apportioned in 3: 1
ratio. 10 (June 2010)
Answer:
Green and Co.

Departmental Trading and Profit and Loss Account
For the year ending 31st December, 2009
Particulars Dept. ―P‖ Dept. ―Q‖ Particulars Dept. ―P‖ Dept.
(NRs.) (NRs.) (NRs.) ―Q‖
(NRs.)
To Opening Stock 100,000 - By Sales 2,300,000 1,500,000
To Purchases 2,300,000 200,000 By Transfer to Dept. Q 700,000 -
To Transfer from Dept. P - 700,000 By Closing Stock 500,000 180,000
To Wages 100,000 160,000
To Gross Profit c/d 1,000,000 620,000
3,500,000 1,680,000 3,500,000 1,680,000

To Salaries (2 : 1) 180,000 90,000 By Gross Profit b/d 1,000,000 620,000
To Travelling Expenses 10,000 140,000
To Printing & Stationery 20,000 16,000
To Advertisement (23 : 15) 54,474 35,526
To General Expenses (3 :1) 600,000 200,000
To Depreciation (1 : 3) 3,000 9,000
To General P/L A/c 132,526 129,474
1,000,000 620,000 1,000,000 620,000
Note:
Advertisement Expenses are apportioned on the basis of outside sales made by two departments as
no advertising effort is required for inter departmental transfers.
5. The following information is supplied to you

Provision for Doubtful Debts at the beginning of the year Rs 1,200
Provision for Discount on Debtors at the beginning of the year Rs 500
Bad debts written off during the year Rs 1,400
Discounts allowed during the year Rs 1,400
Sundry Debtors at the end of the year Rs 20,000
The Provision for Doubtful Debts is maintained at 4% of debtors and the Provision for Discounts is maintained
@ 2% of the debtors. Give the accounts relating to the two provisions. 5 (Dec.2010)
Answer:
Provision for Doubtful Debt A/c

Particulars Rs Particulars Rs.
To Bad Debts A/c 1,400 By Balance b/d 1,200
To Balance c/d 800 By Profit & Loss A/c 1,000
(Current year provision,
balancing figure)
2,200 2,200
Provision for Discount on Debtors

Particulars Rs Particulars Rs.
To Discount A/c 1,400 By Balance b/d 500

To Balance c/d 400 By Profit & Loss A/c (Current year provision,
balancing figure)
1,800 1,800
6. The following are the balances as at 31st December, 2010 extracted from the books of
National Trading :-
Rs. Rs.
Plant & Machinery 40,500 Bad Debt 2,200
Furniture & Fittings 15,250 Bad debt recovered 1,250
Bank Overdraft 1,60,000 Salaries 32,650
Capital Account 1,15,000 Outstanding Salaries 5,350
Drawings 15,000 Prepaid Rent 500
Purchases 230,500 Rent 6,500
Opening Stock 1,32,250 Carriage inward 2,350
Wages 22,325 Carriage outward 3,250
Provisions for Doubtful Debts 5,700 Sales 2,90,600
Provision for discount on 1,375 Advertisement expenses 6,750
debtors
Sundry Debtors 1,52,500 Printing & stationery 2,200
Sundry Creditors 77,500 Cash in hand 2,300
Cash at Bank 7,250
a. Difference in the trial balance, if any, can be taken as miscellaneous expenses or

miscellaneous income
b. Bank overdraft is secured against hypothecation of stock. The bank overdraft
outstanding as on 31.12.2010 accounted for 80% of drawing power. Such drawing
power is ascertained by deducting 20 % as margin from the value of stock as on that
date.
c. Purchases include sales return of Rs. 5,500 and sales include purchase returns of Rs.
4,750.
d. Goods withdrawn by proprietor of National Trading Rs. 7,500 included in purchases.
e. Wages paid for installation of plant & machinery amounting to Rs. 750 were
included in wages account.
f. Depreciation is to be provided on plant & machinery @15% p.a. and on furniture &
fittings @10% p.a.
g. Create a provision for doubtful debts @ 5% and provision for discount on debtors
@ 2 ½ %.
h. A debit balance of Rs. 2,500 in the account of Ram, a creditor, is included in the list
of sundry debtors.
i. Free samples distributed for publicity costing Rs. 1,250.
Prepare a Trading and Profit & Loss Account for the year ended 31 st December, 2010. 20 (June 2011)

CA FINAL (CAP III)
Answer . Trading and Profit and Loss Account of National Trading For the
year ended 31st December 2010
Rs Rs Rs Rs
To opening stock 132,250 By sales 2,85,850
To Purchase 2,16,250 Less Sales Returns 5,500
Less purchase Returns 4,750 ------- 2,80,350
--------- 2,11,500
By Closing Stock 2,50,000
To Wages 21,575 (1,60,000x100/80x100/80)
To carriage on Purchase 2,350
To Gross Profit c\d 1,62,675
5,30,350 5,30,350
To Salaries By Gross Profit b\d 1,62,675

To Rent 32,650
To Advertisement 6,500 By Bad debt 1,250
Expenses To Printing & 8,000 recovered By Misc. 17,500
Stationery 2,200 Income
To Bad debt 2,200
To Carriage outward 3,250
To Provision for doubtful debts 1,800
(7,500-5,700)
To provision for discount on 2,188
debtors
(3,563-1,375)
To Depreciation on 6,187
Plant & Machinery @15% p.a. 1,525
Furniture & fitting @10% p.a.
To Net Profit transferred to 1,14,925
Capital account
1,81,425
1,81,425
Working notes:
i. Trial balance of National Trading (After rectification) As

on 31st December, 2010
Particulars Dr. Amount in Cr. Amount in

Rs. Rs.
Furniture & Fittings 15,250
Bank Overdraft 160,000
Drawings 22,500
Purchases 216,250
Returns outward 4,750
Opening stock 132,250
Wages 21,575
Provisions for doubtful debts 5,700
Provision for discount on debtors 1,375
Advance to suppliers 2,500
CA FINAL (CAP III)
Bad debt 2,200
Bad debt recovered 1,250
Salaries 32,650
Outstanding salaries 5,350
Prepaid rent 500

Rent 6,500
Carriage inward 2,350
Carriage outward 3,250
Sales 285,850
Returns inward 5,500
Advertisement expenses 8,000
Printing & stationery 2,200
Cash in hand 2,300
Cash at bank 7,250
Miscellaneous income (balancing figure) 17,500
Total 674,275 674,275
ii) Closing Stock

1,60,000
Bank overdraft
Drawing Power 2,00,000
Stock 2,50,000
iii) Purchase 2,30,500

Less: Sales return 5,500
2,25,000
Less: Drawing of goods 7,500
2,17,500
Less: Free Sample Distributed 1,250
2,16,250
iv) Sales 2,90,600

Less: Purchase return 4,750
2,85,850
v) Wages 22,325
Less: Installation of machine 750
Net wages 21,575
vi)a) Depreciation
Add: Installation charge 750
41,250

CA FINAL (CAP III)
Depreciation @ 15% 6,187.5 ~ 6,188
b) Furniture & fitting 15,250

Depreciation @10% 1,525
vii)Sundry Debtor 1,52,500

Less: Debit balance of creditor 2,500
Sundry Debtors (rectified) 1,50,000
Less: Provision for doubtful debts @5% 7,500
Good debtors 1,42,500
Less: Provision for discount on
Debtors @ 2 ½ % 3,563
Net Debtors 1,38,937
========
viii) It has been assumed that additions to plant & machinery were made at the beginning of the year.
7. The Balance Sheet of a firm as at 31st March, 2011 stood as follows:
Capital & Liabilities Rs. Assets Rs.

Property, Plant &
Share Capital 100,000 125,000
Equipment
Reserves 40,000 Debtors 60,000
Trade Creditors 70,000 Cash at Bank 25,000
210,000 210,000
You are required to pass necessary opening entries and prepare ledger accounts
for next year. 5 (June2011)
Answer:
Opening Entry as on 01.04.2011:
Debit Credit
Particulars
Rs. Rs.
Property, Plant and Equipment A/c 125,000
Debtors A/c 60,000
Cash A/c 25,000
To Share Capital A/c 100,000
To Reserve A/c 40,000
To Trade Creditors A/c 70,000
(Being opening balances brought forward)
Ledger Accounts:
2
CA FINAL (CAP III)
Property, Plant and Equipment Account

01.04.'11 To Balance b/d 125,000
Debtors Account

01.04.'11 To Balance b/d 60,000
Cash Account
01.04.'11 To Balance b/d 25,000
Share Capital Account

01.04.'11 To Balance b/d 100,000
Reserve Account
01.04.'11 To Balance b/d 40,000
Trade Creditors Account

01.04.'11 To Balance b/d 70,000
8. On 31st December 2010, the following balances appeared in the books of Mr. Ajit Baral
of Janakpur: 20 (Dec.2010)
Account Balances Rs. Account Balances Rs.

Capital Account 1,00,000 Carriage Inward 2,000
Mr. Ajit‟s Current Account 15,000 Wages 60,000
Drawings during the year 12,000 Interest paid on loan from Mrs. 480
Ajit
Loan from Mrs. Ajit taken on 1st 6,000 Salary of Works Manager 9,600
April, 2010 bearing interest
at 12 percent per annum
Investments (Market Value Rs. 16,250 Salaries 10,000
15,000)
Cash in Hand 2,500 Rates and Taxes on Building 3,200
Cash at Bank 15,700 Royalties paid (payable at 3,000
1percent on net sales)
Sundry Creditors 66,156 Advertisement 7,000
Sundry Debtors 35,000 Insurance of Building 2,000
3
CA FINAL (CAP III)
Bad Debts Reserve 1,000 Insurance of Plant and Machinery 3,000
(includes one annual Premium of
Rs. 1,200 paid on
30th June, 2010)
Sales 3,25,700 Printing and Stationery 2,000
Purchase of Raw materials 1,15,000 Audit fee 2,000
Discount Received 1,100 Carriage outward 3,750
Purchases Returns 3,750 Bad Debts 3,000
Bills Payable 15,300 Loose Tools 5,000
Outstanding Sundry Expenses 9,300 Repairs of Plant and Machinery 3,000
as on 1st January, 2010
Outstanding Sundry Expenses 9,000 Furniture and Fittings 7,000
paid during the year
Sundry Receipts 74 General Expenses 2,000
Opening Balance as on 1st Plant and Machinery 55,800
January, 2010:
Raw Materials 25,000 Land and Building (3/4 in use 60,000
of the factory)
Work-in-Progress 9,800 Sales Returns 2,300
Finished Goods 57,000
From the balances and the under mentioned information, prepare the Manufacturing, Trading
and Profit and Loss Account of Mr. Ajit Baral for the year ending 31st
December, 2010 and the Balance Sheet as on that date:
a. Provide depreciation on land and Building at 5%. Plant and Machinery at 20%,
Loose Tools at 25% and Furniture and Fittings at 10%.
b. Sundry Expenses outstanding as 31st December, 2010 amounted to Rs. 5,600.
c. Closing balance as 31st December, 2010 were:
Rs.
Raw Materials 22,000
Work-in-Progress 11,000
Finished Goods 38,000
d. Provision for Bad Debts should be maintained at 5%
e. Salaries include advance for the next period amounting to Rs. 600.
f. Advertisement includes Rs. 3,000 spent on Neon-signs.
g. It was discovered that stock sheet of Finished Goods as on 31st December 2010
were overcast to the extent of Rs. 1,000.
Answer:
Manufacturing Account of Ajit Baral for
the year ending 31st December, 2010
Rs Rs Rs
To Opening work –in- 9,800 By Work –in- 11,000
Progress progress(closing)
To Raw Material By Trading 2,08,610
consumed: A/c,transfer(cost of
goods manufactured)
Add:Purchase(Net) 1,11,250
1,36,250
Less: Closing Stock 22,000
1,14,250
To carriage inward 2,000
To Wages 60,000
4
CA FINAL (CAP III)
To Salary of Works 9,600
Manager
To Repairs,Plant and 3,000
Machinery
To Depreciation:
Land and Building 2,250
Plant and Machinery 11,160
Loose Tools To 1,250
Insurance:
Factory Building 1,500
Plant and machinery 2,400 3,900
To Rates and Taxes on 2,400
Building
2,19,610 2,19,610
Trading and Profit and Loss Account of Mr. Ajit Baral for the
year ending, 31st December,2010
Rs Rs Rs
To Opening Stock 57,000 By Sales less 3,23,400
Returns
To Manufacturing 2,08,610 By Closing 37,000

A/c, cost of goods Stock,Finished
produced Goods
To Gross Profit c/d 94,790

3,60,400 3,60,400
To Salaries 9,400 By Gross Profit 94,790
b/d
To Rates and Taxes 800 By Discount 1,100
on Building
To Printing and 2,000 By Sundry 74
Stationery Receipts
To Depreciation:
Land and Building 750
Furniture& Fittings 1,000 1,750
To Insurance on 500
Building
To General 2,000
Expenses
To Audit Fee 2,000
To Carriage 3,750
Outward
To Royalties 3,234
5
CA FINAL (CAP III)
To Advertisement 4,000
To Provision for
Bad and Doubtful
Debts:
Provision required 1,750
Add:Bad Debts 3,000
4,750
Less:Existing Prov. 1,000 3,750
To Interest on Loan 540
* To Expenses 5,300
Outstanding
To Provision for
investment 1,250
95,964 95,964
6
Balance Sheet of Mr. Ajit Baral as on 31st December, 2010
Liabilities and capital Assets

Rs Rs Rs Rs
Capital 1,00,000 Fixed Assets: Land
Proprietor‟s Current and Building 60,000
Account at:
Balance as shown 15,000 Less: Depreciation 3,000 57,000
Add Net profit 55,690 Plant & Machinery 55,800
70,690 Less Depreciation 11,160 44,640
Less Drawings 12,000 Loose tools 5,000
58,690 Less Depreciation 1,250 3,750
Liabilities Furniture and 10,000
Fittings
Mrs Ajit‟s Loan 6,000 Less Depreciation 1,000 9,000
Add :Interest due 60 6,060 Investments: 16,250
Less: Provision (1,250) 15,000
Sundry Creditors 66,156 Current Assets:
Bills Payable 15,300 Stock-in-Trade:
Outstanding Expenses 5,600 Finished Goods 37,000
Royalties Payable 234 Raw Material 22,000 70,000
Less:Provision for 1,750 33,250
Doubtful Debts
Cash in hand 2,500
Cash at Bank 15,700
Work-
in-Progress 1,000
Prepaid Expenses 1,200

252,040 252,040
2
9. The following information is taken from the accounting records of Harinder
Company on March 31(year end):
Debtors : Rs. 5,82,000 Dr.
Provision for Doubtful Debts : Rs.
9,380 Cr. The ageing analysis of the debtors at
March 31 is as follows:
Age category Amount (Rs.)

Not yet due 2,75,400
1-30 days past due 1,10,900
31-60 days past due 87,500
Over 120 days past due 15,300
Total 5,82,000
The company uses the % of Receivables Method to estimate bad debts. Based
on its analysis of customers‟ accounts on March 31 and past experience with
collections, the company estimates the following percentages of debtors to be
uncollectible in the various age categories:
Age category % Estimated Uncollectible

Not yet due 3
1-30 days past due 6
Over 120 days past due 50
Required:
Calculate the amount that should appear in the March 31 Balance Sheet as the
provision for doubtful debts. 5 (Dec.2011)
Answer:
Calculation of provision for doubtful debts.
Age category Amount Percentage of Provision for

Estimated doubtful debts
Uncollectible
Not yet due Rs 2,75,400 3 8,262
1-30 days past due 1,10,900 6 6,654
31-60 days past 87,500 10
due 8,750
61-90 days past 65,100 15
due 9,765
91-120 days past 27,800 25
due 6,950
Over 120 days past 15,300 50
due 7,650
Total 5,82,000 48,031
The amount that should appear as provision for doubtful debt as on 31 March, 2010 is Rs. 48,031.
3
10. Mr. Prabhakar carries on business as a market gardener, preparing accounts up to 31st March.
Interest is allowed at the rate of 10 percent on capital but not on the current account. The gardens
are freehold but a separate office is rented. Trading Account is to be charged by way of rent
with an amount equal to interest at 5 percent on the cost of land, building and fixed equipments.
His Trial Balance as on 31st March, 2012 is as follows:
Debit balances Rs. Credit balances Rs.
Fixed assets, 31st March, 2011 Capital - 31st March, 2011 300,000
at cost:
Freehold land 60,000 Current account 27,590
Building & fixed equipment 110,000 Sales of produce 303,620
th
Motor vehicles 78,000 Motor vehicles sold, 30
September, 2011 10,500
th
Motor vehicles bought, 30 Building repairs &
September, 2011 depreciation reserve, 31st
31,000 March, 2011 20,440
Repairs to buildings 2,080 Trade creditors 1,710
Stocks, 31st March, 2011:
Growing crops & produce 136,180
Manures & fertilizers 4,780
Tools & materials 13,760
Purchases:
Plants & seeds 33,450
Manures & fertilizers 15,100
Drawings 52,040
Wages & salaries:
Gardeners 58,600
Office 7,300
Motor vehicle running expenses 23,400
Office rent 4,050
Rates - gardens 5,250
Fuel & sundry expenses – 4,060
gardens
Office lighting & sundries 4,920
Trade debtors 3,120
Bank & cash balances 5,260
663,860 663,860
Other adjustments are as follows:
a. Stock on hand on 31st March, 2012 was valued as follows:
Rs.
Growing crops and produces 141,260
Manures and fertilizers 5,610
Tools and materials 13,180
b. The building repairs and depreciation reserve is to be credited
with an amount equal to 4 percent of the cost of building and
fixed equipment, actual repairs being debited to this reserve.
c. The book value of motor vehicles sold was Rs. 7,000 on 31st
4
March, 2011 and depreciation of vehicles is to be provided for
at the rate of 20 percent per annum on the written down value.
d. Office rent Rs. 1,350 and office sundries Rs. 1,190 stands
outstanding at year end. Similarly rates paid in advance amounts
to Rs. 1,850.
e. The expenses (including depreciation) of running the vehicles is
to be dealt with as to one quarter as carriage inwards and as to
the balance as carriage outwards.
f. Mr. Prabhakar charges a salary of Rs. 12,000 per annum, which
is to be apportioned as to two-thirds to the gardens and as to one-
third to the offices.
Prepare a Trading and Profit and Loss Accounts for the year ended 31 st March, 2012
and Balance Sheet as on that date. 20 (June2012)
Answer:
Mr Prabhakar
Trading and Profit and Loss Account for the year ended 31 st March, 2012
Particulars Rs. Rs. Particulars Rs. Rs.

To Opening stock: By Sales 303,620
Growing crops & produce 136,180 By Closing stock:
Manures etc. 4,780 140,960 Growing crops & prod.
To Purchases: Plants 141, 146,870
& seeds Manures 260 Manures etc.
etc. 33,450 48,550 5,61
To Carriage inwards To 15,100 10,350 0
Wages of gardeners To 58,600
Garden rent 8,500
To Rates
Less: Prepaid 3,400
4,060
8,000
5,250 168,070
1,850
To Fuel & sundries

To P's salary [2/3rd of Rs. 12,000]
To Gross Profit C/d
450,490 450,490
To Office salaries 7,300 By Gross Profit B/d 168,070
To P's salary [1/3rd of Rs. 12,000] 4,000 By Garden rent 8,500
To Rent 4,050 5,400 By Profit on sale of motor vehicle 4,200

Add: Outstanding 1,350 31,050
4,400
To Carriage outward
To Building repairs & dep. reserve 6,110
12,090
To Office sundries 4,920
30,000
To Tools & materials 12,090
To Interest on capital 30,000
To Net Profit C/d 80,420
180,770 180,770
5
Balance Sheet
As on 31st March, 2012
Liabilities Rs. Rs. Assets Rs. Rs.

Capital account 300,000 Motor vehicles 84,700
Current account 97,970 Freehold land 60,000
Building repairs & dep. reserve 22,760 Building & equipments 110,000
Creditors: Bank & cash balances 5,260
Trade Trade debtors 3,120
Expenses 1,710 4,250 Stocks:
2,540 Growing crops & prod.
Manures etc. 141,260
Prepaid rates 13,180 160,050
1,850
424,980 424,980
Working Notes:
1. Calculation of carriage inwards and outwards:
Rs.
Depreciation for 6 month on vehicle sold 700
st
Depreciation for 1 year on other vehicles on hand as on 1 April, 2011 14,200
Depreciation for 6 month on newly purchased vehicle 3,100
Running expenses of motor vehicles 23,400
Total carriage 41,400
Carriage inward – 1/4 th
10,350
Carriage outward – 3/4 th
31,050
11. Rent charged is 5 percent on total value of freehold lands, buildings and equipment which
comes Rs. 8,500 (5% of Rs. 170,000). It is not paid to any outsider, hence debited to Trading
Account and credited to Profit and Loss Account.
12. Profit on sale of motor vehicle:

Rs. Rs.
Sales proceeds 10,500
Less: Book value as on 1st April, 2011 7,000
Depreciation for 6 month @ 20 percent p.a. 700 6,300
Profit on sale 4,200
4. Current account of MrPrabhakar:

Rs.
st
Balance as on 1 April, 2011 27,590
Add: Interest on capital @ 10 percent 30,000
Salary for the year 12,000
Net profit 80,420
6
150,010
Less: Drawings 52,040
Balance as on 31st March, 2012 97,970
5. Building repairs and depreciation reserve:

Rs.
Balance as on 1st April, 2011 20,440
Add: Reserved during the year 4,400
24,840
Less: Actual repairs during the year 2,080
6. Motor vehicles:
Rs.
Balance as on 1st April, 2011 78,000

Add: Purchased during the year 31,000
109,000
Less: Depreciation 18,000
91,000
Less: Book value of vehicle sold 6,300
7. Tools and materials used:
Rs.
st
Balance as on 1 April, 2011 13,760
Add: Purchased during the year 11,510
25,270
st
Less: Balance on 31 March,
2012 13,180
Used during the year 12,090
4. A company has two departments X and Y. Department Y, which is a manufacturing department,

receives goods from department X as its raw materials. Department X supplies the goods to Y at
cost price. From the following particulars you are required to prepare a Departmental Trading and
Profit and Loss Account for the year ended 32ndAshadh, 2068. 10 (June 2012)
Particulars Department X Rs. Department Y

Rs.
Stock on 01.04.2067 450,000 275,000
Purchases from outside suppliers 1,600,000 200,000
Sales to outside customers 1,900,000 725,000
Stock on 32.03.2068 250,000 150,000
The following information is to be taken into account:
a. Depreciation on building is to be provided at 20% p.a. The value of
the building occupied by both the departments was Rs. 450,000
(Department X occupying 2/3rd portion and Department Y
occupying the rest).
b. Goods transferred from department X to department Y Rs. 450,000 at cost.
c. Manufacturing expenses amounted to Rs. 100,000.
7
d. Selling expenses to be apportioned on the basis of sales of respective
departments amounted to Rs. 52,500.
e. General expenses of the business as a whole amounted to Rs. 90,000.
Answer:
Departmental Trading and Profit and Loss Account

For the year ended 32ndAshadh, 2068
Particulars Dept. X Dept. Y Total Particulars Dept. Dept. Total

Rs. Rs. Rs. X Y Rs.
Rs. Rs.
To Opening 450,000 275,000 725,000 By Sales 1,900,000 725,000 2,625,000
stock 1,600,000 200,000 1,800,000
- 450,000 450,000
To Purchases By Transfer 450,000 - 450,000
-
To Transfer 550,000 100,000 100,000 By Closing 250,000 150,000 400,000
stock
To Mfg. - 550,000 By Gross loss - 150,000 150,000
expenses c/d
To Gross profit
c/d
2,600,000 1,025,000 3,625,000 2,600,000 1,025,000 3,625,000
To Gross loss - 150,000 150,000 By Gross profit 550,00 - 550,000
b/d b/d 0
To Depreciation 60,000 30,000 90,000
To Selling exp. 38,000 14,500 52,500
To Profit c/d 452,000 (194,500) 257,500
550,000 - 550,000 550,000 - 550,000
To General expenses 90,000 By Dept. Profit b/d 257,500
257,500 257,500
Notes:
1. Since department Y is the manufacturing department, no manufacturing expenses have
been charged to department X.
Selling expenses have been apportioned on the basis of outside sales, because for inter
departmental transfer no selling expenses is required
5. Hari Neupane is the proprietor of a large business. The following trial balances were
extracted from his books as on 31st March 2011:
Particulars Debit (Rs.) Particulars Credit (Rs.)

Land & Building 40,000 Sales 468,100
Purchases 326,700 Dividend form Investments 960
Return Inwards 2,500 12% Bank Loan (NIC Bank) 40,000
Travelling Expenses 6,900 Capital Account 80,000
Printing and Stationery 1,600 Bills Payable 2,600
Cash at Bank 30,790 Sundry Creditors 63,130
Discount Allowed to Debtors 1,800 Return Outwards 3,700
8
Miscellaneous Expenses 18,620 Discounts Received 1,200
Postage 800
Furniture 8,000
Joint Venture Suspense A/c 800
Cash in Hand 4,900
Motor Car 16,000
Investments (Market Value Rs. 12,000
14,000)
Drawings 10,000
Advertisement Expenses 16,000
Bills Receivables 4,800
Stock (01.04.2010) 63,680
Interest on Bank Loan 3,000
Salaries (Including advance Rs. 22,000
1,500)
Entertainment Expenses 1,800
Carriage Inwards 3,000
659,690 659,690
Additional Information:
 Sales included a sum of Rs. 32,000 received from sales of goods on behalf of Mr. Jyoti. The cost
of these goods to Mr. Jyoti was Rs. 20,000. Mr. Hari is entitled to a commission of 5% on sales,
for which, effect should be given, and reimbursement of selling expenses. Selling expenses of
Rs. 1,000 were debited to miscellaneous expenses account.
 On 1st September, 2010, Mr. Hari entered into a joint venture agreement with Ms. Divya with an
agreement to share the profits and losses equally. Ms. Divya supplied goods totaling Rs. 33,000
which were wrongly passed through the purchases day book. These goods were sold for cash at
a profit of 25% on sale and stood credited to sales account. Ms. Divya had earlier incurred an
amount of Rs. 1,500 on account of freight and insurance. Joint venture suspense account
represents the selling expenses incurred by Mr. Hari on joint venture.
 During the year, some goods (invoiced at Rs. 48,000) were sent to sundry customers on ―sale on
approval basis‖. On 31st March, 2011, 20% of those goods remained with customers which is to
be considered as own stock as the period of approval did not expire as yet. Proper adjustments
should be made in respect of the above. Mr. Hari makes his invoice at cost plus 25%.
 Bills receivable for Rs. 2,000 endorsed on 1st December 2010 in favour of creditors became
subsequently dishonored but no entry for the dishonor has been passed.
 3/4th of the advertisement expenses is to be carried forward.
 Two cheques of Rs. 1,200 and Rs. 1,800 issued to parties on 26th March 2011 were lying un-
presented on 31st March 2011.
 Of the debtors a sum of Rs. 1,100 is irrevocable and to be written off. Create a provision for doubtful
debt at 2%.
 Depreciate fixed assets by 10% except motor car which is to be depreciated at 20%.
 Stock on 31st March 2011 was Rs. 45,000.
You are required to prepare the trading and profit and loss account for the year ending 31st March 2011,
and balance sheet as on date after taking into consideration the above mentioned information. 20
(Dec.2012)
Answer:
Trading and profit and loss account of Mr. Hari Neupane For the year
9
ending on 31st March, 2011
Opening Stock 63,680 Sales less returns 380,000
Purchases less Returns 290,000 Closing Stock at shop and with customers (Sale on 52,680
Approval) (45,000+7680)
Carriage Inwards 3,000
Gross Profit 76,000
432,680 432,680
To Salaries 20,500Gross profit b/d 76,000
Travelling expenses 6,900Discount received 12,00
Printing stationery 1,600Dividend from investment (Gross) 960
Postage 800Commission 1,600
(Goods sold on behalf of Mr. Jyoti)
Discount 1,800 Profit on Joint Venture 4,350
Advertisement 4,000
Expenses(1/4th)
Misc. Expenses (18,620- 17,620
1,000)
Entertainment Expenses 1,800
Interest on Bank Loans 4,800
Bad Debts 1,100
Provision for Doubtful Debts 1,106
Depreciation 8,000
Building 4,000
Furniture 8,00
Motor Car 3,200
Net profit transferred to 14,084
Capital
84,110 84,110
Balance Sheet as on 31st March 2011

Equity and Liabilities Rs Asset Rs
s
Capital Account 84,084 Property Pland and Equipment
Op. Balance 80,000 Land & Building 40,000 36,000
Add: Net Profit 14,084 Less: Depn 4,000
Less: Drawings 10,000
Loans: Furniture 8,000 7,200
12% Bank Loan-NIC Bank 40,000 Less Depn 800
Interest Due in Loan 1,800
Current Liabilities Motor Car 16,000 12,800
Sundry Creditors 100,380 Less: 3,200
Depreciation
For JV 38,850
For Consignment 29,400 Investment (Market Value Rs 12,000
14,000)
For Goods 32,130 Current Assets:
Bills Payable 2,600 Stock at shop 45,000 52,680
Add: Sent on Approval 7,680
Sundry Debtors 55,300 54,194

Less Provision 1,106
Bills Receivable 4,800

Cash in Hand 4,900
Cash at Bank 30,790
Advance against Salary 1,500
10
Advertisement suspense account 12,000
228,864 228,864
Working notes:
Sales Account
Mr. Jyoti 32,000 Sundries 468,100
Joint Venture 44,000
Sent on approval 9,600
Returns 2,500
Trading Account 380,000
468,100 468,100
Purchase Account
Sundries (Given) 326,700 Joint Venture A/C 33,000
Return 3,700
Trading 290,000
326,700 326,700
Sundry debtors
To Balance 64,000 By Bad debts 1,100
To Sundry creditors (B/R Dishonored) 2,000 By Sale on Approval 9,600
By Balance 55,300
66,300 66,300
Sundry creditors
To Ms Divya 33,000 By Balance (Given) 63,130
To Balance c/d 32,130 By sundry debtors (B/R 2,000
Dishonored)
65,130 65,130
Jyoti‘s Account
To Commission 1,600 By Sales 32,000
To selling expense 1,000
To balance c/d 29,400
32,000 32,000
Joint Venture Account

To Cost of goods sold 33,000 By Sales 44,000
To expenses Ms Divya 1,500
To Joint venture suspense 800
To profit t/f Ms Divya‘s Ac 4,350
To P/L 4,350
44,000 44,000
Ms Divya‘s A/c
11
To P& L account 4,350 By joint venture sales 44,000
To expense 800
To balance c/d 38,850
44,000 44,000
*Alternatively, interest if shown as Rs. 3,000 with no interest due on loan would also be correct
6. The following is the schedule of balances as on 31.3.2013 extracted from the books of Mr. Bhairav
Kayasta, who carries on business under the name M/s Bhairav Kayasta & Co. at Palpa: 20(June
2013)
Particulars Dr. (Rs.) Cr. (Rs.)

Cash in Hand 1,400
Cash at Bank 2,600
Stock on 1.4.2012 62,000
Furniture & Fixtures 21,400
Office Equipment 16,000
Building 60,000
Motor Car 20,000
Loan from Kayasta 30,000
Provision for bad debts 3,000
Purchases 1,40,000
Purchase Returns 2,600
Sales 2,30,000
Sales Returns 4,200
Salaries 11,000
Rent for Godown 5,500
Interest on Loan from Kayasta 2,700
Rates and taxes 2,100
Discount Allowed to Debtors 2,400
Discount Allowed from Creditors 1,600
Freight on Purchases 1,200
Carriage Outwards 2,000
Drawings 12,000
Printing and Stationary 1,800
Electricity Charges 2,200
Insurance Premium 5,500
General Office Expenses 3,000
Bad Debts 2,000
Bank Charges 1,600
Motor Car Expenses 3,600
Capital 1,62,000
4,72,200 4,72,200
Prepare Trading and Profit and Loss Account for the year ended 31 st March, 2013
and the Balance Sheet as at that date after making provision for the followings:
a) Depreciate: (i) Building used for business by 5 percent; (ii) Furniture and fixtures
by 10 percent; one steel table purchased during the year for Rs. 1,400 was sold
for same price but the sale proceeds were wrongly credited to sales account;
(iii)Office equipment by 15 percent; Purchase of a typewriter during the year for
Rs. 4,000 has been wrongly debited to purchase; and (d) Motor car by 20 percent.
b) Value of stock at the close of the year was Rs. 44,000.
12
c) One month‘s rent for godown is outstanding.
d) One month‘s salary is outstanding.
e) Interest on loan from Kayasta is payable @12 percent per annum, this loan
was taken on 1.5.2012.
f) Reserve for bad debts is to be maintained at 5 percent on sundry debtors.
g) Insurance premium includes Rs. 4,000 paid towards proprietor‘s life insurance
policy and the balance of the insurance charges cover the period from 1.4.2012
to 30.6.2013.
h) Half of the buildings are used for residential purposes of Mr. Bhairav.
Answer:
M/s Bhairav Kayasta & Co.
Trading and Profit and Loss Account for

the year ended 31st March, 2013
Dr.
Cr.
Particulars Rs. Particulars
Rs.
To Purchases 1,40,000 Less: Sale of furniture
included in sale 1,400
Less: Typewriter 2,28,600
included in purchases 4,000
1,36,000 Less: Sales returns 4,200 2,24,400
Less Purchase returns 2,600 1,33,400 By Closing stock 44,000
To Freight on purchases 1,200
To Gross profit c/d 71,800
2,68,400 2,68,400
To Salaries 11,000 By Gross Profit b/d 71,800
Add: Outstanding 1,000 12,000 By Discount received 1,600
To Rent for godown 5,500
Add: Outstanding 500 6,000
To Provision for
doubtful debts
New 4,300
Less: Old 3,000 1,300
To Rates and taxes 2,100
To Discount allowed 2,400
To Carriage outwards 2,000
To Printing & stationery 1,800
To Electricity charges 2,200
To Insurance premium (W.N.1) 1,200
To Depreciation (W.N.2) 10,500
To General office exp. 3,000
To Bad debts 2,000
To Bank charges 1,600
To Interest on loan 2,700
Add:Outstanding(W.N.3) 600 3,300
To Motor car exp. 3,600
To Net profit 18,400
73,400 73,400
13
Balance Sheet of
M/s Bhairav
Kayasta & Co. as at
31st March, 2013
Liabilities Rs. Assets Rs.

Capital 1,62,000 Fixed Assets
Add: Net Profit 18,400 Building 60,000
1,80,400 Less: Depreciation 3,000 57,000
Less: Drawings 12,000 Motor Car 20,000
1,68,400 Less: Depreciation 4,000 16,000
Less: Insurance premium 4,000 Office Equipment
(Rs. 16,000+Rs.4,000) 20,000
Less: ½ of dep. on build. 1,500 1,62,900 17,000
Less: Depreciation 3,000
Loan from Kayasta 30,000 Furniture & fixtures (Rs.
Add: Outstanding 600 30,600 21,40 - Rs. 1,400) 20,000 18,000
Sundry creditors 43,000 Less: Depreciation 2,000
Outstanding expenses: Current assets 44,000
Salaries 1,000 Stock in trade
Rent 500 1,500 Sundry debtors 86,000 81,700
Less: Provision 4,300 2,600
Cash at bank 1,400
Cash in hand 300
2,38,000 Prepaid insurance 2,38,000
Working Note
1. Insurance Premium
Insurance premium as per trail balance 5,500
Less: Proprietor‘s life insurance policy premium 4,000
Premium for 15 months 1,500
Less: prepaid for 3 months 300
Charged tp Profit and loss accounts 1,200
2. Calculation of Depreciation
On Building @5% on Rs. 60,000 3,000
Less: ½ for private use 1,500 1,500
On Motor car @20% on Rs. 20,000 4,000
On Furniture & fixtures @10% (Rs. 21,400- Rs. 1,400) 2,000
On Office equipment as per trail Balance 16,000
Add: Typewriter 4,000
20,000 @ 15% 3,000
10,500
3. Calculation of Interest on Loan
(Rs. 30,000*12*11)/100*12 = Rs. 3,300:
Outstanding Rs. 3,300- Rs. 2,700 = Rs. 600.
14
7. Mr. Mohan gives you the following trial balance and some other information:
Trial Balance as on 31st March, 2011
Particulars Dr. (Rs.) Cr.
(Rs.)
Capital 6,50,000
Sales 9,70,000
Purchases 4,30,000
Opening Stock 1,10,000
Freights Inward 40,000
Salaries 2,10,000
Rent 30,000
Other Administration Expenses 1,20,000
Furniture 3,50,000
Debtors and Creditors 2,10,000 1,90,000
Returns 20,000 12,000
Discounts 19,000 9,000
Bad Debts 5,000
Cash in Hand and Cash at Bank 1,87,000
Investments in Government Securities 1,00,000
Total 18,31,000 18,31,000
Other Information:
Closing stock was Rs. 1,80,000; Depreciate Furniture @ 10% p.a.
Provision for Doubtful debts 5% on Debtors Accrual Salaries not provided for
Rs. 30,000 Prepaid Rent Rs. 6,000 included in above.
You are required to prepare Trading and Profit and Loss Account for the year
ended on 31st March, 2011 and Balance Sheet of Mr. Mohan as on that date. 10(Dec.2013)
Answer:
In the Books of Mohan

Trading Account
For the Year Ended March 31, 2011
Dr Cr
Rs. Rs.
To Opening Stock 1,10,000 By sales 9,70,000
To Purchases 4,30,000 Less: returns (20,000) 9,50,000
Less: returns (12,000) 4,18,000
To Freights Inward 40,000 By Closing stock 1,80,000
To Gross Profit 5,62,000
11,30,000 11,30,000
15
Profit and Loss Account
For the Year Ended March 31, 2011
Dr Cr
Rs. Rs.
To Depreciation 35,000 By Gross Profit 5,62,000

To Salaries 2,10,000
Add: Accured 30,000 240,000 By Discount received 9,000
To Administration Expenses 1,20,000
To Rent 30,000
Less: prepaid 6,000 24,000
To Discount Allowed 19,000

To Provision for Doubtful
debt 10,500
To bad Debts 5,000

To Net Profit 1,17,500
5,71,000 5,71,000
Balance Sheet
As on March 31,
2011
Liabilities Amount Assets Amou
Rs. nt
Rs.
Capital 6,50,000 Furniture 3,50,000
Add: Net 1,17,500 767,500 Less: Depreciation (35,000) 3,15,000
Profit
Closing Stock 1,80,000
Debtors 2,10,000
Creditors 1,90,000 Less: Provision for Doubtful 10,500 1,99,500
Debt
Accrued 30,000 Investments in Govt. Securities 1,00,000
Salary
Cash in Hand and Cash at Bank 1,87,000
Prepaid Rent 6,000
9,87,500 9,87,500
16
8. Mr. Laxman is the proprietor of Morden Electronics. From the following trial balance and
accompanying adjustments of Morden Electronics, prepare trading and profit and loss account for the
year ending 31st Ashadh, 2070 and a balance sheet as onthat date. 15 (June2014)
Debit Balance Amount Credit Balance Amount (Rs.)

(Rs.)
Purchases 6,20,000 Sales 8,30,000
Cash in hand 4,200 Mr. Laxman's Capital 5,77,200
Cash at bank 24,000 Creditors 80,000
Stock of goods on 1-4-2069 1,00,000
Drawings 8,000
Salaries 64,000
Postage and telephones 23,000
Salesmen's commission 70,000
Insurance 18,000
Advertising 34,000
Furniture 44,000
Printing & stationary 6,000
Motor car 96,000
Bad debts 4,000
Cash discounts 8,000
General expenses 60,000
Carriage inwards 20,000
Carriage outwards 44,000
Wages 40,000
Debtors 2,00,000
Total 14,87,200 Total 14,87,200
17
CA FINAL (CAP III)
Additional information:
a. Cost of goods in stock as on 31st Ashadh 2070 Rs. 1,45,000.

b. Mr. Laxman had withdrawn goods worth Rs. 5,000 during the year.
c. Purchases include purchase of furniture worth Rs. 10,000.
d. Debtors include Rs. 5,000 of bad debts.
e. Creditors include a balance of Rs. 4,000 to Mr. Paras in respect of which
it has been decided and settled with the party to pay only Rs. 1,000.
f. Sales include goods worth Rs. 15,000 sent to Ram & Co. on approval and
remaining unsold as on 31st Ashadh, 2070 was Rs. 10,000 on cost.
g. Provision for bad debts is to be created at 5% on Sundry debtors.
h. Depreciate Furniture by 15% and Motor Car by 20%.
i. The sales men are entitled to commission of 10% on total sales.
Answer: Trading And Profit And Loss Account of Morden Electronics for the year ending 31
Ashad, 2070

To Opening Stock 1,00,000 By Sales 8,30,000
To Purchase 6,20,000 Less: Sale on approval 15,000 8,15,000
Less: Drawing 5,000 By Closing Stock 1,45,000
6,15,000 Add: Cost of goods
Less: Wrong inclusion Sold on approval 10,000 1,55,000
Of purchase of
Furniture 10,000 6,05,000
To Wages 40,000
To Carriage Inwards 20,000
To Gross Profit c/d 2,05,000
To Salaries 9,70,000 9,70,000
To Postage and Telephone 64,000 By Gross Profit b/d 2,05,000
To Insurance 23,000 By Rebate from sundry creditors By 3,000
To Printing and Stationary 18,000 Net loss transferred to Capital 1,75,800
6,000
To General Expenses 60,000
To Bad debts 4,000
Add: Additional Bad debt 5,000
Add: Provision for Bad debts 9,000 18,000
To Salesmen's commission 70,000 81,500

To Advertising 8,000
To Cash discount
To Depreciation *:
Furniture @15% 8,100 27,300
Motor Car @ 20% 19,200 44,000
To Carriage outwards
Total 3,83,800 Total 3,83,800

*Note: Full year's depreciation has been charged on addition during the year.
CA FINAL (CAP III)
Balance Sheet of Morden Electronics as on 31 Ashad, 2070

Capital Account Motor Car 96,000
Opening balance 5,77,200 Less: Depreciation
Less: Net Loss as per @20% 19,200 76,800
P & L a/c 1,75,800
4,01,400 3,88,400 Furniture 44,000
Less: Drawings(8000+5000) 13,000 Add: Included wrongly
In Sales 10,000
Sundry creditors 80,000 77,000 54,000
Less: Rebate outstanding 3,000 Less: Depreciation 45,900
11,500 @15% 8,100
Salesmen's commission
Closing Stock 1,45,000 1,55,000
Less: Cost of goods sold
On approval 10,000
Sundry Debtors 2,00,000

Less: Sale on approval 15,000 Less:
Additional Bad debt 5,000
1,80,000
Less: Provision for 1,71,000
Bad debt @ 5% 9,000
24,000
Cash at bank 4,200
Cash in hand
Total 4,76,900 Total 4,76,900
9. From the following Trial Balance of ShriShivam as on 31st March, 2005, you are requested to
prepare a Trading and Profit and Loss Account for the year ended 31 st March, 2005 and Balance
Sheet as on that date, after making the necessary adjustment as mentioned hereunder: 15
(Dec.2014)
Particulars Dr. (Rs.) Cr. (Rs.)

Shivam’s Capital 160,000
Shivam’s Drawings 19,000
Patents (ten years from 1.4.2004) 40,000
Stock on 1.4.2004 40,000
Purchases 170,000
Salaries 14,800
Wages 30,000
CA FINAL (CAP III)
Sales 264,000
Cash in Hand 18,250
Land 28,350
Loan from Shyam (at 6% from 1.10.2004) 20,000
Postage and Tax 3,000
Rent, Rates & Taxes 7,200
Bad Debts 800
Discount 1,200
Carriage Inward 400
Interest on Loan 300
Insurance 1,600
Travelling Expenses 1,000
Sundry Expenses 600
Cash at Bank 20,500
Total 484,200 484,200
Adjustments:
a) Stock as on 31.3.2005 is valued at Rs. 30,000.
b) A new machine was installed on 1st April, 2004 for Rs. 3,000. No entry in this respect was
passed in the books. Wages of Rs. 1,000 paid for installing the machine were debited to
wages account.
c) Of the Sundry Debtors, Rs. 200 are bad and are to be written off. You are required to
maintain a provision for doubtful debts @ 5% on debtors and provision for discount on
debtors @ 2%.
d) Goods costing Rs. 2,000 were given away as free samples for publicity.
e) Depreciate Plant & Machinery @ 20% per annum and Furniture & Fixtures @ 10% per annum.
f) On 1.04.2004, machinery of the value of Rs. 10,000 was destroyed by fire and the insurance
claim settled at Rs. 8,000 was credited to Machinery Account.
g) Goods costing Rs. 1,000 were sent to a customer for Rs. 1,200 on 30 th March, 2005 on sale
or return basis. This was recorded as actual sales.
Answer:
Trading and Profit and Loss Account of Shri Shivam

For the year ended 31st March, 2005
Dr. Cr.

To Purchases 1,70,000 Less: Goods Sent on 1,200 2,62,800
Less: Free Samples 2,000 1,68,000 approval
To Carriage Inward 400 By Closing Stock 30,000
CA FINAL (CAP III)
To Wages 30,000 Add: Stock with
Less: Machine Customer (at cost) 1,000 31,000
Installation Charges 1,000 29,000
To Gross Profit 56,400
293,800 293,800
To Rent, Rates and Taxes 7,200 By Gross Profit b/d 56,400
To Salaries 14,800 By Discount received 1,200
To Postage and Tax 3,000
To Sundry Expenses 600
To Travelling Expenses 1,000
To Interest on Loan 300
Add: Accrued Interest 300 600
To Insurance 1,600
To Loss of machinery by fire 2,000
To Bad debts 800
Add: Written off 200
1,00
0
Add:Provision for
doubtful debts 950 1,950
To provision for discount on debtors
To Depreciation 361
Furniture & Fixtures 800
Patents 4,000
17,200
To Net Profit transferred to Capital
Account
5,289
57,600 57,600
Balance Sheet of ShriShivamas on 31st March, 2005

Capital Account Land 28,350
Opening Balance 1,60,000
Add: Net Profit 5,289 Plant & Machinery 60,000
1,65,289 Add: Purchase 3,000
Less: Drawings 19,000 1,46,289 63,000
Add: Installation Charges 1,000
Loan from Shyam @6% 20,000 64,000
Add: Accrued Interest 300 20,300 Less: Loss by fire 2,000
62,000
SundryCreditors 24,000 Less: Depreciation@20% 12,400 49,600
Creditor for Machinery 3,000
Bank Overdraft 15,000 Patents 40,000
Less: Depreciation@10% 4,000 36,000
CA FINAL (CAP III)
Less: Depreciation@10% 800 7,200
Closing Stock 30,000
Add: Stock with customers 1,000 31,000
Debtors 20,400
Less: Goods sent on
Approval basis 1,200
19,200
Less: Bad Debts written off 200
19,000
Less: Provision for doubtful
Debts @ 5% 950
18,050
Less: Provision for discount
@2% 361 17,689
Cash at Bank 20,500
Cash in Hand 18,250

208,589 208,569
Working:
1) Provision for Doubtful Debt and Discount

Debtors 20,400
Less Good, Sent on Approval 1,200
19,200
Less: Bad debt written off 200 19,000
Less:Provision for Doubtful Debt 5% 950
18,050
Less:Provision for Discount 2% (361)

..................
17689
2) a) Machinery 60,000
Add: new 3000
Installation 1000 4,000
Less: loss on fire
Value 10,000
Less: insurance 8,000 2,000
62,000
Depreciation 20% 12,400
49,600
b) Furniture & Fixture 8,000
Less: Depreciation 10% 800
7,200
c) Patent 40,000
Amortisations 1/10 (10 Years) 4,000
36,000
10. The following are the balances at the end of the Year 2014 (January to December 2014) abstracted
from the books of Mr. Niranjan.
Amount Rs.
Niranjan's Capital 30,000

Niranjan's Drawings 5,000
Furniture and Fittings 2,600
Creditors 13,300
Business Premises 20,000
Stock on January 01, 2014 22,000
Debtors 18,600
Rent from Tenants 1,000
Purchases 1,10,000
Sales 1,50,000
Sales Returns 2,000
Discounts- Debit 1,600
Discounts- Credit 2,000
Taxes and Insurance 2,000
General Expenses 4,000
Salaries 9,000
Commission- Debit 2,200
Carriage on Purchases 1,800
Provision for Bad and Doubtful Debts 600
Bad Debts written off 800
Stock on hand on December 31, 2014 was estimated at Rs. 20,000. Rent, Rs.
300, is still due from the tenant. Salaries, Rs. 750, are as yet unpaid. Write off
Bad Debts Rs. 600, and depreciate Business Premises by Rs. 300 and
Furniture and Fittings by Rs.
266. Make a provision of 5% on Debtors for Bad and Doubtful Debts and a
provision of 2% for Discounts. Carry forward Rs. 700 for unexpired
insurance. The manager is entitled to a commission of 10% on profits
remaining after charging the commission. Difference, if any, in trial balance
is to be treated as Suspense Account in Balance Sheet.
Prepare:
Trading and Profit and Loss Account for the Year-January to December 2014, and
Balance Sheet as on December 31, 2014. (10+5=15) (June2015)
Answer:
Trading and Profit and Loss Account of

Niranjan
for the year ended December 31, 2014 Amount Rs.

Rs
Particular
Amount
Rs.
Rs. Particular
To Opening Stock 22,000 By sales 1,50,000
To Purchases 1,10,000 Less Sales returns (2,000)

To Carriage 1,800 1,48,000
To Gross Profit c/d 34,200 By Closing Stock 20,000
1,68,000 1,68,000
By Gross Profit
To Salaries expenses b/d 34,200
Paid 9,000 By Rent
Add Due 750 Received 1,000
9,750 Add Due 300 1,300

By Discounts
To Commission 2,200 Received 2,000
To Discounts To 1,600
Depreciation
Business Premises 300
Furniture and Fittings 266
566
To Provision for Bad and
Doubtful debts
Required (WN 2) 900
Add Bad debts 1,400
2,300
Less Existing
provision (600) 1,700
To Provision for Discounts

(WN 2 ) 342
To Taxes and Insurance
Paid 2,000
Less Prepaid (700)
1,300
To Commission to Manager
(WN 3) 1,458
37,500 37,500
Balance Sheet of Niranjan
as at December 31, 2014
Liabilities Amount Assets Amount

Rs. Rs.
Rs. Rs.
Capital Account Fixed Assets:
Balance on Jan 01,
2014 30,000 Business Premises Opening
value Less:
Add: Net Profit 14,584 Depreciation 20,000
Furniture and Fixtures (300) 19,700

44,584 Opening value Less:
Less: Drawings 39,584 Depreciation
(5,000)
Current Assets:
2,600
4,200 Sundry Debtors (WN 2) 2,334
Bank Overdraft Less Provision for Bad and (266)
Creditors Salary 13,300 Doubtful Debts
Payable
Commission Payable (WN 3) 750
1,458
18,000
Suspense
(900)
500
17,100 16,758
Less Provision for
Discounts (WN 2) (342)
20,000
Stock
Amount due from Tenant

Prepaid Insurance 300
700
59,792 59,792
Working Note 1:
As the question does not give regular trial balance, it is better to first prepare a regular
trial balance to locate any difference that there may be.
Trial Balance of Niranjan as at December 31, 2014

Debi Credit
Particulars t Amount
Amo Rs.
unt
Rs.
Niranjan's Capital 30,000.00
Niranjan's Drawings 5,000.00
Furniture and Fittings 2,600.00
Bank Overdraft 4,200.00
Creditors 13,300.00
Business Premises 20,000.00
Stock on January 01, 2014 22,000.00
Debtors 18,600.00
Rent from Tenants 1,000.00
Purchases 1,10,000.00
Sales 1,50,000.00
Sales Returns 2,000.00
Discounts- Debit 1,600.00

Discounts- Credit 2,000.00
Taxes and Insurance 2,000.00
General Expenses 4,000.00
Salaries 9,000.00
Commission- Debit 2,200.00
Carriage on Purchases 1,800.00
Provision for Bad and Doubtful Debts 600.00
Bad Debts written off 800.00
Suspense Account (Difference in trial balance) 500.00
2,01,600.00 2,01,600.00
The total of the credit side is Rs. 2,01,100, whereas it is Rs. 2,01,600 for the debit side.
Hence, Rs. 500 has been credited to the Suspense Account .
WN 2: Debtors, Bad Debts and Provision for Debtors
(i) Existing Debtors 18,600
(ii)Less: Additional Bad debts written off (600)
(iii) Debtors after Bad Debts written off 18,000
(iv) Less: Required Provision for Bad Debts (5% of (iii)) (900)
(v) Debtors after Provision for Bad Debts 17,100
(vi) Less: Required Provision for Discount on Debtors (2%of (v)) 342
WN 3: Commission to Manager
Profit after deduction all expenses expect the Commission to Manager 16,042
(37500-21458)
Manager's commission (16042*10/110) 1,458
11. From the following balances extracted from the books of Mr. Ashok Kharel, prepare trading and profit and
loss account for the year ended 31.3.2015 and a balance sheet on that date: 15 (Dec.2015)
Purchases 71,280 Capital account 60,000

Computer at cost Creditors 13,000
(bought on 31.3.2015) 18,380 Bills Payable 10,220
Cash at Bank 4,000 Discount 22,000
Cash in Hand 2,836 Sales 60,720
Furniture and fittings at cost 1,540 Returns outwards 11,432
Rent 12,540 Rent due 320
Bills receivable 6,720
Trade Charges 920
Sundry debtors 34,156
Drawings 5,200
Discount 540
Wages 1,800
Salaries 16,780
Returns Inwards 1,000
1,77,692 1,77,692
Adjustments:
a) Stock at the end at cost Rs. 25,600 (market-value Rs. 26,200).
b) Rs. 6,000 paid to Mrs. Red against Bills payable were debited by mistake to Mr.
Green's account and included in the list of sundry debtors.
c) Traveling expenses paid to sales representatives Rs. 5,000 for the month of March
2015 were debited to his personal account and included in the list of sundry debtors.
d) Depreciation on furniture and fittings shall be provided at 10% p.a.
e) Provide for doubtful debts at 5% on sundry debtors.
f) Goods costing Rs. 1,500 were used by the proprietor.
g) Salaries included Rs. 12,000 paid to sales representative who is further entitled to a
commission of 5% on net sales.
h) Stationery charges Rs. 1,200 due on 31.3.2015.
i) Purchases included opening stock valued at cost Rs. 7,000.
j) Sales representative further entitled to an extra commission of 5% on net profit after
charging his extra commission.
k) No depreciation need to be provided on Computer purchased on last day of the
Financial Year.
(2)
Answer: Mr. Ashok Kharel

Trading and Profit and Loss Account
For the year ended on 31 March 2015
Particulars Amount (Rs.) Particulars Amount(Rs.)

To Opening Stock 7,000 By sales 60,720
To Purchases 6,4280 Less: Returns 1,000 59,720
Less; Returns 11,432 By Closing Stock 25,600
52,848 51,348
Less: Drawings 1,500 1,800
Wages 25,172
Gross Profit C/d 85320 85,320
16,780 25,172
To Salaries 5,000 By Gross Profit b/d 22,000
To Travelling Expenses 2,986 By Discount
To Sales Commissions
(5% of 59,720) 1,200
To Stationary Charges To 12,540
Rent 540
To Discount 920
To Trade Charges 154
To Depreciation of Furniture and
Fittings @ 10 % 1,158
To Provision for Doubtful Debts To 281
Extra Commission on Salesman
(5/105*5,894) 5,613 47,172
Balancesheet
Liabilities Amount (Rs.) Assets Amount(Rs.)
Capital Account 60,000 Computer 18,380
Less: Drawings 6,700 Furniture and Fittings Stock 1,386
53,300 in Trade 25,600
Add Net Profit 5,613 58,913 Bills Receivable 6,720
Sundry Creditors 13,000 Sundry Debtors 23,156 21,998
Bills Payable 4,220 Less: Provision for
Expenses Due: Doubtful Debts 1,158
Commission to Salesman 3,267 Cash in Hand 2,836
Rent 320 Cash at Bank 4,000
Stationary 1,200
80,920 80,920
Working Notes:
1. Sundry Debtors
Sundry Debtors as per Trial Balance 34,156
Less: Wrong Debit given to Green 6,000
Less: Travelling Expenses wrongly Debited to Personal Accounts 5,000
(3)
Adjusted Debtor Balance 23,156
2. Net Profit before charging extra commission Rs. 47,172-41,278=Rs 5,894
12. The following is the Trial Balance of Amar and Co. on 31st December 2015. 15 (June2016)
Particulars Dr. Rs. Cr. Rs.

Cash in Hand 540
Cash at Bank 2,630
Purchase Account 40,675
Sales Account 98,780
Return Inward Account 680
Return Outward Account 500
Wages Account 10,480
Fuel and Power Account 4,730
Carriage on Sales Account 3,200
Carriage on Purchase Account 2,040
Stock as on 01 April 2015 5,760
Building Account 30,000
Freehold Land Account 10,000
Machinery Account 20,000
Patents Account 7,500
Salaries Account 15,000
General Expense Account 3,000
Insurance Account 600
Drawings Account 5,245
Total 176,580 176,580
Adjustments:
a. Stock at the end at cost Rs. 6,800 (market-value Rs. 7,000.
b. Machinery is to be depreciated at the rate of 10% and Patents at the rate of 20%.
c. Salaries for the month of December 2015 amounting to Rs 1,500 were unpaid.
d. Insurance includes a premium of Rs. 170 per annum a policy which
expires on 30th June 2016.
e. Wages include a sum of Rs. 2,000 spent on the erection of cycle shed for
employees and customers.
f. A provision for Bad and Doubtful Debts is to be created to the extent of
5% of Sundry Debtors.
You are required to prepare Trading and Profit and Loss account for the year ended
on 31 December 2015 and Balance sheet as on that date.
Answer:
Amar and Co.

Trading and Profit and Loss
Account For the year ended on 31
December 2015
Particulars Amount (Rs.) Particulars Amount(Rs.)

To Opening Stock 5,760 By sales 98,780
To Purchases 40,675 Less: Returns 680 98,100
Less: Returns 500 40,175 By Closing Stock 6,800
To Wages 10,480
Less: Cycle Shed 2,000 8,480
To Fuel & Power 4,730
To Carriage on Purchase Gross 2,040
Profit C/d 43,715 104,900
104,900
By Gross Profit b/d
To Salaries 15,000 43,715
Add: Outsanding Salary 1,500 To
Carriage on Sales 16,500
To General Expense 3,200
To Insurance Account 600 3,000
Less: Prepaid 85
To Provision for Bad and 515
Doubtful A/c
To Depreciation 725
Machinery 2,000
Patents 1,500
3,500
To Net Profit
16,275
43,715 43,715
Balance Sheet of Amar and Co.

As on 31 December 2015
Liabilities Amount (Rs.) Assets Amount(Rs.)

Capital Account 71,000 Machinery 20,000
Less: Drawings 5,245 Less: Depreciation 2,000 18,000
65,755 Patent 7,500
Add Net Profit 16,275 82,030 Less: Depreciation 1,500 6,000
Sundry Creditors 6,300 Building 30,000
Outstanding Salaries 1,500 Add: Cycle Shed 2,000 32,000
Freehold Land 10,000
Closing Stock 6,800
Sundry Debtors Less Provision 13,775
Insurance Prepaid 85
Cash at Bank 2,630
Cash in Hand 540
89,830 89,830
13. The following trial balance of M/s Yusuf and Co., a proprietorship firm of Mr. Yusuf as at
December 31, 2015 is given to you:
Particulars Dr. Balances (Rs.) Cr. Balances (Rs.)

Land and Building 35,000
Machinery 50,000
Purchases 103,900
Salaries 11,000
General Expenses 2,500
Rent 3,000
Postage, Courier etc 1,400
Stationery 1,300
Wages 26,000
Freight on Purchases 2,800
Carriage on Sales 4,000
Repairs 4,500
Bad Debts 600
Cash in Hand 100
Cash at Bank 6,400
Capital 60,000
Loan from Mr. Yusuf @ 9% 30,000
Miscellaneous Revenue 1,200
Sales 202,200
Total 303,000 303,000
The following further information is given:

a. Wages for December 2015 amounting to Rs. 2,100 have not yet been paid.
b. A provision of Doubtful Debts @5% on debtors is necessary.
c. Depreciation is to be charged as follows on WDV method:
i. Land and Buildings- 2%
ii. Machinery- 10%
iii. Furniture and Fixtures- 15%
d. The loan from Mr. Yusuf was taken on July 01, 2015. Interest has not been paid yet.
e. The value of stock on hand on December 31, 2015 was Rs. 14,900.
f. The Financial year is January to December.
You are required to prepare in the books of M/s Yusuf and Co., (6+4=10)(Dec.2016)
i) Trading and Profit and Loss Account for the Financial Year 2015;
ii) Balance Sheet at December 31, 2015.
Answer:
( i)
Trading and Profit and Loss Account of M/s Yusuf and
Co.,
for the FY ending December 31, 2015
Rs. Amount Rs. Amount

Rs. Rs.
To Opening Stock 15,500
To Purchases 103,900 By sales 202,200
To Wages 26,000
Add: Wages Outstanding 2,100 28,100
To Freight on Purchases 2,800

To Gross Profit c/d 66,800 By Closing Stock 14,900
2,17,100 217,100
BY Gross Profit b/d 66,800
By Miscellaneous
Revenue 1,200
To Salaries 11,000
To Rent 3,000
To Postage Courior etc 1,400
To Statinery Expenses 1,300
To Carriage on Sales 4,000
To Repairs 4,500
To Depreciation 6,450
Land and Building 700
Machinery 5,000
Furniture and Fixtures 750
To Provision for Doubtful
Debts 1,500
To Interest on Loan 1,350
To Bad Debts 600
68,000 68,000
ii)
Balance Sheet
of M/s Yusuf and Co., as on

December 31, 2015
Amount Amount
Liabilities Assets
Rs. Rs.
Rs.
Rs.
Capital 60,000 Fixed Assets:
Net Profit 30,400 Land Building 35,000
Less. Depreciation @ 2% (700)
Loan from Mr. Yusuf 30,000 34,300
Machinery 50,000
Less. Depreciation @ 10% (5,000)
45,000
Less. Depreciation @ 15% (750)
4,250
Current Assets:
Cash on Hand 100
Current Liabilities Cash at Bank 6,400
Wages Payable 2,100 Sundry Debtors 30,000
Interest Payable on Less: Provision for Doubtful
Loan 1,350 Debts (1,500)
28,500
Stock 14,900
133,450 133,450
21. The following are the balances as at 31stAshadh, 2073 extracted from the books of Girish Store:

Plant and Machinery 810,000 Bad Debts 44,000
Furniture and Fittings 305,000 Bad debts recovered 25,000
Bank Overdraft 3,200,000 Salaries 653,000
Capital Account 2,300,000 Outstanding Salaries 107,000
Drawings 300,000 Prepaid Rent 10,000
Purchases 4,610,000 Rent 130,000
Opening Stock 2,645,000 Carriage inward 47,000
Wages 446,500 Carriage outward 65,000
Provision for doubtful debts 114,000 Sales 5,812,000
Provision for discount on debtors 27,500 Advertisement 135,000
Sundry Debtors 3,050,000 Printing and Stationery 44,000
Sundry Creditors 1,550,000 Cash in hand 46,000
Cash at Bank 145,000 Suspense Account 350,000
a. Closing stock as at 31.03.2073 is Rs. 5,000000.

b. Purchase includes sales returned of Rs. 110,000 and sales include purchase returns of Rs. 95,000.
c. Goods withdrawn by Proprietor for own consumption Rs. 150,000 were included in purchases.
d. Depreciation is to be provided in plant and machineries @15% and in furniture and fittings @10%
per annum.
e. Wages paid for installation of plant and machinery amounting to Rs.15,000 were included in wages
account.
f. Create a provision for doubtful debts @ 5% and provision for discount on debtors @ 2.5%.
g. A debit balance of Rs. 50,000 in the account of Ram, a creditor, is included in the list of sundry
debtors.
h. Free samples distributed for publicity costing Rs. 25,000.
i. After the closing of ledger accounts, it was found that credit purchase of Rs. 175,000 was wrongly
passed through sales control ledger.
Prepare a Trading and Profit and Loss Account for the year ended on 31 stAshadh,
2073 and Balance Sheet as on that date. 15 (June 2017)
Answers:
In the books of Girish Store Trading and Profit and Loss Account
For the year ended on 31.03.2073
Amount Amount Amount

Particulars Rs. Rs. Particulars Rs. Amount Rs.
5,717,000
To, Opening Stock 2,645,000 By, Sales
To, Purchase 4,500,000 Less: Sales Return 110,000 5,607,000
Less: Return 95,000 By, Closing Stock 5,000,000

Less: Drawing 150,000
Less: Advertisement 25,000 4,230,000
To, Wages 431,500
To, Carriage Inward 47,000
To, Gross Profit 3,253,500
10,607,000 10,607,000
3,253,500
By, Gross Profit
To, Salaries 653,000 By, Bad Debts recovered 25,000

To, Advertisement
Exp. 160,000
To, Rent 130,000

To, Printing and
Stationeries 44,000
To, Bad Debts 44,000

To, Carriage
Outwards 65,000
To, Provision for
Doubtful Debts 27,250
To, Provision for
Discount on Debtors 39,594
To, Depreciation
Plant and Machinery 123,750

Furniture and
Fittings 30,500 154,250
To, Net Profit
transferred to
Balance Sheet 1,961,406
Total Total
3,278,500 3,278,500
In the books of Girish Stores Balance

Sheet as on 31.03.2073
Capital and Amount Amount Amount

Liabilities Rs. Amount Rs. Assets Rs. Rs.
Fixed Assets
Capital 2,300,000 Plant and Machinery 825,000

Add: Profit during the
Less: Depreciation
period 1,961,406 123,750 701,250
Furniture and Fittings
4,261,406 305,000
Less: Depreciation
Less: Drawing 450,000 3,811,406 30,500 274,500
Closing Stock Sundry
Bank Overdraft 3,200,000 5,000,000
Debtors Advance to
Sundry Creditors 1,725,000 2,616,656
Creditors Prepaid Rent
Outstanding Salaries 107,000 50,000
Cash at Bank
10,000
Cash in Hand
145,000
46,000
Total 8,843,406 Total 8,843,406

Working Notes:
1
Sale Return A/C Dr. 110,000
Sales A/C 95,000
To, Purchase A/C 110,000
To, Purchase Return A/C 95,000
(Sales return and purchase return included in purchase A/C and Sales A/C respectively, now rectified) 2
Drawing A/C Dr. 150,000
To Purchase A/C 150,000
(Goods withdrawn for own consumption included in purchase, now rectified)
3
Suspense A/C Dr. 350,000
To Sundry Debtors A/C 175,000
To Sundry Creditors A/C 175,000
Credit purchase was wrongly passed through Sales Control Ledger, now rectified)
4
Plant and Machinery A/C Dr. 15,000
To Wages A/C 15,000
(Wages paid for installation of Plant and Machinery included in wages A/C, now rectified)
5
Advances to Suppliers 50,000
To Sundry Debtors 50,000
(Advance paid to suppliers included in the list of Sundry Debtors A/C, now rectified)
6
Advertisement Expenses A/C Dr. 25,000
To Purchase A/C 25,000
(Free samples distributed out of purchases, now rectified)
Calculation of Provision for doubtful debts and provision for discount on debtors
Less: As per Note-3 (175,000)

2,825,000
Required Provision for Doubtful Debts @ 5% 141,250
Already created 114,000
Additional to be created 27,250
Required Provision for discount on debtors @2.5% 67,094

Net debtors balance shown in Balance Sheet 2,616,656
Working Note -Q-1
22. From the following Trial Balance and additional information, prepare the Trading, Profit and Loss Account and
Balance Sheet of XYZ Private Limited as at Asadh 31, 2074: 15 (Dec.2017)
Particulars Debit Amount (Rs.) Credit Amount (Rs.)

Capital - 1,700,000
Drawings 100,000 -
Plant and Machinery at Cost 1,100,000 -
Accumulated Depreciation (Opening) - 209,000
Purchase/Sales 1,040,000 1,650,000
Purchase Returns - 40,000
Sales Returns 50,000 -
Bad Debts 50,000 -
Bad Debts Recovered - 264,500
Carriage Inward 50,000 -
Carriage Outward 70,000 -
Discount 20,000 10,000
Commission 40,000 30,000
Rent 30,000 40,000
Interest 25,000 30,000
Office and Administration Expenses 60,000 -
Selling and Distribution Expenses 100,000 -
Debtors 2,150,000 -
Creditors - 2,020,000
Bills Payable - 56,000
Bills Receivable 100,000 -
Loan 200,000 500,000
Investments 500,000 -
Opening Stock 540,000 -
Cash in Hand 50,000 -
Cash at Bank 455,500 -
Wages and Salaries 19,000 -
Suspense Account - 200,000
Total 6,749,500 6,749,500
a) Cost of inventory as at Asadh end, 2074 was Rs. 200,000 whereas the net realizable value of the
same on that date was Rs. 150,000.
b) Goods costing Rs. 100,000 were destroyed by Fire on Asadh 20, 2074. The Insurance company
accepted claim to the extent of 80% only and paid the claim on Shrawan 5, 2074.
c) While preparing Bank Reconciliation Statement, there was a wrong credit of Rs. 10,000 and
wrong Debit of Rs. 15,000 were found in the Bank Statement dated Asadh 31, 2074.
d) The suspense account is related to unidentified sales of previous year, identified now and needs
to be reflected in current year financial statements.
e) The Plant and Machinery was purchased on Shrawan 1, 2071 and being depreciated on WDV
basis. The company decided to change the depreciation method from WDV to SLM with
retrospective effect w.e.f. Shrawan 1, 2073. The Accumulated depreciation under SLM as at
Shrawan 1, 2074 would have been Rs. 220,000. The depreciation for the current year under WDV
is Rs. 110,000. The same needs to be rectified through Profit & Loss Account.
f) Goods worth Rs. 100,000 were sent out to a customer on approval basis and have been recorded
in the books as actual sale. The goods actually remained unsold on Asadh end, 2074. The cost of
the goods were Rs. 80,000.
g) Manager is entitled to a commission of 5% of Net Profit after charging his commission.
Answer:
In the books of XYZ Private Limited

Trading Account for the year ended on Asadh 31, 2074
Particulars Amount Debit Particulars Amount Credit
Amount Amount
To, Opening By, Sales 1,650,000
540,000
Stock Less: Sales Returns (50,000)
To, Purchase 1,040,000 Less: Goods Sent for (100,000) 1,500,000
Approval (Working
Less: Purchases (40,000) 1,000,000 Note: 5)
Returns
To, Carriage By, Closing Stock 150,000
50,000
Inward (Working Note: 1)
Add: Goods sent on 80,000 230,000
To, Wages and 19,000 Approval basis
Salaries (Working Note: 5)
By, Loss of stock by 20,000
fire (Working Note: 2)
By, Insurance claim
Gross Profit 221,000 receivable A/C 80,000
(Working Note: 2)
1,830,000 1,830,000
Debit Credit
Particulars Particulars
Amount Amount
Carriage Outward 70,000 Gross Profit 221,000
Discount 20,000 Discount received 10,000
Commission 40,000 Commission received 30,000
Rent 30,000 Rent received 40,000
Interest 25,000 Interest received 30,000
Office and Administration Expense 60,000 Bad Debts Recovered 264,500
Selling and Distribution Expense 100,000
Bad Debts 50,000
Depreciation (Working Note: 4) 110,000
Accumulated Depreciation A/C
11,000
(Working Note: 4)
Loss of stock due to fire (Working
20,000
Note: (Working Note: 2)
Manager's Commission (Working
2,833
Note: (Working Note: 6)
Net Profit 56,667
Total 595,500 Total 595,500
In the books of XYZ Private Limited Balance

Sheet as at Asadh 31, 2074
Capital & Liabilities Amount Amount Assets Amount Amount
Plant and Machinery 1,100,000
at Cost
Less: Accumulated (220,000)
Depreciation i.e.
Capital 1,700,000
opening under SLM
Less: Drawings (100,000) 1,600,000
(Working Note: 4)
Less: Accumulated (110,000) 770,000

depreciation i.e.
Depreciation of the
current year
Net Profit for the Debtors 2,150,000
period 56,667
256,667 Less: Debt for Goods (100,000) 2,050,000
Add: P & L 200,000 sent on Approval
Adjustment A/C (Working Note: 5)
(Working Note: 3)
Creditors 2,020,000 Bills Receivable 100,000
Bills Payable 56,000 Loan 200,000
Loan 500,000 Investments 500,000
Cash in Hand 50,000
Cash at Bank 455,500
Insurance Claim
Receivable 80,000
Manager's
Commission (Working Note: 2)
2,833 Closing Stock 150,000
Outstanding
(Working Note: 6) (Working Note: 1)
Add: Goods sent on 80,000 230,000
Approval basis
(Working Note: 5)
TOTAL 4,435,500 TOTAL 4,435,500
Working Notes:
Working Note 1:
Closing stock should be valued at a value lower of the cost of inventory or net realizable value. Hence the net
realizable value of closing stock Rs. 150,000 being lower than its cost i.e. Rs. 200,000, the closing stock is taken
at Rs. 150,000.
Working Note 2:
Cost of Goods destroyed by fire as on Asadh 20, 2074 = Rs. 100,000 Claim
accepted by Insurance Company (80% of cost of stock lost) = Rs. 80,000 Net Loss of
cost of stock due to fire = Rs. 20,000 Journal
Entries:
By, Claim Receivable from Insurance Company A/C Dr. 80,000
By, Loss of Stock A/C Dr. 20,000
To, Trading Account Cr. 100,000
Working Note 3:
The Suspense Account (Credit Balance) of Rs. 200,000 relates to unidentified sales of last year. The same can‟t
be taken to the Trading Account of this year since they don‟t represent the sales of current year.
Hence they need to be adjusted through Profit and Loss Adjustment Account as follows: Suspense
Account (Unidentified Sales) Dr. 200,000
To, Profit and Loss Adjustment Account 200,000
Working Note 4:
Opening Accumulated Depreciation as at Shrawan 1, 2073 209,000
Revised Accumulated Depreciation as at Shrawan 1, 2073 220,000
Hence additional depreciation to be charged till Shrawan 1, 2074 11,000
Profit and Loss Account Dr. 11,000

To, Accumulated Depreciation Account 11,000
Opening balance of Plant and Machinery after adjustment of above additional depreciation as at Shrawan 1,
2074:
Historical Cost 1,100,000

Revised Accumulated depreciation 220,000
Depreciation on Rs. 1,100,000 for the year ended Asadh end, 2074 under SLM 110,000
Total Accumulated Depreciation 330,000
Depreciation A/C Dr. 110,000

To, Accumulated Depreciation Cr. 110,000
Working Note 5:
Goods sent on Approval basis but remaining unsold as at year end should be taken as closing stock. Hence cost
of such goods being Rs. 80,000 is taken as closing stock.
The goods sent on approval basis and remaining unsold but accounted as sales, hence rectified as follows:
Sales A/C Dr. 100,000
Debtors A/C Cr. 100,000
Stock of goods sent on Approval Dr. 80,000

To Trading A/c 80,000
Working Note 6:
Commission of 5% on net profit after charging the commission
= Net profit before commission X 5/105
= 59,500 X 5/105
= 2,833
Profit and Loss Account Dr. 2,833 To,
Manager‟s Commission Payable Account 2,833
Working Note 7:
Since the wrong debit and credit entries are made by Bank in the Bank Statement, hence the same need not be
adjusted in the books of account of XYZ Private Limited.
23. From the following Trial Balance and additional information, prepare the Trading, Profit
and Loss Account and Balance Sheet of Kathmandu
Suppliers as at Ashadh end, 2074: 15 (June2018)
Particulars Debit Amount Credit Amount

(Rs.) (Rs.)
Capital 5,000,000
Property, Plant and Equipment (at cost) 2,000,000
Accumulated Depreciation (opening balance) 700,000
Interest 120,000 70,000
Bank Balance 1,400,000
Cash on Hand 25,000
Sales 2,300,000
Purchases 1,800,000
Return Outward 200,000
Return Inward 150,000
Carriage Outward 15,000
Carriage Inward 25,000
Accrued Interest 75,000
Royalty 150,000
Bad Debt 200,000
Account Payable 50,000
Creditors 51,000
Loan from Bank 1,200,000
Investment 1,325,000
Employee Loan 200,000
Retained Earning 95,000
Discount 50,000 75,000
Salaries & Wages 156,000
Administrative Expenses 180,000
Selling and Distribution Expenses 280,000
Advance 15,000
Suspense Account 115,000
Total 9,891,000 9,891,000
Additional Information
a. Property, Plant and Equipment consist of the following assets:
Cost Accumulated Depreciation
i. Land purchased on
Bhadra 15, 2073 500,000

b. Plant & Machinery 900,000 500,000 (15% Depreciation rate)
c. Office Equipment 500,000 150,000 (25% Depreciation rate)
d. Furniture & Fixture 100,000 50,000 (20% Depreciation rate)
Company is applying WDV method to charge depreciation.
b. Company has a policy to provide 20% provision for doubtful debt on more than a year aged debtors
and 50% provision on more than two years aged debtors. Aging report of the company shows the
following:
i. Less than a year Rs. 1,100,000
ii. More than a year Rs. 300,000
iii. More than two years Rs. 100,000
c. Closing stock as on Ashadh end 2074 was Rs. 225,000 (market price Rs. 210,000).
d. Bad debt amount shown in Trial Balance is net of bad debt recovered amount of Rs. 120,000.
e. This year it is found that sales was overcast by Rs. 115,000 in previous year and required
adjustment need to reflect in current year.
f. Administrative expenses include Rs. 20,000 for the rent of Director’s residence.
g. Salary of Mr. Ram for Bhadra 2074 amounting Rs. 20,000 was unpaid in Bhadra 2074.
h. Salary and wages include wage amount Rs. 50,000.
You are required to prepare Trading and Profit and Loss Account for the year ended on Ashadh end 2074 and
Balance Sheet as on that date.
Answers:
Kathmandu Suppliers Trading & Profit

and Loss Account For the year ended Ashadh end
2074
Dr. Cr.
(Rs.) (Rs.)
To, Opening Stock 260,000 By, Sales 2,300,000
To, Purchase 1,800,000 Less: Return Inwards (150,000) 2,150,000
Less: Return (200,000) 1,600,000 By, Closing stock 210,000
Outwards (Note 1)
To, Wages 50,000
To, Gross Profit c/d 425,000
2,360,000 2,360,000
To, Carriage 15,000 By, Gross Profit b/d 425,000
Outward
To, Bad debt 320,000 By, Royalty 150,000
To, Discount 50,000 By, Bad debt recovered 120,000
To, Salaries & 106,000 By, Discount received 75,000
Wages
To, Administrative 160,000 By, Interest Income 70,000
expenses (Note 4)
To, Selling and 280,000 By, Net Loss 478,500
Distribution
expenses
To, Provision for 110,000
doubtful debt (Note
2)
To, Depreciation 157,500
(Note 3)
To, Interest 120,000
1,318,500 1,318,500
Kathmandu Suppliers Balance Sheet
As on Ashadh end 2074
Capital & Liabilities Amount Assets Amount
(Rs.) (Rs.)
Share Capital 5,000,000 Property, Plant and Equipment
Less: Drawing (20,000) 4,980,000 Gross 2,000,000
Retained Earnings 95,000 Less: Accumulated dep. (857,500) 1,142,500
Less: Net Loss (478,500) Accrued Interest 75,000
Less: Adjustment (Note 5) (115,000) (498,500) Book Debtors 1,500,000
Account Payable 50,000 Less: Provision for
1,390,000
Working Notes doubtful debt (110,000)
1.Loan fromstock
Closing Bankis valued at cost or Net realizable
1,200,000 Investment
value which ever is lower; 1,325,000
a. Cost amount of stock
Creditor 51,000 Inventory (Note 1)
225,000 210,000
b. Net realizable value 210,000 Employee Loan 200,000
Hence closing stock as on Ashadh end 2074 is value Advance
at NPR 210,000 15,000
2. Calculation of provision for doubtful debt; Bank Balance 1,400,000
Aging Debtor Rate Provision for doubtful debt
Cash on Hand 25,000
Less than a year 1,100,000Total 0% 5,782,500 - Total 5,782,500
More than a year 300,000 20% 60,000
More than two years 100,000 50% 50,000
Total Provisioning for doubtful debt 110,000
3. Calculation of depreciation
Assets Cost Accumulated Written Rate of Depreciation

Depreciation Down Value Depreciation for the year
Land 500,000
Plant & Machinery 900,000 500,000 400,000 15% 60,000
Office Equipment 500,000 150,000 350,000 25% 87,500

Furniture & Fixture 100,000 50,000 50,000 20% 10,000
Total 157,500
4. Administrative Expenses
Administrative expenses 180,000
Drawing (20,000)
Net amount 160,000
5. Overcast of sales by 115,000 which was treated as suspense account should be adjusted through retained
earnings of the company.
24. The following are the balances as at 32nd Ashadh, 2075 extracted from the books of Mainali
Suppliers:
Particulars Dr. Amount (Rs.) Cr. Amount (Rs.)

Machineries 324,000 -
Furniture and Fittings 122,000 -
Bank Overdraft - 1,280,000
Capital Account - 920,000
Drawings 120,000 -
Purchases 1,844,000 -
Opening Stock 1,058,000 -
Wages 178,600 -
Provision for doubtful debts - 45,600
Provision for discount on debtors - 11,000
Sundry Debtors 1,220,000 -
Sundry Creditors - 620,000
Cash at Bank 58,000 -
Bad Debts 17,600 -
Bad debts recovered - 10,000
Salaries 261,200 -
Outstanding Salaries - 42,800
Prepaid Rent 4,000 -
Rent 52,000 -
Carriage inward 18,800 -
Carriage outward 26,000 -
Sales - 2,324,800
Advertisement 54,000 -
Printing and Stationery 17,600 -
Cash in hand 18,400 -
Suspense Account - 140,000
Total 5,394,200 5,394,200
a. Closing Stock as on 32nd Ashadh, 2075 is Rs. 1,600,000.
b. Purchase includes sales returned of Rs. 50,000 and sales include purchase returns of
Rs. 85,000.
c. Goods purchase for Proprietor’s for own consumption Rs. 115,000 were included in
purchases.
d. Depreciation is to be provided in Machineries @15% and in Furniture and Fittings
@10% per annum.
e. Wages paid for installation of machinery amounting to Rs. 15,000 were included in
wages ledger.
f. Create a provision for doubtful debts @ 5% and provision for discount on debtors
@ 2.5 %.
g. A debit balance of Rs. 150,000 in the account of a creditor is included in the list of
sundry debtors.
h. Samples were distributed for publicity costing Rs. 25,000.
i. After the closing of ledger accounts, it was noted that credit purchase of Rs. 70,000
was wrongly passed through sales control ledger.
Prepare a Trading and Profit and Loss Account for the period ended on 32nd Ashadh, 2075 and Statement of Financial
Position as on that date. 15 (Dec.2018)
Answer:
In the books of Mainali Suppliers Trading and Profit

and Loss Account For the year ended on 32.03.2075
Particulars Amount Rs. Amount Rs. Particulars Amount Rs. Amount

Rs.
To, Opening Stock By, Sales (2324800-85000)
1,058,000 2,239,800
To, Purchase
(1844000-50000) 1,794,000 Less: Sales Return 50,000 2,189,800
Less: Purchase Return 85,000 By, Closing Stock 1,600,000

Less: Proprietor's
Drawing 115,000
Less: Advertisement 25,000 1,569,000
To, Wages (178600-

163,600
15000)

To, Gross Profit 980,400
3,789,800 3,789,800
980,400
By, Gross Profit
To, Salaries 261,200 By, Bad Debts recovered 10,000

To, Advertisement
Exp. 79,000
To, Rent 52,000

To, Printing and
Stationeries 17,600
To, Bad Debts 17,600
To, Carriage Outwards 26,000

To, Provision for
Doubtful Debts 4,400
To, Provision for
Discount on Debtors 14,000
To, Depreciation
Machineries 50,850
Furniture and
Fittings 12,200 63,050
To, Net Profit
transferred to Balance
Sheet 455,550
Total 990,400 Total 990

,40
0
In the books of Mainali Suppliers

Statement of Financial Position as on
32.03.2075
Capital and Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs.
Fixed Assets
Capital 920,000 Machineries 324,000
Add: Installation Cost 15,000

Add: Profit during the
period 455,550 Less: Depreciation 50,850 288,150
1,375,550 Furniture and Fittings 122,000

Less: Drawing
(120000+115000) 235,000 1,140,550 Less: Depreciation 12,200 109,800
Bank Overdraft 1,280,000 Closing Stock 1,600,000
Sundry Creditors 690,000 Sundry Debtors 925,000
Outstanding Salaries 42,800 Advance to Creditors 150,000
Prepaid Rent 4,000
Cash at Bank 58,000
Cash in Hand 18,400
Total 3,153,350 Total 3,153,350
Working Notes:
1
Sale Return A/C Dr. 50,000
Sales A/C 85,000
To, Purchase A/C 50,000

To, Purchase Return
A/C 85,000
(Sales return and purchase return included in purchase A/C and Sales A/C
respectively, now rectified)
Drawing A/C Dr. 115,000
To Purchase A/C
115,
000 (Goods withdrawn for own consumption
included in purchase, now rectified)
Suspense A/C Dr. 140,000

To Sundry Debtors
A/C 70,000
To Sundry Creditors
A/C 70,000
Credit purchase was wrongly passed through
Sales Control Ledger, now rectified)
Machineries A/C Dr. 15,000
To Wages A/C 15,000

(Wages paid for installation of Plant and Machinery included in wages A/C,
now rectified)
Advances to Suppliers 150,000
To Sundry Debtors 150,000

(Advance paid to suppliers included in the list of
Sundry Debtors A/C, now rectified)
6
Advertisement
Expenses A/C Dr. 25,000
To Purchase A/C 25,000 (Free samples distributed out of

purchases, now rectified)
7
Calculation of Provision for doubtful debts and
provision for discount on debtors
1,000,000
Required Provision for Doubtful Debts @ 5% 50,000

Required Provision for discount on debtors @2.5% 25,000
Net debtors balance shown in Balance Sheet 925,000
25. The following are ledger balances of SRB as on 2076.03.31:
Amount Amount
Opening stock of the materials
(2075.04.01) 51,256 Cash in hand 364
Material purchases less returns 165,256 Cash at bank 6,756
Opening stock of finished goods 12,625 Loan taken on mortgage 20,000
Capital account 200,000 Goodwill 10,000
Drawings 15,250 Interest on mortgage loan 400
Rates and taxes 3,756 Dividend received 3,250
Salaries 15,200 Bills payable 11,575
Investment reserve as on
Electricity charges 2,120 2075.04.01(Cr) 1,250
Electric power 3,250 Bad debts 450
Insurance 1,000 Discount received 2,715
Investment at cost as on
Advertisement expenses 17,256 2075.04.01 36,150
Sales less return 150,210 Bills receivable 16,263
Bad debts provision (Cr) 450 Prepaid insurance 200
Discount (Debit Balance) 1,216 Sundry debtors 17,800
Wages (labor) 18,560 Factory land and building 21,200
General expenses 4,065 Plant and machinery 22,500
Outstanding expenses 2,100 Sundry creditors 56,562
Carriage inwards 5,210
Additional information:
a. Factory buildings were constructed on land purchased for Rs. 10,000 during the year but this
was wrongly posted to the purchases account.
b. Provide depreciation at 10% on plant and machinery and at 5% on building.
c. Interest has to be provided on mortgage loan at 6% per annum keeping in view the fact that a
sum of Rs. 5,000 was repaid on Asoj end, 2075.
d. The market value of the investments as at 2076.03.31 was Rs. 37,000. The investment reserve
account represents the difference between the cost and market value.
e. Electricity charge was paid in advance to the extent of Rs. 155.
f. Some investments were sold during the year for Rs. 1,260 realizing a profit of Rs. 125 as
compared to their market value on 2075.04.01. The sale proceeds were, however, credited to the
sales account.
g. Provision for bad debts should be maintained at 10%.
h. Out of the bills receivable, one bill for Rs. 1,200 matured for payment in the last week of Ashadh
2076. However, the bankers informed that they could not collect the said bill on 2076.03.31. This
information was not recorded in the books.
i. The closing stock was as follows:
Raw material Rs. 85,263
Finished goods Rs. 64,987
You are required to prepare the Manufacturing A/c, Statement of Profit or Loss & Statement of Financial
Position. (15 marks) (Dec.2019)
Answer:
In the Books of SRB

Manufacturing Account
For the year ended 31 Ashadh 2076
Material consumed Cost of goods manufactured 151,579
Opening Stock 51,256 transferred to Trading A/C
Purchase less return 155,256 (WN 1)
206,512
Less: Closing Stock 85,263 121,249
Carriage Inward 5,210
Wages (Labour) Electric 18,560
Power Depreciation on: 3,250
Plant & Machinery 2,250 3,310
Land & Building 1,060
Total 151,579 Total 151,579
In the Books of SRB

Trading Account
Opening Stock of finished goods 12,625 Sales less return (WN 3) 148,950
Cost of goods manufactured Gross 151,579 Closing stock of Finished goods
Profit (transferred to the Statement 49,733 64,987
of Profit or Loss)
Total 213,937 Total 213,937

In the Books of SRB
Statement of Profit or Loss
Salaries 15,200 Gross profit b/d 49,733
Rate and Taxes 3,756 Discount Dividend 2,715
Electricity Charges 1,965 received 3,250
Insurance 1,000 Gain on sale of Investment 125
Advertisement 17,256
General expenses 4,065
Interest on Mortgage (WN 5) 1,275
Bad debts 450
Provision of bad debts 1,450
Discount allowed 1,216
Net Profit Transferred to Capital A/C

8,190
Statement of Financial Position

As at 31 Ashadh 2076
Equity & Liabilities Rs. Assets Rs.
Capital 200,000 Goodwill 10,000
Add: Net Profit 8,190 Property, Plant & Equipment:
Less: Drawing 15,250 192,940 Land & Building 21,200
Investment Reserve A/C (WN 4) 3,235 Add: Additions 10,000 30,140
Loan on Mortgage 20,000 Less: Depreciation 1,060
Sundry Creditors Bills 56,562 Plant & Machinery 22,500 20,250
Payables Outstanding 11,575 Less: Depreciation 2,250
Expenses 2,100 Investment at market value 37,000
Outstanding Interest on Mortgage (WN 4)
Loan (WN 5) 875 Current Assets
Stock in trade at cost: 150,250
Raw material 85,263 15,063
Finished goods 64,987
Bills Receivables (WN 2) 17,100
Sundry Debtors 19,000 6,756
Less: Provision for B/D 1,900 364
Cash at Bank 355
Cash in Hand Prepaid
Expenses
Total 287,287 Total 287,278
Note:- The difference of Rs. 9 in the totals of the Statement of Financial Position is due to the opening
balance of Raw Materials. The correct figure of the balance was Rs. 51,265 but was mistakenly
typed as Rs. 51,256.
Working Notes:
1) Rs. 10,000 has been deducted from purchases and added to Land & Buildings;
2) Rs. 1,200 has been deducted from Bills Receivables and added to Sundry Debtors;
3) Rs. 1,260 has been deducted from sales, being sale proceeds of investment the cost Rs. 1,135 has been
deducted from investments.
4) The cost of investment is Rs. 36,150 less Rs. 1,135. Since these have to be shown at Rs. 37,000, Rs.
1,985 (i.e. Rs. 37,000-Rs.35,015) has been added to investment reserve which now becomes Rs. 3,235.
As the cost of the investments sold being less than the market value, the profit should be more than Rs.
125.
However, the cost of each investment would be different hence this point has been ignored.
5) Interest on mortgage loan:
Interest on Rs. 25,000@6% for 3 months 375
Interest on Rs. 20,000@6% for 9 months 900
1,275
Less: Paid 400
Outstanding 875
26. The following figures were taken from the books of Ramesh on 31st Ashadh, 2076:

(Rs.) (Rs.)
Cash at bank 26,400 Royalties received 400
Cash in hand 30 Trade & general expenses 5,020
Sales 2,61,230 Reserve on patents 5,000
Stock (1st Shrawan, 2075) 27,410 Interest on loan 1,240
Sales returns 3,300 Repairs 840
Discount (Dr.) 6,380 Sundry creditors 20,780
Bills receivable 1,820 Buildings 95,820
Sundry debtors 52,720 Patents rights 50,000
Depreciation 4,780 Loan (raised on mortgage of 45,000
buildings)
Purchases 1,84,030 Agent’s commission 6,500
Discount on purchases 3,900 Bad debts 1,900
Wages 14,040 Plant & machinery 30,000
Provision for bad debts 5,400 Capital 2,00,000
Provision for discount on 1,970 Drawings 30,000
debtors
Advertising 1,000
Carriage 450
In addition, the following information is given:
a) Stock on 31st Ashadh, 2076 was Rs. 32,250.

b) The stock includes materials worth Rs. 2,250 for which bills had not been received and,
therefore, not accounted for yet.
c) During the year a sum of Rs. 3,000 was paid as ground rent for F/Y 2075-76 & 2076-
77.This sum stands debited to buildings account.
d) Included in sales is an amount of Rs. 7,500 representing goods on sale or return, the
customers still having the right to return the goods. The goods were invoiced showing a
profit of 20% on sales.
e) A customer’s bill for Rs. 2,780 had been discounted with bank. The bank has sent
intimation that the bill has been dishonoured. No entry has been passed in respect
ofthis.
f) A provision for bad debts is to be maintained at 5% of the debtors and a provision for
discount on debtors is also to be maintained @ 2% of the debtors.
Prepare Trading and Profit and Loss Account of Ramesh for the year ended 31st Ashadh,
2076 & his Balance Sheet as on that date. (2020 Dec.) 15 marks
Answer:
Trading and Profit & Loss Account of Ramesh
Dr. For the year ended 31st Ashadh 2076 Cr.
To Opening stock 27,410 By Sales: 2,61,230
To Purchases: 1,84,030 Less: Returns 3,300
Add: Still unaccounted(WN 2) 2,250 1,86,280 2,57,930
2,50,430
To Wages 14,040 Less: Returnable (WN 3) 7,500
To Carriage 450 By Closing stock: 32,250
To Gross Profit c/d 60,500 Add: stock with 38,250
customers (WN 3) 6,000
2,88,680
2,88,680
To Provision for discount on debtors:
By Goss profit b/d 60,500
Required (WN 4) 912
By Discount Received 3,900
Add : Discount 6,380
By Royalties Received 400
7,292
Less: Existing provision 1,970 By Provision for Bad debts:
5,322
To Depreciation Existing 5,400
4,780
To Trade & General expenses Less: Bad debts 1,900
5,020 1,100
To Interest on Loan Provision required 2,400 4,300
1,240
To Ground Rent (WN 5) (WN 4)
1,500
To Repairs 840
To Agent’s commission 6,500
65,900
65,900
Balance Sheet of Rameshas

on 31st Ashadh, 2076
Equity & Liabilities Amount Assets Amount

(Rs.) (Rs.)
Capital Account : 2,00,000 Buildings 95,820
Add: Net profit 39,698 Less: Ground rent (WN 5) 3,000 92,820
2,39,698 Plant & Machinery 30,000
Less: Drawings 30,000 2,09,698 Patent Rights 50,000
Sundry Creditors 20,780 Less: Reserve 5,000 45,000
Add: still unaccounted for Sundry Debtors (WN 4) 48,000
(WN 2) 2,250 23,030 Less: Provision for bad debts 2,400
Loan on mortgage of building 45,000 45,600
44,688
Less provision for discount 912
Stock(32,250+6,000) (WN 3) 38,250
Bills receivable 1,820
Ground rent paid in advance (WN 5) 1,500
Cash in hand 30
Cash at bank (26,400-2,780) (WN 4) 23,620
2,77,728
2,77,728
Working notes:
1) Depreciation appears in trial balance. This means that the concerned assets have already beencredited in
respect of depreciation.
2) Goods purchase Rs.2, 250 have not yet been brought into account. Hence an entry is necessary: Purchases
account Dr. 2,250
To Sundry Creditors. 2,250
3) There is a “sales or return” of Rs. 7,500. The goods can still be returned by customers. It is not proper to treat
it as sale. Hence an entry will be necessary:
Sales account Dr. 7,500
To Sundry Debtors account 7,500
The entry reduces both sales and debtors. Debtors now stand at Rs. 45,220. (52,720 minus 7,500).
Further, the goods lying with customers should be included in stock at cost. The cost is Rs. 7,500 less 20%,
i.e., Rs. 6,000
4) An entry for Bills Discounted dishonoured will be necessary:Sundry
Debtors account Dr. 2,780
To Bank Account 2,780
By this entry the cash at bank will be reduced to Rs. 23,620 (26,400 minus 2,780) and debtorswill increase
to Rs. 48,000 i.e. (45,220 (WN 3) plus 2,780). The provision for bad debts will be 5
% of this figures i.e. Rs. 2,400.
The provision for discount on debtors = (Sundry debtors – provision for bad debts) X 2%
= Rs. (48,000 – 2,400) X 2%
= Rs. 912
5) A sum of Rs. 3,000 paid as ground rent for two years has been included in Buildings account. Hence, an
entry will be necessary to rectify the error:
Ground Rent expense Dr. 1,500
Ground Rent paid in advance Dr. 1,500
To Buildings account 3,000
Chapter 7 Non Profit Organization
1. From the following information relating to Joy Social club, you are required to prepare Bar Trading account and
Income & Expenditure Account for the year ended 31st March, 2010 and Balance sheet
as at that date.
Summary of cash book for the year ended 31st March, 2010
Receipts Rs. Payments Rs.
To Bank Balances
on 1st April, 2009 102,960 By Bar Supplies 1,256,100
To Subscriptions 114,000 By Bar Wages and Salaries 95,000
To Bar Takings 1,467,000 By Office Salaries 72,300
To Sale of Investments in Bonds 10,500 By Insurance 6,000
To Income from Investments in By Stationery 2,100
Bonds 6,200 By Electricity 11,340
To Interest on Bank Fixed Deposits 8,925 By Repairs & Painting 23,500
By Postage & Telephone 12,800
By Petty Office Expenses 710
By Municipal Taxes 3,000
By Furniture, purchased on
1st October, 2009 50,000
By Bank Balances on
31st March, 2010 176,735
1,709,585 1,709,585
The bank balances on 1st April, 2009 represented fixed deposits for Rs. 85,000 and current account balance, Rs.
17,960. All the receipts shown in the abovementioned summary were paid into the current account except that
interest on bank fixed deposits was added to the principal amounts of the fixed deposits. All payments were made
from the current account. On 31st march, 2010 a fresh fixed deposit amounting to Rs. 50,000 was made by transfer
of the amount from the current account.
You have also to take into consideration the following balances of accounts:
On On
31-3-2009 31-3-2010
Rs. Rs.
Subscriptions in Arrear 10,000 8,000
Office Salaries Outstanding 5,800 6,100
Unexpired Insurance 1,380 1,500
Stock of Stationery 250 1,400
Bar Salaries & Wages outstanding 7,600 8,000
Creditors for Bar Supplies 15,410 17,200
Stock of Bar Supplies 44,200 46,770
Freehold Premises, at cost 400,000 400,000
Furniture, at cost 150,000 ?
Investment in Bonds, at cost 85,000 75,000
Provision for Depreciation on:
Freehold Premises 60,000 72,000
Furniture 37,500 ?
Depreciation is provided every year on Freehold premises @ 3% per annum and on Furniture @ 5% per annum
on straight line basis. 20 (Dec.2010)
Answer : Bar Trading Account

for the year ended 31st March, 2010
Dr. Cr.
Rs. Rs. Rs.
To opening stock of By Bar Takings 1,467,000
Bar supplies 44,200 By Closing stock
To Bar Supplies 1,256,100 of Bar Supplies 46,770
Add: Creditors
on 31-3-2010 17,200
1,273,300
Less: Creditors
on 31-3-2009 15,410 1,257,890
To Bar wages & Salaries 95,000

Add: Outstanding
on 31-3-2010 8,000
103,000
Less: Outstanding
on 31-3-2009 7,600 95,400
To Bar Income transferred to

Income & Expenditure
Account 116,280
1,513,770 1,513,770
Income & Expenditure Account

for the year ended 31st March, 2010
Dr. Cr.
Expenditure Rs. Rs. Income Rs Rs.
To Office Salaries 72,300 By Subscriptions Add: 114,000
Add: Outstanding Arrears on
on 31-3-2010 6,100 31-3-2010 8,000
78,400 122,000
Less: Outstanding Less: Arrears on
on 31-3-2009 5,800 72,600 31-3-2009 10,000 1,12,000
To Insurance 6,000 By Bar Income 1,16,280

Less: Unexpired on By Profit on Sale of Investments
31-3-2010 1,500 in Bank 500
4,500 By Income from investments
Add: Unexpired in bank 6,200
on 31-3-2009 1,380 5,880 By Interest on Bank Fixed deposits 8,925
To stationery 2,100
Add: opening stock 250
2,350
Less: Closing stock 1,400 950
To Electricity 11,340
To Repairs and Painting 23,500
To Postage and Telephone 12,800

To Petty Office Expenses 710
To Municipal Taxes 3,000
To Provision for depreciation on:
Freehold Premises 12,000
Furniture 8,750
To Surplus i.e., excess of
income over
expenditure,
transferred to Capital
Fund 92,375
243,905 243,905
Balance Sheet as at 31st March, 2010
Equity and
Liabilities Rs. Rs. Assets Rs.
Rs.
Office Salaries Outstanding 6,100 Freehold Premises, cost 400,000

Bar Salaries & Wages Outstanding 8,000 Less: Provision for depn. 72,000 328,000
Creditors for Bar Supplies 17,200 Furniture at cost 200,000
Capital Fund: Less: Provision for depn. 46,250 153,750
Opening balance 667,480
Add: Surplus for the year 92,375 759,855 Subscriptions in Arrear
8,000
Unexpired Insurance 1,500
Stock of Stationery 1,400
Stock of Bar Supplies 46,770
Investments in Bonds, at
cost 75,0
00
Bank Balances:
Fixed deposits 143,925
Current Account 32,810
176,735
791,155
791,1
55
Working Note:
Balance Sheet as at 31st March, 2009

Equity and
Liabilities Rs. Rs. Assets Rs.
Rs.
Office Salaries Outstanding 5,800 Freehold Premises, cost 400,000

Bar Salaries & Wages Outstanding 7,600 Less: Provision for depn. 60,000 340,000
Creditors for Bar Supplies 15,410 Furniture at cost 150,000
Capital Fund (balancing figure) 667,480 Less: Provision for depn. 37,500 112,500
Subscriptions in Arrear 10,000
Unexpired Insurance 1,380
Stock of Stationery 250
Stock of Bar Supplies 44,200
Investments in Bonds, at
cost 85,0
00
Bank Balances:
Fixed deposits 85,000
Current Account 17,960 109,260
696,290
696,2
90
(ii) Calculation of Bank Fixed Deposits on 31-3-2010: Rs.

Bank Fixed Deposits on 31-3-2009 85,000
Add: Interest on fixed deposits added to principal 8,925
Fresh deposit on 31-3-2010 50,000
143,925
(i) Calculation of Depreciation on Furniture for the year:

On Rs. 1,50,000 for full year 7,500
On Rs. 50,000 for six months 1,250
8,750
(ii) Calculation of balance of Provision for Depreciation on

Furniture on 31-3-2010:
Opening balance 37,500
Add: Depreciation for the year 8,750
46,250
2. Prepare a Subscription Account from the following items for the year ending on 31st March,
2013: 5 (June2013)
i) Subscription in arrears on 31.3.2012: Rs. 500
ii) Subscription received in advance on 31.3.2012: Rs.1,100
iii) Total Subscription received during 2012-13: Rs. 35,400
This includes Rs. 400 for 2011-2012, Rs. 900 for 2013-14 and Rs. 300 for 2014-
Subscription outstanding for 2012-13: Rs 400
Answer: Subscription Account
To Outstanding Subscription A/c 500 By Advance Subscription A/c 1,100
To Income & Expenditure A/c 35,300 By Bank A/c 35,400
To Advance Subscription A/c By Outstanding Subscription A/c
For 2013-2014 For 2011-2012
900 1,200 100 500
For 2014-2015 For 2012-2013
300 400
37,000 37,000
Chapter 8 Partnership
1. A, B and C commenced business on 1.4.2007 with the capital of NRs. 50,000, 40,000 and
30,000. Profit and losses are shared in the ratio of 4:3:3. Capital carried interest @10%p.a.
During 2007-08 and 2008-09 they made profits of NRs. 35,000 and 45,000 before allowing
interest on capital. Each partner withdrew NRs. 12,000 per year for the personal use.
On 31st March 2009, the firm was dissolved. Creditors on that date were Rs.19,000. The
assets realized NRs. 130,000 net. Please prepare necessary ledger accounts to affect the
dissolution of firm assuming cut off date is March-end. 10 (2009 June)
Answer
Ledger Accounts to affect the dissolution of firm are as per below:
Dr. A's Capital Account Cr.
31/3/2008 To Drawing 12,000 1/4/2007 By Bank 50,000
By Interest on capital
To Balance C/d 52,200 31/3/2008 (50,000*10%) 5,000
31/3/2008 By PL A/c (WN 1) 9,200
31/3/2009 To Drawing 12,000 1/4/2008 By balance b/d 52,200
To Realization a/c By Interest on capital
31/3/2009 (Loss) 6,800 31/3/2009 (52,200*10%) 5,220
31/3/2009 To Bank 51,860 31/3/2009 By PL A/c (W N 2) 13,240
Dr. B‟s Capital Account Cr.

BY interest on capital
To Balance C/d 38,900 31/3/2008 (40,000*10%) 4,000
31/3/2008 By PL A/c(W N 1) 6,900
To Realization a/c BY Interest on capital
31/3/2009 (Loss) 5,100 31/3/2009 (38,900*10%) 3,890
31/3/2009 To Bank 35,620 31/3/2009 By PL A/c (W N 2) 9,930
Dr C's Capital Account Cr.

BY interest on capital
To Balance C/d 27,900 31/3/2008 (30,000*10%) 3,000
31/3/2008 By PL A/c(W N 1 ) 6,900
To Realization a/c BY interest on capital
31/3/2009 (Loss) 5,100 31/3/2009 (27,900*10%) 2,790
31/3/2009 To Bank 23,520 31/3/2009 By PL A/c (W N 2) 9,930
Debit Realization Account Credit

Date Particulars NRs. Date Particulars NRs. NRs.
To Sundry Assets 31/3/2009
31/3/2009 (WN 3) 147,000 By sundry creditors 19,000
31/3/2009 To bank (Payment 31/3/2009
to creditors) 19,000 By Bank (Assets sold) 130,000
31/3/2009 By Realization Loss
31/3/2009 A (4) 6,800
B (3) 5,100
C (3) 5,100 17,000
Total 166,000 Total 166,000
Debit Bank Account Debit Credit

31/3/2009 To Realization A/c By Realization Ac
130,000 31/3/2009 (Payment to Creditors ) 19,000
31/3/2009 A's capital 51,860
B's capital 35,620
C's Capital 23,520
Total 130,000 Total 130,000
WN1:Distribution Of Profit
Particulars NRs.
Profit for the year 2007/08 35,000
Less: Total Interest on Capital
(120,000*10%) 12,000
Profit available to partners (4:3:3 Ratio) 23,000
A 9,200
B 6,900
C 6,900
WN1;Distribution Of Profit
Particulars NRs.
Profit for the year 2008/09 45,000
Less: Total Interest on Capital
(119,000*10%) 11,900
Profit available to partners (4:3:3 Ratio) 33,100
A 13,240
B 9,930
C 9,930
WN3: Calculation Of Total Assets as on 31/3/2009

Particulars NRs.
Original Capital 120,000
Profit:
year 2007/08 35,000
year 2008/09 45,000
Creditors 19,000
Total Equity & Liabilities 219,000
Less: Drawing
(3X2X12000) 72,000
Total Assets 147,000
2. Ram and Rahim starts business with capital of Rs.5,00,000 and Rs.3,00,000 on 01.04.2008.
Rahim is entitled to a salary of Rs.4,000 per month. Interest is allowed on capital and is charged on
drawings at 6% per annum. Profits are to be distributed equally after the above noted adjustments.
During the year Ram withdrew Rs.80,000 and Rahim withdrew Rs.1,00,000. The profit for the year
before allowing for the terms of the Partnership Deed came to Rs.3,00,000. Assuming the capitals
to be fixed, prepare the Profit and Loss Appropriation Account and the Capital and the Current
Accounts relating to the partners. 10 (Dec.2009)
ANSWER:
Profit and Loss Appropriation Account For the year ended 31st March 2009

To Rahim's Salary Account 48,000 By Net Profit b/d 3,00,000
To Interest on Capital Account: By Interest on Drawings
Account
On Ram’s Capital 30,000 On Ram's Drawing 2,400
On Rahim’s Capital 18,000 On Rahim's Drawing 3,000
To Net Profit transferred to:
Ram's Current Account 1,04,700
Rahim's Current Account 1,04,700
3,05,400 3,05,400
Partners Capital Account

Date Particulars Ram Rahim Date Particulars Ram Rahim
Rs. Rs. Rs. Rs.
31.03.09 To Bal. c/d 5,00,000 3,00,000 01.04.08 By Cash 5,00,000 3,00,000
01.04.09 By Bal. b/d 5,00,000 3,00,000
Ram's Current Account

31.03.09 To Cash Account- 31.03.0 By Interest on Capital 30,000
Drawings 80,000 9 Account
31.03.09 To Interest on Drawing
Account 2,400
31.03.09 To Bal c/d 52,300 31.03.0 By Profit & Loss 1,04,700
9 Appropriation Account.
1,34,700 1,34,700
Rahim's Current Account

31.03.09 To Cash - Drawings 1,00,000 31.03.09 By Interest on Capital 18,000
Account
31.03.09 To Interest on Drawing 31.03.09 By Rahim’s Salary 48,000
Account 3,000 Account
31.03.09 To Bal c/d 67,700 31.03.09 By Profit and Loss 1,04,700
Appropriation Account
1,70,700 1,70,700
Note: Since the date on which, partners actually withdrew money on account of drawing is not given in the question, it
is assumed that the money was drawn evenly throughout the year. For the very same reason interest on partner's drawing
is charged for six month.
3. Weak, Able and Lazy are in partnership sharing profits & losses in the ratio of 2:1:1. It is agreed that
interest on capital will be allowed @10% per annum and interest on drawing will be charged @8% per
annum. (No interest will be charged/allowed on Current Accounts).
Weak Able Lazy

NRs. NRs. NRs.
Capital (1.1.2009) 75,000 40,000 30,000
Current Account (1.1.2009) 10,000 5,000 (Dr) 5,000
Drawings 15,000 10,000 10,000
The draft accounts for 2009 showed a net profit of NRs. 60,000 before taking into account interest on
capitals and drawings and subject to following rectification of errors:
i) Life Insurance premium of Weak amounting to NRs. 750 paid by the firm on 31 st December, 2009 has
been charged to Miscellaneous Expenditure A/c.
ii) Repairs of Machinery amounting to NRs. 10,000 has been debited to Plant Account and depreciation
thereon charged @ 20%.
iii) Travelling expenses of NRs. 3,000 of Able for a pleasure trip to U.K. paid by the firm on 30 th June,
2009 has been debited to Travelling Expenses Account.
You are required to prepare Profit & Loss Appropriation Account and partners Current Accounts for
the year ended 31st December, 2009. 10 (June 2010)
Answer:
WEAK, ABLE & LAZY
Profit & Loss Appropriation Account for the year ended
31st December, 2009
Particulars NRs. NRs. Particulars NRs. NRs.
To Interest on capital By Net Profit(Adjusted) 55,750
By Interest on Drawings
Weak 7,500 Weak 630
Able 4,000 14,500 Able 520 1,550
Lazy 3,000 Lazy 400
To Partner‘s Current A/cs:

Share of profit
Weak 21,400
Able 10,700
Lazy 10,700 42,800
57,300 57,300
Partners‘ Current Accounts
Particulars Weak Able Lazy Particulars Weak Able Lazy
To Balance b/d - - 5,000 By balance b/d 10,000 5,000 -

To Drawings 15,000 10,000 10,000 By PL App.(Interest on 7,500 4,000 3,000
To Premium 750 - - capital)
To Travelling Exps - 3,000 - By PL App.( Share of 21,400 10,700 10,700
To PL App. A/c profit)
(Interest on 630 520 400 By balance c/d - - 1,700
drawings)
To Balance c/d 22,520 6,180 -
38,900 19,700 15,400 38,900 19,700 15,400
Working Notes:
1. Adjusted Profit NRs.
Net Profit as per Profit & Loss A/c 60,000
Add: Drawing by Weak: Life Insurance Premium
of Weak charged to Miscellaneous Expenditure A/c
of the Firm 750
Add: Drawing by Able: Travelling
expenses of Able in connection with
pleasure trip to U.K.
charged to travelling Expense A/c of the Firm 3,000
63,750
Less: Repairs to Machinery wrongly capitalized Rs.10,000
Less: Depreciation charged@ 20% (2,000) 8,000
...................... ....................
55,750
2. Interest in drawings:
Weak Able Lazy

Rs Rs Rs.
Drawings 15,000 10,000 10,000

Add: Rectification
Adjustments 750 3,000 -
............................................................
15,750 13,000 10,000
Interest @8% p.a. 630 520 400

For 6 months
4. The Balance Sheet of X, Y and Z, who were sharing profits in the ratio of 4 : 3 : 2 respectively stood as
follows:
Balance Sheet
Equity and Liabilities Rs. Rs. Assets Rs. Rs.

Capital Accounts: Sundry Debtors 30,450
X 1,20,000 Less: Provision 1,050 29,400
Y 90,000 Stock 48,000
Z 60,000 270,000 Plant & Machinery 51,000
311,400 311,400
Y having given notice to retire from the firm, the following adjustments in the books of the firm
were agreed upon:
i) Land and building be appreciated by 10%.
ii) The provision for doubtful debts is no longer required.
iii) The stock be appreciated by 20%.
iv) Adjustment be made in the accounts to rectify a mistake previously made whereby Y was
credited in excess by Rs. 8,100 while X and Z were debited in excess by Rs. 4,200 and Rs.
3,900 respectively.
v) The goodwill of the firm be fixed at Rs. 54,000 and Y 's share of the same be adjusted to that
of X & Z who are going to share in future profits in the ratio of 2 : 1
vi) The entire capital of the firm, as newly constituted, will be re-adjusted by bringing in or paying
of cash so that the future capital of X and Z be in the ratio of 2 : 1
Pass journal entries to give effect to above arrangements and prepare the Balance Sheet of new
firm showing amount due to Y as loan. 10 (Dec.2010)
Answer :
Journal Entries
Particulars Dr (Rs.) Cr (Rs.)

Land and building A/c Provision 15,000
for doubtful debts A/c Stock A/c 1,050
To Revaluation A/c 9,600
(Being assets & liabilities adjusted on Y's retirement) 25,650
Y's Capital A/c 8,100

To X's Capital A/c To 4,200
Z's Capital A/c 3,900
(Being the adjustment made in the capital accounts to rectify the
previous mistake)
X's Capital A/c Z's 12,000
Capital A/c 6,000
To Y's Capital A/c 18,000
(Being the share of goodwill credited to Y & debited to
remaining partner in the new ratio)
Revaluation A/c 25,650

To X's Capital A/c 11,400
To Y's Capital A/c 8,550
To Z's Capital A/c 5,700
(Being the transfer of profit on revaluation to the partners in their
profit sharing ratio)
Bank A/c 1,200

To X's Capital A/c 1,200
(Being the amount brought in by X)
Z's Capital A/c 1,200

To Bank A/c 1,200
(Being the amount withdrawn by Z)
Y's Capital A/c 108,450

To Y's Loan A/c 108,450
(Being the amount due to Y on his retirement transferred to his
loan A/c)
Balance Sheet
Equity and Liabilities Rs. Assets Rs.

X 1,24,800 Stock 57,600
Z 62,400 187,200 Plant & Machinery 51,000
Y's loan A/c 108,450 Land & Building 165,000
337,050 337,050
Working Notes:
a) Y's Capital Account

To X' Capital 4,200 By Bal. b/d 90,000
To Z's Capital 3,900 By X' s Capital 12,000
By Z' s Capital 6,000
By Rev. A/c 8,550
To Y's Loan 1,08,450
116,550 116,550
b) Proportionate capital of X and Z as per new profit sharing ratio
Particulars Rs.
Capital of the firm before adjustment 270,000

Add: Adjustments made on Y's retirement 25,650
Capital of the firm after adjustment 295,650
Less: Y's Capital (as per capital account above) 108,450
Combined capital of X and Z 187,200
X's Capital [Rs. 1,87,200 × 2/3] 124,800

Z's Capital [Rs. 1,87,200 × 1/3] 62,400
c) Amount to be brought in/paid by/to partners
Particulars X (Rs.) Z (Rs.) Particulars X (Rs.) Z (Rs.)

To Y's Capital A/c 12,000 6,000 By Bal. b/d 120,000 60,000
By Y's Capital A/c 4,200 3,900
To Bank A/c - 1,200 By Revaluation A/c 11,400 5,700
To Bal. c/d 124,800 62,400 By Bank A/c 1,200 -
136,800 69,600 136,800 69,600
Rs. 1,200 brought in & same amount has been paid, hence no effect in bank balance
5. A, B & C were partners, carrying on business under the name and style of ABC & Co., sharing profits and losses in the
proportion of 4 : 3 : 2. Their Balance Sheet as at 31st December, 2010 was as under:
Balance Sheet
As on 31st December, 2010

A 400,000 Stock in Trade 200,000
B 200,000 Motor Car 150,000
C 100,000 700,000 Land & Building 550,000
1,100,000 1,100,000
They agreed to dissolve the partnership on that date. A agreed to take over Stock
and Debtors at a discount of 10%. B took over the Motor Car for Rs. 160,000.
Land and Building was sold for Rs. 750,000 and expenses of sale amounted to Rs.
16,000. Creditors were settled at a discount of 1.5%.
Show the relevant ledger accounts to give effect to the above arrangement. 10 (June 2011)
Answer:
Realisation Account
Particulars Rs. Rs. Particulars Rs. Rs.

To Sundry Debtors 180,000 By Sundry Creditors 400,000
To Stock in Trade 200,000 By A's A/c:
Debtors 162,000
To Motor Car 150,000 Stock 180,000
To Land & Building 550,000 342,000
To Cash – Creditors 394,000 By B's A/c 160,000
To Cash – Expenses 16,000 By Cash – Land & Building 750,000
To Capital A/c – Profit
A 72,000
B 54,000
C 36,000 162,000
1,652,000 1,652,000
A's Capital Account

To Realisation A/c – Assets taken 342,000 By Balance b/d 400,000
To Cash A/c 130,000 By Realisation A/c – Profit 72,000
472,000 472,000
B's Capital Account

To Realisation A/c – Assets taken 160,000 By Balance b/d 200,000
To Cash A/c 94,000 By Realisation A/c – Profit 54,000
254,000 254,000
C's Capital Account

To Cash A/c 136,000 By Balance b/d 100,000
By Realisation A/c – Profit 36,000
136,000 136,000
Cash Account

To Balance b/d 20,000 By Realisation A/c – Creditors 394,000
To Realisation A/c – Sale of By Realisation A/c – Expenses 16,000
By A's A/c 130,000
By B's A/c 94,000
By C's A/c 136,000
770,000 770,000
Working Notes:
1. Stock & Debtors taken over by A:
Particulars Rs. Rs.

Book Value of Stock 200,000
Less: Discount @ 10% 20,000 180,000
Book Value of Debtors 180,000
Less: Discount @ 10% 18,000 162,000
Total 342,000
2. Settlement of Creditors:
Particulars Rs.
Amount due 400,000
Less: Discount @ 1.5% 6,000
Amount Paid 394,000
Partner's Share of Profit on Realisation:
Particulars Rs.
th
A's Share : 4/9 of Rs. 162,000 72,000
B's Share : 3/9th of Rs. 162,000 54,000
th
C's Share : 2/9 of Rs. 162,000 36,000
6. Cloud, Storm and Rain were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Due to
difference in opinion, they decided to dissolve the partnership with effect from 1 st April, 2011 on which date
the firm's position was as under:
Balance Sheet
As on 1st April, 2011

Sundry Creditors 1,20,000 Plant and Machineries 80,000
Capital Accounts: Furniture & Fixtures 45,000
Motor Car
Cloud 60,000 Stock in Trade 25,000
Storm 40,000 Sundry Debtors 30,000
Cash at Bank
Rain 30,000 1,30,000 Current Account: 71,000
Current Accounts: Rain 14,000
Cloud 8,000
Storm 10,000 18,000 3,000
2,68,000 2,68,000
The following information is given:
a. Plant costing Rs. 40,000 was taken over by Cloud at an agreed valuation of Rs. 45,000 and the remaining
machineries realised Rs. 50,000.
b. Furniture and Fixtures realised Rs. 40,000.
c. Motor Car was taken over by Storm for Rs. 30,000.
d. Sundry Debtors included a bad debt for Rs. 1,200 and the rest portion was realised subject to a cash discount of
10%.
e. Stock worth Rs. 5,000 was taken over by Rain for Rs. 5,200 and the rest realised at 20% above their book value.
f. A Creditor for Rs. 2,000 was untraceable and other Creditors accepted payments allowing 15% discount.
g. Realisation expenses amounted to Rs. 5,000.
You are required to show the Realisation Account and the Partner's Capital Accounts on dissolution
showing final payments to them. 10 (Dec.2011)
Answer:
Realisation Account
Particulars Rs. Rs. Particulars Rs.

To Plant & Machineries 80,000 By Sundry Creditors 120,000
To Furniture & Fixtures 45,000 By Cloud's A/c – Plant taken 45,000
To Motor Car 25,000 By Storm's A/c – Motor taken 30,000
To Stock in Trade 30,000 By Rain's A/c – Stock taken 5,200
To Sundry Debtors 71,000 By Bank – Assets realised 182,820
To Bank – Creditors 100,300
To Bank – Expenses 5,000
To Capital A/c – Profit:
Cloud (1/2) 13,360
Storm (3/10) 8,016
Rain (1/5) 5,344 26,720
383,020 383,020
Cloud's Capital Account

To Realisation A/c – Plant taken 45,000 By Balance b/d 60,000
To Bank 36,360 By Current A/c 8,000
81,360 81,360
Storm's Capital Account

To Realisation A/c – Motor taken 30,000 By Balance b/d 40,000
To Bank 28,016 By Current A/c 10,000
58,016 58,016
Rain's Capital Account
To Realisation A/c – Stock taken 5,200 By Balance b/d 30,000
To Current A/c 3,000 By Realisation A/c – Profit 5,344
To Bank 27,144
35,344 35,344
Working notes:
1. Cash Book (Bank Column Only):

To Balance b/d 14,000 By Realisation A/c – Creditors 100,300
To Realisation A/c – Sale of By Realisation A/c – Expenses 5,000
Assets 182,820
By Partner's Capital A/c:
Cloud 36,360
Storm 28,016
Rain 27,144
196,820 196,820
2. Settlement of Creditors:
Particulars Rs.
Amount due 120,000
Less: Untraced creditors 2,000
Balance Creditors 118,000
Less: Discount @ 15% 17,700
Amount Paid 100,300
3. Realisation from sale of Assets:
Particulars Rs. Rs.

Plant & Machineries 50,000
Less: Bad debts 1,200

Balance 69,800
Realisation @ 90% 62,820
Stock in Trade 30,000
Less: Taken over by Rain 5,000

Balance 25,000
Realisation @ 120% 30,000
Total 182,820
7. A and B are partners in a firm, sharing Profits and Losses in the ratio of 3:2. The
Balance Sheet of A and B as on 1.1.2012 was as follows:
(Rs.) (Rs.)
Sundry Creditors 12,900 Building 26,000
Bills Payable 4,100 Furniture 5,800
Bank Overdraft 9,000 Stock in Trade 21,400
Capital Account: Debtors 35,000
A 44,000 Less: Provision 200 34,800
B 36,000 80,000 Investment 2,500
Cash 15,500
106,000 106,000
„C‟ was admitted to the firm on the above date on the following terms:
i. He is admitted for 1/6th share in future profits and to introduce a Capital of Rs. 25,000.
ii. The new profit sharing ratio of A, B and C will be 3:2:1 respectively.
iii. C is unable to bring in cash for his share of goodwill, partners therefore, decided to raise
goodwill account in the books of firm. They further decided to calculate goodwill on the
basis of C‟s share in the profits and the capital contribution made by him to the firm.
iv. Furniture is to be written down by Rs. 870 and stock to be depreciated by 5%. A
provision is required for debtors @ 5% for bad debts. A provision would also be made
for outstanding wages for Rs. 1,560. The value of building having appreciated be brought
upto Rs. 29,200. The value of investment is increased by Rs. 450.
v. It is found that the creditors included a sum of Rs. 1,400 which is not to be paid off.
Prepare the following: 10 (June2012)
1. Revaluation Account.
2. Partners‟ Capital Accounts.
3. Balance Sheet of New Partnership firm after admission of C.
Answer:
Revaluation Account
Dr. Cr.
Rs. Rs.
To Furniture 870 By Building 3,200
To Stock 1,070 By Sundry Creditors 1,400
To Provision for doubtful By Investment 450
debts (Rs. 1,750-Rs.200) 1,550
To Outstanding Wages 1,560
5,050 5,050
Partners’ Capital Accounts

A B C A B C
To Balance 71,000 54,000 25,000 By Balance b/d 44,000 36,000 -
c/d
By Cash - - 25,000
By Goodwill 27,000 18,000
(WN)
71,000 54,000 25,000 71,000 54,000 25,000
Balance Sheet of New Partnership Firm (after admission of

C) As on 1.1.2012

Sundry Creditors Goodwill 45,000
(12,900-1,400) 11,500 Building (26,000+3,200) 29,200
Bills Payable 4,100 Furniture (5,800-870) 4,930
Bank Overdraft 9,000 Stock in trade (21,400-1,070) 20,330
Outstanding Wages 1,560 Debtors 35,000
Capital Accounts: Less: Provision 1,750 33,250
A 71,000 Investment (2,500+450) 2,950
B 54,000 Cash (15,500+25,000) 40,500
C 25,000 1,50,000
1,76,160 1,76,160
Working Notes:
Calculation of Goodwill
C‟s contribution of Rs. 25,000 consists only 1/6th of Capital.
Therefore, total capital of the firm should be Rs. 25,000*6= Rs. 1,50,000.
But combined capital of A,B and C amounts Rs. 44,000+36,000+25,000 = Rs.
1,05,000. Thus hidden goodwill is Rs. 45,000 (Rs. 1,50,000- Rs. 1,05,000)
8. The expected profits of a firm for the next 5 years are as follows.
Year I II III IV V
Profits(Rs) 1,00,00 2,00,00 3,00,000 4,00,00 5,00,00
0 0 0 0
The total assets of the firm are Rs. 20,00,000 and outside liabilities are Rs. 11,00,000. The present value
factors at 10% are as follows.
Year I II III IV V
PVF 0.909 0.826 0.751 0.683 0.620
1 4 3 0 9
The normal profit is considered @ 10% p.a. Required:Value of Goodwill on Super Profit Method.
5 (Dec.2012)
Answer:
Year I II III IV V
A. Average Profits (Rs) 100,000 200,000 300,000 400,000 500,000
B. Normal Profits 90,000 90,000 90,000 90,000 90,000
[10 % of (Rs 20 lacs -11 lacs)]
C. Super Profit [A-B] 10,000 110,000 210,000 310,000 410,000
D. PVF @ 10% 0.9091 0.8264 0.7513 0.6830 0.6209
E. Present Value of Super Profits 9,091 90,904 157,773 211,730 254,569
Value of Goodwill = Rs.724,067
9. Wise, Clever and Dull were trading in partnership sharing profits and losses in the ratio 4:3:3
respectively. The accounts of the firm are made up to 31 st December every year. The partnership deed provided, inter
alia, that:
On the death of a partner, the goodwill was to be valued at three years‘ purchase of average profits of the three years
up to to the date of death after deducting interest @ 8 percent on capital employed and a fair remuneration of each
partner. The profits are assumed to be earned evenly throughout the year.
On 30th June, 2012, Wise died and it was agreed on his death to adjust goodwill in the capital accounts without
showing any amount of goodwill in the Balance Sheet.
It was agreed for the purpose of valuation of goodwill that the fair remuneration for work done by each partner would
be Rs. 15,000 per annum and that the capital employed would be Rs.1,56,000. Clever and Dull were to continue the
partnership, sharing profits and losses equally after the death of Wise.
The following were the amounts of profits of earlier years before charging interest on capital employed:
Rs.
2009 67,200
2010 75,600
2011 72,000
2012 62,400
You are required to compute the value of goodwill and show the adjustment
thereof in the books of the firm. (June 2013) 10
Answer:
Computation of the value of goodwill:
(i) Average Profit for three years, ending 30th June: before death:
Year ending 30th June, 2010: Rs. Rs.
½ of 2009 profits 33,600
½ of 2010 Profits 37,800 71,400
Year ending 30th June,2011:
½ of 2010 37,800
½ of 2011 Profits 36,000 73,800
Year ending 30th June,2012:
½ of 2011 36,000
½ of 2012 Profits 31,200 67,200
Total 2,12,400
Average 70,800
(ii) Super Profit Rs
Average profits earned: 70,800
Less: Partner‘s remuneration 45,000
Less: 8% on capital employed 12,480 57,480
Super Profits 13,320
(ii)Goodwill @ three years‘ purchase 39,960

Adjustment entries for Goodwill
Goodwill Account Dr. 39,960

To Capital Accounts
Wise 15,984
Clever 11,988
Dull 11,988
(Goodwill, valued @ Rs.39,960 adjusted in the Capital accounts of partners on the death of Mr. Wise in the
old profit sharing ratio)
Clever‘sCaital Account Dr.19,980
Dull‘s Capital Account Dr.19,980
To Goodwill Account 39,960
(goodwill written off between continuing partners In the new profits sharing ratio)
10.
a) A and B were carrying on business in partnership since 2005 sharing profit/loss in
the ratio of 3:2 respectively. They decided to admit C as a partner on the basis that
he brings Rs. 3,000 into the firm of which Rs. 1,000 is to be premium on
admission to a quarter shares, new profit sharing ratio between A and B is to be
2:1. On the other hand, C brings into the firm his own goodwill valued at
Rs. 1,600 associated with a separate unit, the sharing ratio is 3:2:5 between A, B
and C respectively. The firm has the policy to write off the goodwill immediately
after necessary adjustments.
You are required to show: (7+3=10)
i) Entries necessary to give effect to the above arrangements. (Dec.2013)
ii) Statement showing effects in Partners’ capital a/c.
Answer:
This is the case of admission of a partner where both firms are having goodwill.
As per settlement, the new profit sharing ratio for sharing the profits of two
businesses is as follows:
Goodwill of the firm A and B Profit sharing Ratio
Old partners are A and B 3:2
New partners are A, B and C where 1/4th to C
Remaining (1-1/4th )= 3/4th to A and B in the ratio
of 2:1
Therefore, new ratio of A, B and C is 2:1:1.
Total goodwill of this firm which is (Rs. 1000*4)= Rs. 4000 is to be raised in
the old ratio, between the old partners and is to be written off in the new
partners new ratio.
i) Entries necessary to give effect to the adjustments are:
1. Goodwill a/c Dr. 4,000
To A's capital a/c 2,400
To B's capital a/c 1,600
( Being goodwill raised in the ratio of 3:2)
2. A's capital a/c Dr. 2,000
B's capital a/c Dr. 1,000
C's capital a/c Dr. 1,000
To Goodwill a/c 4,000
(Being goodwill written off in the ratio of 2:1:1)
3. Cash a/c Dr. 3,000
To C's capital a/c 3,000
(Being cash invested by C in the business)
4. Goodwill a/c Dr. 1,600
To C's capital a/c 1,600
(Being goodwill brought by C credited to his capital a/c)
5. A's capital a/c Dr. 480
B's capital a/c Dr. 320
C's capital a/c Dr. 800
To Goodwill a/c 1,600
(Being goodwill written off in the ratio of 3:2:5)
ii) Statement showing Net effect in Partner's capital a/c :

S.N. Particulars A's capital a/c B's capital a/c C's capital a/c
Dr. Cr. (Rs.) Dr. Cr. (Rs.) Dr. (Rs.) Cr.
(Rs) (Rs.) (Rs.)
1. Goodwill raised of A & 2,400 1,600
B
2 Goodwill written off A,B 2,000 1,000 1,000
&C
3 Goodwill raised of 1,600
business C
4 Goodwill written off of 480 320 800
the business of C among
A, B & C
5 Total 2,480 2,400 1,320 1,600 1,800 1,600
6. Balance (Net Effect) 80 (Dr.) 280 (Cr.) 200 r.)
11. A and B are partners of X and Co. sharing profits and losses in 3:2 ratio
between themselves. On 31st March, 2013 the balance sheet of the firm was as
follows:

Capital A/c: Plant and Machinery 20,000
A 37,000 Furniture and Fitting 5,000
B 28,000 65,000 Stock 15,000
Sundry Creditors 5,000 Cash on Hand 10,000
70,000 70,000
X agrees to join the business on the following conditions as and from 1.4.2013:
i) He will introduce Rs. 25,000 as his capital and pay Rs. 15,000 to the
partners as premium for goodwill for 1/3rd share of the future profits of the
firm.
ii) A revaluation of assets of the firm will be made by reducing the value of
plant and machinery to Rs. 15,000 , Stock by 10%, Furniture and Fitting by
Rs. 1,000 and by making a provision of bad and doubtful debts at Rs. 750
on Sundry Debtors.
You are asked to prepare Revaluation A/c, Capital A/c of partners including the
incoming partner X, Balance Sheet of the firm after admission of X and also
find out the new profit sharing ratio assuming the profit sharing ratio of the old
partners will be in equal proportion after admission. 10 (June2014)
Answer:
Dr. Revaluation A/c Cr.

2013 To Plant and Machinery 5,000 2013 By Partner’s Capital A/c By
April 1 To Stock A/c 1,500 April Loss on Revaluation A
To Furniture and Fitting A/c To 1,000 1 (3/5) 4,950 8,250
Provision for bad and doubtful B(2/5) 3,300
debts 750
8,250 8,250
Dr. Partner’s Capital A/c Cr.
Particulars A B X Particulars A B X
To Revaluation A/c 4,950 3,300 - By Balance 37,000 28,000 -
b/d
To A’s & B’s Capital - - 15,000 - - 40,000
A/cs By Cash A/c
44,050 27,700 25,000 12,000 3,000 -
To Balance c/d By X’s
Capital A/c
49,000 31,000 40,000 49,000 31,000 40,000
Balance Sheet of A, B and X as on 1st April, 2013
Liabilities Rs. assets Rs.

Capital A/cs Plant and Machinery 15,000
A 44,050 Furniture and Fitting 4,000
B 27,700 96,750 Stock 13,500
X 25,000 5,000 Sundry Debtors 20,000
Sundry Creditors Less: Provision for bad and
Doubtful debts 750 19,250
Cash in Hand 50,000
101,750 101,750
Working Notes:
1. New Profit Sharing Ratio:
On admission of X who will be entitled to 1/3rd share of the future profits of the firm. A and b
would share the remaining 2/3rd in equal proportion 1:1.
A: 2/3 x
1/2 = 1/3
B: 2/3 x
1/2 = 1/3
X: 1/3
A, B and X would share profits and losses in equal ratio.
2. Adjustment of Goodwill:
X pays Rs. 15,000 as premium for goodwill for 1/3rd share of the future profits. Thus total value
of goodwill is Rs. 15,000 x 3 i.e. Rs. 45,000.
Sacrificing Ratio:
A: 3/5 –
1/3 = 4/15
B: 2/5 –
1/3 = 1/15
Hence, sacrificing ratio is 4:1.
Adjustment of X’s share of goodwill through existing partner’s capital A/cs in the profit
sacrificing ratio:
A: Rs. 15,000 x 4/5 = 12,000
B: Rs. 15,000 x 1/5 = 3,000
15,000
12. Singh, Pandey and Sharma are partners in a firm sharing profits and losses in the ratio of
3:2:1. The balance sheet of their business as at 31stAshadh 2070 is given below:
Balance Sheet
As at 31stAshadh 2070
Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital A/C: Machinery 400,000
Singh 500,000 Furniture 200,000
Pandey 400,000 Delivery Van 300,000
Sharma 300,000 Stock 250,000
General Reserve 120,000 Debtors 750,000
Creditors 600,000 Cash 20,000
Total 1,920,000 Total 1,920,000
Singh retired with effect from 1stShrawan 2070. Goodwill of the firm was valued at Rs. 240,000.
On revaluation, machineries and furniture are to be appreciated by 10%. Debtors include Rs.
15,000 as bad and doubtful and to be written off. Value of stock to be reduced to Rs. 230,000.
Creditors include Rs. 8,000 as no more payable.
It was decided that due effect to be given to the retiring partner's capital account for his share of
goodwill without raising any goodwill account Goodwill to be written off in new profit sharing
ratio. Pandey and Sharma are to share the future profit in equal proportion. Amount payable to
Singh is to be treated as loan to the firm.
You are required to prepare: (3+4+3=10) (Dec.2014)
i. Revaluation A/C
ii. Capital A/C of the partners
iii. Balance Sheet of the reconstituted firm after Singh's retirement.
Answer:
Revaluation A/C
particulars Amount Particulars Amount

Rs. Rs.
To Debtors 15,000 By 40,000
To stock reserve 20,000 Machinery 20,000
To profits 33,000 By 8,000
transferred to Furniture
partners' capital A/C By
Singh 16,500 Creditors
Pandey 11,000
Sharma 5,500
Partners' Capital A/C
Particulars Singh Pandey Sharma Particulars Singh Pandey Sharma

To Singh's Cap. A/C - 40,000 80,000 By Balance b/d 500,000 400,000 300,000
To Singh's loan A/C 696,500 - - By Revaluation A/C 16,500 11,000 5,500
By General Reserve
To Balance c/d - 411,000 245,500 60,000 40,000 20,000
By Capital
A/C (G/W)
Pandey
Sharma 40,000
80,000
Total 696,500 451,000 325,500 Total 696,500 451,000 325,500
Balance Sheet of reconstituted firm As at

31stAshad 2070
Liabilities Amount Asset Amount

Rs. s Rs.
Capital A/C: Machinery 440,000
Pandey 411,000 Furniture 220,000
Sharma 245,500 Delivery Van 300,000
Singh's Loan 696,500 Stock 230,000
Creditors 592,000 Debtors 735,000
Cash 20,000
Total 1,945,000 Total 1,945,000
Working
Note:
Treatment of Goodwill
Particular Singh Pandey Sharma Total

G/W credited 120,000 80,000 40,00 240,000
(3:2:1) 0
G/W debited to
Pandey& Sharma - -120,000 -120,000 -240,000
(1:1)
120,000 -40,000 -80,000 -
13. Amir & Basu are partners in a firm with a capital of Rs 200,000 Rs.
100,000 respectively. They admit Chandra into partnership on 1 st Baisakh 2071
on the condition that:
i. he brings Rs. 100,000 as capital and
ii. that Amir guarantees that Chandra’s share of profit shall be Rs. 30,000 after
charging interest on loans given by partners to the firm @10% p.a.
Amir’s loan amount to Rs. 30,000 and Basu’s loan to Rs. 20,000. During the year
2071, profit amounted to Rs. 80,000 before charging interest on partners’ capital
accounts.
You are required to prepare and the profit and loss account and partners’ Capital
account at the end of the year. 10 (July 2015)
Answer:
Profit & Loss A/C
Particulars Debit Particulars Credit (Rs.)

(Rs.)
To Partners’ Capital a/c: By balance b/d 80,000
Amir 3,000
Basu 2,000 5,000
To Partners’ Capital a/c:
Amir 25,000
Basu 25,000
Chandra 25,000 75,000
Amir’s Capital A/C

(Rs.)
To Chandra’s Capital a/c: 5,000 By balance b/d 200,000
To balance c/d 2,23,000 By Profit & Loss a/c 25,000
Total 2,28,000 Total 2,28,000
Basu’s Capital A/C

(Rs.)
To balance c/d 1,27,000 By balance b/d 100,000
Total 1,27,000 Total 1,27,000
Chandra’s Capital A/C

(Rs.)
To balance c/d 1,30,000 By balance b/d 1,00,000

By Amir’s Capital a/c 5,000
Total 1,30,000 Total 1,30,000
Working Note:
The allocation of profit of Rs. 80,000 charging interest on partners’ loan shall be as follows:
i) Rs.
Profit before charging interest on partners’ loan 80,000

Less: Interest on partners loan:
Amir’s loan of Rs. 30,000@ 10 % 3,000
Basu’s loan of Rs. 20,000@ 10% 2,000 5,000
Profit after charging interest on partners’ loan 75,000
ii) 1/3rd share of each partner comes to Rs. 25,000
iii) Chandra’s share of profit shall have to be increased by Rs. 5,000 so as to become Rs.
30,000. Consequently Amir’s share of profit shall correspondingly decline by Rs. 5,000
so as to become Rs. 20,000 only.
14. Ram and Laxman were operating a Partnership firm sharing profits and
losses in the ratio of 5:3 respectively. The balance sheet of the firm as
on 31st March 2015 was as follows:

Ram's Capital 205,000 Land and Building 190,000
Laxman's Capital 165,000 Plant and Machinery 85,000
P/L Appropriation A/C 56,000 Furniture 54,740
Trade Creditors 27,400 Stock 72,630
Debtors 30,000
Bank Balance 21,030
Total 453,400 Total 453,400

On 31st march 2015, Bharat was admitted on the following terms:
i. Bharat would get 1/5th share in the profits.
ii. He would pay Rs.120,000 as capital and Rs. 16,000 for his share of goodwill.
iii. In Bharat's admission, machinery would be depreciated by 10% and
building would be appreciated by 30%. A provision for bad debts
@5% on debtors would be created. An unrecorded liability
amounting to Rs.3,000 for repairs to building would be recorded in
the books of account.
iv. Immediately after Bharat's admission, goodwill would be written off.
v. The capital accounts of the old partners would be adjusted through
the necessary bank account in such a manner that the capital
accounts of all the partners would be in their profit sharing ratio.
Prepare Revaluation Account, Capital Accounts and the opening Balance Sheet of
the new firm.(3+4+3=10) (Dec.2015)
Answer:
Revaluation Account
To Plant and Machinery 8,500

To Provision for Bad Debts 1,500 By Land and Building 57,000
To Outstanding Repair Expenses 3,000
To Ram's Capital A/C (5/8th Share) 27,500
th
To Laxman's Capital A/c (3/8 Share) 16,500
57,000 57,000
Capital Accounts of the patners
Particulars Ram Laxman Bharat Particulars Ram Laxman Bharat

To Ram's Cap. - - 10,000 By Balance b/d 205,000 165,000 -
To Laxman's - - 6,000 By P/L 35,000 21,000 -
Cap To Bank - 28,50 - Appropriatio
A/C 300,00 0 120,00 n By Rev. 27,500 16,500 -
To Balance c/d 0 180,000 0 A/c By Bank - - 136,00
A/C 10,00 6,00 0
By Bharat's Cap. 0 0 -
A/C
By Bank A/c 22,500
Total 300,000 208,500 136,000 Total 300,000 208,500 136,000
Balance Sheet

Ram's Capital A/c 300,000 Land and Building 247,000
Laxman's Capital A/c 180,000 Plant and Machinery 76,500
Bharat's Capital A/C 120,000 Furniture 54,740
Trade Creditors 27,400 Stock 72,630
Outstanding Repairs 3,000 Debtors 28,500
Bank Balance 151,030
Total 630,400 630,400
Working Notes:
1. Profit Sharing Ratio
Bharat's Share = 1/5

Remaining Share = 1-1/5 = 4/5
Ram's share = 4/5*5/8 = ½
Laxman's share = 4/5*3/8 = 3/10
New Profit Sharing Ratio = 5:3:2
2. Distribution of
Goodwill: Sacrificing
Ratio
Ram = - = = =
Laxman = - ==
Sacrifing Ratio of Ram and Laxman = 5:3 Ram = 16,000 ˟ = 10,000
Laxman = 16,000 ˟ = 6,000
3. New Capital Required:

Bharat's Capital = 120,000, therefore total capital of the firm = Rs.120,000*10/2 = Rs. 600,000
Ram's required capital = Rs.600,000*1/2 = Rs. 300,000
Laxman's required capital = Rs. 600,000*3/10 = Rs.180,000
Bank Balance = Rs. 136,000+21030+22500-28500 = Rs. 151,030
15. You are given the Balance Sheet of M/S JNW & Co. as on 31.12.2015 consisting of three partners Mr.
J, Mr. N and Mr. W sharing profits and losses equally.
JNW & Co.
Balance Sheet as at 31.12.2015
Capital Accounts: Plant and Machinery 236,500
J 100,000 Furniture 45,000
200,000
N 160,000 Stock 205,400
113,100
W 140,000 Debtors
Creditors 100,000 Bank Balance
Loan 300,000
Total 800,000 Total 800,000
Mr. N died on 1.1.2016. The following information is available:

a. Rs. 22,600 received from Mr. Y as rent was credited to Y's Account. He
has already a debit balance for other transactions.
b. Machine purchased on 26.12.2015 for Rs. 60,000 was debited to purchase
account. An erection charge of Rs. 10,000 was charged to repairs account.
c. Interest of Rs. 24,080 was paid in advance. But the entire amount was
charged to profit and loss account in 2015.
d. Machine is valued at 20% below the book value after adjustment for (ii)
above.
e. Debtors are estimated to be worth 95% of book value.
f. Goodwill account is to be raised to the extent of deceased partners' share.
Goodwill is to be valued at three years' purchase of the average profits of
the years 2013, 2014 and 2015.
g. Profits for the years 2013, 2014 were Rs. 180,000 and Rs. 200,000
respectively. Profit for the year 2015 subject to the adjustments (i), (ii)
and (iii) above was Rs. 138,420
.
h. One-half of the dues to the deceased are to be met immediately by cash to
be brought in by continuing partners in their profit sharing ratio. Balance
will continue as loan with 12% interest p.a. in the name of executor of the
deceased partner.
Show Partners' Capital Account and Balance Sheet of the firm as on 1.1.2016. 10(June2016)
Answer:
OPTION A- VALUATION OF GOODWILL USING SIMPLE AVERAGE METHOD
Partners' Capital Accounts
Particulars J W N's Particulars J W N's

Execut Executor
or
To Cash A/C - - 193,180 By Capital A/C 100,000 140,000 160,000
To N's - - 193,180 By PL Adj. A/C (WN 14,660 14,660 14,660
Executor's Loan 1)
By Goodwill (WN 2) - - 211,700
To Balance c/d 211,250 251,250 - By Cash 96,590 96,590 -
Total 211,250 251,25 386,360 Total 211,250 251,250 386,360
0
JNW & Co.
Balance Sheet

Partners' Capital A/C: Goodwill (WN) Plant 211,700
J 211,250 and Machinery: Given
Add: Addition 236,500
W 251,250 462,500 Add: Erection 60,000
10,000
N's Executor 12% Loan 193,180
Less: Revolution Loss 306,500
Sundry Creditors 100,000 Furniture 61,300
Stock
Loan 300,000 Debtors:
Given 245,200
Add: Wrong Credit
on Y's A/C of rent 205,400 45,000
200,000
Less: Written Off 22,600
Prepaid Interest 228,000
Bank Balance 11,400
216,600
24,080
113,100
1,055,680 1,055,680
Working Notes:
1. Profit and Loss Adjustment Account

To Machinery (20% of Rs.306,500) 61,300 By Rent (Received from Y) 22,600
To Sundry Debtors By Purchase Account 60,000
(Loss @ 5% on 205,400+22,600) 11,400 By Repair Account By 10,000
To Partners Capital A/C: Prepaid Interest 24,080
J 14,660
N 14,660
W 14,660
43,980
116,680 116,680
2. Computation of Goodwill: Simple Average method
Profits of the three years
2013 Rs.180,000
2014 Rs. 200,000
2015 (Rs. 138,420+116,680) = Rs. 255,100
Total Rs. 635,100

Rs. 635,100
Average Profits Rs. 211,700 Rs. 211,700
Option B- VALUATION OF GOODWILL USING WEIGHTED AVERAGE METHOD

Partners capital
Particulars J W N's Particulars J W N's

Executor Executo
r
To Cash A/C - - 199,438.5 By Capital A/C 100,000 140,000 160,000
ToN's - - 199,438.5 By PL Adj. A/C 14,660 14,660 14,660
Executor' (WN 1)
s Loan
To Balance c/d 214,379.25 254,379.25 - By Goodwill (WN - - 224,217
2)
By Cash 99,719.25 99,719.25 -
Total 214,379.25 254,379.25 398,877 Total 214,379.25 254,379.25 398,877
Balancesheet

Partners' Capital A/C: Goodwill (WN) 224,217
J 214,379.25 Plant and Machinery:
W 254,379.25 468,758.50 Given 236,500
N's Executor 12% Loan 199,438.50 Add: Addition 60,000
Sundry Creditors 100,000 Add: Erection 10,000
Loan 300,000 306,500
Less: Revalution Loss 61,300 245,200

Furniture 45,000
Stock
Debtors: 200,000
Given
Add: Wrong Credit 205,400
on Y's A/C of rent
22,600
Less: Written Off 228,000
Prepaid Interest 11,400
Bank Balance
216,600
24,080
113,100
1,068,197 1,068,197
Working Notes
1. . Profit and Loss Adjustment Account

To Machinery (20% of Rs.306,500) 61,300 By Rent (Received from Y) 22,600
To Sundry Debtors By Purchase Account 60,000
(Loss @ 5% on 205,400+22,600) 11,400 By Repair Account By 10,000
To Partners Capital A/C: Prepaid Interest 24,080
J 14,660
N 14,660
W 14,660
43,980
116,680 116,680
a. Computation of Goodwill: Weighted Average method
Year Profit Weights Product

2013 180,000 1 180,000.00
2014 200,000 2 400,000.00
2015 255,100 3 765,300.00
Total 6 1,345,300.00
Weighted Average Profit = Rs.1,345,300/6
=Rs. 224,216.67 Goodwill (3 Years purchase) =
Rs. 224,216.67×3 = Rs. 672,650
Goodwill to be raised (N's Share only) =Rs. 224,216.67 eqv toRs.242,217
Note-In the question it is specifically asked to raise the goodwill to the extent of deceased partner's share,
hence shown in the Balance Sheet and not written off.
b. Journal Entries in the books of Lalita
S/N Particulars Dr. Amount Rs. Cr. Amount Rs.

1 Bills Receivable A/c To 3,000
Sumita 3,000
(Being acceptance received from Sumita)
2 Bank A/c Discount 2,925
A/c 75
(Being the amount received and discount charged
on discounting of Sumita’s
acceptance)
3 Sumita A/c 1,000

To Bank A/c 975
To Discount A/c 25
(Being amount remitted to Sumita and
proportionate discount debited to her)
4 Sumita A/c 3,750
To Bills Payable A/c 3,750
(Being acceptance sent to Sumita)
5 Bank A/c Discount 175
A/c 139
To Sumita 314
(Bing amount received form Sumita and
proportionate discounted recorded)
6 Bills Payable A/c To 3,750

Sumita 3,750
(Being the bill having been dishonored due to
bankruptcy)
7 Sumita A/c 2,314
To Bank A/c 1,851
To Deficiency A/c 463
(Being the amount due to Sumita discharged by
payment 80 paisa in a rupee)
Bank a/c
Particulars Dr. Amount Rs. Particulars Cr. Amount Rs.
To Bank A/c 975 By Bills Receivable A/c 3,000
To Discount A/c 25 By Bank A/c 175
To Bills Payable A/c 3,750 By Discount A/c 139
To Bank A/c 1,851 By Bills Payable A/c 3,750
TO Deficiency A/c 463
7,064 7,064
Working Notes:
Discount charges to be borned by Lalita with reference to entry no. 5
= Rs 225/3525* (2,000+175) = Rs. 139.
16. Arun and Anand were partners sharing their profits in the ratio of 3:2. Their
position as on 31 March 2015 were as under-

Arun’s Capital 12,000 Land and Building 8,000
Anand’s Capital 10,000 Plant and Machinery 10,000
General Reserve 12,000 Sundry Debtors 11,000
Workmen’s Compensation Stock 12,000
Reserve 4,000 Cash at Bank 9,000
50,000 50,000
They decided to admit Ashok for a 20% profit on the following terms:
a. The liability on Workmen’s Compensation Fund is to be determined at Rs. 2,000.
b. Ashok to bring in Rs. 3,000 as premium out of his share of Rs. 3,600.
The new firm decided that goodwill should appear in the books at the
fractional value of Rs. 500.
c. Ashok was to bring in further cash of Rs. 20,000 towards his capital.
d. General Reserve is to be maintained at its original value, no accounting
treatment will be made.
e. Rs. 2,000 creditors were to be paid at 5% discount.
Prepare the Capital Accounts and Balance Sheet of the new firm. 15(Dec.2016)
Answer: Partner’s Capital Accounts Amount in Rs.
Particulars Arun Anand Ashok Particulars Arun Anand Ashok
Goodwill (w.n. 3) 500 Balance b/d 12,000 10,000 -
Arun’s Capital 1,440 Bank A/c 20,000
A/c (w.n. 2) Workmen’s 1,200 800 -
Ashok’s Capital 960 Compensation
A/c (w.n. 2) Fund A/c
Balance c/d 17,100 13,400 17,100 Goodwill (w.n. 3) 2,400 1,600
Ashok’s Capital 1,440 960
A/c (w.n. 2)
Sundry Creditors 60 40
17,100 134,00 20,000 17,100 13,400 20,000
Balance Sheet of Arun, Anand and Ashok

As on 31 March 2015
Liabilities Amount (Rs.) Assets Amount
(Rs.)
Capital Accounts Goodwill 500
Arun 17,100 Fixed Assets
Anand 13,400 Land and Building 8,000
Ashok 17,100 47,600 Plant and Machinery 10,000
General Reserve 12,000
Workmen’s Compensation 2,000 Current Assets
Fund Stock 12,000
Sundry Creditors 10,000 Debtors 11,000
Cash at Bank (w.n. 4) 30,100
71,600 71,600
Working Note No. 1
Old Sharing Ratio 3:2

New Sharing Ratio = 20%
Ashok Balance
= 80%
Arun = 80× 3/5 = 48%
Anand = 80× 2/5 = 32%

Working Note No. 2
General Reserve Total
Distribution of General Reserve Arun Ananda Ashok
Old Sharing Ratio 7,200 4,800 - 12,000

Recreation of General Reserve
New Sharing Ratio 5,760 3,840 2,400
1,440 960 (2,400)
Working Note No. 3
Goodwill Arun Anand Ashok Total
Goodwill raise
Old Sharing Ratio 10,800 7,200 _ 18,000
Goodwill written off
New Sharing Ratio 8,400 5,600 3,500 17,500
(3,500)
Cash brought 3,000
Debit to Capital (500)
Credit to Capital A/c 2,400 1,600
Working Note No. 4

Bank Balance
Opening 9,000
Add: Bought by Ashok
Goodwill 3,000
Capital 20,000 23,000
Less Paid to Creditors 1,900
30,100
17. Mr. X and Y were partners sharing profits and losses in the ratio of 3:1. Their Balance Sheet as on
31stAshadh 2070 was as follows:

Capital Cash at bank 25,000
X 30,000 Debtors 9,000
Y 10,000 Stock 20,000
Sundry creditors 40,000 Furniture 6,000
Premises 20,000
They decided to admit Mr. Z on the following terms :
a. Goodwill of Rs. 30,000 to be raised and immediately written off.
b. Furniture to be depreciated by 10%.
c. Stock is to be valued at Rs.18,000.
d. Provision of doubtful debts of 10% to be created on sundry debtors.
e. Premises have to be valued higher by 25%.
f. Mr. Z shall bring in cash Rs.10,000 for 1/4th share of profit and share of goodwill.
You are required to prepare : 10 (June 2017)
i. Revaluation account
ii. Partners capital account
iii. Balance Sheet after admission
Answers:
Revaluation Account
Date Particulars Rs Date Particulars Rs
01.04.2070 To 600 01.04.2070 By Premises 5,000
Furniture 2,000
To Stock 900
To Reserve for doubtful debts
To, Capital A/C 1,500
X 1125
Y 375
5,000 5,000
Partners Capital Account

Particulars X Y Z Particulars X Y Z
To, Goodwill 16,875 5,625 7,500 By, Balance b/d 30,000 10,000 -
To, Balance c/d 36,750 12,250 10,000 By Bank - - 17,500
By, Goodwill 22,500 7,500
By Revaluation 1125 375
profit
Total 53,625 17,875 17,500 Total 53,625 17,875 17,500
Working notes:
Old PSR: 3:1
New PSR
Z share: 1/4 =4/16 Balance: 3/4
X share: 3/4*3/4=9/16
Y share: 1/4*3/4=3/16
Balance Sheet of MsXYZ as on 01.04.2070

Liabilities Rs Assets Rs
Capital Bank 42,500
X 36,750 Sundry debtors 9,000
Y 12,250 Less, provision 900 8,100
Z 10,000 Stock 20,000
Sundry creditors 40,000 Less, written off 2,000 18,000
Furniture 6,000
Less written off 600 5,400
Premises 20,000
Add Appreciation 5,000 25,000
OR
Dr Partners Capital Account Cr

Particulars X Y Z Particulars X Y Z
To, Goodwill 16,875 5,625 7,500 By, Balance b/d 30,000 10,000 -
To, Balance c/d 36,750 12,250 2,500 By Bank - - 10,000
By, Goodwill 22,500 7,500
By Revaluation 1125 375
profit
Total 53,625 17,875 10,000 Total 53,625 17,875 10,000
Working notes:
Old PSR: 3:1
New PSR
Z share: 1/4 =4/16
Balance: 3/4
X share: 3/4*3/4=9/16
Y share: 1/4*3/4=3/16
Balance Sheet of Ms XYZ as on 01.04.2070
Liabilities Rs Assets Rs
Capital Bank 35,000
X 36,750 Sundry debtors 9,000
Y 12,250 Less, provision 900 8,100
Z 2,500 Stock 20,000
Sundry creditors 40,000 Less, written off 2,000 18,000
Furniture 6,000
Less written off 600 5,400
Premises 20,000
Add Appreciation 5,000 25,000
18. A, B and C were partners sharing profits and losses at the 5:3:2. B wants retire on
31.03. 2074, the Balance Sheet of the partnership firm stood as under:
Balance Sheet on 31.03.2074
Capital & Liabilities Amount (Rs.) Assets Amount (Rs.)

Employee Compensation 15,000 Sundry Fixed
Reserve Assets 125,000
Capital accounts Stocks 55,000
A 110,000 Debtors 65,000
B 56,000 Bank Balance 10,000
C 44,000
Employees‟ Provident Fund 3,500
Total 255,000 Total 255,000
For the purpose following adjustments were agreed upon:
i) That goodwill be valued at Rs. 75,000 but no goodwill is to appear in the books of
accounts of the new firm.
ii) That the fixed assets be appreciated by 20%
iii) That the stock be reduced to Rs. 50,000
iv) That B be paid through cash brought in by A and C in such a way as to make their
capitals proportionate to their new profit sharing ratio which is to be
3:2. Prepare the partners‟ Capital Accounts and Balance Sheet of A and C. 10 (Dec.2017)
Answer:
Capital Accounts of Partners
Dr. Cr.
Particulars A Rs. B Rs. C Rs. Particulars A Rs. B Rs. C Rs.

To B's
Capital A/C 7,500 - 15,000 By Balance b/d 110,000 56,000 44,000
To Cash A/C - 89,000 - By Revaluation A/C 10,000 6,000 4,000
By Employee
To Compensation
Balance 147,000 - 98,000 Reserve 7,500 4,500 3,000
c/d
By A's 7,500
Capital By
C's Capital 15,000
By Cash A/C
27,000 62,000
Total 154,500 89,000 113,000 Total 154,500 89,000 113,000

Working Note:
a. Calculation of Gaining Ratio

Gain of a partner = New Share-Old Share
A's Gain = 3/5-1/2=1/10
C's Gain = 2/5-1/5=2/10
Hence, Gaining ratio of A and C = 1/10 : 2/10 =1 : 2
b. Profit on revaluation
Appreciation of value of Fixed Assets by 20% = (20%
of 125,000) = 25,000
Reduction in the value of stock to Rs. 50,000 from Rs.
55,000 (5,000)
Hence profit on revaluation 20,000
c. Total capital of a new firm = Adjusted Old capital of A & C + Shortage of Cash Balance to discharge
the liability of B
= ( Rs. 120,000 + Rs. 36,000) + Rs.89000
= Rs. 245,000
d. A's New capital= Rs. 245,000 X 3/5=

Rs. 147,000
e. C's new capital = Rs. 245000 X 2/5=
Rs. 98,000
5. Calculation of amount of cash to be brought by A and C to be
paid to B
i) New capital of A C
Partners
ii) Adjusted old capital Rs.
147,000 Rs. 98,000
Rs.
iii) Cash to be brought in by respective partners
120,000 Rs. 36,000
....................................................
Rs. 27000 Rs.62000

Balance Sheet of A & C as at 31.03.2074
Liabilities Amount Rs. Assets Amount Rs.

A's Capital 147,000 Fixed Assets 150,000
C's Capital 98,000 Stock 50,000
Sundry Creditors 26,500 Debtors 65,000
Employees' Provident Fund 3,500 Bank 10,000
Total 275,000 Total 275,000
19. Sita, Tara and Rita were partners sharing profits and losses at the ratio of 2:2:1. Rita
wants to retire on Ashadh 31, 2074. Following are the information of the firm:
Balance Sheet as on Ashadh 31, 2074

Liabilities Amount Rs. Assets Amount Rs.
Partners’ Capital Property, Plant & Equipment 300,000
Sita 240,000 Bills Receivable 40,000
Tara 160,000 Stock 100,000
Rita 120,000 Sundry Debtors 100,000
Reserve 20,000 Bank Balance 100,000
Total 640,000 Total 640,000

a. Sita and Tara agree to share profit and losses at the ratio of 3:2 in future.
b. Value of goodwill is taken to be Rs. 100,000 but Sita and Tara do not want to show goodwill in their books
of accounts.
c. Fixed assets are revalued upward by Rs. 60,000 and stock by Rs. 20,000. Bills receivable dishonored Rs.
10,000 on 31.03.2074 but not recorded in the books. Dishonor of bills was due to insolvency of
the customer.
d. Sita and Tara agree to bring sufficient cash to discharge claim of Rita and to make their capital
proportionate with maintaining bank balance of Rs. 150,000.
You are required to prepare the Balance Sheet as on Ashadh 31, 2074 after retirement of Rita
and Partners’ Capital Account. 10 (June2018)
Answer:
Balance Sheet after Rita's Retirement as at 31st Ashadh, 2074

Amount
Capital & Liabilities Rs. Assets Amount Rs.
Partners' Capital Property, Plant & Equipment 360,000
Sita's 396,000 Stocks 120,000
Tara's 264,000 Sudry Debtors 100,000
Sundry Creditors 100,000 Bills Receivable 30,000
Total 760,000 Total 760,000
Working Notes:
Calculation of New capital and its
proportion
Total Capital
Property, Plant Equipment (Rs. 300,000+Rs. 60,000) 360,000
Stock (Rs. 100,000+ Rs.
20,000) 120,000
Debtors 100,000
Bills Receivabe (Rs. 40,000- Rs. 10,000) 30,000
760,000
Less:
Sundry Creditors' (100,000)

Total Capital 660,000
Sita Portion of Capital (3/5 of total capital) 396,000
Tara's Portion of Capital (2/5 of total
capital) 264,000
Revaluation Account
Dr. Cr.
Amount
Particulars Rs. Particulars Amount Rs.
To Bills Receivable A/C 10,000 By Property, Plant & Equipment A/C By 60,000
To Partner's Capital A/C Stock 20,000
Sita 28,000
Tara 28,000
Rita 14,000
Bank Account
Dr. Cr.
Amount
Particulars Rs. Particulars Amount Rs.
To Balance b/d 100,000 By Rita's Capital A/C 158,000
To Sita's Capital A/C 140,000 By Balance c/d 150,000
To Tara's Capital A/C 68,000
Total 308,000 Total 308,000
On Rita's retirement, she is entitled for the share of goodwill of the firm equivalent to Rs. 20,000 (Rs.
100,000X 1/5)
It has to be borne by Sita only because she has gained in the profit sharing ratio on Rita's retirement
Partners' Capital Account
Dr. Cr.
Particulars Sita Tara Rita Total Particulars Sita Tara Rita Total
To Rita's
Capital By Balance
A/C 20,000 - - 20,000 b/d 240,000 160,000 120,000 520,000
By Reserve
A/C 8,000 8,000 4,000 20,000
By
Revaluation
A/C 28,000 28,000 14,000 70,000
To
Balance By Sita's
c/d 256,000 196,000 158,000 610,000 Capital A/C - - 20,000 20,000
276,000 196,000 158,000 630,000 276,000 196,000 158,000 630,000

To Bank By Balance
A/C - - 158,000 158,000 b/d 256,000 196,000 158,000 610,000
To
Balance By Bank
c/d 396,000 264,000 - 660,000 A/C 140,000 68,000 - 208,000
Total 396,000 264,000 158,000 818,000 Total 396,000 264,000 158,000 818,000
20. A, B and C are partners in a firm of accountants who maintain accounts on cash basis sharing profits
and losses in the ratio of 2:3:1. Their Balance Sheetas on 32nd Ashadh, 2075 on which date D is
admitted as a partner is as follows:

B’s Capital 35,000 Furniture 10,000
C’s Capital 22,000 Motor Car 20,000
Cash at Bank 18,000
A’s Capital 9,000
57,000 57,000
D is given 1/4th share in the profits and losses in the firm and the profit and loss sharing ratio as
between the other partners remains as before. The following adjustments are to be made prior to D’s
admission.
a. The motor car is taken over by B at a value of Rs. 25,000.
b. The furniture is revalued at Rs. 18,000.
c. Goodwill account is raised in the books at Rs. 50,000. It is agreed among A, B and C
that C is interested in goodwill only up to a value of Rs. 30,000.
d. Fees billed but not realized Rs. 11,000, are bought into account.
e. Expenses incurred but not paid Rs. 3,000 are provided for.
D brings in Rs. 20,000 in cash as his capital contribution. He is also to be credited with Rs. 20,000
for having agreed to amalgamate his separate practice as Chartered Accountant with this firm.
Pass necessary journal entries and prepare the Balance Sheet of the firm after D’s admission. 10
(Dec.2018)
Answer:
M/S A,B,C& D
Journal
Date Particulars L.F. Amount amount
2075 Goodwill a/c Dr. 50,000
Asadh 32 To A’s Capital a/c 18,000
To B’s Capital a/c 27,000
To C’s Capital a/c 5,000
(Goodwill raised on D’s admission ; amount upto
Rs. 30,000 credited to A,B & C, the excess credited
only to A & B in their mutual ratio)
5,000
Motor Car a/c Dr. 8,000
Furniture a/c Dr. 11,000
Sundry Debtors a/c Dr. 24,000
To Revaluation a/c
(Appreciation in the value of Motor Car &
Furniture brought into the books as per agreement 3,000
3,000
on D’s admission; fees billed but unrealized debited
to Sundry Debtors a/c)
21,000
7,000
Revaluation a/c Dr. 10,500
To Sundry outstanding exp. a/c 3,500
(Expenses incurred earlier now provided for)
20,000
Revaluation a/c Dr. 20,000
To A’s Capital a/c 40,000
To B’s Capital a/c
To C’s Capital a/c 25,000
(Profit on revaluation transferred to the existing 25,000
Partners’s Capital a/c in the profit sharing ratio)
Bank a/c Dr.
Goodwill a/c
To D’s Capital a/c
(Cash brought in by D and goodwill of his
connection credited to his capital a/c)
B’s Capital Dr.

To Motor car a/c
(Motor car taken over by B at the agreed value of
Rs. 25,000)
Balance sheet of M/s. A,B,C and D(after D’s admission as on 32 nd Asadh ,2075
Capital Accounts Goodwill 70,000
A 16,000 Furniture 18,000
B 47,500 Sundry debtors 11,000
C 30,500 Cash at Bank 38,000
D 40,000
Outstanding liabilities 3,000

1,37,000
1,37,000
21. Ram and Co. is a partnership firm with the partners Mr. A, Mr. B and Mr. C, sharing profits
and losses in the ratio of 5:3:2. The Balance Sheet of the firm as on 31st Ashadh, 2076 is as under:
Liabilities Amoun Assets Amount Rs.

t Rs.
Capital- Mr. A 80,000 Land and building 2,10,000
Mr. B 20,000 Plant and machinery 1,30,000
Mr. C 30,000 Furniture & fittings 40,000
Unappropriated profit (Reserve) 20,000 Investments 12,000
Long term loan 3,00,000 Stock 1,26,000
Bank overdraft 44,000 Debtors 1,39,000
Trade creditors 1,63,000
6,57,000
6,57,000
It was mutually agreed that Mr. B will retire from partnership and in his place Mr. D will be
admitted as a partner with effect from 1st Shrawan, 2076. For this purpose, the following
adjustments are to be made:
a. Goodwill is to be valued at Rs. 1 lakh but the same will not appear as an asset in
the books of reconstituted firm.
b. Land and building and plant & machinery are to be depreciated by 10% and 5%
respectively. Investments are to be taken over by the retiring partner at Rs. 15,000.
Provision of 20% is to be made on debtors to cover doubtful debts.
c. In the reconstituted firm, the total capital will be Rs. 2 lakhs which will be
contributed by Mr. A, Mr. C and Mr. D in their new profit sharing ratio 2:2:1.
d. The surplus funds, if any, will be used for repaying the bank overdraft.
e. The amount due to retiring partner shall be transferred to his loan account.
You are requested to prepare: (1) Revaluation A/c, (2) Partner’s capital A/c (3) Bank A/c, and
(4) Balance Sheet of the reconstituted firm as on 1st Shrawan, 2076. (10 marks) (Dec 2019)
Answer:
Revaluation A/c
To Land & building To 21,000 By Investments 3,000
Plant & Machinery 6,500 By Partners' Capital A/cs:
To Provision for Doubtful 27,800 (Loss on revaluation
debts transferred)
A 26,150 52,300
55,300 B 15,690 55,300
C 10,460

Particulars A B C D Particulars A B C D
To By Bal. b/d 80,000 20,000 30,000 -
Revaluatio 26,150 15,690 10,460 - By Reserve 10,000 6,000 4,000 -
n A/c 20,000 By Goodwill 50,000 30,000 20,000 -
To Goodwill 40,000 - 40,000 - By Bank 6,150 - 76,460 60,000
To 15,000 A/c
Investment - 25,310 - -
To B’s Loan - 40,000
A/c -
To Bal. c/d 80,000 56,000 80,000 60,000
146,150 130,460 146,150 56,000 130,460 60,000
Bank A/c
To A’s Capital A/c 6,150 By Balance b/d (overdraft) 44,000
To C’s Capital A/c 76,460 By Balance c/d 98,610
To D’s Capital A/c 60,000
1,42,610
1,42,610
Ram & Co. Balance

Sheet
As on 1st Shrawan, 2076
Equity and Liabilities Amount Assets Amount
Capital Accounts of Partners: A Land & Building 2,10,000
80,000 Less: Depreciation 21,000 1,89,000
C 80,000 2,00,000 Plant & Machinery 1,30,000 1,23,500
D 40,000 Less: Depreciation 6,500 40,000
Furniture & fittings
Long term loan 3,00,000 Stock 1,26,000
Trade creditors 1,63,000 Debtors 1,39,000
B’s Loan A/c 25,310 Less: Provision for Doubtful
debt 27,800 1,11,200
Cash at Bank 98,610
6,88,310
6,88,310
22. The following is the Balance Sheet of the firm of ABC as on 31st Ashadh, 2076.The profit
sharing ratio of A, B and C is 3:2:1.
Rs. Rs.
Capital A/cs Fixed Assets Sundry 40,000
Mr. A 16,000 Debtors Insurance 32,000
Mr. B 12,000 Policy on
Mr. C 10,000 Joint life of partners 6,000
Current A/cs Stock 24,000
Mr. A 4,000 Bank 9,000
Mr. B 3,000 Cash 3,000
Mr. C 1,000
Reserve 18,000
Profit & Loss A/c: Opening
balance 6,000
Profit for the year 14,000 20,000
Creditors 20,000
Bank overdraft 10,000
1,14,000
1,14,000
Mr. B died on 30-06-2076. His account has to be settled and paid. For the year 2076-77
proportionate profit of year 2075-76 is to be taken into account. For year 2075-76, a bad debt
of Rs. 2,000 has to be adjusted. Goodwill has to be calculated3 times of the four years
average profits. A policy is taken on the joint life of partners for Rs. 35,000 and the annual
premium of Rs. 2,000 has to be paid on 1st Bhadra every year. The profits for year 2074-
75 Rs. 16,000, 2073-74 Rs. 20,000and 2072-73 Rs. 12,000. Goodwill account need
not be kept in the accounts.
Calculate the amount payable to B’s heirs. Show necessary ledger of all partners
and other detailed calculations (2020 Dec.) 10 marks
Answer:
Particulars A B C Particulars A B C
To B’s current By Balance 4,000 3,000 1,000
A/c (WN 3)
11,250 --- 3,750 b/dBy 9,000 6,000 3,000
To
Reserve 9,000 6,000 3,000
balanc
e transferred to -- 39,000 --- By Profit & loss
B’s Capital A/c
24,25 --- 7,75 A/c (6,000+14,000-
To balance c/d --- 15,000 ---
0 0 2,000)
13,50 9,000 4,50
By A & C current
A/c (WN 3) 0 39,000 0
39,000
By joint life policy 35,500 11,500
35,500 11,500 (WN 2)
Particulars A B C Particulars A B C
To B’s Executor --- 52,000 --- By Balance 16,000 12,000 10,000
A/c
b/dBy --- 39,000 ---
To balance c/d
16,000 --- 10,000 Current A/c
By Profit & --- 1,000 ---
loss suspense
A/c (WN 4)
16,000 52,000 10,000
16,000 52,000 10,000
Working notes:
(1) Calculation of Goodwill Rs. Rs.

Profit for year 2075-76 14,000
Less: Bad debts (to be written off) 2,000 12,000
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60,000
Average profit = 60,000/4= Rs. 15,000
Goodwill = 15,000 X 3= Rs. 45,000
(2) Life Insurance Policy
Assured amount 35,000
Less: Premium paid as per B/S as on 31.03.2076 6,000

st
Add premium due on 1 Bhadra, 2076 2,000 8,000
27,000
(3) Goodwill allocations

A B C
Rs. Rs. Rs.
Rs. 45,000 into 3:2:1 ratio 22,500 15,000 7,500
Debit: Goodwill A/c to A & C in the ratio of 3:1 33,750 ---- 11,250
Net effect (debit) 11,250 3,750
Journal Entry:
A Current A/c Dr. 11,250

C Current A/c Dr. 3,750
To B Current A/c 15,000
(4) B’s share of Profit for year 2076-77

Profit for year 2075-76 (WN 1) Rs. 12,000
3 months' amount Rs. 3,000
B’s Share (2/6) Rs. 1,000
Journal Entry:
P/L Suspense A/c Dr. 1,000
To B’s Capital A/c 1,000
Notes: (i) Adjustment for goodwill may be directly recorded in Capital Accounts of Partners.
(ii) It has been assumed that total Insurance Premium paid has been shown as Investment
CA FINAL (CAP III)
Past Theories Question and Answer
1. Briefly explain qualitative characteristics of financial statements. 5 (June2009)
Answer
The four principle qualitative characteristics of financial statements are: i. Understandability
As far as practicable, the information provided in the financial statements has to be simple and readily
understandable by the users. But this does not mean that complex requirements set by the laws of the land should
be avoided.
ii. Relevance
The relevance of information depends upon its nature and materiality .Information becomes material if its
omission or misstatement could influence the economic decisions of the users taken on the basis of financial
statement.
iii. Reliability
Even if information is relevant it may not be reliable due to inclusion of fraud and misrepresentation in the
financial statements regarding facts and figures.
iv. Comparability
The financial data of one business firm should be comparable with that of others in the same industry. The
uniform accounting policies adopted by the particular industry and accounting standards help comparability.
2. Comment with reasons whether the following statements are true or false: 10 (June2009)
a) Valuation of assets of a business is dependent on going concern basis.

Answer
True: Valuation of assets of a business is dependent upon the going concern basis. All the assumptions for
valuation purpose is done expecting the firm to operate continuously.
b) “All the expenses matched with the revenue of that period should only be taken into consideration” is the
accrual concept.
Answer
False: All the expenses matched with the revenue of that period should only be taken into consideration” is the
matching concept.
c) Inventories are valued using LIFO method as per Accounting Standard.

Answer
False: Inventories are valued using weighted average or FIFO method as per Accounting Standard.
d) Ledger book is popularly known as subsidiary book of accounts.

Answer
False: It is a principle book of accounts.
e) Crossed cheque is not a negotiable instrument.

CA FINAL (CAP III)
Answer
True: Cheque is not a negotiable instrument.
f) Patent right is in the nature of Personal Account.

Answer
False: Patent right is in the nature of real Account.
g) The total of the sales is posted to credit of the purchase book.

Answer
False: The total of the sales is posted to credit of the sales book. Only the purchases are debited / credited to
purchase books.
h) The total of sales book was not posted to the ledger is error of commission.
Answer
False: The total of sales book was not posted to the ledger is error of omission.
i) Quick assets are also known as liquid assets.

Answer
True: Quick assets are also known as liquid assets. These are readily converted into cash.
j) Heavy advertising to introduce a new product is capital expenditure.
Answer
False: Heavy advertising to introduce a new product is not a capital expenditure because it does not create any
asset. It is rather the deferred revenue expenditure as its benefits pertain to number of future years.
3. Write short notes on the followings (ANY FOUR).(4×2.5=10) (June2009)

a) Users of financial statements
Answer
Financial statements are used by various users for the purpose of making informed judgment. Broadly, they are
classified as external and internal users. Management is internal user .They use financial statement for making
appropriate decisions like proposing expansion or closing down scale of operations . External users include
creditors, bankers, government etc.
b) Accounting Equation
Answer
The following equation is known as an accounting equation Assets =Liabilities +Owners‟ Equity
The left side of the accounting equations refers to the valuable economic resources controlled by an entity. The
right side claims that some of those assets are provided by creditors and others are provided by the owners of the
business. In short accounting equation shows the resources(assets)and claims to these resources (liabilities and
owners equity)
c) Prudence
Answer
Under this concept provision is made for all known liabilities and losses even though the amount cannot be
determined with certainty and represents only a best estimate in the light of available information . And also
profits are not anticipated in view of uncertainty attached to future events but recognized only when realized.
d) Mortgage
Answer
A transfer of interest in specified immovable property for the purpose of securing a loan advanced or to be
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advanced, an existing or future debt or the performance of an engagement which may give rise to a pecuniary
liability . The security is redeemed when the loan is repaid or the debt discharged or the obligation performed.
e) Going Concern
Answer
An enterprise is viewed as continuing in operation for the foreseeable future .It is assumed that the enterprise
has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations.
f) Straight line method

Answer
It is a method under which the periodic charge for depreciation is computed by dividing the depreciable
amount of depreciable asset by the estimated number of years of its useful life.
4. State with reasons whether the following statements are true or false: 5 (Dec.2009)
a. Chartered Accountant in service does not have to follow the Accounting Standards/guidelines issued
by the Institute of Chartered Accountants of Nepal.
b. Custom duty paid on importing a machinery is a capital expenditure.
c. Receipt & Payment Account and Income & Expenditure Account convey the same information.
d. Government cannot be a user of financial statement.
e. Freight outwards is a selling expense.
Answer:
(i) False: All members of ICAN have to follow all the norms & standards prescribed by it
for its members irrespective of whether he is in practice or in service.
(ii) True : Any expenditure incurred for the purpose of importing any asset till the date it
is first put to use is capital expenditure.
(iii) False : Receipt & payment deals only cash item but Income & Expenditure
account also include non cash item.
(iv) False: Every government has to make policies like taxation policy, economic
policies etc which cannot be succeeded without being a user of financial statements of the business
houses.
(v) True: Freight outwards expense is for delivering goods to the customers in the course of sales.
5. Write short notes on the followings: (2 2.5=5) (Dec.2009)

i. Statement of changes in equity
ii. Periodicity concept
(i) According to Nepal Accounting Standards on presentation of Financial Statements
The Board of Directors and/or other governing body of an entity is responsible for the perpetration and
presentation of its financial statements.
A complete set of financial statements includes the following components:
(a) Balance Sheet
(b) An Income Statement
(c) A statement of changes in equity showing either
(i) All changes in equity
(ii) Changes in equity other than those arising from transaction with equity holders acting in their capacity as
equity holders
(d) A Cash Flow Statements and
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(e) Notes, comprising a summary of significant accounting policies and other explanatory notes.
So, it is mandatory for company.
Changes in an entity's equity between two balance sheet dates reflect the increase or decrease in its net assets or
wealth during the period, under the particular measurement principles adopted and disclosed in the financial
statements.
Except for changes resulting from transactions with shareholders, such as capital contributions and dividends,
the overall changes in equity represents the total gains and losses generated by the entities activities during the
period.
(ii) This is also called the concept of definite accounting period. As per 'going concern' concept, an indefinite
life of the entity is assumed. For a business entity it causes inconvenience to measure performance achieved by
the entity in the ordinary course of business. If a textile mill lasts for 100 years, it is not desirable to measure its
performance as well as financial position only at the end of its life.
So a small but workable fraction of time is chosen out of infinite life cycle of the business entity for measuring
performance and looking at the financial position. Generally one year period is taken up for performance
measurement and appraisal of financial position. However, it may also be 6 months or 9 months or 15 months.
Thus for performance appraisal it is not necessary to look into the revenue and expenses of an unduly long time-
frame. This concept makes the accounting system workable and the term 'accrual' meaningful. If one thinks of
indefinite time-frame, nothing will accrue. There cannot be unpaid expenses and non-receipt of revenue. Accrued
expenses or accrued revenue is only with reference to a finite time-frame which is called accounting period.
6. Distinguish between any two of the following: (2 5=10) (Dec.2009)

i. Sales day book and sales account
ii. Charge against profit and appropriation of profit
iii. Periodic & Perpetual Inventory System
Answer:
a) The sales day book is a register specially kept to record credit sales of goods dealt in by the firm, cash sales
are entered in the cash book and not in the sales day book. Credit sales of things other than the goods dealt in by
the firm are not entered in the sales day book; they are journalized. It is a subsidiary book and posting is made
from it to the sales account and accounts of the customers. The total of the sales day book shows the credit sales
made during any particular day; the amount is credited to the sales account.
Sales account is a final record and postings are made to it from cash book (cash sales) and sales day book
(credit sales). Sales account is maintained in the ledger in the manner, the other accounts are maintained. Sales
account is a nominal account and its balance is used for ascertaining gross profit or gross loss.
b) Charge against profit means deduction from revenue to arrive at net profit or net loss. It means a debit to
profit and loss account. This may credit provisions also and charges can be made in spite of losses. Charge against
profit is done before appropriation of profit.
Appropriation of profit means distribution of net profit to various heads of accounts. This means debit to profit
and loss appropriation account. Appropriation can be made only if the profits are earned. Appropriation is done
after charges are deducted from profit. This may create reserves.
CA FINAL (CAP III)
c)
S. Basis of Periodic Perpetual Inventory

No. Differences Inventory system
system
1 Stock Stock ledger Stock Ledger is
Ledger is maintained.
not
maintained.
2 Suitability Suitable for Suitable for big firms and not for
small firms and small firms
not for
big firms
3. Cost Low cost High cost as compared to periodic
as inventory system
compared
to
perpetual
inventory system
4 Systematic Less More systematic
systematic than
than perpetual periodic
5 Control Less control more control on
on
inventory inventory
6 Real time No real Real time information is available
time through stock
information ledger, bin cards etc.
is
available
7. Describe the term ―Accounting Policies‖. 5 (June2010)

Answer:
Accounting policy refers to the Principles, rules and procedures selected, and consistently followed, by the
management of an organization (the accounting entity) in preparing and reporting the financial statements.
Accounting policies deal specifically with matters such as consolidation of accounts, goodwill, inventory pricing,
and research and development costs. Accounting policies must be disclosed in the annual financial statements.
See also summary of significant accounting policies. The accounting policies followed vary from enterprise to
enterprise. The management of each enterprise has to select appropriate accounting policies.
Some of the areas in which different accounting policies may be adopted by enterprises are listed below:
a) Valuation of Inventories
b) Valuation of Investments
c) Recognition of Property, Plant and Equipments
d) Treatment of Employee Benefits
e) Revenue Recognition
f) Treatment of Borrowing Cost
CA FINAL (CAP III)
8. State with reasons whether the following statements are True or False: (5×2=10) (June2010)
a) Entity concept says that business and its owners are separate from the accounting point of view.
b) In case of falling prices FIFO method of inventory valuation does not give current market value of closing
inventory.
c) Profit & Loss Account and Profit & Loss Appropriation Account are not the same.
d) Land ownership transfer charges/fees are Capital Expenditure for real estate business enterprise.
e) In consignment account ownership of goods does not transfer from consignor to consignee.
Answer:
(a) True. Due to this owners‘ investment is shown as capital in the liabilities side of the balance sheet of any
entity.
(b) False. As per FIFO method old purchased inventory are sold first and latest purchased inventory remains
in closing inventory
(c) True. Profit & Loss Account represents the excess/deficit of income over the expenses and Profit & Loss
Appropriation Account represents allocation of accumulated profit for various purposes.
(d) False. Land purchased by real state business entity is for resale and not for keeping it for a longer period to
use in the business
(e) True. The relationship between consignor and consignee is that of principal & agent and not of seller &
buyer.
9. Explain any Four of the following: (4×2.5=10) (June2010)

a) Accrual Basis of accounting.
b) Account sales.
c) Contingent liability.
d) Del-Credere Commission.
e) Prepaid Expenses.
Answers:
a) Accrual basis of accounting:
Accrual basis of accounting is defined as the ―method of recording transactions by which revenue, costs,
assets and liabilities are reflected in the accounts in the period in which they accrue.‖ The accrual basis of
accounting includes considerations relating to deferrals, allocations, depreciation and amortization. Financial
statements prepared on the accrual basis inform users not only of past events involving the payment and receipt of
cash but also of the obligations to pay cash in future and of resources that represent cash to be received in the
future. Hence, they provide the type of information about past transactions and other events that is most useful to
users in making economic decisions. Accrual basis is also referred to as mercantile basis of accounting.
b) Account Sales:
Account sales is a periodic statement furnished by the consignee to the consignor stating therein, the quantity
sold, price charged, expenses incurred on behalf of the consignee and commission payable to him in respect of a
particular consignment, and the net amount due from him and remittance received if any. It also shows the details
of quantity of goods received, destroyed, if any, and still held as stock.
CA FINAL (CAP III)
c) Contingent Liability:
Contingent liability is defined as ―an obligation to an existing condition or situation which may arise in future
depending on the occurrence or non-occurrence of one or more uncertain future events.‖ Contingent liability may
be in respect of bills discounted, pending suits etc. thus it is not an actual liability and as such it is not recorded in
the balance sheet. It is simply mentioned by way of foot note of the balance sheet.
d) Del credere Commission:

It is allowed to cover the risk of loss due to bad debts. Once an agent is entitled for such a commission, he
becomes liable to all losses on account of non-recovery of debts and the consignor‘s ceases to be responsible for
any loss of this type. This is normally calculated on total sales unless it is specifically agreed to between the
principle and agent that del credere commission shall be allowed on credit sales only. Del credere commission is
allowed to consignee over and above the ordinary commission.
e) Prepaid Expenses:
Prepaid expenses are payments for expenses in an accounting period the benefit for which still accrue in the
subsequent accounting periods. The expenditure is revenue in nature and the benefit is obtained in more than one
accounting year. For example: Insurance premium paid say, on 1 st January 2010 for one year, for the year ended
31st march 2010 will be an example of prepaid expenses to the extent of premium relating to the 9 months period
i.e. from April 1 2010 to December 31 2010. The insurance protection will be available for 9 months after the
close of the year and amount of the premium to be carried forward can be calculated exactly.
10. Write short notes on the following (any four) :(4×2.5=10) (Dec.2010)
1. Money Measurement Concept.
2. Statement of Changes in Equity.
3. Petty Cash Book.
4. Circumstances for changing accounting policy
5. Notes to accounts
Answer:
1. Money Measurement Concept.
This is one of the accounting concepts. According to this concept, in the books of accounts only such
transactions which are capable of being expressed in monetary term are recorded. In other words, the information
which cannot be expressed in the terms of money is not included in accounting records. An event, even though
important, like a quarrel between the production manager and the sales manager, will not be recorded unless its
monetary effect can be measured with a fair degree of accuracy. This is, of course, because money is the only
universally known way of comparing values. It is a useful way of converting accounting data into a common unit.
Otherwise, it would be impossible to make any fair comparisons between various types of assets, or different
types of transactions. Monetary terms are used because money acts as a common unit of measurements and the
different transactions expressed in different units are brought to a common unit of measurement.
2) Statement of Changes in Equity.

As its name suggests a statement of changes in equity is a statement that presents the changes the in equity
structures i.e. both capital and equity reserves of an enterprises during the period. This statement explains the
causes of changes in equity by virtue of fresh issue, buy back of capital, profit or loss during the period,
distribution of dividend etc. Change in an entity's equity between two balance sheet dates reflect the increase or
CA FINAL (CAP III)
decrease in its net assets or wealth during the period, under the particular measurement principles adopted and
disclosed in the financial statements. Except for changes resulting from transactions with shareholders, such as
capital contributions and dividends, the overall change in equity represents the total gains or losses generated by
the entities activities during the period.
3) Petty Cash Book.
In a business house a number of small payments, such as telegrams, taxi fare, cartage, etc. have to be made. If
all these payments are recorded in the cash book, it will become unnecessarily heavy. Also, the main cashier will
be overburdened with work. Therefore, it is useful for firms to appoint a person as 'Petty Cashier' and to entrust
the task of making small payments say less than Rs. 100, to him. Of course he will be reimbursed for the
payments made by him. Later, on an analysis, the respective accounts may be debited.
4) Circumstances for changing accounting policy

A change in accounting policy is made only if the adoption of a different accounting policy is required by
statute or for compliance with an accounting standard or if it is considered that the change would result in a
more appropriate preparation or presentation of the financial statements of the enterprise. A more appropriate
presentation of events or transactions in the financial statements occurs when the new accounting policy results
in more relevant or reliable information about the financial positi on, performance or cash flows of the
enterprise.
5) Notes to accounts
Notes to accounts is an integral part of the financial statements. The Profit & Loss Account, Balance sheet and
Cash flow Statement reveal the operating result, status of assets and liabilities and inflows and out flows of cash
from different sources respectively. But notes to accounts shows accounting conventions, accounting methods,
assumptions and other critical points based on which operating results, assets & liabilities and cash flows are
recorded in the financial statements. It helps to disclose material items which can influence the decisions of
financial users.
11. Differentiate between (any two) :(2×2.5=5) (Dec.2010)

i.Statement of affairs and Balance Sheet.
ii.Trade discount and Cash discount
iii.Fixed Capital and Fluctuating capital
Answer:
a. The distinction between Statement of affairs and Balance Sheet may be made as follows:
Statement of affairs Balance Sheet
(i) Purpose: Is prepared not only to show (i) Is prepared to show financial position of
financial position but may be prepared the business as on particular date. to ascertain
capitals in order to calculate
profit or loss.
(ii) Source: Is prepare partly from the ledger (ii) Is prepared wholly from ledger balances.
balances and partly from other particulars
and estimates.
(iii) System: Is prepared when books are main- (iii) Is prepared when books are maintained
-tained under single entry system. from double entry system.
(iv) Trial balance: Trial balance is not prepared (iv) Trial balance is prepared before prepar- before
preparing statement of affairs -ing balance sheet.
CA FINAL (CAP III)
(iv) Capital: Excess of assets over liabilities is (v) The balance of capital account is taken shown
as capital. from the ledger.
b. The distinction between trade discount and cash discount may be made as follows:
Trade discount Cash discount
i. It is allowed to encourage buyers to (i) It is allowed to encourage the buyers of
buy goods in large quantities. goods to make payments at an early date.
ii. . It is a reduction in the list price granted (ii) It is a reduction in the amount payable by the
supplier either because of a trade for payment within a certain period. practice or
for purchases exceeding a certain quantity
iii. It is allowed at the time of purchase. (iii) It is allowed at the time of payment for
the purchase.
iv. It is shown as a deduction in the invoice. (iv) It does not appear in invoice.
v. In the ledger, there is no trade discount (v) Cash discount account is maintained in
account. the ledger.
c. Fixed Capital and Fluctuating Capital: Capital accounts of partner may be maintained either under fixed
capital method or under fluctuating capital method. Under fixed capital method, the amount of capital
contributed by each partner remains fixed during continuance of partnership. Such fixed capital is shown
separately in partners' capital accounts. However, the initial capital contribution may change in the event
of either fresh introduction of capital or partial withdrawal of capital. In this method, an additional account
called current account is opened for each partner to record the entries relating to share of profit or loss,
interest on capital, partner's salary / commission, drawings, interest on drawings etc. Under Fluctuating
capital method, no separate current account is maintained. All transactions between partners and the firm
are recorded in partners' capital accounts.
12. State with reasons whether the following statements are True or False:(5×2=10) (Dec.2010)
a) Amount paid for acquiring Goodwill is deferred revenue expenditure.
b) Perpetual Inventory System has a provision of stock ledger.
c) Recently ICAN has issued guidelines on maximum fee for an audit for different categories of auditors
d) Depreciable amount is always equal to the cost of a depreciable asset.
e) Personal expenses of a proprietor can be charged to his proprietorship business.
Answer:
a) False: Amount paid for acquiring goodwill is capital expenditure since it involves acquisition of intangible
asset.
b) True: Maintenance of stock ledger is integral part of perpetual inventory system. But in periodic inventory
system, stock ledger is not maintained.
c) False: ICAN has issued guidelines for minimum audit fee for an audit for different categories of auditors.
d) The given statement is 'False'. Because depreciable amount is historical cost or other amount substituted for
historical cost of a depreciable asset in the financial statement less the estimated residual value, if any.
False: As per entity concept, owners and business are two different entities. Therefore, personal expenses of
proprietor can not be charged to his
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13. State with reasons whether the following statements are true or false:(5×2=10) (June2011)
i. Expenses incurred on repainting of old house purchased before shifting to that old house is revenue
expenditure.
ii. Amortization of patent reduces the cash balance.
iii. Accrual basis of accounting does not record cash transactions.
iv. Relationship of principal and agent exists between consignor and consignee.
v. Error of principle does not affect the trial balance.
Answer:
(i) False, any incidental expenditure incurs while purchasing capital item before it is put to use, is
capital expenditure.
(ii) False, amortization of patent is a non-cash expenditure. Therefore, it does not reduce the cash
balance.
(iii) False, as per accrual basis of accounting economic transactions are recognized in the books as and
when it occurs. The economic transaction may be in cash or in credit.
(iv) True, as per consignment accounting the ownership of goods remains with the consignor, only
physical possession of goods is transferred from consignor to consignee.
(v) True, error of principle is only a accounting treatment error for eg. treating capital expenditure to
revenue expenditure or vice versa. The trail balance can only check the arithmetical errors and not
error of principle.
14. Describe the qualitative characteristics of financial statements. 5 (June2011)

Answer:
Qualitative characteristics are attributes that make the information provided in financial statement useful to the
users. There are four principal qualitative characteristics of the financial statements prescribed in the framework
for the preparation and presentation of financial statements in the Nepal Accounting Standards which are as
follows:
 Understandability – an essential quality of the information provided in financial statement is that it
is readily understandable by the users. For this purpose, users are assumed to have a reasonable knowledge of
business and economic activities and accounting and a willingness to study the information with reasonable
diligence.
 Relevance- information must be relevant to the decision making needs of users. Information has a
quality of relevance when it influences the economic decision of the users by helping them evaluate past, present
or future events of confirming or correcting their past evaluations. The relevance of information is affected by its
nature and materiality. Information becomes material if its omission or misstatement could influence the
economic decision of the user taken on the basis of the financial statement.
 Reliability – the information provided by financial statement must also be reliable. Information has
the quality of reliability when it is free from material error and bias and can be depended upon by users to
represent faithfully that which it either purports to represent or could reasonably be expected to represent.
 Comparability – the financial statement should allow the users to compare the financial position
and performance of an entity through time in order to identify trends in its. Further it must allow the user to
compare the financial statements of different entities in order to evaluate their relative financial position,
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performance and change in financial position.
15. Write short notes on any four the following: (4×2.5=10) (June2011)
i. Accrued Revenue
ii. Cash and Cash Equivalents
iii. Endorsement.
iv. Capital Expenditure
v. Measurement Bases
Answer:
a) Revenue which has been earned in an accounting period but in respect of which no enforceable claim
has become due in that period by the enterprise. It may arise from the rendering of services which at the date of
accounting have been partly performed, and are not yet billable.
b) Cash comprises cash on hand and demand deposits. Whereas cash equivalent are short term highly
liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant
risk of changes in value. For e.g. marketable securities with maturity of three months or less from the date of
acquisition.
c) A cheque can be passed on by the payee to another person and by that person to someone else, and so
on, unless it is crossed "A/c Payee only" or the cheque otherwise restrict the payment to a particular person only.
A bearer cheque can be passed on by mere delivery – nothing needs to be written at the back of the cheque. If the
cheque is made out in favour of any party or order, that is, it is an order cheque; it can be passed on only by
endorsement and delivery. A cheque which has been "endorsed" but not delivered has not been really endorsed.
Endorsement means the writing of instructions to pay the cheque to a particular person and then singing it. This is
done at the back of the cheque. The signatures must have the same spelling as mentioned on the face of the
cheque.
d) Of the total expenditure incurred in a given period in a business, some are of capital nature while others
are of revenue nature. Capital expenditure is that expenditure which results in the acquisition of asset, tangible or
intangible, which can be later sold and converted into cash or which results in an increase in the earning capacity
of a business or which afford some other benefits of enduring nature to the firm. In a nutshell, if the benefits of
expenditure are expected to accrue for a long time, the expenditure is capital expenditure. Examples of capital
expenditure are land, building, machinery, patents etc. All these items stay with the business and can be used over
and over again. It should also be noted that all amounts spent up to the point an asset is ready for use should be
treated as capital expenditure. Examples are: fees paid to a lawyer for drawing up the purchase deed of land,
overhaul expenses of second hand machinery etc.
e) Measurement bases are the various methods to recognize the monetary value of financial transactions in
accounting system. Measurement bases are the methods developed for determining the accounting periods in
which revenues and cost should be recognized in the income statement and amount at which material items should
be stated in the balance sheet. There are four generally accepted measurement bases. These are:
 Historical cost
 Current cost
 Realizable cost
 Present cost
16. State with reasons whether the following statements are true or false: (5×2=10) (Dec.2011)
i. Provisions and Reserves both are charge against profit.
ii. The meaning of the term "Capital" is same to economists and accountants.
iii. Reliability is one of the qualitative characteristic of financial statements.
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iv. In the preparation of financial statements, accounting policies are applied consistently.
v. Heavy advertising to introduce a new product or to explore a new market is Capital Expenditure.
Answer:
i) Provisions and Reserves both are charge against profit.
The given statement is 'False'. Provisions are charge against profit. It means it is created before arriving at Net
Profit. On the other hand Reserves are appropriation of net profit which is created either because of statutory
requirements or for some specific purpose as decided by management.
ii) The meaning of the term "Capital" is same to economists and accountants.
The given statement is 'False'. The term has different meaning to economists and accountants. To economists
the term capital is used to mean those assets which are used to produce goods and services. It comprises of
physical assets like building, land, plant, machinery, equipments and intangible assets like human skill,
technology etc.
But in accounting "Capital" means all tangible and intangible assets both fixed and current less external
liabilities. But such assets and liabilities should be measurable in monetary terms.
iii) Reliability is one of the qualitative characteristic of financial statements.
The given statement is 'True'. Even if information is relevant, it could not serve user's purpose unless it is
reliable. Financial statements are believed to be the container of most objective information. But fraud and
misrepresentation regarding facts and figures included in the financial statements make the information unreliable.
iv) In the preparation of financial statements accounting policies are applied consistently.
The given statement is 'True'. In order to enhance comparability of accounting data of different periods, the
accounting policies are consistently applied in the preparation of financial statements. Changes in accounting
policies can be made when it is required by statue or management believes that such change would result in the
better presentation of financial statements.
v) Heavy advertising to introduce a new product or to explore a new market is Capital Expenditure.
The given statement is 'False'. The effect of heavy advertising with regard to the launching of a new product or
to explore a new market will last generally for more than one accounting period. But it does not create any
property of tangible or intangible nature and so the expenditure is spread over the period for which its effect
would remain. This type of expenditure items are termed as deferred revenue expenditure.
17. Briefly describe the various users of accounting information. 5 (Dec.2011)
Answer:
The users of accounting information are as follows:

 Owner or Investor – The owner or the shareholders supply the risk capital or equity to the
business. In the modern business practice, the owner and the management is separate, therefore the owner or the
investor need to know how their money being used by the management. Similarly, they also need information
whether to buy or sell their investment. They are also interested to know about the earning capacity and the future
prospect of the enterprises. Therefore, the financial information help them to decide about various decision
making like further investment, disinvestment or continue to hold or sell etc.
 Creditors- They are the supplier of the required raw material for the production. They are also
supplier of goods or services to the business. They supply raw material, goods and services on credit. They need
information to assess the financial soundness and profitability and solvency of the business which assured them to
recovery of their dues.
 Government Agencies – They regulate the functioning of the enterprises, control price and
charge taxes and duties. Their main concern is that whether prevailing laws & regulations are obeyed by the
enterprises or not. They are also interested to know whether the enterprises are paying taxes and duties regularly
and in accordance with the existing laws & regulation or not.
 Employees – They are interested to know the continuity and the profitability of the business.
This is because their earning depends upon the prospect of the business and the earning of the enterprise. If the
business is earning more profit and future prospect is bright then the employees will get handsome salary,
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retirement benefits etc.

 Customer- Customers consist of producer, distributor, wholesaler, retailers and final
consumers. They all are interested for the regular and uninterrupted supply of goods & services. If the goods &
services are not supplied on regular basis then the business will interrupt and effect their profitability.
 Public- The public at large is interested to know the smooth functioning of the business.
Business contributes for the economic growth of the country and it also contribute the government revenue in the
form of duties and taxes. Business provide employment opportunity to the public.
18. Distinguish between any TWO of the following: (2×5=10) (Dec.2011)

i. Cash Basis and Accrual Basis of accounting
ii. Periodic and Perpetual Inventory System.
iii. Consignment and Joint Venture.
Answer :
i.
Points of Difference Cash Basis Accrual Basis
1.) Time of Economic transactions Economic
recording are recorded as and when transactions are
there is movement of recorded when
cash. obligation or right is
established whether
movement of cash is
there or not.
2.) Scope Only few business Mostly all entity is

entity is following this following this method.
method. For example: For example:
professionals, I/NGOs Companies(National/M
etc. ulti national),
partnership firms And
individual firms.
3.) Matching It does not consider It considers matching
concept matching concept. concept.
4.) Reliable It does not depict the It depicts the true

true profit or loss for a profit or loss for a
particular period. And particular period.
hence less reliable.
5.) Popularity Less popular. More popular.

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6.) Balance sheet It does not include It includes more items

more items like like
debtors,creditors,prepaid debtors,creditors,prepai
rent etc. on balance sheet. d rent etc. on balance
sheet.
b)
Perpetual Inventory System: It is a system of stock control followed by the stores department. Under this
system, a continuous record of receipt and issue of material is maintained by the stores department. In other
words, in this system, stock control cards or bin cards and the stores ledger show clearly the receipts, issues and
balance of all items in stock at all times. This system facilitates planning of production and ensures that
production is not interrupted for want of materials and stores.
Periodic Inventory System (Continuous stock taking): It means physical verification of stores items on a
periodic basis to reveal the position of actual balances. Such a verification is conducted round the year, thus
covering each item of store twice or thrice. Any discrepancies, irregularities or shortages brought to the notice, as
a result of continuous stock verification are reported to the appropriate authorities for initiating necessary
rectification measures. This system works as a moral check as stores staff and acts as a deterrent to dishonesty.
A perpetual inventory system is usually supported by a programme of continuous stock taking . That is
continuous stock taking is complementary to the perpetual inventory system. Sometimes the two terms are
considered synonymous but it is not so. The success of the perpetual inventory system depends upon the
maintenance and upto date writing up of (i) the stores ledger and (ii) bincards/stock control cards, Continuous
stock taking, ensures the veracity of figures shown by the above records.
c)
Points of Difference Joint Venture Consignment

1 Relationsh It is that of owners It is that of
. ip between principal and agent.
) Parties
2 Continuity It is terminated as It will be there even

. of soon as the venture is after one transaction.
) relationship over.
between the
parties
3 Ownership It remains with co- It remains with the

. of goods venturers. consignor.
)
4 Profit It belongs to co- It belongs to the
. earned venturers. consignor.
)
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5 Account It is not sent by one It is sent by the

. sale co- venturer to consignee to the
) another. consignor.
6 Methods Four methods of Only one method of

. of keeping keeping
)
accounts accounts. keeping accounts..
19. State with reason, how you would classify the following items of expenditure. (3×3=9) (June2012)
i. Overhauling expenses of Rs. 25,000 for the engine of a motor car to get better fuel efficiency.
ii. Inauguration expenses of Rs. 25 lakhs incurred on the opening of a new manufacturing units in an
existing business.
iii. Compensation of Rs. 2.5 crores paid to workers, who opted for voluntary retirement.
Answer:
a) Overhauling expenses are incurred for the engine of motor car to derive better fuel
efficiency. These expenses will reduce the running cost in future and thus the benefit is in form of endurable
long term advantage. So this expenditure should be capitalized.
b)Inauguration expenses incurred on the opening of a new unit may help to explore more customers. This
expenditure is in the nature of revenue expenditure as the expenditure may not generate any enduring
benefit to the business over more than one accounting period.
c) The amount paid to workers on voluntary retirement is in the nature of revenue expenditure since the
magnitude of the amount of expenditure is very significant, it may be better to defer it over future years.
20.State with reasons whether the following statements are True or False:(3×2=6) (June2012)
i.Where subsidiary books are maintained; journal is not required.
ii. Petty cash is an expense.
iii. Over-riding commission is calculated on credit sales only
Answer:
a) FALSE. Journal is required even where subsidiary books are maintained. Opening and closing entries,
rectification entries, transfer and adjusting entries and other miscellaneous entries are recorded in the journal.
b) FALSE. Petty cash is an asset. It is shown on the asset side of the balance sheet under heading „Cash and
Bank Balance‟.
c) FALSE. In case the sales exceed a specific amount, an extra commission is allowed to consignee. This
commission is term as over-riding commission. It is calculated on total sales, unless specifically agreed
between consignor and consignee.
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21. Write short notes on the following: (4×2.5=10) (June2012)

i. Contingent Liability
ii. Noting Charges
iii. Features of Consignment
iv. Compensating Errors
Answer:
a) Contingent liability is an obligation relating to an existing condition or situation which may arise in
future depending on the occurrence or non-occurrence of one or more uncertain future events. Contingent liability
may be in respect of bills discounted, pending suits etc. The amount of contingent liability is stated on the face of
the balance sheet by way of a note, unless there is a probability that a loss will materialized.
b) If the holder of the bill presents it to the drawee for payment on the due date but the later does not pay
it off, the bill is said to be dishonoured. It is necessary that the fact of dishonour and the causes of dishonour
should be established. If the acceptor can prove that the bill was not properly presented to him for payment, he
may escape liability. Therefore, if there is dishonour, or fear of dishonour, the bill will be given to a public
official known as "Notary Public" (a legal practitioner, usually a solicitor, who is empowered to note a
dishonoured bill of exchange). These officials present the bills for payment and if the money is received, they will
hand over the money to the original party. But if the bill is dishonoured they will note the fact of dishonour, and
the reasons given and give the bill back to their client. For this service they charge a small fee. This fee is known
'Noting Charges'. The amount of noting charges is recoverable from the party who is responsible for dishonour.
c) The main features of Consignment are as under:

i) The relationship between Consignor and Consignee is that of Principal and agent.
ii) Only the possession of goods and not the ownership of goods is transferred to the Consignee.
iii) Risk of goods remains with the Consignor because ownership of goods remain with the Consignor.
iv) Consignee is entitled to reimbursement of expenses incurred by him on behalf of the Consignor as per
agreement.
v) Consignee is entitled to an agreed remuneration i.e. commission.
vi) The profit/loss on sale of goods sent on Consignment belongs to the Consignor.
22. State with reasons whether the following statements are true or false (5×2=10) (Dec.2012)
i) Balance sheet indicates that the accounts are arithmetically accurate.

ii) A joint venture business does not have a definite life so going concern principle is applicable.
iii) If overriding commission is paid to the consignee he will bear the risk of unrecovered from debtors.
iv) Ram took an account payee cheque in the bank and asked the cashier across the counter of the bank for
encashment. Cashier apologized and asked to deposit the cheque in his account first then to withdraw cash from
his account. Ram thought he should be paid his money at once from the counter. Is the Ram‘s contention correct?
v) Trail balance is not only a point statement, but also a period statement.
CA FINAL (CAP III)
Answer:
i. False: Balance sheet shows the financial position of the entity at a particular point of time. It is the trial
balance, which checks the arithmetical accuracy of books.
ii. False: A joint venture has a definite life and automatically comes to an end on the completion of the
venture for which it was formed. Hence going concern principle is not applicable.
iii. False: Overriding commission is paid if the consignee has made extra efforts for selling the goods at
higher price or at a new market. Del-credere commission is paid to make consignee to bear the risk of bad debts.
iv. False: Only a bearer cheque is payable across the bank counter. A cross cheque is payable from the
account only. Hence the contention of Ram that account payee cheque should be paid across the counter is
invalid.
v. True: This is a point statement because it contains some item (all relating to balance sheet), which
shows the position of the business house at a particular point. i.e. at the date it is prepared. This is a period
statement, because it contains some items (all relating to the trading and Profit & Loss Account), which show the
position of the business during the whole period.
23. What is the objective of 'Accounting Standard'? State the advantage of setting Accounting Standards. 5
(Dec.2012)
Answer:
Objective and advantages of Accounting Standards: An Accounting Standard is a selected set of accounting
policies or broad guidelines regarding the principles and methods to be chosen out of several alternatives. The
Accounting Standards Board formulates the Accounting Standards.
The main objective of Accounting Standards is to establish standards which have to be complied with to ensure
that financial statements are prepared in accordance with generally accepted accounting principles. Accounting
Standards seek to suggest rules and criteria of accounting measurements. These standards harmonize the diverse
accounting policies and practices at present in use.
The main advantages of setting accounting standards is that the adoption and application of accounting
standards ensure uniformity, comparability and qualitative improvement in the preparation and presentation of the
financial statements.
The other advantages are as follows:
(i) Reduction in variations.
(ii) Disclosure beyond that required by law.
(iii) Facilitates comparison.
24. Briefly explain the difference between the following:(4×2.5=10)(Dec.2012)

a) Cash Discount and Trade Discount
b) Fixed Capital and Fluctuating Capital
c) Trial Balance and Balance Sheet
d) Deferred Expenses and Prepaid Expenses
Answer:
a) Cash Discount and Trade Discount: Cash discount is the discount offered by the supplier in
consideration of immediate payment. It may vary with the period of payment. Such discount encourages the
debtors to pay within a specified period of time. It is usually shown in the financial statements as financial
expense or income.
Trade discount is a discount on the selling price payable by the customer for bulk purchase. This is a discount
given by a manufacturer or wholesale dealer to dealer or retail dealer. It is also called quantity discount. Trade
discount is a technique of sales promotion and is offered generally to customers for purchasing above minimum
quantity. Trade discount is deducted from the sale price in the invoice itself. It does not form part of the
accounting entries as the discount id deducted in the invoice and net amount is entered in the books of account.
CA FINAL (CAP III)
The objective of this discount is to help the retailer to earn profit as he sells the goods at a fixed price (catalogue
price).
b) Fixed Capital and Fluctuating Capital: Capital accounts of partners may be maintained either under
fixed capital method or under fluctuating capital method. Under fixed capital method, the amount of capital
contributed by each partner remains fixed during continuance of partnership. Such fixed capital is shown
separately in partners' capital accounts. However, the initial capital contribution may change in the event of either
fresh introduction of capital or partial withdrawal of capital. In this method, an additional account called current
account is opened for each partner to record the entries relating to share of profit or loss, interest on capital,
partner's salary/commission, and drawings, interest on drawings etc. Under fluctuating capital method, no
separate current account is maintained. All transactions between the partners and the firm are recorded in partners'
capital accounts.
c) Trail Balance and Balance Sheet: A trail balance is a statement prepared as on a particular date to check
primarily the arithmetical accuracy of ledger balances. A Balance Sheet, on the other hand, is a statement on the
financial position of an enterprise as at a given date, which exhibits its assets, liabilities and equities at their
respective book value. A Trail balance may be prepared monthly, quarterly, half yearly or annually but Balance
sheet is prepared annually and in some cases half yearly. A trail balance lists ledger balances of all accounts
irrespective of their nature. A Balance consists mainly of personal and real accounts balances. In fact, Trail
balance is the basis on which financial statements like Profit & Loss Accounts and Balance Sheet are prepared.
d) Deferred Expenses and Prepaid Expenses: Deferred expenses may be defined as those expenses for
which payments have been made or liabilities incurred but which are carried forward on the presumption that
these will benefit over a subsiquent period or periods. In short, it refers to those expenses that are, for the time
being, deferred from being charged to income. Prepaid expenses refer to payments for expenses in an accounting
period, the benefit for which will accrue in the subsequent accounting period or periods.
d) When two or more errors are committed in such a way that the net effect of these errors on the debits
and credits of accounts involved is nullified, such errors are called compensating errors. In other words,
compensating errors refer to such a group of errors wherein the effect of one error is compensated by the effect of
other error(s). These errors do not affect the agreement of the trial balance but may or may not affect the figure of
net profit. In fact, compensating errors do not represent separate type of errors but only represent a group of
errors.
25. Explain the following:(2×3=6) (June2013)

i. Forecasting as a function of Accounting Information.
ii. Recognition of goodwill in case of dissolution of firm.
iii. Accommodation Bills.
Answer:
i) Forecasting is a planning tool that helps management in its attempts to cope with the uncertainty of the
future, relying mainly on data from the past and present and analysis of trends.
Forecasting starts with certain assumptions based on the managements experience, knowledge and judgments.
These estimates are projected into the coming months or years. Since any error in the assumptions will results in a
similar or magnified error in forecasting, the techniques of sensitivity analysis is used which assigns a range of
values to the uncertain factor (variables).
ii) Goodwill is the value of reputation of a firm in respect of profits expected in future over and above the
normal rate of profit. The implication of the above is that there is always a certain normal rate of profits earned by
similar firms in the same locality. The excess profit earned by a firm may be due to its locational advantage, better
service, possession of a unique patent right, personal reputation of the partners or the similar other reasons.
Goodwill can be calculated in various methods (a) Average Profit Basis (b) Super Profit Basis (c) Annuity Basis
CA FINAL (CAP III)
(d) Capitalization Basis
iii) An accommodation bill is a bill of exchange which has been drawn on and accepted by a reputable
party for the purpose of giving value to the bill so that it can be discounted for the purpose of arranging temporary
finance.
26. Write short note on ―Role of accountants in Society‖. 4 (June2013)

Answer:
An accountant with his education, training, analytical mind and experience is best qualified to provide multiple
need-based services to end growing society. An accounting, financial layout but they can render service relating
to financial policies, budgetary policies and economic principles. The service rendered by accountants to society
included the following:
i. Maintain the books of accounts in systematic manner.
ii. Act as a statutory auditor.
iii. Act as an internal auditor
iv. Service relating to taxation.
v. Act as a management accountant.
vi. Financial adviser.
vii. Liquidator.
viii. Management information system consultant.
ix. Company Law adviser, etc.
27. Mention True or False with adequate reasoning:(2.5×2=5)(June2013)

i. Depletion method of depreciation is usually used when timing is not useful factor on the useful life of
an asset.
ii. Dual price helps to evaluate performance of individual department.
Answer:
i. True: Depletion method of deprecation is used for natural resources such a mines, quarries etc which
are gradually depleted. These assets can be physically consumed & converted into inventory.
ii. False: Market based transfer price helps to evaluate performance of individual department
28. Briefly explain the difference between the following: (2.5×4=10)(June2013)

i. Real Account and Nominal Account
ii. Errors of Principle and Errors of Omission.
iii. Charge against Profit and Appropriation of Profit.
iv. Trade Discount and Cash Discount.
Answer:
a) Real Account and Nominal Account: A Real Account is a account relating to properties and assets,
other than personal accounts of the firm. Examples are land, buildings, machinery, cash, investments etc. Nominal
accounts relate to expenses or losses, income and gains. Examples are: wages, salaries, rent, depreciation etc. The
net result of all the nominal accounts is reflected as profit or loss which is transferred to the capital accounts.
Nominal accounts are, therefore, temporary. The real accounts are shown in the balance sheet along with personal
accounts.
b) When a transaction is recorded in contravention of accounting principles, it is called an error of
principle. For example, the error of treating the purchase of an asset as an expense is an error of principle. Errors
of principle do not affect the trail balance since the amounts are placed on the correct side, though in a wrong
account.
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Errors of omission are in nature of clerical errors. If a transaction is completely or partially omitted from the
books of accounts, it will be a case of error of omission. Examples would be not recording a credit purchase of
furniture or not posting an entry into the ledger.
c) Charge against profit means deduction from revenue to arrive at net profit or net loss. It means a debit
to profit and loss account. This may credit provisions also and charges can be made in spite of losses. Charge
against profit is done before appropriation of profit. Appropriation of profit means distribution of net profit to
various heads of accounts. This means debit to profit and loss appropriation account. Appropriation can be made
only if the profits are earned. Appropriation is done after charges are deducted from profit. This may create
reserves.
d)
Trade Discount:It is a reduction granted by a supplier from the list price of goods or services on business
considerations (such as quantity bought, trade practice etc.) other than prompt payment. It is allowed to promote
sales. It is allowed on purchase of goods. It is shown by way of deduction in the invoice itself. It may vary with
the quantity purchased.
Cash Discount:
It is a reduction granted by supplier from the invoice price in consideration of immediate payment of payment
within stipulated period. It is allowed to encourage prompt payment. It is allowed on immediate payment or
payment within stipulated period. It is not shown in invoice. It may vary with the period within which payment is
made.
29. Write short notes on ANY TWO of the following:(2×5=10)(Dec.2013)

i. Bank Reconciliation Statement
ii. Accommodation Bills
iii. Provision & Contingent liability
Answer:
i) Bank Reconciliation Statement

It is a statement which explains the difference between the balances in pass book ( bank statement) and cash
book (bank account in ledger), analyzed into various causes and the extent to which each contributes to such
difference. It is prepared on periodic basis. It helps in finding out the actual position of the bank balance. It
usually detects the difference in cash book and pass book balances due to some of the reasons such as:
a) Cheques issued but not presented for payment.
b) Cheques paid into bank but not yet cleared.
c) Interest allowed by bank
d) Expenses charged by bank
e) Direct payment into bank by a customer
f) Dishonour of bills discounted with bank
Beyond this, difference may also arise due to errors in recording entries. The reconciliation will bring out any
errors that may have been committed either in cash book or in the pass book. It is a very important tool for
internal control of cash flow. It also helps in detecting frauds and irregularities occurred, if any, at the time of
passing entries in the cash book or pass book whether intentionally or unintentionally.
ii) Accommodation Bills
Bills of exchange are usually drawn to facilitate trade transaction i.e. bills are meant to finance actual purchase
and sale of goods. But in some cases in order to oblige friends, bills are drawn, accepted and endorsed without
any consideration. Such bill drawn without consideration is known as accommodation bills. By accepting such a
bill the acceptor is able to lend his name and the other party (drawer) taking advantage of the reputation of the
CA FINAL (CAP III)
acceptor get it discounted with his banker. After meeting his needs with this temporary finance, he (drawer) sends
back money to the acceptor thus making it possible for him to meet the bills on the due date. Since such bills are
accepted without any consideration, there is no liability of the acceptor to the drawer. However, the acceptor
cannot escape his liability to third parties. In dealing with entries in accommodation bills along with normal
entries following additional points is to be noted :
a) The bills are drawn and accepted without any consideration. Therefore, when the ledger account
are opened, there is no balance brought down.
b) When accommodation bill is discounted and the proceeds are shared, the loss due to discount must
also be shared by the parties in the same ratio in which they have shared the proceeds.
iii) Provision and contingent liability

Provision is a liability of uncertain timing or amount. A liability exists if there is present obligation as a result of
past events and settlement is expected to result in an outflow of resources (payment).
Contingent liability is a possible obligation depending on whether some uncertain future events occur or a
present obligation but payment is not probable and the amount cannot be measured reliably.
Hence provision are made for known or specified liabilities which may occur in future whereas contingent
liabilities is made for unknown liabilities which may or may not occur in future. Provision is accrued in the
financial statement whereas contingent liabilities are disclosed but not accrued.
Examples of provision are provision for doubtful debts, provision for taxation etc. Examples of contingent
liabilities are claims against firm not acknowledged as debts, possible liabilities on account of
guarantee given etc.
30. Write short notes on ANY TWO of the following:(2×5=10) (June2014)

i. Substance over form
ii. Going concern
iii. Cut-Off procedure
Answer:
i) Substance over form:

It is one of the governing principles for selection of accounting policies. The accounting treatment and
presentation in financial statements of transactions and events should be governed by their substance and not
merely by their legal form. A typical example where substance takes precedence over form is in the case of
finance leases. In finance leases, the lessee in substance in the owner of the assets and lessor is merely the legal
owner. The accounting of finance leases is based on the substance rather than form of the transaction. Based on
this principle the lessee capitalizes the lease equipment as fixed assets, being the owner in substance, whereas, the
lessor records the investment made as a debtors.
ii) Going Concern:
It is one of the fundamental accounting assumptions for preparation of financial statement based on generally
accepted accounting principles. It assumes that an enterprise is a going concern & will continue in operation for
foreseeable future. Hence, it is assumed that the enterprise has neither intention nor the need to liquidate or curtail
materially the scale of its operations; if such an intention or need exists, the financial statements may have to be
prepared on a different basis and if so the basis is to be disclosed.
iii) Cut-Off Procedures:

It refers to the procedures adopted by the management to ensure that transaction on one period are separated
from those at the commencement of the next accounting period. The cut-off procedures is very significant so as to
ensure that revenue and expenditure of one year do not get recorded in the following year, as the same will distort
CA FINAL (CAP III)
the true and fair view of accounts. These procedures are applied to ensure that:
Goods purchased, the property which has been received is in fact been included in the inventories and that the
liability has been provided for in case of credit purchase.
Goods sold have been excluded from the inventories and credit has been taken for sales, if the value of sales is
to be recovered, the concerned party has been debited.
The proper procedure has been followed for adjusting the inventory to take into account movements to and from
stock, which have taken place between the stock taking date and balance sheet date where stock has been taken on
a date other than the balance sheet date.
31. Write short notes on ANY TWO of the following:(2×5=10) (Dec.2014)

i. Fundamental accounting assumptions
ii. Materiality
iii. Weighted average price method of inventory valuation
Answer:
Answer
 Fundamental accounting assumptions.
There are three fundamental accounting assumptions, according to which financial statements are prepared and
presented.
Going Concern: According to this assumption, the entity is normally viewed as a going concern i.e. the entity
will continue its operation for the foreseeable future. It is assumed that the entity has neither the intention nor the
necessity of liquidating or curtailing materially its scale of operations.
Consistency: It is assumed that accounting policies are consistent from one period to another to enable the
comparability of accounting data to the users of financial statements. If comparability is not ensured, the
relevance of the accounting data for users’ judgement and decision making is irrelevant.
Accrual: Revenues and costs are recognized as they are earned or incurred (and not as money is received or
paid) and recorded in the financial statements of the period to which they relate.
ii. Materiality
Information is material if its misstatement (i.e. omission or erroneous statement) could influence the economic
decisions of users taken on the basis of the financial information. The relevance of information is affected by its
materiality. Materiality depends on the size and nature of the item or error, judged in particular circumstances of
its misstatement. Materiality provides a threshold or cut-off point rather than being a primary qualitative
characteristic which the information must have if it is to be useful. For example: 1% of revenue, 1% of total assets
and 5% of total expenses can be considered material threshold for the supervisory and review purpose.
iii Weighted average price method of inventory valuation
The Weighted Average Price Method is based on the assumption that each issue of goods consists of a due
proportion of the earlier lots and is valued at the weighted average price. Weighted Average Price is calculated by
dividing the total cost of goods in stock by the total quantity of goods in stock. This weighted average price is
CA FINAL (CAP III)
used for pricing all the issues until a new lot is received when a new weighted average price would be calculated.
This method evens out the effect of widely varying prices of different lots which make up the stock.
Advantages: The main advantages of Weighted Average Price Method are as follows:
• It averages out the effect of price fluctuations.
• It can be advantageously used in process industries.
Disadvantages: The main disadvantages of Weighted Average Price Method are as follows:
• The closing stock does not correspond to the conventional accounting of valuation of stock.
• This method puts heavy burden on clerical staff because a new weighted average price is required to be
calculated on the receipt of a new lot.
This method cannot be used in job order industry where each individual order must be priced at each stage up to
completion.
32. Differentiate between: (2×5=10) (June2015)

i. Joint Venture and Partnership
ii. Consignment and Sale
Answer:
a) A Joint Venture can be termed as a contractual arrangement between two companies, which aims to
undertake a specific task. Whereas partnership involves an agreement between two parties wherein they agree
to share the profits as well as take the burden of loss incurred.
In partnership, the persons involved are co-owners of a business venture, aimed at making profit. But in
joint venture, it is not just profit that binds the parties together. Joint ventures can be formed for specific
purposes. For example, companies may join together and fund for the development of a particular thing that
could be of use to their respective business. Normally the companies engage in joint ventures, as sometimes it
could be quite expensive for undertaking certain ventures like research and development individually.
While partnership can last for many years till the parties involved have no differences, companies involve in
a joint venture for only a limited period till their goal has been achieved. In a joint venture, the members have
come together for some specific purpose, while in a partnership the members have joined together for only
business. Further, partnership is governed by Partnership Act where as there is no specific act which governs
Joint venture.
b) Differences between Consignment and Sale are as follows:
Consignment Sale
Ownership of the goods rests with the The ownership of the
consignor till the time they are sold by the goods transfers with the
consignee, no matter the goods are transfer of goods from the
transferred to the consignee. seller to the buyer.
The consignee can return the unsold goods Goods sold are the
to the consignor. property of the buyer and
can be returned only if the
seller
agrees.
Consignor bears the loss of goods held It is the buyer who will
with bear the loss if any,
the consignee. after the delivery of
goods.
CA FINAL (CAP III)
The relationship between the consignor The relationship between

and the consignee is that of a principal and the seller and the buyer is
agent. that of a creditor and a
debtor.
Expenses done by the consignee to receive Expenses incurred by the
the goods and to keep it safely is borne by buyer are to be borne by the
the consignor. buyer itself after the
delivery
of goods.
33. Differentiate between: (2×5=10) (Dec.2015)
i. Meaning of shortworkings and their recoupment

ii. Del-credere Commission
Answer:
i) Meaning of shortworkings and their recoupment
The excess of minimum rent over actual royalties earned by the landlord is known as shortworkings. If the
minimum rent, for instance, is Rs.100,000 per annum and royalty is Rs.10 per ton, then 10,000 tons must be
produced for minimum rent to be covered. In case the production happens to be only 5,000 tons, the
shortworkings would be Rs. 50,000.
In order to be just with the lessee, it is usually provided in a contract of royalty that the lessee will be entitled to
recover the shortworkings from the landlord during periods when the actual royalty exceeds the minimum rent.
Such right of recoupment may be a fixed or fluctuating.
ii) Del-credere Commission
To increase the sale and to encourage the consignee to make credit sales, the consignor provides an additional
commission generally known as del-credere commission. This additional commission when provided to the
consignee gives a protection to the consignor against the bad debts. In other words, after providing the del-
credere commission, bad debts. are no more the loss of consignor. Bad debt will be borne by the consignee. It is
calculated on total sales unless there is any agreement between the consignor and the consignee to provide it on
credit sales only.
34. Answer the following questions:(2×5=10)(June2016)

i. Mention the basic considerations on the basis of which capital and revenue expenditures are distinguished
from each other.
ii. Write short notes on meaning of inventory.
Answer:
i) The basic considerations in distinction between capital and revenue expenditures are:
(i) Nature of business: For a trader dealing in furniture, purchase of furniture is revenue expenditure
but for any other trade, the purchase of furniture should be treated as capital expenditure and shown in the
balance sheet as asset. Therefore, the
nature of business is a very important criteria in separating an expenditure between capital and revenue.
(ii) Recurring nature of expenditure: If the frequency of an expense is quite often in an accounting
year then it is said to be an expenditure of revenue nature while non-recurring expenditure is infrequent in nature
and do not occur often in an accounting year. Monthly salary or rent is the example of revenue expenditure as
they are incurred every month while purchase of assets is not the transaction done regularly therefore, classified as
CA FINAL (CAP III)
capital expenditure unless materiality criteria defines it as revenue expenditure.

(iii) Purpose of expenses: Expenses for repairs of machine may be incurred in course of normal
maintenance of the asset. Such expenses are revenue in nature. On the other hand, expenditure incurred for major
repair of the asset so as to increase its productive capacity is capital in nature. However, determination of the cost
of maintenance and ordinary repairs which should be expensed, as opposed to a cost which ought to be
capitalised, is not always simple.
(iv) Effect on revenue generating capacity of business: The expenses which help to generate
income/revenue in the current period are revenue in nature and should be matched against the revenue earned in
the current period. On the other hand, if expenditure helps to generate revenue over more than one accounting
period, it is generally called capital expenditure. When expenditure on improvements and repair of a fixed asset is
done, it has to be charged to Profit and Loss Account if the expected future benefits from fixed assets do not
change, and it will be included in book value of fixed asset, where the expected future benefits from assets
increase.
(v) Materiality of the amount involved: Relative proportion of the amount involved is another
important consideration in distinction between revenue and capital. Even, if expenditure does not increase the
productive capacity of an asset, it may be capitalized because the amount is material or expenditure may
increase the asset value and yet to be expensed because the amount is immaterial.
ii) Inventories are defined in Nepal Accounting Standard (NAS) as: Inventories are assets:
a) Held for sale in the ordinary course of business, or
b) In the process of production for such sales, or
c) In the form of materials or supplies to be consumed in the production process or in the rendering of
services.
By the above definition, for the trading concern inventories encompass goods purchased and held for resale,
whereas for the manufacturing concern, finished goods produced, work in progress being produced, raw
materials, consumables, maintenance supplies and loose tools awaiting use in the production process consist of
inventories.
35. Write short notes on:(2×5=10)(Dec.2016)

i. Components of financial statements.
ii. Bank reconciliation statement and its importance.
Answer:
i) Components of Financial Statements:
Nepal Accounting Standard on Presentation of Financial Statement (NAS – 01) states that
– a completed set of financial statements includes the following statements:
 Statement of Financial Position as at the end of the period;
 Statement of Profit or Loss and Other Comprehensive Income for the period;
 A statement of Cash Flow for the period;
 A statement of Changes in Equity for the period; and
 Notes to the Accounts comprising a summary of significant accounting policies and other
explanatory notes.
ii) Bank Reconciliation Statement and its importance:

It is a statement which compares the bank balances as per organization’s accounting records with the balance
stated in the bank statement. It is normal for a organization's bank balance as per accounting records to differ from
CA FINAL (CAP III)
the balance as per bank statement due to timing differences. Certain transactions are recorded by the entity that
are updated in the bank's system after a certain time interval. Similarly, some transactions are accounted for in the
bank's financial system before the organization incorporates them into its own accounting system. Such timing
differences appear as reconciling items in the Bank Reconciliation Statement.
Importance of Bank Reconciliation Statements
 Preparation of bank reconciliation statement helps in identifying errors in the accounting records of
the organization or the bank.
 Bank reconciliation statements provide the control mechanism to help to protect the valuable
resource through uncovering irregularities such as unauthorized bank withdrawals. However, in order for the
control process to work effectively, it is necessary to segregate the duties of persons responsible for accounting
and authorizing of bank transactions and those responsible for preparing and monitoring bank reconciliation
statements.
 If the bank balance appearing in the accounting records can be confirmed to be correct by comparing
it with the bank statement balance, it provides added comfort that the bank transactions have been recorded
correctly in the organization records.
 Monthly preparation of bank reconciliation assists in the regular monitoring of cash flows of a
business.
36. Write short notes on the following:(2×4=8) (June2017)

i) Distinction between Joint Venture Business and Partnership Business
ii) Inherent Goodwill
Answers:
i) Distinction between Partnership Business and Joint Venture Business
A partnership is a legal arrangement where two or more people own a business together. This means that the
entire business is shared for as long as the business exists. Both partners contribute money, time and expertise to
making a profitable enterprise, and that enterprise lasts until the partnership is dissolved.
Joint venture is entered for a specific project. There is a time limit on joint ventures, and they have clearly stated
limits on their purposes. An example is developing new software, construction of roads and bridges etc.
Both a partnership and a joint venture require a contract that spells out each party's responsibilities and rights.
The contract gives joint ownership and control to the partners in the proportion they agree upon, and details how
profits will be shared. The contract also lists the contributions of money and expertise that each partner will
contribute. Partnerships and joint ventures share all of these attributes.
However, a joint venture and a partnership are two separate entities, different from each other:
 A joint venture can be described as a contractual arrangement between two parties that aims to
undertake a specific task. Whereas, a partnership involves an agreement between two parties wherein they agree
to share the profits as well as any loss incurred.
 In a partnership, persons involved are co-owners of a business venture and their aim is making a
profit. But in a joint venture, it is not just profit that binds the parties together. Whereas Joint ventures can be
formed for specific purposes.
 A partnership will last for many years until the parties involved have no differences. While a joint
venture company will last for only a limited period until their goal is achieved.
CA FINAL (CAP III)
 In a partnership, members cannot act according to their wishes because they do not have any
individual identity. However, a member of a joint venture can retain the identity of his/her firm.
 Although a joint venture is very similar to a partnership, a joint venture is generally more limited in
scope and duration.
 A joint venture is generally considered to be a partnership for a specific project. Similarly, a joint
venture is a less formal relationship than a partnership.
ii) Inherent Goodwill
Inherent goodwill, also known as self-generated goodwill determined by a partnership firm at the time of
changes in ownership like admission of a new partner, retirement or death. This type of internally generated
goodwill is not recognized in the books of account and is settled within the partners. The goodwill of a firm arises
due to its market reputation, customer base, quality product or services etc. There are generally four methods of
goodwill valuation which are namely Average Profit Basis, Super Profit Basis, Annuity method and
Capitalization Method.
37. Write Short notes on the followings: (2×4=8) (Dec.2017)

i. Distinction between amortization and depreciation
ii. Methods of goodwill valuation
i) Distinction between Amortization and depreciation
One of the main principles of accrual accounting requires that an asset's cost is proportionally expensed based
on the period over which the asset was used. Both depreciation and amortization (as well as depletion) are
methods that are used to prorate the cost of a specific type of asset over the asset's life. It is important to
mention that these methods are calculated by subtracting the asset's salvage value from its original cost.
Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a
patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical
equipment is spread out over the life of the patent, with each portion being recorded as an expense on the
company's income statement.
Depreciation, on the other hand, refers to prorating a tangible asset's cost over that asset's life. For example, an
office building can be used for many years before it becomes run down and is sold. The cost of the building is
spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year.
ii) Methods of Goodwill valuation

There are four methods of valuation of goodwill of the firm;
1. Average Profits Method
2. Super Profits Method
3. Capitalization Method
4. Annuity method
1. Average Profits Method:
Under this method goodwill is calculated on the basis of the average of some agreed
number of past years. The average is then multiplied by the agreed number of years. This
is the simplest and the most commonly used method of the valuation of goodwill.
CA FINAL (CAP III)
Goodwill = Average Profits X Number of years of Purchase
Before calculating the average profits the following adjustments should be made in the profits of the firm:
a. Any abnormal profits should be deducted from the net profits of that year.
b. Any abnormal loss should be added back to the net profits of that year.
c. Non-operating incomes e.g. income from investments etc. should be deducted from the net
profits of that year.
Super Profits are the profits earned above the normal profits. Under this method Goodwill
is calculated on the basis of Super Profits i.e. the excess of actual profits over the average
profits. For example if the normal rate of return in a particular type of business is 20% and
your investment in the business is Rs. 1,000,000 then your normal profits should be Rs.
200,000. But if you earned a net profit of Rs. 230,000 then this excess of profits earned
over the normal profits i.e. Rs. 230,000 – Rs. 200,000= Rs.30,000 are your super profits.
For calculating Goodwill, Super Profits are multiplied by the agreed number of years of
purchase.
Steps for calculating Goodwill under this method are given below:
i) Normal Profits = Capital Invested X Normal rate of return/100

ii) Super Profits = Actual Profits – Normal Profits
iii) Goodwill = Super Profits x No. of years purchased
. Super profits method

3. Capitalization Method:
There are two ways of calculating Goodwill under this method:

(i) Capitalization of Average Profits Method
(ii) Capitalization of Super Profits Method
(i) Capitalization of Average Profits Method:
CA FINAL (CAP III)
Under this method we calculate the average profits and then assess the capital needed for
earning such average profits on the basis of normal rate of return. Such capital is called
capitalized value of average profits. The formula is:-
Capitalized Value of Average Profits = Average Profits X (100 / Normal Rate of Return)
Capital Employed = Assets – Liabilities
Goodwill = Capitalized Value of Average Profits – Capital Employed
ii) Capitalization of Super Profits:
Under this method first of all we calculate the Super Profits and then calculate the
capital needed for earning such super profits on the basis of normal rate of return. This Capital is the value of
Goodwill. The formula is:-
Goodwill = Super Profits X (100/ Normal Rate of Return)

4. Annuity method of goodwill valuation
Under this method, time value of money is considered. When money will be received at different point of time,
its value should be different depending upon the rate of interest and hence, time value of money is used. Time
value of money is the difference between the value of money at t (present date) and value of money at t1. A
present value factor is applied to the expected future profits to find out the present value of future profits.
38. Answer the followings:(4×2=8)(June2018)

i. What is recouping of shortworkings?
ii. What are the consideration determining capital and revenue transactions?
Answer:
i.
In simple, recoupment means adjustments. Usually in the first few years of the royalty agreement, the work
does not gather the required momentum because of the time taken in the preparation for starting the production
or pushing up the sales, so shortworkings arising in the first few years may not be due to inefficiency of the
lessee. Keeping this in view, royalty agreements may contain a clause that shortworkings (i.e. excess amount
paid in earlier years) are recoverable by the lessee in subsequent years when royalties are in excess of the
minimum rent. The right of getting back the excess payment made by the lessee in earlier years is called
the right of recoupment of shortworkings. A time is usually set upon the number of years for which such
shortworkings can be recouped. This time limit for recoupment of shortworkings may be fixed or fluctuating.
If the shortworkings (partly of wholly) cannot be recouped within the specified time, they lapse and are
charged to profit and loss account in the period when such specified time limit for recoupment expires.
Therefore, shortworkings are the losses of the lessee, no in the year of their occurrence, but in the year, they
lapse.
iii. The basic consideration in distinction between capital and revenue expenditure are; Nature of business: For a
trader dealing in furniture, purchase of furniture is revenue expenditure but for any other trader, the purchase
of furniture should be treated as capital expenditure and shown in the statement of financial position as an
asset. Therefore, the nature of business is a very important criterion in separating expenditure between capital
and revenue.
iii. Nature of expenditure: If the frequency of an expense is quite often in an accounting year then it is said to be
CA FINAL (CAP III)
a revenue expenditure like; salary, rent etc. while non-recurring expenditure is infrequent in nature and do not
incur often in an accounting year like; purchase of vehicle, computer etc.
iv. Purpose of expenditure: Expense for repairs of machine may be incurred in course of normal maintenance of
the asset. Such expenses are revenue in nature. On the other hand expenditure incurred for major repair of the
asset so as to increase its productive capacity is capital in nature.
v. Effect in revenue earning capacity: The expenses which help to generate revenue in the current period are
revenue in nature and should be matched against the revenue earned in the current period. On the other hand, if
expenditure helps to generate revenue over more than one accounting period, it is generally called capital
expenditure.
vi. Materiality of the amount involved: Nepal Accounting Standard on presentation of financial statements
defines the term material. It states that omission or misstatements of item are material if they could, individually
or collectively; influence the economic decisions of users taken on the basis of financial statements. Materiality
depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size
or nature of the item or a combination of both could be the determining factor. So the relative proportion of the
amount involved is another important consideration in distinction between revenue and capital transaction. Even
if expenditure does not increase the productive capacity of an asset, it may be capitalized because the amount is
material or expenditure may increase the asset value or yet to be expensed because the amount is material in
value.
39. Write short note on features of Joint Venture Account. 5 (Dec.2018)
Answer:
Features of Joint Venture Account:
i. It is short duration special purpose partnership.
ii. Parties in joint venture called co-venturers.
iii. Co-venturers may contribute funds for running the ventures or supply stock from their regular business.
iv. Co-venturers share profit of the venture in an agreed ratio.
v. Generally, profit of the venture is computed on completion of the venture.
vi. Going concern assumption is not appropriate for joint venture accounting. There does not arise problem of
distinction between capital and revenue expenditures.
40. What is Contingent Liabilities? (5 marks) (Dec.2019)

Answer:
a) Nepal Accounting Standard (NAS) 37, Provisions, Contingent Liabilities and Contingent Assets issued
by the Institute of Chartered Accountants of Nepal defines a contingent liability as:
1.A possible obligation that arises from past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity;
or,
2.A present obligation that arises from past events but is not recognized because:
a. It is not probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; or
b. The amount of the obligation cannot be measured with sufficient reliability.
In a general sense, all provisions are contigent becase they are uncertain in timing or amount. However, within
NAS 37 the term 'contingent' is used for liabilities that are not recognised because their existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the
control of the entity.
CA FINAL (CAP III)
Contingent liability should not be recognized in the books of the entity but should be disclosed in “Notes to the
financial statements”. Claims against entity not acknowledged as debts, guarantee given in respect of third parties,
liability in respect of bills discounted, etc. are examples of contingent liabilities.
Contingent liabilities may develop in a way not initially expected. Therefore, they are assessed every year to
determine whether there is a probability of an outflow of economic resources. If it becomes probable that such an
outflow will be required for an item previously dealt with as a contingent liability, a provision is recognised in the
financial statements of the year in which the change in probability occurs.
41. What are the limitations of Accounting? 5 marks (2020 Dec.)

Answers:
The following are the main limitations of accounting:
1. Accounting records only those transactions and events which can be measured in
monetary terms. Those transactions or events which cannot be measured in monetary
terms may be very important for an entity but not recorded in the business books.
2. Accounting transactions are recorded at cost in the books. The effect of changes in price
level is not considered by accounting which renders the comparisons between different
periods as irrelevant and difficult.
3. Accounting information may not be realistic as accounting statements are prepared by
following basic concepts and conventions; which may not hold true in all circumstances.
4. Accounting information are influenced by the personal judgment of the accountant.
He/she may select any method of depreciation of property, plant & equipment, valuation
of stock, provision for doubtful debts, etc.
CA FINAL (CAP III)
“THANK YOU”
“I WISH YOU ALL BEST OF LUCK FOR YOUR EXAM”.

Account Past Questions Compilation (2009june - 2020 Dec.)

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COMPILED BY KISAN JOSHI,

CAP III, CA ASPIRANTS-ICAN

Source- Suggested provided by ICAN

“Small aim is a crime; have great aim” - APJ Abdul Kalam

“what we think,we became-Buddha” 1

Chapter 3 Capital and Revenue Concept and Depreciation

Chapter 4 Accounting Treatment of Inventory

Chapter 5 Accounting for Special Transactions

Chapter 6 Preparation of Financial Statement

Chapter 7 Not for Profit Organizations

Chapter 8 Partnership Accounts

Theory Questions and Answer

“what we think,we became-Buddha” 2

Chapter 1 Fundamental of Accounting: Introduction

No Numerical have been asked from this chapter.

“what we think,we became-Buddha” 3

Chapter 2 Accounting system and process

Numerical Questions and Answers

a. Rs.50,000 received from A was posted to the debit of his account.

(ii) Suspense Account Dr. 40000

(iii Suspense Account Dr. 16000

(iv) Motor Car Repairs Account Dr. 9060

Bank Balance (Dr.) as per cash book 10,000

Bank charges not recorded in cash book 100 2,900

Bank balance (Cr.) as per pass book 9,600

(Dec.2010) (Rectification of Errors)

(ii) Suspense A/c Dr 2,640

(iii) Suspense A/c To Dr 10,000

(iv) Suspense A/c Dr 270

(v) Suspense A/c Dr 1,500

(vi) Telephone Charges A/c Dr 560

(vii) Bad Debts A/c Dr. 1,560

Provision for Doubtful Debts A/c Dr 164 164

“what we think,we became-Buddha” 7

(viii) Loose Tools A/c 1200

To Purchases A/c 1200

“what we think,we became-Buddha” 8

Particulars Debit Credit

Mr. Ramesh 24,000

Return Inwards A/c 30,000

Mr. Mahesh 20,000

Mr. Man Mohan 10,000

“what we think,we became-Buddha” 9

Particulars Rs. Rs.

Bank balance as per cash book 30,000

Balance as per bank statement 29,900

“what we think,we became-Buddha” 10

Bank Reconciliation Statement of Binoy Company as on

Particulars Rs. Rs.

Bank balance as per cash book 2,994.70

Bank balance as per the statement 6,873.40

Bank A/c Dr. 5,300

( Being bill & interest received by the bank)

Bank Charges A/cDr. 90

Insurance Expenses A/c Dr 1,300

Customer A/c Dr 730.60

(Being cheque dishonoured by the bank)

“what we think,we became-Buddha” 11

Bank Reconcilitation statement31st December, 2011

Particulars Rs. Rs.

Add: Interest charged by the bank 27,870

“what we think,we became-Buddha” 12

(v) Suspense A/c Dr. 100