Cma Inter GR 1 Financial Accounting Ebook June 2021 Onwards

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CMA INTER 1 FINANCIAL ACCOUNTING CA/CMA SANTOSH KUMAR
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3. LEDGER ACCOUNT AND TRIAL BALANCE
4. SUBSIDIARY BOOK AND CASH BOOK
INDEX – CMA INTER GROUP 1- FINANCIAL ACCOUNTING
NOTE: FOLLOW THE SEQUENCE GIVEN BELOW WHILE STUDYING
CHAPTER NAME PAGE NO.
CHAPTER 0. ACCOUNTING FOR GST 02--04
CHAPTER 1. JOINT VENTURE ACCOUNTS 05- 10
CHAPTER 2. BILLS OF EXCHANGE 11-17
CHAPTER 3. CONSIGNMENT ACCOUNTING 18- 31
CHAPTER 4. ACCOUNTING FOR DEPRECIATION 32- 42
CHAPTER 5. RECTIFICATION OF ERRORS 43-50
CHAPTER 6. FINANCIAL STATEMENTS OF PROFIT MAKING ORGANISATIONS 51- 72
CHAPTER 7. FINANCIAL STATEMENTS OF NON PROFIT ORGANISATIONS 73- 97
CHAPTER 8. FINANCIAL STATEMENTS FROM INCOMPLETE RECORDS 98-116
CHAPTER 9. INSURANCE CLAIM 117-130
CHAPTER 10. PARTNERSHIP (ADMISSION, RETIREMENT AND DEATH) 131-146
CHAPTER 11. DISSOLUTION OF PARTNERSHIP FIRM (INCLUDING AMALGAMATION AND CONVERSION)147-- 184
CHAPTER 12. BRANCH ACCOUNTS 185-- 220
CHAPTER 13. DEPARTMENTAL ACCOUNTS 221--229
CHAPTER 14. ROYALTY ACCOUNTS 230-- 232
CHAPTER 15. SELF BALANCING LEDGER 233-- 246
CHAPTER 16. HIRE PURCHASE AND INSTALLMENT SYSTEM 247-- 250
CHAPTER 17. ACCOUNTING STANDARDS 251-- 261
CHAPTER 18. FUNDAMENTAL OF ACCOUNTING THEORY 262-- 306
CHAPTER 19. ACCOUNTING IN COMPUTERISED ENVIRONMENT 307-- 310
PRACTICE OF MCQ 311- 351
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CHAPTER 0. ACCOUNTING FOR GST
NOTE: THIS CHAPTER IS APPLICABLE IN ACCOUNTANCY ( AT ALL LEVEL). CONCEPT OF GST IS INCLUDED IN DIFFERENT
CHAPTERS. SO FIRSTLY STUDY THIS CHAPTER.
Meaning of GST :- Goods and service tax (GST) is a comprehensive indirect tax levied at the prescribed rate on every supply,
i.e., sale of goods and/or service except on petroleum and alcohol for human consumption. Supply of goods means sale of
goods whereas supply of services means rendering of services.
Characteristics of Goods And Services Tax (GST)

1. GST is a comprehensive Indirect tax: GST is a comprehensive indirect tax which replaced all indirect taxes that were earlier
levied except custom duty, taxes on alcohol for human consumption, taxes on petroleum and taxes levied by Local Bodies.
2. GST is a value added tax: GST is Value Added Tax because GST Paid (termed as Input GST) is set off against GST collected
(termed as output GST). As a results, GST is levied on the incremental value of goods and/or services supplied (sold). For
example, goods purchased for Rs10,000 paying IGST @ 18%,i.e., Rs1800 are sold for Rs 15,000 charging IGST @ 18%, i.e., Rs
2,700. Rs 1,800 paid at the time of purchase is set off against Rs 2,700 charged at time of sale and balance Rs 900 is payable in
the Government Account. In effect, GST is levied on differential amount of sale and purchase,i.e. 5,000.
3. GST Paid is not Cost: GST paid (Input GST) on purchases of goods and/or service is not a cost for the purchaser but is an
asset since it can be set off against GST collected on sale of goods and/or services. Similarly, GST collected (Output GST) on
sale of goods and/or services is not an income of the seller but is a liability and is payable in the government account after
adjusting Input GST in the prescribed order.
4. Uniform GST Rate on goods and services across all states: Every state and union territories have their own Goods and
Services Tax Acts. However, GST is levied on goods and/or Services supplied (sold) under each classification at the same rate.
Objective Of Goods And Services Tax (GST):-

1. Developing Common national Market: GST is levied at same rate on similar Goods and Services in all the states
and union territories. For example, Computers sold across India are levied GST (Say) @ 18%. It sets a ground for
developing common national market.
2. Ease of Doing Business: In the pre-GST period, there were many indirect taxes administered by different
authorities. As a result, a business had to register itself separately under each such Act and also had to comply
with each such indirect tax. For example, Excise Duty, sales Tax and Service Tax etc. were separately
administered. The introduction of GST has eased the going of business as it will be registered and administered
only under one indirect tax, i.e., GST. Hence, ease of doing business.
3. No cascading Effect of GST: GST paid (Input GST) on purchases of goods and/or services is set off against GST
collected on sale of goods and/or services. As a result, GST is levied on the difference between sale value and
purchase value. In effect, GST does not have cascading effect.
4. To Simplify Indirect Tax Regime by having one Tax and Fewer rate of taxes: GST has replaced many indirect
taxes (Excise duty, Sale Tax, Service etc.).The earlier indirect tax regime had been complex both for the
Government and business. Since, GST has replaced almost all indirect taxes, it simplifies the application and
administration of indirect taxes.
5. Better Tax Management: GST, being administered through computer system beside it being a single indirect
tax, has resulted in better tax management as tax evasion is controlled besides timely collection of tax. For
example, credit for input GST is granted if the tax payer collecting GST has paid the tax in government account.
6. Goods becoming cheaper: Since GST paid (Input GST) is set off against GST collected (Output GST), GST does
not have cascading effect as against earlier years when there was no set off of indirect taxes. (e.g. Excise Duty)
paid against indirect taxes collected. As a result, goods and services have become cheaper.
7. Attracting Foreign Investors: Investments from outside India were not high because of multiple indirect taxes.
Introduction of GST and removal of multiple indirect taxes shall increase Foreign direct Investment (FDI) in
India.
8. Uplifting GDP: The structure of GST is such that is levied at every stage of sale of goods and/or services. It
means businesses will be largely through recorded transactions resulting in tax collection by the government
due to recorded sales resulting in uplifting GDP.

Classification OF GST :- GST in levied under following three categories:
1. Central GST (CGST):- CGST is levied on intra-state supply (supply within the state) of goods or services or both
along with SGST. In case of intra-state supply/sale both CGST and SGST is levied at half of the prescribed rate of
tax. For ex., if rate of GST is 18%, 9% will be levied as CGST and 9% as SGST (or UTGST).
2. State GST (SGST) or union Territory GST (UTGST):- SGST (or UTGST) is also levied on intra-state supply (i.e.,
supply within the state) of goods and/or services or both along with CGST. In case of intra-state supply(sale)
both SGST (or UTGST) and CGST is levied at half of the prescribed rate of tax. For example, if rate of GST is 18%,
9% will be levied as CGST and 9% as SGST
Note: For the discussion, SGST and UTGST are referred as SGST.
3. Integrated GST (IGST):- IGST is levied on inter-state supply (i.e., supply outside the state) of goods and/or
services, import of goods and/or services into India and export of goods and/or services from India.
Reverse charge:- Reverse charge means that GST is not charged by the person selling the goods and/or services or both but is
paid by the person purchasing the goods and/or services or both.
Certain purchases of goods and services are placed under Reverse charge. Thus, the seller of goods and/or services placed
under reverse charge will not charge GST but instead the purchaser of goods and/or services will deposit GST in the
Government account and claim it as Input GST. Goods and/or services falling under reverse charge Mechanism are: payment
of fee to lawyer; payment for use of copyright; purchase of Goods and/or Services by registered person from unregistered
person; transports of goods; Insurance commission; and sponsorship.
Categorising GST for Accounting Purpose:- GST paid (Input GST) individually (Input CGST, SGST and IGST) is set off against GST
Collected (Output GST) individually (Output CGST, SGST and IGST) in the prescribed order. Therefore, it is necessary that
separate accounts for Input GST and Output GST for each category of GST, i.e., CGST, SGST and IGST be maintained. It will
enable the taxpayer to follow prescribed order of setting off the each category of GST. The GST Account maintained are:
1. Input CGST: Input CGST is the CGST paid on intra-state purchase (supply) of goods and/or Services or both. Input
CGST can be set off against CGST collected, i.e., output CGST and IGST collected (i.e., output IGST) in that order.
Besides the above, taxpayer may pay CGST in Government Account. It is also termed as input CGST.
2. Input SGST: Input SGST is the SGST paid on intra-state purchase (supply) of Goods and/or Services output IGST) in
that order. Besides the above, taxpayer may pay SGST in Government Account. It is also termed as Input SGST.
REMEMBER:-- On intra-state supply of goods and/or services or both, both CGST and SGST are levied at 50% of the
specified rate. For example, if specified rate is 18%, both CGST and SGST will br levied @ 9% each.
3. Input IGST: Input IGST is the IGST paid on inter-state purchase (supply) of Goods and/or Services or both and it can
be set off against IGST collected (i.e., Output IGST), CGST Collected (i.e., Output CGST) and SGST collected (i.e.,
Output SGST) in that order. IGST Is also levied on goods and/or services imported from outside the country. Beside
the above, taxpayer may pay IGST in Government Account. It is also termed as Input IGST.
4. Output CGST: Output CGST is the CGST collected on intra-state sale (supply) of Goods and/or Services or both along
with SGST.
5. Output SGST: Output SGST is the SGST collected on intra-state sale (supply) of Goods and/or Services or both along
with CGST.
6. Output CGST: Output IGST is the IGST collected on intra-state sale (supply) of Goods and /or Services or both. In the
case of intra-state sale only IGST is levied.
ACCOUNTING OF GST PAID (INPUT GST):-

When GST Paid on Supply (Purchase) can be set off against GST Collected?
GST Paid on purchase of goods and/or services or both that can be set off against; GST Collected on sale of goods
and/or services or both is debited to a separate, account head, i.e., Input CGST or Input SGST or Input IGST as the
case Thus, GST Paid on purchases of goods and/or services or both that can be set off against GST Collected is
debited to Input GST (under CGST, SGST or IGST as per category of GST Paid) Account. Therefore, accounting of GST

Paid on purchase of goods and/or services or both differ depending on whether GST Paid can be set off against GST
Collected or not
When GST Paid on Supply (Purchase) cannot be set off against GST Collected?
GST Paid on purchase of goods and/or services or both that cannot be set off against GST Collected on sale of goods
and/or services or both is debited to the expense head or asset head on which it has been paid. Stating differently, it
is accounted as cost. For example, Mohit visits a restaurant and paid a bill or 1,200 inclusive of CGST 100 and SGST
100. GST Paid for food and beverages bill is not allowed to be set off against GST Collected (Output GST). It means
that Mohit should debit Business Promotion Account by 1,200.
Examples of supply/Purchase of Services/goods on which GST Paid cannot be set off and thus,is Cost are:
(i) Food and Beverage Expenses (Restaurant Bills);
(ii) Membership Fee of Club, Health and Fitness Centre;
(iii) Health Insurance;
(iv) Repairs and Maintenance (Building);
(v) Free Gifts to Staff;
(vi) Purchase of Vehicles by a non-transport enterprises;
(vii) Goods and/or Services for personal consumption; and
(viii) Goods and/or services purchased for sale which are exempt from levy of GST
GST paid (Input GST) is reversed in the following cases:

(i) Goods lost or stolen;
(ii) Goods destroyed;
(iii) Goods written off;
(iv) Goods given as gift (charity);
(v) Goods given as free sample; and
(vi) Goods as may be prescribed.
Supply of following Goods and/or services are exempt from levy of GST:
(i) Salaries and wages;
(ii) Supply of services to Government;
(iii) Supply to embassies of other countries/ UNO;
(iv) Educational services;Health services; and
(vii) Electricity and water bills.
Question 1. B of Orissa purchases goods at cost of ₹1,00,000 from A of Orissa and sells goods to C of Orissa at a profit of
₹ 20,000, who sells the goods at a profit of ₹ 15,000 to D of West Bengal. D sold ₹ 1,50,000 in West Bengal and ₹1,00,000
in Bihar. GST rate applicable is 18%. Make journal entries in the book of B,C and D. (ICMAI Study material)
Question 2. M of Mumbai purchased goods from C of Chennai costing ₹ 70,000. M also purchased goods from B of
Mumbai costing ₹ 1,20,000. He paid telephone bill ₹ 6,000. He purchased an air cooler for his office for ₹ 12,000 from a
supplier in Pune. He paid wages ₹ 26,000 and sold goods at ₹ 40,000 to T of Thane and at ₹ 2,40,000 to Q of Bangalore.
Assume GST rate 12% in all cases. Make journal entries in the book of Mr M.
(ICMAI Study material)
Treatment of Reverse Charge: For inward supplies i.e. purchases which are made from unregistered tax payers in GST,
Reverse Charge is applicable to such transactions. There is no Input Tax Credit for Reverse Charge paid, it is expensed as
incurred.
Accounting entry:
Reverse Charge (CGST/SGST/IGST) Dr.
To Electronic Cash Ledger
For Composition Levy :( no Input Tax Credit, no inter-state supply, no tax invoice, no collection from customer)
Composition Levy (CGST/SGST) Dr.
To Electronic Cash Ledger
So far we considered only CGST, SGST and IGST. There is UTGST in place of SGST for supplies in Union Territories. There is
also GST Cess payable in certain cases.

CHAPTER 1. JOINT VENTURE ACCOUNT
Meaning: When two or more persons join together for a specific business, it is called Joint Venture. It is a case of a
partnership (without firm name) coming into existence for limited purpose. It is temporary and no liability attached to any
party after the transaction or the particular series of transaction is complete. The partners in this case are called "Co-
venturers'.
Main features of a Joint Venture:
1. Two or more persons join together for a single venture.

2. There association or partnership terminates on completion of venture.
3. They share profit and losses in the agreed proportion in the absence of agreement they share profit or loss equally.
4. Interest on capital, salary to co-ventures may be paid as per agreement. In the absence of agreement, no interest or
salary is payable.
5. Since joint venture is for a single venture, generally no firm name is used.
Maintenance of Accounts :There are two methods of maintaining account with respect to joint Venture Transactions:
1) Separate Set of Books:-- Main accounts prepared under the method are:
a) Joint Bank account (showing receipt and payment of cash): The parties first pay their contribution to joint
funds into the joint bank account and then payments on joint account are made out of the joint bank account.
b) Joint Venture Account (showing purchase of goods, expenses, sale of goods etc.)
c) Personal Account of co-venturers (showing investment, entitlements, receipts drawing by co-ventures)
Balance of Joint Venture account will show profit or loss on joint venture and is transferred in due proportions to the accounts
of the parties who, at the close of the venture, receive the amounts due to them form the joint bank account.
(2) Accounts in the Books of each Co-venturer:
First Approach:
 Under this approach each Co-venture maintains joint venture A/c and Personal A/c of the other co-venturer.
 Joint venture account contains all expenses, cost of goods, sales etc.
 Balance of Joint venture account shows profit or loss.
 Personal account of the other co-venturer contains his investments for Joint venture, his receipts and sales affected
by him. In addition, any direct or indirect personal transaction is also shown in the co-venture's persona account.
Second Approach:
Memorandum joint venture Method: Under this method joint ventures accounts are prepared on memorandum basis in the
books of each co-venturers just to find out the profit or loss but not as part of ledger. Each co-venturer prepares following
accounts.
1. Memorandum Joint Venture Account

2. Joint Venture with other Co-venturer A/c (i.e. Personal Account of other co-venturer)
 Memorandum Joint Venture Account contains cost of goods, expenses etc. in the debit side and sales andclosing
stock in the credit side. Balance of Memorandum Joint Venture Account Shows profit or loss onJoint Venture.
 Entries in Memorandum Joint Venture Account are not made through journal entries.
Joint Venture with other Coventurer Account is the personal account of the other party. But it contains the transactions of
the co-venturer in whose books this account is maintained.
 For example, in the books of Amit “Joint Venture with Sumit A/c” will contain the transaction of Amit(goods
purchased, expenses incurred, sales affected).
 Further any personal transaction in the nature of cash paid or received or bill of exchange accepted or drawn will
also entered in this account.
 Balance of this account will show the amount due from or due to other co-venturer.

This account is prepared in the following manner: --

 Goods sent or cash spent on Joint-Venture is debited to this account.
 No account is taken of goods used or cash spent on Joint venture by the other party.
 If any cash or acceptance is received on account of joint Venture, or from the other party, this account is credited.
 This account is then debited with own share of profit, the credit being given to profit and loss account.
 If the memorandum Joint Venture Account shows a loss, the profit and Loss Account is debited and this account will
be credited with own share of loss.
 The balance in this account will now show the amount owing to other party, i.e. if the credit side is bigger or
amount owed by the other party, i.e. if the debit side is bigger.
Question:1 ( Separate set of books are maintained) IOCM and DLF entered into a Joint Venture to construct a building for the
contract price of Rs. 10,00,000. They deposited Rs. 3,00,000 and Rs. 2,00,000 in a Joint Bank.
Following payments were made on account of Joint Venture:-
Raw materials = Rs. 1,40,000
Wages = Rs. 60,000
Administration Exp. = Rs. 20,000
Joint venture was completed and contract price was received. Profit sharing ratio was 3:2.
Prepare necessary accounts.
Question:2 IOCM and TATA entered into a Joint venture to buy and sell commodity ‘X’ into the market. They opened a Joint
Bank and deposited Rs. 8,00,000 in their profit sharing ratio, which was equal. They purchased goods worth Rs.
5,00,000 and paid Rs. 60,000 as salary to staffs and Rs. 40,000 as advertisement expense. They also purchased
machine for Rs 1,00,000. IOCM also supplied materials worth Rs. 20,000. TATA paid Rs. 30,000 as rent from his
personal account.
Sales were made for Rs. 10,00,000 and unused goods worth Rs. 40,000 was taken over for Rs. 12,000 by TATA. At the
end of Joint Venture machine was sold for Rs. 60,000. Prepare necessary accounts.
Question:3 A and B entered into Joint venture and deposited Rs. 3,00,000 in a Joint Bank in the ratio of 2:1. They purchased
goods worth Rs. 1,60,000 and paid advertisement expense Rs. 20,000. They sold 70% of the goods at a profit of 50%.
20% goods were used by B for his personal purpose at an agreed value of Rs. 35,000. Remaining goods were lost due
to fire and nothing could be recovered. Prepare necessary accounts.
Question:4 M and S decided to undertake joint venture and share profit and losses in the ratio of 3:2. M and S deposited Rs
3,000 and Rs 5,000 respectively in the Bank Account. It was mutually agreed that amount deposited in joint bank
account will be utilized only for purchase of goods. Expenses will be paid by partners personally. M purchased 80
quintals of wheat @ Rs 90 per quintal and spent Rs. 300 as expenses. S sold 60 Qtl wheat @ Rs 105 per Qtl and paid
Rs 150 as sales expenses. S purchased 10 Qtls sugar for Rs 2,100 and spent Rs 100 for bringing it to godown. M sold 8
Qtls sugar for Rs 1,900 and spent Rs 200 as expenses.
With the help of above, prepare Joint Venture Account, Joint Bank A/c and Personal accounts and also prepare
Balance Sheet as on that date.
Question:5 Surya, Prakash and Aakash Jointly undertake to erect a theatre building for D Ltd. at a price of Rs. 5,00,000 to be
paid as to Rs. 4,00,000 in cash by instalments and Rs. 1,00,000 in Debentures of the Company. They contribute:
Surya Rs 60,000, Prakash Rs 75,000 and Aakash Rs. 40,000. These amounts are deposited in a Joint Bank Account
Surya gets the plans prepared and pays Rs 7,000 architects' fees. Prakash brings into the venture a concrete mixer of
the value of Rs 25,000 and Aakash brings into the venture a motor truck of the book value of Rs 20,000 They buy a
plant for Rs 24,000. Materials worth Rs 2,40,000 are purchased for cash and a sum of Rs 1,95,000 is paid for wages.
On completion of the venture, Surya takes over unused materials to the value of Rs 14,000. Prakash takes back the
concrete mixer at a valuation of Rs 12,000, and Aakash takes the motor truck at Rs 8,000. The plant is sold as scrap
for Rs 6,000. When the contract price was fully received, Surya took over the Debentures at a valuation of Rs 80,000.
Show the Joint Venture Account, the Joint Bank Account and the account of the ventures, after the final distribution
and the settlement of accounts.

When transactions are recorded in the book of either party
Question:6 Ram and Mohan entered into joint venture to buy and sell new year gifts. Ram purchased goods costing Rs
4,00,000 and paid freight of Rs 24,000. He sent 70% of the goods to Mohan to be sold for mutual benefit. Mohan
received the goods and incurred Rs 20,000 on rent, Rs 14,000 on advertisement. Ram and Mohan made sales of Rs
3,00,000 and Rs 4,80,000 respectively. Unused goods costing Rs 16,000 were withdrawn by Mohan at an agreed value
of Rs 19,000. Prepare necessary accounts in the book of Ram.
Question:7 Ankit of delhi purchased 9000meters of cloths at Rs 80 per meter and paid Rs 24,000 as freight. He had also
supplied material worth Rs 80,000. He sent 65% of the goods to Navendu of patna to be sold for their mutual benefit.
Navendu received the consignment and paid Rs 65,000 as rent, Rs 28,000 on advertisement and Rs 26,000 as salary.
Navendu had also supplied material costing Rs 20,000. Earlier Ankit had received an advance of Rs Rs 2,00,000 from
Navendu. They made sales of Rs 9,00,000 and Rs 10,00,000 respectively. Unsold goods costing Rs 40,000 were
withdrawn by Ankit at cost less 20%. Both of them were entitled for commission @ 5% on their respective sales.
Prepare necessary accounts in the book of Ankit.
Question:8 Avinash and Srikant entered into joint venture to construct a building for IOCM Pvt ltd for the contract price of Rs
12,00,000 payable in cash. Avinash purchased material costing Rs 6,00,000 and paid freight of Rs 20,000. He had also
supplied machine worth Rs 2,00,000 to the joint venture. Srikant also paid Rs 60,000 as rent and Rs 20,000 as
advertisement. Avinash drew upon Srikant a bill for Rs 2,50,000 which was duly accepted by Srikant. The bill was
discounted with bank for Rs 2,42,000. Goods costing Rs 15,000 lost in transit against which insurance company paid Rs
8,000 to Avinash in full settlement. Some of goods were lost due to Avinash negligence for which he agreed to
compensate joint venture a sum of 28,000. At the end of joint venture machine was taken by Avinash at an agreed
value of Rs 1,30,000. Prepare necessary accounts in the book of both the parties assuming that profit sharing ratio was
3:2 and contract price was received by Avinash..
Question:9 Sujata of Srinagar purchased 1,000 meters of Kashmiri silk at Rs 60 per meter and sent it to Desai of
Mumbai to be sold for mutual benefit. Sujata spent Rs 3,000 on packing, insurance etc. Desai received the consignment
and paid Rs 3,700 as freight and Rs 300 as cartage to his shop. Sujata drew upon Desai for Rs 50,000. The draft was
accepted and Sujata got it discounted for Rs 47,750. Desai sold 900 meters at Rs 90 per meter and had to pay Rs 1,770
as expenses. Sujata took over the remaining quantity at cost plus 10%. Sujata is to be allowed a commission on sales at
5% and Profits are to be shared in the ratio of Sujata 3/5 and Desai 2/5. Prepare ledger accounts in the books of both
the parties.
Question:10. A and B entered into a joint venture as dealers in land with effect from 1st July, 2016. On the same day, A
advanced Rs 9,00,000 and a plot of land measuring 9,000 sq. meters was purchased. It was decided to sell the land in
smaller plots and B got a plan prepared at the cost of Rs. 10,000. In the said plant 1/3rd of the total area of the land
was left for public roads and the remaining land was divided into 6 plots of equal size.
On the 1st October, 2016, two of the plots were sold at Rs. 300 per sq. meter, the buyer deducting Rs. 10,000 per
plot for stamp duty and registration expenses agreed to be borne by the sellers. The remaining plots were sold at
net price of Rs. 250 per sq. meter on 1st December, 2016. The sale proceeds of all the plots were received by A. After
charging interest at 18% per annum on the investment of A (allowing for money received by him) and allowing 1%
on the sale proceeds of the plots as commission to B, the net profit of the Joint Venture is to be shared in proportion
of ¾ to A and 1/4 to B.
Draw up the joint venture account and personal accounts of A and B showing the Balance payable by one to the
other. Accounts were settled on 31st December, 2016.

Question:11 Manjit and Ranjit entered into Joint Venture agreement to share the profits and Losses in the ratio of 2: 1.
Manjit supplied goods worth Rs.60,000 to Ranjit incurring expenses amounting to Rs.2,000 for freight and insurance.
During transit Goods costing 5,000 became damaged and a sum of Rs.3,000 was recovered from the Insurance Company.
Ranjit reported that 90 % of the remaining goods were sold at a profit of 30 % on their original cost.
Towards the end of the venture, a fire occurred and as a result the balance stock lying unsold with Ranjit was damaged.
The goods were not insured and Ranjit agreed to compensate 80% of the aggregate of the original cost of such goods and
proportionate expenses incurred. A part from joint venture share of profits, Ranjit was also entitled under the agreement
to a commission of 5% of net profits of joint venture after charging such commission. Selling expenses incurred by Ranjit
totaled Rs. 1,000. Ranjit had earlier remitted to an advance of Rs 10,000, Ranjit duly paid the balance due to Manjit by
draft. PREPARE in Manjit's books, (i) Joint Venture A/c (i) Ranjit's A/c.
Question:12. IOCM and HDFC Bank entered into a Joint venture to underwrite 5,00,000 equity shares of Rs. 10 each of a new
issue of Alaska Ltd. Alaska Ltd. agrees to allot them as fully paid 4000 shares in the company in connection with the
venture. The following expenses are incurred:
IOCM - Printing and stationary Rs. 5,000
Postage Rs. 1,000
Advertisement Rs. 3,000
HDFC Bank - Postage Rs. 750
Solicitors fees Rs. 3,500
The public subscription was for 4,80,000 shares only and the short subscription was financed by Co- Venturers in the ratio
of 3:1. Alaska Ltd paid the consideration to Co-Venturers.
IOCM sold 60% of their total holding @ Rs. 12 per share and HDFC Bank sold 30% of their holding @ Rs. 15 per share.
Remaining shares were taken over by HDFC bank at Rs. 14 per share. At the end of joint venture, they settled their account
among themselves. Prepare necessary accounts in the books of IOCM
Question:13 A and B were partners in a joint venture sharing profit and losses in the proportion of four-fifths and one-
fifth respectively. A supplied goods to the value of Rs 50,000 and incurs expenses amounting to Rs 5,400. B supplies
goods to the value of Rs 14,000 and his expenses amount to Rs 800. B sells goods on behalf of the joint venture and
realizes Rs. 92,200. B is entitled to a commission of 5% on sales. B settled his account by Bank draft. Give journal
entries and necessary account in the books of A.
MEMORANDUM JOINT VENTURE METHOD
Question:14 Solve question no 6 by memorandum joint venture method.
Question:15. Solve question no 7 by memorandum joint venture method.
Question:16. Solve question no 8 by memorandum joint venture method.
Question:.17 Ram and Mohan entered into a Joint Venture to purchase and sell new year gifts. They agreed to share the
profits and losses equally. On 4 November, 2003 Ram purchased goods worth Rs. 1,00,000 and spent Rs. 6,000 in sending the
goods to Mohan. He also paid Rs. 2,000 for insurance. On the same date, Ram drew a bill of exchange upon Mohan for Rs.
1,00,000 at two months. He got the bill discounted @ 18% per annum.
Mohan spent Rs. 3,000 on cartage, Rs 5,000 as rent and Rs 5,000 on advertisement. He sold all the gifts for Rs 2,00,000 after
retaining gift worth Rs 2,000 for his personal use. He sent a cheque to Ram for the amount due on 8th January, 2004. You are
required to prepare:
1. Memorandum joint venture account, and

2. Joint venture with Mohan Account in the books of Ram.

Question:18 A and B enter into a joint venture and agreed to share profits and losses equally. It is also agreed between
them that A should make purchases for the joint venture at Ahmedabad, where he resides and consign the same to B at
Mumbai. Accordingly, A purchased goods worth Rs 62,000 and sent them to Mumbai and in so doing he had to pay Rs 1,300
for insurance and Rs 3,700 for carriage, freight and other expenses.
B reported after some time that he had sold some goods for Rs 60,000 and the remaining goods could not be sold on account
of bad market conditions. A and B then handed over the unsold goods to local merchant, C, at Mumbai, who agreed to sale
the goods on their behalf. C was to be paid all the expenses in that connection and was to be allowed a commission at the
rate of 2 1/2% on the sale price of the goods sold.
C, after some time, sent to B a cheque for Rs 4,500 after deducting expenses Rs. 375 and commission. The sale price of goods
sold by C was Rs 5,000. C returned the unsold goods to B. A and B then decided to close the joint venture, B taking up the
balance of the goods unsold which had cost Rs 25,000 at a discount of 8%. B sent a statement of account to A showing the
following payments made by him: Carriage. Rs 1,600; Office expenses Rs 2,800; Insurance Rs 2,500, Office and Godown rent
Rs 1,500; Brokerage, Rs 3,600. He also sent a cheque for Rs 70,000 to A.
You are required to prepare the necessary accounts in A's ledger showing his share of profit or loss on the joint venture and
the amount due to or by B.
Question:19 (Underwriting of Shares) B and P entered into a joint venture to guarantee the subscription at par of 17,000
shares of Rs. 10 each in a company sharing profits and losses in the ratio of 5 : 4. They agreed to pay all expenses upto
allotment in consideration of the company issuing to them 2,300 other shares of Rs. 10 each, fully paid. B provided cash for
the following expenses : Registration and filing fees Rs. 1,200. Advertisement Rs. 2,000 and printing and stationery Rs. 600. P
supplied cash for the following other expenses : Rent for office Rs. 900, salaries to staff Rs. 500, postage Rs. 100, petty
expenses Rs. 62 and solicitor's fee Rs. 400. Applications fell short of the 17,000 shares by 700 shares and by arrangement P
found cash in full to purchase these on Joint Account. The company handed B and P 2,300 shares. The total holding of B and P
was sold at Rs. 9 per share. B received the proceeds of 2,000 shares and P of the remainder. Prepare Joint Venture Account
and separate accounts of B and P.
Question:20. (Memorandum Joint Venture Account)

A and B decided to enter into joint venture for the sale of electric motors. On 21 May, 2003, A purchased 200 electric motors
at Rs. 1,750 each and despatched 150 motors to B incurring Rs. 10,000 as freight and insurance charges. Ten electric motors
were damaged in transit. On 1 February, 2004, Rs. 5,000 was received by A from the insurers in full settlement of his claim. On
15 March, 2004, A sold 50 electric motors at Rs. 2,250 each. He received Rs. 1,50,000 from B on 1 April, 2004.
On 25 May, 2004 B took delivery of electric motors and incurred the following expenses :
Clearing charges Rs, 1,700; Repairs for motors damaged in transit Rs, 3,000; Godown rent Rs, 6,000.
He sold the electric motors as below :
01.02.2004 10 damaged motors @ Rs. 1,700 each

01.02.2004 40 motors @ Rs. 2,000 each
15.03.2004 20 motors @ Rs. 3,150 each
01.04.2004 80 motors @ Rs. 2,500 each
It is agreed that they are entitled to commission at 10% on the respective sales affected by them and that the profits and
losses shall be shared by A and B in the ratio of 2 : 1.
B remits to A the balance of money due on 5 April, 2004.
Prepare : (i) Joint Venture Account in the books of A and (ii) Memorandum Joint Venture Account.
PRACTICE QUESTIONS:
Question 21. P and Q entered into a joint venture for underwriting the subscription at par of 25,000 shares of Rs 10 each of a
joint stock company. They agreed to share profit and losses in the ratio of 3:2. The consideration for guaranteeing the
subscription was 250 other shares of Rs 10 each fully paid to be issued to them.
The public took up 24,000 of the shares and the remaining shares of the guaranteed issue were taken up by P and Q who
provide cash equally. The entire shareholding of the venture was then sold through other brokers, 60% at a price of Rs 9.50
less brokerage 50 paisa per share, 20% at a price of Rs 9.75 less brokerage 50 paisa per share and the balance were taken over
by P and Q equally at Rs 9 per share. Prepare a joint venture account, the joint bank account and capital account of P and Q.

Question 22. (conversion of joint venture into consignment)Sahani and Sahu entered into a joint venture to sale 800 bags of
food grains. The business risks are to be shared in the ration of 3:2 between them. Sahani supplied 400 bags at Rs 800 per bag
and paid freight Rs 8,000 and insurance Rs 2,000. Sahu sent 400 bags at Rs 1,000 per bag. He paid Rs 2,500 as freight,
insurance Rs 8,000 and sundry expenses as Rs 500. Sahani paid Rs 50,000 as advance to Sahu.
They appointed Sandeep as agent for sale of grains. Sandeep sold all bags at Rs 1,200 per bag. He deducted Rs 21,000 as his
expenses and commission of 5% on sales. He remitted Rs 6,00,000 by cheque to Sahani and balance to Sahu by way of a bills
of exchange. The co-ventures settled their accounts. Prepare joint venture a/c, Sahu a/c and sandeep account in the book of
Sahani. (ICMAI Study material)
Question 23. (conversion of consignment into joint venture) Daga of Kolkata sent to Lodha of Kanpur goods costing Rs
40,000 on consignment at a commission of 5% on gross sales. The packaging and forwarding charges incurred by consignor
amounted to Rs 4,000. The consignee paid freight and carriage of Rs 1,000 at Kanpur. Three-forth of the goods were sold for
Rs 48,000. Then the consignee remitted the amount due from him to consignor along with the account sale, but he desired to
return the goods still lying unsold with him as he was not agreeable to continue with the arrangement of consignment. He
was then persuaded to continue on joint venture basis sharing profit or loss as Daga 3/5 amd Lodha 2/5.
Daga then supplied another lot of goods of Rs 20,000 and Lodha sold out all the goods in his hand for Rs 50,000(gross). Daga
paid expenses Rs 2,000 and Lodha Rs 1,700 for the second lot of goods. Show necessary ledger account in the books of both
the parties. No final settlement of balance due is yet made. (ICMAI Study material)
Note : This question has been solved in last class of consignment. Solve this question only after finishing chapter
‘consignment account”.

CHAPTER 2. BILLS OF EXCHANGE
Introduction:- Generally when goods are sold on credit, seller would like that purchaser should give promise in
writing to pay amount of goods on creation date. Now it become an commercial practice that creditor gives written
promises to debtor in proper form and which is properly stamped for paying at certain specified date. These written
promises are often accepted by banks and they advance money against these. The written promises may be in form
as Bill as exchange and promissory note.
Bill of exchange (Definition)--According to section 5 of Negotiable instrument Act 1881, A bill of exchange is an
instrument in writing containing an unconditional order sighed by the maker directing a certain person to pay a
certain some of money only to, or to the order of certain person to the bearer of instruments.
In other words, a bill of exchange is an unconditional order in writing given by the creditor to debtors in writing
which is payable on demand at a fixed future time, a certain sum of money.
Essential features of Bill of Exchange are as follows:-

(1) It must be in writing and unconditional order.
(2) It must be dated.
(3) It must contain promise to pay certain sum of money.
(4) Money will be payable to certain person or payable to bearer of Bill at exchange.
(5) Amount payable accepted by creditor in writing on its face.
Specimen of Bill of Exchange
Rs.20,000/- Delhi
Oct 10,2018
Stamp
Three months after date pay to M/s Tata Sons or order the sum of Rs.20,000/- for value
received
To
Concept online classes
Stamp
A-1161, MAYUR VIHAR , Delhi –96
 A foreign bill of exchange is generally drawn-up in triplicate.

 Section 12 of negotiable instruments Act 1881 says that all instruments which are not inland instruments are
foreign.
Following are examples of foreign Bill of exchange and Promissory Note
1. A bill drawn in India on a person resident outside India and made payable outside India.
2. A bill drawn outside India and made payable outside India.
3. A bill drawn outside India on a person resident outside India
4. A bill drawn outside India and made payable in India.
Promissory Notes:- According to section 4 of Negotiable instrument Act 1881, A promissory note is an instrument in
writing ( not being a bank note or currency note) containing an unconditional undertaking, signed by maker to pay a
certain sum of money only to or to the order of a certain person or to the bearer of the instruments. Under section
31(2) of the reserve bank of India Act a promissory note cannot be made payable to bearer.

It has following feature or characteristics :-

1. It must be in writing and unconditional promise to pay.
2. Mere acknowledgement of debt is not promissory note.
3. The person who makes promise(promisor) to pay must sign the instrument.
4. The payee must be certain person.
5. Amount payable on promissory note must be certain Amount. It must not contain contingent additions or
subtractions for example, promise to pay Rs.10,000/- including all fines and penal interest is not certain.
6. payment must be in legal currency of the country.
7. It should not be made payable to bearer.
8. It should be properly stamped.
Distinction Between Bills of Exchange and Promissory Note:
Bill of Exchange Promissory Notes
 It is an unconditional order directing a certain  It is an unconditional promise to pay a certain sum

person to pay a certain sum of money of money.
 Generally, there are three parties in the bill of  There are two parties in a promissory note- the
exchange- the drawer, the drawee and the promisor or maker and the payee.
payee.  This does not require acceptance. It is writtenby
 A bill of exchange requires acceptance by the the person who will pay the amount.
drawee after if is drawn by the drawer.  Promissory note can not be payable to bearer
 Bill of exchange may be payable either on order
or to the bearer.  In case of promissory note, notice of dishonour is
 In case of Bills of exchange notice of not required.
dishonour is given to all parties concerned.  The maker is primarily liable to pay the amount.
 The maker (Drawer) of the Bill is liable only when
drawee does not make payment.  Protest is not required for promissory note.
 In Case of foreign bills protest is necessary if it is
required as per law of the country where bill has
been drawn.
Cheque: A Cheque is a bill of exchange drawn on a specified banker and payable on demand. It includes the electronic image
of a truncated cheque and a cheque in the electronic form. A cheque is a bill of exchange with two additional qualifications.
 It is always drawn on a specified bank and

 It is always payable on demand.
Distinction between Bills of Exchange and Cheque:
Bill of Exchange Cheque
 This requires acceptance by the drawee.  This does not require acceptance.
 This can be drawn on any person including bank.  This can be drawn on Bank only.
 Notice of dishonour is necessary.  Notice of dishonour is not necessary.
 A bill of exchange may be payable either on  Cheque is always payable on demand
demand or after a specified period.  This does not require stamping.
 A bill of exchange generally requires stamping.  A cheque may be crossed.
 Bills of exchange can not be crossed  A cheque can be presented at any time within 6
 A time bill should be presented on the due date. months from the date of cheque.
Negotiability: --Promissory Notes, Bill of Exchange and Cheque all are negotiable instrument. The holder can claim payment
on them subject to conditions that the holder takes them: -
(i) without notice of defect in the title of the transferor, i.e. in good faith.
(ii) for consideration and
(iii) Before maturity.

Example:-- If A steals a bill of exchange and passes it on to B who is not aware of A's mode of acquiring the bill and who takes
it for the value and before the due date of the bill, B will be entitled to get payment on the bill. Here B is a holder in due
course. A holder in due course always gets a good title in case of forgery. Moreover whoever gets the bill after the holder in
due course will also get a good title to it; it has been purged of all defects.
The instrument may be passed on from one person to another by endorsement and delivery. The liability of the endorser to
subsequent parties is same as in the case of endorsement of cheque. Thus, if a bill of exchange is dishonored, i.e. if payment is
not made on the due date by the promisor (drawee in case of bill of exchange), money can be claimed from any of the
previous endorsers, the payee and the maker of the instrument.
Discounting of Bills:-- When the bill is taken to a bank and the necessary cash is received, the act is known as discounting. The
bank will always deduct a small sum depending upon the rate of interest and the period of maturity.
Maturity of a promissory note or bill of exchange: "The maturity of a promissory note or bill of exchange is the date at which
it falls due." A promissory note or a bill of exchange may be payable:-
a) On demand; or
b) On a specified date, or
c) After a specified period.
In the first case amount is payable on the instrument, when the demand is made. In the second case, payment can be claimed
on a specified date. In the third case, date of maturity has to be calculated. Every instrument, payable otherwise than 'on
demand' is entitled to three days of grace.
The following instruments are not entitled to 'days of grace'.

(a) A cheque
(b) A bill or note payable 'at sight' or on presentment' or 'on demand',
(c) A bill or note in which no time is mentioned.
The following instruments are entitled to 'days of grace':

(a) A bill or note payable on a specified day,
(b) A bill or note payable 'after sight,
(c) A bill or note payable at a certain period after date,
(d) A bill or note payable at a certain period after the happening of a certain event.
 (m.imp)Calculation of date of maturity :--

If a promissory note or bill of exchange is made payable after stated number of months after date or after sight
or after a certain event, it becomes payable three days after the corresponding date of the month after the
stated number of months. If the month in which the period would terminate has nocorresponding day. The
period shall be held to terminate on the last day of such month.
1. In the above case, the day on which the instrument is drawn or presented for acceptance or sight or the
day on which the event happens is to be excluded.
2. When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the
instrument shall be deemed to be due on the preceding day. E.g. A bill falling due for payment on August
15 will have to be paid on August 14.
Dishonour of bill:-- A bill may be dishonored either by non-acceptance or by non-payment. When an instrument is dishonored
the holder must give notice of dishonour to the drawer or his previous holders if he wants to make them liable.
Dishonoured by non acceptance:-- A bill is said to be dishonored by non acceptance:-
(1)when the drawee does not accept it within 48 hours from the time of presentation for acceptance.
(2)When presentation for acceptance is excused and the bill remained unaccepted.
(3)When the drawee is incompetent to contract.
(4)When the drawee is fictitious person or after reasonable search, can not be found.
Dishonored by non payment:- A promissory note, a bill of exchange or cheque is said to be dishonored by non payment: ---
When the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required
to pay the same; and
When presentation for payment is excused and the installment when overdue remains unpaid.

Record of bills of exchange or promissory notes:
 A person who receives a promissory note or receives an accepted bill of exchange will treat it as new assets
under the name of Bills Receivable
 A parts "who issues a promissory note or accept a Bill of Exchange will treat it as liability under theheading of
Bills Payable.
Noting charges:- "Noting" must be recorded with Notary Public within a reasonable time after the dishonour and must
contain the fact of dishonour, the date of dishonour, the reason if any given for such dishonour and the noting charges. For
this service they charge a small fee. This fee is known as noting charges. Noting charges have to be born by the person
responsible for dishonour. Hence, when a bill is dishonored, the amount due is the amount of the bill plus the noting charges.
However, if the acceptor proves that the bill was not properly presented to him for payment, he may escape his liability.
Renewal of a bill -- Sometime the accepter is unable to pay the amount and he himself moves that he should be given an
extension of time. In such a case, a new bill will be drawn and the old bill will be cancelled. If this happens, entries should be
passed for cancellation of the bill as in case of dishonour of bill. When the new bill is received, entries for receipt of bill will be
repeated.
Accommodation of Bills -- Bills of exchange are usually drawn to facilitate trade transaction, finance actual purchase and sale
of goods. But apart from, financing transaction in goods, bills may also be used for raising fund temporarily.
Suppose, A needs finance to the extent of Rs. 10000/- for 3 months. In this case he may induce his friend B to accept a Bill of
Exchange drawn on him for Rs. 10000/- for 3 months. A can then get the bill discounted with his bank paying a small sum of
discount. Thus he can use the funds for 3 months and just before maturity, he will remit the amount to B to whom the bill will
be presented by the bank for payment.
If both A and B need money, the same device can be used. Either A accepts a bill of exchange or B does. In either case the bill
will be discounted with the bank and proceeds divided between the two parties according to mutual agreement. The
discounting charges must also be born by two parties in the same ratio in which the proceeds are divided on the due date the
acceptor will receive from the other party his share. The bill will then be met. When bills are used for such purpose, they are
known as accommodation bills.
 In case of accommodation of bills, all the journal entries are passed in the books of two parties as same in the
ordinary bills.
 The only additional entries to be passed are for sending the remittance to the other parties and also debiting
the other parties with the requisite amount of discount.
Bankruptcy: Bankruptcy/Insolvency of a person means person who has accepted the bill is unable to pay his liabilities and
 When it is known, the acceptor of the bill has become insolvent; entry for dishonour of his acceptancemust
be passed.
 When and if an amount is received, cash account will be debited and personal account of debtor will
becredited.
 The remaining amount will be irrecoverable and should be written off as bad debt.
CONCEPT BUILDING QUESTION
(IF BILL HONOURED ON DUE DATE)
Question: 1 Firm sold goods to X for Rs. 2,00,000 and received his acceptance payable after 3 months. On the due date bill
was met.
Question:2Firm sold goods to X for Rs. 2,00,000 and received his acceptance payable after 3 months. Bill was discounted by
firm @ 12% p.a. On the due date bill was met.
Question:3 Firm sold goods to X for Rs. 2,00,000 and received his acceptance payable after 3 months. Firm endorsed his
acceptance to Mr. C, a creditor for Rs. 2,00,000. On due date bill was met.

acceptance to Mr. C, a creditor for Rs. 2,20,000 in full settlement of his claim.
acceptance to Mr. C, a creditor, for Rs. 2,20,000 in part settlement of his claim.
Question:6 Firm sold goods costing Rs. 1,60,000 for Rs. 2,00,000 to X and received his acceptance payable after 3 months.
Firm sent bill to his bank for collection. On due date bill was met. Bank charged Rs. 50 for his service.
IF BILL DISHONOURED ON DUE DATE
Question:7 Firm sold goods to X for Rs. 2,00,000 and received his acceptance payable after 3 months.Bill was dishonored on
due date. Noting charges paid Rs.200.
Question:8 Firm sold goods to X for Rs. 2,00,000 and received his acceptance payable after 3 months. Bill was discounted by
firm @ 12% p.a. Bill was dishonored on due date. Noting charges Rs. 200.
acceptance to Mr. C, a creditor for Rs. 2,00,000. Bill was dishonored on due date and noting charges paid Rs. 200.
acceptance to Mr. C,a creditor for Rs. 2,20,000 in full settlement of his claim. Bill was dishonored on due date and noting
charges paid Rs. 200.
acceptance to Mr. C, a creditor, for Rs. 2,20,000 in part settlement of his claim. Bill was dishonored on due date and noting
charges paid Rs. 200.
Question:12 Firm sold goods costing Rs. 1,60,000 for Rs. 2,00,000 to X and received his acceptance payable after 3 months.
Firm sent bill to his bank for collection. Bill was dishonored and noting charges paid Rs. 200.
AFTER DISHONOURED
Question.13 Assume after question 7 to 12 , Mr. X requested to pay Rs. 1,20,200 immediately and to give a new acceptance
for the balance amount together with interest @ 12% p.a. payable after 2 months. On the due date bill was met.
Question.14 Assume after question 7 to 12, Mr. X requested to pay Rs. 1,20,200 immediately together with interest at the
rate of 12% p.a. on the balance amount for 3 months and to accept a new bill for the balance amount. On the due date of
renewed bill, Mr. X became insolvent and official receiver declared a first and final dividend of 60% of the amount due.
Concept of Renewal of Bill
Question:15 Mohan sold goods to Gupta on 1st September, 2005 for Rs. 1,600. Gupta immediately accepted a three months
bill. One due date Gupta requested that the bill be renewed for a fresh period of two months. Mohan agrees provided
interest at 9% was paid immediately in cash. To this Gupta was agreeable. The second bill was met on due date. Give Journal
entries in the books of Mohan.
Concept of Under Rebate
Question:16 On 1stJanuary, 2006, A sells goods for Rs. 10,000 to B and draws a bill at three months for the amount. B accepts
it and returns it to A. On 1st March, 2006, B retires his acceptance under rebate of 12% per annum. Record these transactions
in the journals of A.
Question:17 On 1st April 2009 Rohit sold goods to Mahesh for Rs 10,000 and drew upon him a bill for the amount at 3
months. Mahesh accepted the bill . On 4th April 2009 , Rohit got the bill discounted with his bankers @ 10% per annum. Just
before the due date , Mahesh approached Rohit with a request for renewal of the bill for 3 month . Rohit agreed on the
conditions that new bill will be drawn for Rs 10310 which included Rs 310 by way of interest .Mahesh found the condition
reasonable and accepted the new bill on 4th july ,2009 . On 29th September, 2009 Mahesh was declared insolvent . On 2nd
November, 2009 a first and final dividend of 40 paise in a rupee was received from the insolvent ‘s receiver .

st
Question:18 On 1 January 2010, Arun purchased from Barun goods invoiced at Rs 10,000. On the same date Barun drew
upon Arun a bill for the amount at 2 months and Arun accepted the same. On 4th January 2010 Barun got the bill discounted
with his bank @ 12% per annum. On due date, Arun told Barun that he was not in a position to pay the full amount and
requested Barun to accept Rs 5000 in cash and Drew a fresh bill at 2 months for the remaining amount plus interest at 15%
P.A. Barun agreed . The second bill was duly met on the due date. Give journal entries to record the above transaction in the
books of Barun.
MUTUAL ACCOMODATION ( YE CONCEPT SIRF HUM HI SAMAJH SAKTE HAI, AUR KOI NAHI, FEEL GOOD)
Question:19. For helping Mr. X, Y gave his acceptance for Rs. 20,000 payable after 3 months. X discounted the bill with his
bank @ 18% p.a. Just before due date X remitted the necessary amount to Y. On due date bill was met. Make journal entries.
Question:20. For mutual accommodation of X and Y, X drew a bill for Rs. 60,000, Which was duly accepted by Y. X discounted
the bill with his bank @ 12% p.a. for 3 months and remitted 1/3 rd of the proceeds to Y. Just before due date, X remitted the
balance amount to Y and Y met the bill on due date. Make journal entries.
Question:21. Anil drew a bill for Rs. 20,000 on Sunil and Sunil drew a bill for Rs. 30,000 on Anil for mutual accommodation for
3 months. Both of them discounted their bill with bank @ 12% p.a. Just before due date they settled their account among
themselves. On the due date, both met their bill.
Question.22( IMP Question)Bose and Mitra were in need of funds. On 1st May, 2014 Bose accepted Mitra’s draft for Rs.6,000
at 3 months. Mitra got it discounted at 6%p.a. and remitted 1/3 of the proceeds to Bose. On the due date Mitra was not able
to send the amount instead he accepted to Bose’s bill for Rs. 4,500 at two months. Bose got it discounted for 4,420. Out of
this Rs. 280 were sent to Mitra . Before the maturity of the renewed bill, Mitra became insolvent and only 60% was realized
from his estate. Give Journal entries in the books of Bose and Mitra.
Question:23 Sohan drew an accommodation bill for Rs 12,000 on Mohan. The proceeds are to be shared by Sohan and
Mohan in the ratio of 2:1 respectively. Mohan accepts the bill. Sohan gets the bill discounted at a discount of Rs 720 and
remits 1/3rd of the proceeds to Mohan. Before the due date, Mohan draws an accommodation bill for Rs 16,800 to arrange
the funds to pay the first bill. The second bill is discounted for Rs 16320. The first bill is paid with the proceeds and a sum of Rs
2880 is remitted to Sohan.
Sohan become insolvent before the due of the second bill and Mohan received 50 paise in a rupee as the first and final
dividend from sohan’s estate . Pass necessary journal entries in the books of Mohan and prepare sohan’s account in the
ledger of Mohan .
Question:24 On 1st December 2004 Shyam accepted for mutual accommodation a bill drawn on his by Ram for Rs 80000 at
three month . The bill was discounted at 5% per annum and the proceeds were shared equally .On the same day and for the
same purpose , Shyam received an acceptances from Ram for Rs 90000 at three months. The bill was discounted for Rs 1800
as discount and the proceeds were shared as to two thirds to Shyam and one third to Ram . On the due date Shyam met his
acceptence , but Ram could not do so because he had become insolvent . On 31st march , 2005 his estate paid a first and final
dividend of 50 paise in a rupee. Pass the journal entries for the transactions in the books of Shyam.
Answer: Journal entries in the books of shyam
Date Particular Dr Cr
2004 Ram 80000
Dec 1 To Bills payable A/c 80000
(being acceptance given to Ram)
Dec 1 Bill receivable A/c 90000
To Ram 90000
(being acceptances given by Ram for mutual )
Dec 1 Bank A/c 88200
Discount A/c 1800
To bills receivable A/c 90000
(Being bill discount with the bank)
Dec 1 Ram 30000
To banks
To discount A/c 30000

(being one –third proceeds sent to ram)
Dec1 Banks A/c 39500
Discount A/c 500
To Ram 40000
(being one –half of proceeds received from Ram)
2005 Bills payable A/c 80000
March 4` To bank A/c 80000
(being our acceptances met on due date )
Mar 4 Ram 90000
To banks A/c
(being dishonour of ram ‘s acceptance due to 90000
insolvency )
March 4 Bank A/c 35000
Bad-debts 35000
To Ram 70000
(being receipt of 50 paise in the rupee as dividend from
Ram’s estate)
Ram ‘s A/c
Particular Amount Particular Amount
To bills payable A/c 80000 By bills receivable A/c 90000
To banks A/c 29400 By bank A/c 39500
To discount A/c 600 By discounts A/c 500
To bank A/c 90000 By banks A/c 35000
By bad debts 35000
2,00,000 2,00,000
Question:25 Mr. David draws two bills of exchange on 1.1.95 for Rs. 6,000 and Rs. 10,000. The bill of exchange for Rs.
6,000 is for two months while the bill of exchange for Rs. 10,000 is for three months. These bills are accepted by Mr. Thomas.
On 4.3.95 Mr. Thomas requests Mr. David to renew the first bill with interest at 18% p.a. for a period of two months. Mr. David
agrees to this proposal. On 20.3.95 Mr. Thomas retires the acceptance for Rs. 10,000, the interest rebate i.e. discount being
Rs. 100. Before the due date of the renewed bill, Mr. Thomas became insolvent and only 50 paisa in a rupee could be
recovered from his estate. You are required to give the Journal entries in the books of Mr. David.
Important note : 1. in sir ka challenge question, I have wrongly taken 2/10 while calculating discount charges. It should be
2/12. Please rectify it.
Important note 2. Practice set of MCQ based questions have been given at the end of book.

CHAPTER 3. CONSIGNMENT ACCOUNT

Consignment Sale:- Where one person in firm sends goods to another person or firm on the basis that the goods will be sold
on and at the risk of the former, it is called consignment sale.
The party who sends the goods is called consignor and the party to whom goods are sent is called consignee or agent.
The consignee does not buy these goods but merely undertake to sell them on behalf of the consignor.
The sale proceeds belong to the consignor and the consignee merely gets the agreed commission for his service in addition to
any expenses he might have incurred.
The relationship between the consignor and the consignee is that of principal and agent.
Account Sales :- After sale of goods, consignee sends a statement to consignor. This statement is called account sales. In this
statement gross value,expenses and commission of consignee, advance paid by consignee and net amount due by consignee
are shown.
Types of commission:
1. Del – Credere Commission:- The additional commission for which the consignee guarantees debt is called del-credere
commission. This commission save consignor from loss of bad debts only. The agent is responsible for bad debts due but not
for loss due to a dispute between the buyer and the seller. The del-credere commission is payable on total sales and not
merely on credit sales.
2. Ordinary Commission : Ordinary commission is a commission which consignee gets as his remuneration from the consignor
for the sales made on behalf of the consignor.
In this case the consignee does not guarantee that all those who buy on credit will pay up. The consignee is not responsible
for bad debts.
3. Over ridding commission. It is allowed to increase sales volume/ sales price. It is calculated as per instruction given in
question.
Most important -- Discount paid on bills receivable discounted by Consignor

There are two alternative treatments for the aforesaid discount:
If discount is treated as "consignment expenses" it is debited to consignment account
If discount is treated as "financial charges', it is debited to profit and loss account.
Books of consignor:-To know the profit and the loss made on a consignment separately a consignment account is opened.
A consignment account is not a personal account but is in the nature of a special type of a trading and profit and loss account
which show profit or loss made on the particular consignment.
If goods are consigned to a number of parties, the profit and loss on consignment to each consignee may be ascertained
separately.
Valuation of Closing Stock:- The goods lying unsold with the Consignee at the end of the accounting year is usually valued at
cost.
In this case cost means, cost at which goods sent on consignment plus all non-recurring (non-selling) expenses incurred till the
goods reach the premises of the consignee.
Such expenses include packing freight, cartage, insurance in transit, octroi, import duty, customs charges, packing, loading &
unloading charges.
But expenses incurred after the goods have reached the consignee godown are not treated as part of the cost of purchase for
valuing stock on hand, i.e. expenses like godown rent, godown insurance, sales expenses e.t.c. are not included in the value of
stock.
 (imp) Distinction between Consignment and sale

Consignment Sale
 Ownership of goods is not transferred to consignee.  Ownership of goods is transferred to the buyer.
 Consignee is not liable for losses.  Buyer is liable for losses.
 All expenses are born by consignor.  Buyer meets his own expenses.
 The document sent along with goods sent to consignee  The document sent on sale of goods is called 'Invoice'.
is called 'Performa invoice".  Buyer becomes debtor immediately on receipt of goods.
 Consignee does not become debtor on receipt of goods.  Buyer does not receive any commission. He earns profit
He becomes debtor on sale of goods. on sale of goods.
 Consignee receives commission on sale of goods.

Distinction between Abnormal Loss And Normal Loss
Abnormal Loss Normal Loss
 Abnormal loss occurs due to accident natural calamities  Normal loss occurs due to inherent characteristic of
or negligence. goods, e.g. normal leakage, evaporation etc.
 This loss does not affect Gross Profit.  This loss effect Gross Profit.
 Accounting entry is made for such loss.  No accounting entry is made for such loss. This is
 This loss can be insured against various contingencies. automatically absorbed in Gross profit.
 This loss is not certain. This depends on the happening  This loss can not be insured.
of certain event.  This loss is almost certain. This occurs during transit or
storage due to inherent characteristic of goods.
Question.1 20,000 units of commodity ‘X’ were consigned by Ram of Delhi at an invoice cost of Rs 100 each to Mohan of
Mumbai. Ram paid freight Rs 12,000, Insurance Rs 8000.
Mohan received the consignment and incurred the following expenses:-
Clearing charges = Rs. 5,000
Freight to the godown = Rs. 7,000
Rent of godown = Rs. 3,000
Insurance = Rs. 2,000
Advertisement = Rs. 12,000
Loading and unloading charges = Rs. 3,000
Mohan sold all the goods @ Rs. 250 each. He was entitled to a commission of 5% on sales.
Prepare consignment account and Mohan account in the book of Ram.
Question.2 Assume in Question No. 1, Mohan sold only 80% of the consignment @ Rs. 250 each.
Prepare necessary ledgers in the books of Ram.
Question.3 X sends goods costing Rs. 2,00,000 to Y to be sold at a minimum profit of 10% on cost. He will be allowed a
general commission of 5% on sales and 20% of any excess realized over minimum quoted price.
Y sold all the consignment for Rs. 3,00,000. Calculate the total commission payable to Mr. Y.
Question.4 IOCM of Delhi forwarded to TATA of Mumbai a consignment of 100 drums of coconut Oil of Rs. 500 per drums.
Following expenses were incurred by consignor.
Freight = Rs. 10,000

Insurance = Rs. 8,000
Loading charges = Rs. 2,000
Rent of consignee’godown =Rs. 3,000
TATA received the consignment and sent an account sale informing that he sold 80% of the consignment @ Rs. 1000 per
drum and incurred following expenses
Clearing charges = Rs. 2,000
Freight = Rs. 3,000
Advertisement = Rs, 20,000
Consignee was entitled to 5% as general commission and 2% as del- Credere commission. Actual loss due to bad debts was Rs
8500. Prepare consignment account and consignee account in the book of IOCM.
Question.5 10,000 Pens were sent by Rohit of Delhi to Mohit of Mumbai costing Rs. 20 each. Rohit incurred Rs. 5,000 on
sending the goods to Mohit place.
Mohit received the consignment and incurred Rs. 10,000 as recurring and 5,000 as non-recurring expense. He reported that
70% of the consignments were sold @ Rs. 60 each and 10% of the consignment were lost due to fire. He was entitled to
commission @ 5%. Prepare consignment A/c and Mohit A/c in book of Rohit.
Question.6 5,000 units of commodity X were consigned by Mohanlal to Sohanlal @ Rs. 40 each. Mohanlal incurred Rs.
20,000 on sending the goods to consignee. During transit 10% of the consignments were lost due to fire. Insurance company
admitted the claim for Rs. 12,000. Sohanlal received the remaining consignment and sent an account sale showing that 70%
of goods received were sold @ Rs. 100 each.
He incurred Rs. 20,000 as selling and Rs. 8,000 as non-selling expenses. He was entitled to commission @ 5%.
Prepare consignment Account and Sohanlal Account in the book of Mohanlal.

Question. 7 M/s Lal sent 4000 Kg of coconut oil costing Rs. 20 each to M/s Hara, Paid Freight Rs. 6000 and Loading charges
Rs. 4000. M/s Hara received the consignment and incurred Rs. 4000 as recurring and Rs. 6000 as non-recurring expenses. He
reported a normal loss of 5% and he sold 80% of the consignment @ Rs. 50 each.
He was entitled to commission of 2% on sale. Prepare consignment A/c.
Question.8 ( advance against security) The Narang oil mills, Delhi consigned 5000 Kg of mustered oil to Mr. Gupta of
Kanpur on 1st Jan. 2016. The cost of the oil was Rs. 40 per kg. The Narang mills paid Rs. 15,000 for packing fright and
insurance. During transit 100 kg were destroyed for which insurance Co. paid directly to the consignor Rs. 4000 in full
settlement of the claim. Narang oil mills had received Rs 50,000 in advance as security against consignment.
Mr. Gupta took delivery of the consignment on the 15 Jan. On 31st March 2016, Mr Gupta sent account sales that 4000 Kg
were sold at Rs.52, the expenses being on godown rent Rs.2000; on advertisement Rs.3000 and on salesman salaries Rs.5500.
Mr. Gupta is entitled to a commission of 4 % plus 2% del-credere . A party, who had bought 400 Kg, was able to pay only 90%
of the amount due from it. Mr Gupta reported a loss of 50 Kg due to leakage. Assuming that Mr. Gupta paid the amount due
by bank draft. Show the journal entries and necessary ledger account in the books of both the parties .The Narang oil mills Ltd
closes books on 31st March.
Question. 9 X Consigned 10,000 liters of Oil costing Rs 20 each to Y of Mumbai, incurring Rs. 5000 as non-recurring expense.
During transit 10% of consignment were lost due to fire and insurance company Paid Rs. 20,000 to X in full settlement of
claim.
Y received the consignment and incurred Rs. 30,000 as recurring and Rs. 10,000 as non-recurring expense. He sold 70% of the
consignment received at 100% profit on cost. He also reported a further loss of 10% due to fire in his godown and 5% due to
normal leakage.
He was allowed a commission of 2% on sales. Y used 5 liters of Oil for his personal purpose at an agreed price of Rs. 35 per
litre. Prepare consignment A/c and Y A/c in the book of X.
Question.10 Assume in Question No.5 goods were sent at an invoice price of 25% on cost. Prepare necessary accounts in the
book of consignor.
Question. 11 Sarika mills Ltd. of Delhi sent 500 pieces of shirt to fancy store, Bombay on consignment basis. The
consignee is entitled to receive 5% commission plus expenses. The cost to Sarika mills Ltd. is Rs. 120 per piece.
Fancy store, Bombay, pay the following expenses:

Railway freight, etc - Rs. 1,000
Godown rent and insurance - Rs. 1,500
Sarika mills Ltd., draw on the consignees a draft for Rs.30,000 which is duly accepted. It is discounted for Rs.28,650. Later
fancy store Bombay, report that the entire consignment has been sold for Rs.78,000.
Show journal entries and important ledger accounts in the books of consignor & consignee.
Answer:
Consignment (To Bombay) Account
To goods sent to consignment 60000 By fancy store Bombay – Sale 78000
To fancy store (Bombay) expense 2500
To Fancy store (Bombay)-Commission 3900
To Profit & Loss A/c 11600
78000 78000
Fancy Store (Bombay) Account

To Consignment A/C By Bill receivable A/C 30000

-Sale proceeds 78000 By Consignment A C(exp.) 2500
By Consignment A/c (Commission) 3900
By Balance c/d 41600
78000 78000

Question.12 100 Television were consigned by M/s Lal & Com. Delhi to M/s Time center of Patna at an invoice cost of
Rs.3000 each M/s Lal & Com. paid freight Rs.18000, insurance Rs.2200. During the transit, 10 T.V were totally damaged by fire
and to be thrown in a way. M/s Time center took delivery of the remaining T. V.
M/s Time center had sent a bank draft to Lal & Company for Rs. 100000 as an advance payment and later sent an account
sales showing that 80 T.V. were sold at Rs.4400 each. Expenses incurred by Time centre on godown rent and advertisement
etc, amounted to Rs. 12,000. Time center is entitled to commission of 5%. One of the credit customers could not pay for 2 T.V.
Record the journal entries and prepare the consignment A/C, M/s Time center Account and Profit & Loss A/C in the books of
M/s Lal & Co assuming that nothing has been recovered from the insurance Co. due to a defect in the policy. M/s Time center
settle his account immediately.
Answer:
Consignment to Patna A/c
To Goods sent on consignment 3,00,000 By Time center (Patna) A/C
To bank Account: —Sales 3,52,000
Freight- 18000 By Abnormal loss A/C 32,020
Insurance- 2200 20,200 (Loss by fire)
To Time center (Patna) A/C By Stock on consignment 32,020
--Godown rent & Adv. 12,000
--Commission 17,600
--Bad debts (2 x 4400) 8800
To Profit & Loss A/C (profit) 57,440
416040 416040
Time Centre (Patna) Account

Particulars Amount Particulars Amount
To Consignment to Patna A/c 3,52,000 By Bank
(Bank draft as advanced) 1,00,000
To Balance c/d (Amount of advance By Consignment to Patna A/c
relating to 10 T.V) 10,000 Godown rent and
advertisement -12000 20,800
Bad debts - 8800
By Consignment to Patna (Comm.) 17,600
By Bank 2,23,600
3,62,000 3,62,000
Abnormal Loss Account

To Consignment to Patna 32020 By Profit & Loss A/C –Transfer 32020
A/C (Loss by Fire)
32020 32020
Working Notes
Abnormal Loss
Particulars Quantity Rs. Working
Cost of goods sent on consignment @3000 100 300000
Non recurring expense paid by Consignor 20200
100 320200
Cost of abnormal loss 10 units 10 32020 (320200/100*10)
90 288180
Non recurring expense paid by Consignee ------ NIL
90 288180
CLOSING STOCK(10 UNITS) 10 32020 (288180/90*10)

Question.13 Imperial Ltd., Delhi forwarded on 1st December 2002, 100 Bicycles to Mr. Manak of Ranchi to be sold on
behalf of Imperial Ltd. The cost of one Bicycle was Rs.1600 but the invoice price was Rs. 1800. Imperial Ltd. incurred Rs.
10,000 on freight and insurance. Manak received the consignment on 15th Dec 2002 and accepted a 3 months draft drawn
upon him by Imperial Ltd. for 40,000, Manak paid Rs.2500 as rent and Rs.2500 as insurance and by 31st march had disposed
of 80 bicycles at Rs.2060 each. Manak is entitled to a commission of 5% on sales including a del-credere commission of 1%.
Manak sold 20 bicycles on credit and was not able to recover sale proceeds of 2 bicycles because of insolvency of the debtor.
Give Ledger accounts in the books of imperial Ltd. who closes their accounts on 31 st March.
Answer:
Consignment to Ranchi Account
Date Particulars Amt. Date Particulars Amt.
2002 To Goods sent on 2002 By Manak (Sale Proceed)
Dec-1 Consignment (invoice value) 180000 Mar-31 By Goods sent on 1,64,800
Dec. 1 To Bank- Freight & Insurance 10000 Consignment A/c -(Loading) 20,000
2003
Mar -31 To Manak: By Consignment stock 38,000
-Rent 2500 5000
-Insurance- 2500 8240
To Manak- (commission)
Mar. 31 To Consignment Stock Reserve. A/c 4000

To P & Loss A/c-trf of profit
15560
222800 222800
Goods Sent on Consignment Account

Date Particulars Amount Date Particulars Amount
2002 To consignment to Ranchi 2002 By consignment to
Mar-31 Account (difference between invoice 20,000 Dec-1 Ranchi Account (invoice
value and cost ) value) 1,80,000
To trading A/C / Purchases A/c 1,60,000
1,80,000 1,80,000
Consignment Stock Account

2002 2002
Mar-31 To Consignment to Ranchi A/c 38000 Mar-31 By Balance c/d
38000
Total 38000 Total 38000
Manak Account
2003 2002
Mar-31 To Consignment to Ranchi 164800 Dec- 15 By Bill receivable A/C 40000
Account (Sale proceeds) 2003
Mar-31 By Consignment to Ranchi 5000
A/C (exp.)
Mar-31 By Consignment to Ranchi
A/C (commission) 8240
Mar-31 By Balance c/d 1,11,560
164800 164800
Working Notes Closing stock

100 170000
Non recurring expense paid by Consignee ------ NIL
100 170000

CLOSING STOCK(20 UNITS) At COST PRICE 20 34000 (170000/100*20)
Load on 20 units @200 each 4000
38000 At I.P
Question.14 ( Over-ridding commission) Ajay sends goods on consignment to Arun. The terms are that Arun will receive
10% commission on the invoice price (which is cost plus 25%) and 20% of any price realised above invoice price. Arun will
meet his expenses himself, goods to be sent freight paid.
Ajay sent goods whose cost was Rs. 16,000 and spent Rs.1500 on freight, forwarding etc. Arun accepted a bill for Rs.
16,000 immediately on receiving the consignment. His expenses were Rs.200 as rent and Rs 100 as insurance. Arun sold 3/4th
of the goods for Rs. 19500. Part of the sales was on credit and one customer failed to pay Rs. 400. Prepare consignment
Account and Arun's account in the books of Ajay and Ajay's Account in the books of Arun.
Answer: Consignment A/C

PARTICULAR AMOUNT PARTICULAR AMOUNT
To Goods sent On Consignment 20000 By Arun’s A/c 19500
To bank(freight) 1500 By goods sent on consignment 4000
(load)
To Arun’s A/c By closing Stock 4375
Bad debts - 400 400
To Arun’s A/c (comm) 2400
To profit on consignment 3575
27875 27875
Arun’s A/c
To consignment (Sales) 19500 By Bill Receivable 16000
By Consignment A/c (Exp.) 400
By Consignment A/c (comm.) 2400
By bank (bal. fig.) 700
19500 19500
Working Notes: Closing stock

Particulars Rs. Working
Cost of goods sent on consignment 16000
17500
Non recurring expense paid by Consignee NIL
17500
CLOSING STOCK(1/4) At COST PRICE 4375 (17500*1/4)
Question.15 (concept building question) On 20 Jan 2002 M/s. Mohan Brothers of Mumbai forwarded to Ramesh of
Lucknow a consignment of 25 drums of coconut oil of Rs. 510 per dram. They paid Rs. 150 on freight on 18th March 2002.
Consignor received an account sales, on 31st March showing that goods had realised Rs 15000 gross including Rs. 5000 sold
on credit and that following expenses had been incurred. Octroi and insurance—Rs.100: Storage Rs. 30; Cartage Rs.25: Freight
on sales Rs.95; Commission @ 3% and del-credere commission 2%.
One customer owing Rs. 200 failed to pay because of insolvency and another customer deducted Rs.150 because of
dispute regarding quality. Ramesh sent a bill of exchange for the balance due. Prepare necessary accounts in the books of
consignor and consignee. Also show net profit/net loss of consignee.
Answe Consignment A/c
To Goods Sent On Consignment 12750 By Ramesh ’s A/c 15000
(25 x 510)
To bank (Freight) 150
By Ramesh ’s A/c
Octroi - 100
Storage – 30
Contage - 25

Freight - 95
Discount -150 400
To Ramesh’s A/c (comm.) 750
To profit on consignment 950
15000 15000
Ramesh’s A/c
To consignment A/c (S ales) 15000 By Consignment A/c (Exp.) 400
By Bill Receivable (Bal. fig) 13850
15000 15000
Question. 16 (imp question) Vikram Milk Food s Co. Ltd. of Vikrampur sent to Sunder stores, sonepuri 5000 kg of baby food
packed in 2000 tins of net weight of 1 Kg and 6000 packets of net weight of 1/2 kg for sale on consignment basis. The
consignee's commission was fixed at 5% of sales proceeds. The cost price and selling price of the product were as under.
1kg tin ½ kg pack
Cost Price Rs. 10 Rs. 6
Selling Price Rs. 15 Rs. 7
The consignment was booked on freight 'to pay' basis and freight charges come to 2% of selling value. One case containing 50,
1kg tin was lost in transit and the transport carrier admitted a claim of Rs. 450.
At the end of the first half year the following information is gathered from the 'Account Sales' sent by the consignee:
(i) Sale proceeds 1500 1 kg tin
4000 ½ kg packets
(ii) Store Rent and insurance charges Rs. 600.
Show the Consignment A/c and Consignee's Account in the books of Vikram Milk Food Co. Ltd,. Assuming that the consignee
had paid the amount due form Delhi. [Ans. Profit on consignment : 7,365]
Question .17 Sanjay consigned 40 machines to Ram on 1st Jan 2002 on the following terms:-
All machines were to be sold 20% above cost of Rs. 10000. Any deficit in selling price is to be borne by Ram while Ram is to
retain 50 % of any surplus price realised,
Ram is to be paid 3% commission and 2% Del credere commission on all sales. Sanjay incurred freight charges of Rs. 40000 in
consigning the machines. Ram sent account sale on 31st December 2002 disclosing:
10 machines sold for Rs. 12000 each
5 machines sold for Rs. 10000 each
15 machines sold for Rs. 14000 each.
Ram had incurred unloading charges of Rs. 4000 and selling expenses of Rs. 6000. He had collected the entire sale proceeds
except Rs. 2000 which had become a bad debt. Ram sent a bank draft for the net amount due to Sanjay.
On 30 June 2003 Ram sent a further account Sale disclosing:
10 machines sold at Rs. 12000 each, selling expenses were Rs. 1500. He also sent a draft for the net amount due. Sanjay closes
his books on 31st December each year. Write up the ledger accounts in the books of Sanjay recording the above transactions.
Question. 18 (concept building question) The Cochin Consignment Account in the books of Ranaji of Mumbai showed a
debit balance of Rs. 1500 representing the cost of 10 fans on 1st Jan. 2016. The invoice value of each fan was Rs. 175. On 1st
March 2016, Ranaji sent a further consignment to cochin of 40 fans costing Rs.160 each invoiced proforma at Rs. 180 each.
The freight and other charges amounted to Rs. 210. On 1st June 2016, Cochin agent sent an account sales showing that 8 fans
from the old stock realised Rs. 140 each and 25 fans from the second consignment realised Rs. 200 each and 15 fans remained
in stock unsold. Two fans from the old stock being unsaleable at Cochin, were returned to Mumbai, for which the Cochin
agent spent Rs. 30.
The Cochin agent is entitled to a selling commission of 10%, which cover all out of pocket expenses in respect of consignment.
Show necessary accounts in the books of consignors, supposing he closes his books on 30 June.
Question. 19 Mr. Y consigned 800 pockets of toothpaste, each pocket containing 100 tooth pastes. Cost price of each
pocket was Rs.900. Mr. Y spent Rs. 100 per packet as cartage, freight, insurance and forwarding charges. One packet was lost
in the way and Mr. Y lodged claim with the insurance company and could get Rs 570 as claim on average basis. Consignee
took delivery of the rest of the packets and spent Rs.39,950 as other non -recurring expenses and Rs. 22,500 as recurring
expenses. He sold 740 packets at the rate of Rs. 12 per toothpaste. He was entitled to 2% commission on sales plus 1 % del-
credere commission.
You are required to prepare consignment Account. Calculate the cost of Stock at the end. Abnormal loss and profit & loss on
consignment

Answer: Consignment Account

To Good sent on consignment A/c 7,20,000 By Consignee's Account 8,88,000
(800 x Rs. 900) (sales: 740 x 100 x Rs. 12)
To cash Account (Exp: 800 x Rs. 100) 80,000 By Abnormal Loss A/c 1000
To Consignee's A/c By Consignment Stock A/c 61,950
Recurring expenses 22,500
Non-recurring Expenses 39,950 62450
To Consignee's A/c
Commission @ 2% 17,760
Del Credere commission@ 1% 8,880 26640
To Profit on consignment 61,860
Consignee's A/c
To consignment A/c (S ales) 888000 By Consignment A/c (Exp.) 62450
By bank (bal. fig.) 798910
888000 888000
Abnormal Loss A/c
To consignment A/c 1000 By bank 570
By profit & loss A/c (bal. fig.) 430
1000 1000
Working Notes
Abnormal Loss
800 800000
Cost of abnormal loss one packet 1 1000 (800000/800*1)
799 799000
Non recurring expense paid by Consignee ------ 39950
799 838950
CLOSING STOCK 59 units 59 61950 (838950/799*59)
Question. 20 X of Calcutta on 15th January 2017 sent to Y of Mumbai a Consignment of 250 television costing Rs. 10,000
each. Expenses of Rs. 7,000 were met by the consigner. Y of Mumbai spent Rs. 4,500 for clearance on 30 th January, 2017 and
the selling expenses were Rs. 500 per television as and when the sale made by Y.
Y sold on 4th march, 2017 150 television at Rs. 14,000 per T.V and again on 10th April, 2017, 75 T.V at Rs. 14,400. Mr. Y was
entitled to a commission of Rs. 500 per T.V sold plus one–fourth of the amount by which the gross sale proceeds less total
commission thereon exceeded a sum calculated at the rate of Rs. 12,500 per T.V Sold. Y Sent the account sale and the amount
due to X on 30th April, 2017 by Bank demand draft. You are required to show the consignment account and Y's account in the
books of X.
Question. 21.Ramesh consigned 2,000 MT of chemicals at a cost of Rs. 800 per MT to John. Ramesh paid freight and
insurance charges of Rs. 20,000. Of the above 500 MT of chemicals were destroyed by fire during transit. John cleared the
balance of 1,500 MT of chemicals and sold 1,000 MT at average price of Rs. 1,000 per MT. John incurred the following
expenses: Godown rent Rs. 5,000, Insurance Rs. 3,000. Clearing charges Rs. 4,500. Insurance claim received against fire Rs.
4,00,000 after admitting the salvage value of stock destroyed by fire at Rs. 10,000. John was entitled to a commission of
10%on sales proceeds. John sends the balance to Ramesh after adjusting his commission and expenses out of the sales
proceeds. Prepare a Consignment Account and John's Account in the books of Ramesh.
Question. 22 X of Delhi purchased 10,000 meters of cloth for Rs. 2,00,000 of which 5,000 meters were sent on consignment
to Y of Agra at the selling price of Rs.30 per meter. X paid Rs. 5,000 for freight ad Rs. 500 for packing etc.

Y sold 4,000 mtrs at Rs. 40/meter and incurred Rs.2,000 for selling expenses. Y is entitled to a commission of 5% on total sale
proceeds plus a further 20% on any surplus price realized over Rs. 30 per meter.
3000 meters were sold at Delhi at Rs. 30 per meter less Rs 3,000 for expenses and commission. Owning to fall in market price,
the stock of cloth in hand is to be reduced by 10%.
Prepare the Consignment Account and trading and Profit & Loss account in books of X and his account in the books of Y.
Hint:
(1) Calculation of Commission payable to Y Rs.
Total Sales proceeds of Y 1,60,000
Surplus proceeds realized over Rs. 30 per meter
[4000 x (Rs. 40 – 30)] 40,000
Commission :-
5% of total sales proceeds 8,000
(5% of Rs. 1,60,000)
20% of surplus (20% of Rs. 40,000) 8,000
16,000
Question. 23 A of Agra sent on consignment goods valued Rs. 1,00,000 to B of Mumbai on 1 st March, 1999. He incurred
in expenditure of Rs 12,000 on freight and insurance. A's accounting year closes on 31 st December. B was entitled to a
commission of 5% on gross sales plus a del-credere commission of 3%. B took delivery of the consignment by incurring
expenses of Rs. 3,000 for goods consigned.
On 31.12.1999, B informed on Phone that he had sold all the goods for Rs. 1,50,000 by incurring selling expenses of Rs. 2,000.
He further informed that only Rs. 1,48,000 had been realized and rest was considered irrecoverable, and would be sending
the cheque in a day or so for the amount due along with the account sale.
On 5.1.2000, A received the cheque for the amount due from B and incurred bank charges of Rs.260 for collecting the cheque.
The amount was credited by the Bank on 9.1.2000.
Write up the Consignment Account finding out the Profit / loss on the consignment, B's A/c. Provision for expenses A/c and
Bank Accounts in the books of the consignor, recording the transactions upto the receipt and collection of the cheque.
Answer: Books of Mr. A

Consignment Account
1999 Rs. 1999 Rs.
Mar-1 To Goods sent on consignment A/c 1,00,000 Dec.31 By B's account 1,50,000
Dec-31 To Cash Account (Freight and Ins.) 12,000
To B's Account:
Clearance expenses 3,000
Commission @ 5%
On Rs. 1,50,000 7,500
Selling expenses 2,000
Commission @ 3%
on Rs. 1,50,000 4,500 17,000
To bank (Bank charges) 260
To Profit and Loss A/c
(Profit on consignment ) 20,740
1,50,000 1,50,000
B's Account
1999 Rs. 1999 Rs.
Dec-31 To Consignment A/c 1,50,000 Dec.31 By Consignment A/c
Clearance expenses 3,000
Selling expenses 2,000
Commission 7,500
Del credere commission
4,500 17,000
By Balance C/d 1,33,000
1,50,000 1,50,000

Bank Account
2000 Rs. 2000 Rs.
Jan. 5 To B's Account 1,33,000 Jan. 5 By Bank charges 260
Jan. 5 By Balance c/d 1,32,740
1,33,000 1,33,000
Question. 24 (concept building question) M/s Ram & Co. of Delhi purchased 20,000 pieces of sarees @ Rs. 200 per saree. Out
of these, 12,000 sarees were sent on consignment to M/s Laxman Traders of Mumbai at the selling price of Rs. 240 per saree.
The consignor paid Rs. 6,000 for packing and freight. M/s Laxman Traders sold 10,000 sarees @ Rs. 250 per saree and incurred
Rs. 2,000 towards selling expenses and admitted Rs. 10,00,000 to Delhi on account. M/s Laxman Traders are entitled to a
commission of 5% on total sales plus a further 20% commission on any surplus price realized over Rs. 240 per saree.
6,000 sarees were sold at Rs. 220 per saree by the consignor. Owing to fall in the market price, the value of stock of sarees in
hand is to be reduced by 10% . Prepare the consignment Account and the account of M/s Laxman traders in the books of the
consignor.
Answer: In the Books of M/s Ram & Co., Delhi

Consignment Account
Rs. Rs.
To Goods sent on consignment A/c By Laxman Traders (sales)
( 12,000 x 240 ) 28,80,000 (10,000 x 250) 25,00,000
To Bank (expenses) 6,000 By Goods sent on consignment
To Laxman Traders (expenses ) 2,000 (loading: 12,000x40) 4,80,000
To Laxman Traders ( commission ) 1,45,000 By Stock on consignment 4,32,900
To Stock Reserve 72,000
To Net Profit 3,07,900
Total 34,12,900 Total 34,12,900
Laxman Traders account

Rs. Rs.
To Consignment A/c (sales ) 25,00,000 By Consignment A/c (expenses ) 2,000
By Consignment A/c (com. ) 1,45,000
By Bank 10,00,00
By Balance c/d 13,53,000
Total 25,00,000 Total 25,00,000

Working Notes :
Commission payable
5% on 25,00,000 = 1,25,000
20% on 1,00,000= 20,000
1,45,000
Valuation of Closing stock on consignment
2,000 sarees x Rs.240 = 4,80,000
Add: proportionate expenses
6,000x2,000/12,000 1,000
Less: 10% 4,81,000
Value of Closing stock 48,100
Loading on Closing Stock
2,000 sarees x Rs.40 = 80,000
Less: 10% 8,000
72,000
Question. 25 (Loss of Goods Due To Consignee's Negligence) R of Ranchi consigned goods costing Rs. 1,60,000 to M of
Mumbai. The terms of the consignment were :
(a) Consignee to get a commission of 5 per cent on cash sales and 4 per cent on credit sales.
(b) Any goods taken by the consignee himself or goods lost through consignee's negligence, shall be valued at cost plus
12.5 per cent and no commission would be allowed on them.
The expenses incurred by the consignor were : carriage and freight Rs. 6,720 and insurance Rs. 3,440. The consignor received
Rs. 50,000 as advance against the consignment. Account sales together with a draft for the balance due was received by the
consignor showing the following position : Goods costing Rs. 1,28,000 were sold by M and goods costing Rs. 4,000 were lost

through M's negligence. The expenses incurred by M were : advertisement Rs. 1,720 and other selling expenses Rs. 1,080.
Show the ledger accounts in the books of R.
Answer: Dr. Consignment To Mumbai Account Cr.
Rs. Rs.
To Goods Sent on Consign- By M:
ment Account 1,60,000 Cash sales 1,40,000
To Cash (Expenses) 10,160 Credit sales 1,08,000 2,48,000
To M (Expenses) : 2,800 By M (Goods taken
To M (Commission) 11,320 over and lost) 13,500
(7,000+4,320) (12,000+12.5% of
To Profit & Loss Account 98,490 Rs. 12,000)
By Consignment Stock
Account 21,270
2,82,770 2,82,770
Working Notes
(i) Stock has been valued as under :
Total cost of the goods consigned 1,60,000
Less : cost of the goods sold 1,28,000
32,000
Add : Cost of the goods taken over by M and
lost through his negligence 12,000
20,000
Add : Proportionate expenses incurred by consignor :
(20,000x10,160)71,60,000 1,270
21,270
(ii) Expenses paid by consignee are selling expenses (i.e., recurring expenses) and hence ignored for stock valuation,
(iii) Proportionate amount of advance 6,250 (1/8 of Rs. 50,000) being retained against the unsold stock.
Question. 26 (Goods Stolen) On 1 January 2004, goods cost price of which was Rs. 66,000 were consigned by Ram Dhan of
Delhi to Agent Haldi Ram of Dadri at a Performa invoice price of 20% above cost. Haldi Ram paid freight and other forwarding
charges amounting to Rs. 2,000. He was allowed Rs. 1,000 per month towards establishment cost; 5% commission on gross
sales and 3% del credere commission. Haldi Ram paid Rs. 500 as rent of godown for 3 months ended 31 March 2004. Three
fourth of the goods were sold for Rs. 66,000 half of which were credit sales. Half of the balance of the goods was stolen, but
the stock being insured, a claim lodged for Rs. 7,000 was settled for Rs. 6,900. Write up the consignment account, consignee's
account and stock lost on consignment account as on 31 March 2004 in the books of Ram Dhan.
Answer : Consignment to Dadri Account

Jan. 1, 2004 Rs. 31 March 2004 Rs.
To Goods Sent on Consignment By Haldi Ram' A/c (Sales)
Account (66,000+13,200) 79,200 Cash Sales 33,000
To Haldi Ram (Expenses) : Credit Sales 33,000 66,000
Freight and other By Goods Sent on Consign-
forwarding charges 2,000 ment (Load) 13,200
Establishment cost 3,000 By Abnormal Loss
(1,000*3) (Goods stolen) 8,500
Godown Rent 500 5,500 By Consignment Stock A/c
To Haldi Ram (Commission) (At Invoice Price) 10,150
(5% on Rs. 66,000) 3,300
(3% on Rs. 66,000) 1,980 5,280
To Stock Reserve Account 1,650
(1/6 of Rs. 9,900)
To Profit and Loss Account 6,220
(Profit)
97,850 97,850

Working Notes
(i) Calculation of Abnormal Loss
Cost of the goods damaged [1/8 of Rs. 66,000] 8,250
Add : Expenses (1/8 of Rs. 2,000) 250
8,500
(3/4 of the Goods were sold. Only 1/4 were left.
1/2 of 1/4 i.e. 1/8 were stolen) (ii) Valuation of Consignment Stock
Invoice price of the goods unsold 9,900
(1/8 of Rs. 79,200)
Add : Expenses (1/8 of Rs. 2,000) 250
10,150
(iii) Stock Reserve
1/6 of Rs. 9,900 1,650
(Load on Cost is 20/100, therefore Load on Sale
or invoice price is 20/120 or 1/6)
Question. 27 (Loss-In-Transit) Nagaraj of Kolkata consigned 100 radio sets costing Rs. 500 each to Ram Lal of Patna. The
invoice was made Performa at Rs. 600 per set. Ram Lal was entitled to a commission of 7.5% on sales plus 22.5% del credere
commission and 10% of any excess price realised over invoice price. Ram Lal was to bear all expenses incurred after the goods
reached his godown.
While sending the goods, Nagaraj paid Rs. 1,500 as forwarding expenses and insurance. In transit 10 radio sets were damaged
and Nagaraj recovered Rs. 4,000 from Insurance Company. Ram Lal took delivery of the remaining radio sets paying Rs. 4,500
as freight, cartage etc. Ram Lal sold 70 radio sets at Rs. 800 each, 30 of them on credit. Out of which the proceeds of 3 radio
sets could not be recovered because of disappearance of the customers. He paid Rs. 500 as storage and selling expenses. Ram
Lal sent a bank draft for the amount due to Nagaraj. Show Consignment Account, Ram Lal's Account, Stock Destroyed Account
and Goods Sent on Consignment Account in the books of Nagaraj.
Answer:
Consignment to Patna Account
Rs. Rs.
To Goods Sent on Consign- By Ram Lal (Sales) 56,000
ment Account (100 x 600) 60,000 (70 X 800)
To Cash Account (Expenses) 1,500 By Stock Destroyed Account 5,150
To Ram Lal (Expenses) 5,000 (Loss in-transit)
(4,500 + 500) By Goods Sent on Consign-
To Ram Lal (Commission) : ment Account (Load) 10,000
7.5% of Rs. 56,000 4,200 By Consignment Stock
2.5% of Rs. 56,000 1,400 Account 13,300
10% of Rs. 14,000 1,400 (At invoice Price)
(20x100)
To Profit and Loss Account 8,950
(Profit)
84,450 84,450
Important Calculations
(i) Value of the goods destroyed Rs.
Cost of 10 sets (500 x 10) 5,000
Add : Proportionate expenses paid
by the consignor (1,500X 10/100) 150
5,150
(ii) Value of consignment stock
Invoice Price of the unsold Stock (20 * 600) 12,000
Add : Proportionate expenses paid by the
Consignor (20/100 X1,500) 300
Add : Proportionate expenses paid by the
Consignee (20/90X 4,500) 1,000
13,300

(iii) Calculation of Commission Rs.

Ordinary Commission : 7.5% of Rs. 56,000 4,200
Del credere Commission : 2.5% of Rs. 56,000 1,400
Overriding Commission : 10% of Rs.1,4000 1,400
Sale Price 56,000
Less : Invoice Price 70 x 600 42,000
Excess Realised Price Over 14,000
Sale Price
Question. 28 (With Opening Stock And Returns) On 1 April, the Consignment to Rangoon Account in the books of Modern
Novel Stores, New Delhi, showed a debit balance of Rs. 5,500. This represented the invoice value 100 novels at 25% above
cost at Burma Book Depot. On 10 April, they sent another 5,000 books on fiction at a Performa price of Rs. 125 each which
was 25% above cost. They paid for packing Rs. 1,000, insurance Rs. 700 and freight Rs. 10,000.
Consignees received the books at the airport on 15 April and paid customs duty and clearing charges Rs. 5,000 and sent a
two months bill for 75% of the invoice price. After one month of the receipt of the consignment, the consignee returned 100
books being defective. They paid freight and insurance Rs. 500. By the end of 31 December they had sold the opening stock
of 100 books at Rs. 80 each and 4,500 new books at Rs. 150 each. Their expenses were : Advertising Rs. 15,000; salary Rs.
20,000 and service charges Rs. 1,500.
After deducting their expenses and commission at 10% on sale price, consignees sent a bank draft for the remaining
balance. Show the consignment, consignee' and goods sent on consignment accounts.
Answer: Consignment To Rangoon Account
Rs. Rs.
To Consignment Stock By Stock Reserve Account 1,100
Account (Opening) b/d 5,500 (Load on opening stock)
To Goods Sent on By Goods Sent on Consign-
Consignment Account 6,25,000 ment Account (Load) 1,25,000
To Cash Account (Exp.) 11,700 By Goods Sent on
To Burma Book Depot. (Exp.) 5,000 Consignment (Returns) 12,500
To Burma Book Depot. 500 (100x125)
(Expenses on books returned) By Burma Book Depot
To Burma Book Depot (Sale Proceeds)
Advertising 15,000 (100 x 80) 8,000
Salary 20,000 (4,500 x 150) 6,75,000 6,83,000
Service Charges 1,500 36,500 By Consignment Stock Account 51,336
To Goods Sent on
Consignment Account 2,500
(Load on books returned)
To Burma Book Depot 68,300
(Commission)
To Profit and Loss Account 1,07,936
8,72,936 8,72,936
Working Notes
(i) Profit margin (or load/is 25% o£ cost price which is equal to 20% on invoice (or loaded) price as given below.
(ii) When opening stock is at invoice price, the stock reserve is 20% of invoice price. i.e. 1/5 of Rs. 5500 = Rs. 1,100.
(iii) The profit margin (Load) included in Goods Sent on Consignment, Goods Returned and Closing stock is 1/5 or 20% of the
invoice price,

(iv) Value of the closing stock is arrived as : Rs.

Invoice Price of 400 books @ Rs. 125 each = 50,000
Add : Proportionate expenses paid by :
400
(Consignor : X 11,700 936
5,000
Add : Proportionate expenses paid by
400
Consignee : X 5,000 400
5,000 51,336
(v) Stock Reserve is to be calculated at 20% on Rs. 50,000 only i.e. 10,000. We should not consider proportionate expenses
(vi) Expenses on advertising, salary and service charges are recurring or indirect expenses and hence not considered for stock
valuation
Question. 29 DELETED DUE TO SOME MISTAKES IN QUESTION.
Note : MCQ Based questions have been given at the end of this book.

CHAPTER 4: ACCOUNTING FOR DEPRECIATION

Introduction:- Fixed Assets( property, plant and equipment) like Plant & Machinery, furniture etc. purchased, used for
production or providing services for number of accounting years, but its value decreases with passage of time and utilization
.i.e. by normal wear and tear, change in technology etc. So this diminution in value must be charged from P & L A/c for
calculating exact profit. This charge to Profit and loss Account called Depreciation.
Characteristics of depreciation:
- It is related to depreciable fixed assets only.
- It is fall in the book value of depreciable fixed assets.
- The fall in the book value of an asset is due to the use of the asset
- It is a permanent decrease in the book value of an asset.
- It is continuous decrease in the book value of an asset.
Concept of Depreciation:- Property , plant and equipment are tangible items that:
(a) Are held for use in the production or supply of goods and services, for rentals to other, or for administration
purposes; and
(b) Are expected to be used during more than a period of 12 months.
These are also called fixed assets in common parlance. When a fixed asset is purchased, it is recorded in books of account
at its original cost/acquisition cost. However fixed assets are used to earn revenues for a number of accounting periods in
future with the same acquisition cost until the concerned fixed assets is sold or discarded. It is therefore necessary that a
part of the acquisition cost of the fixed assets is allocated as an expense in each of the accounting period in which the asset
is utilised. The amount of fixed assets allocated in such manner to respective accounting period is called depreciation.
Value of such assets decreases with passage of time mainly due to following reasons:
Diminution – it means decrease in market value of asset.

Wear and Tear – Due to actual use of assets.
Efflux Of time – Due to passage of time, even if assets are not used.
Obsolescence- Due to technological changes, improvement in production method, changes in market demand for product
and service and legal and other restriction.
Depletion- decrease in value of assets (natural resources) due to consumption i.e. coal mines, etc.
Objective for providing Depreciation:- Prime objectives for providing Depreciation are:-
(1) Correct Income Measurement: - Depreciation should be charged for proper estimation of periodic Profit or Loss.
(2) True position statement: - Depreciation should be charged to know actual financial position.
(3) Funds For replacement: - Charging depreciation help to General adequate fund in the hand of business for
replacement of asset at the end of its useful life.
(4) Determine True Cost of production:- For determining true Cost of production, it is necessary to charge depreciation
since it’s a item of cost.
Factors affecting the amount of depreciation Measurement:-

Following factors require to be considered for calculating depreciation.
(1) Cost of assets
(2) Estimated useful life of asset.
(3) Estimated scrap value (if any) at the end of useful life of asset.
(1) Cost of property plant and equipment (Fixed assets):-
(a) Purchase price of assets including non-refundable import duties and purchase taxes, after deducting trade
discounts and rebates.
(b) Any cost directly attributable to bring the asset to the location and condition necessary for it to be capable of
operating in a manner intended by the enterprise.
(c) The initial estimate of the costs of dismantling, removing the item and restoring the site on which asset is located.
Examples of costs directly attributable to costs are:

(a) Cost of employees benefits arising directly from acquisition or construction of an item of property, plant and
equipment.
(b) Cost of site preparation

(c) Initial delivery and handling costs
(d) Installation and assembly costs
(e) Cost of testing whether the asset is functioning properly.
(f) Professional fees e.g. engineers hired etc.
Following expenses should not become part of the cost of asset:

(a) Cost of opening new facility or business, such as inauguration costs,
(b) Cost of introducing new product or service( for eg cost of advertisement or promotional activities)
(c) Cost of conducting business in a new location or with new class of customers( including cost of staff training)
(d) Administration and other general overheads costs.
2. Useful life:-The period over which depreciable assets is expected to be used by enterprises.
The total number of units expected to be produced or obtained from use of asset of enterprises.
3. Scrap value:- Determination of scrap value is matter of estimation based on many factors. If its value is not significant then
it is not considered, if its value is significant its value is considered for charging depreciation at the time of
acquisition/installation or at the time of subsequent revaluation of assets.
Method of Providing Depreciation :- there are mainly three methods of charging depreciation as per AS 10.
1. Straight Line Method:- In this method a fixed Amount is written off during the working life till asset become nil. This
method is simple and accurate. This method is also known as fixed Installment method /Original cost method. Lease holds
property generally depreciated by fixed installment method.
Cost of Assets-Scrap value

Straight Line Depreciation = ------------------------------------------
Useful life.
2. Reducing Balance Method/ diminishing value method/ written down method:-- Under this method, a fixed percentage of
diminishing value of asset is written off each year. Annual charge of depreciation decreases from year to year.
3. UNIT OF PRODUCTION METHOD – In this method depreciation is charged on the basis of expected use or unit of
production.
CHANGE IN METHOD OF DEPRECIATION: According to Accounting Standard 10 issued by ICAI, the depreciation method
selected should be applied consistently, to provide comparability of the results of operations of the enterprise from period to
period.
 A change from one method of providing depreciation to another method should be treated as change in accounting
estimate.
 When such a change in the method of depreciation should apply on all assets existing in the group with prospective
effect only.
CONCEPT BASED QUESTIONS:
Question 1: On 1st October,2019, COC Ltd purchased a building on Hire purchase basis, Payable Rs. 2,00,000 as down and
balance in three instalments of Rs. 2,00,000, 1,50,000 and 1,00,000 respectively. The above instalments include Rs. 40,000, Rs.
30,000 and Rs. 20,000 as interest. Calculate the price at which the building will be recorded in the books of account.
Question 2: On 1st July 2019, X Ltd. purchased a machine for Rs. 2,00,000. On 1st September 2019 it was put to use (installed)
and incurred Rs. 25,000 on its installation. But the actual use started on 1 November 2019. Calculate deprecation for 2019-20
and 2020-21. Rate of depreciation 10% p.a. on written down value.
Question 3: On 1st April 2019, COC EDUCATION Pvt ltd purchased a machine for Rs. 2,00,000. On 1st October 2019, a new
machine was purchased for Rs. 1,00,000. On 1st April 2020, Company purchased another machine for Rs. 50,000 and on the
same date first machine was sold for Rs. 1,10,000. On 31st March.2021, a new machine was purchased for Rs. 1,50,000. On 1st
May 2021, Second machine became obsolete and sold for Rs. 30,000. Prepare machinery A/c. Rate of deprecation 10% p.a. on
WDV. Accounts are closed on 31st March every Year.
Question 4: COC Ltd purchased on 1 April 2018 a machine for Rs. 2,40,000 and spent Rs 10,000 on its installation. On 1
October 2018, a new machine costing Rs 3,00,000 was purchased. On 1 July 2019, a new machine was purchased for Rs.
1,00,000. On 1 October 2019, first machine became obsolete and sold for Rs 60,000. On the same day company purchased a
new machine for Rs 1,50,000.

Depreciation was provided annually on 31 March @ 10%p.a. on the original cost of asset. On 31st March 2021, however, the
st
company changed the method of providing depreciation and adopted the method of writing off 15% on the written down
value. Prepare machinery A/C as it would stand at the end of each year from 2018-19 to 2021-22.
Question 5: X ltd purchased on 1 April 2008 a machine for Rs. 3,60,000. It was installed (put to use) on 1 July 2008 and
incurred Rs 40,000 as installation charge. On 1 February 2009 company purchased another machine for Rs. 2,00,000 and paid
Rs. 40,000 on its registration and Rs 10,000 as commission. On 31 December 2009 a second hand machine costing Rs 5,00,000
was purchased and incurred Rs 50,000 on its repair.
During 2010, on 1 April first machine became obsolete and auctioned it for Rs 80,000 and paid 10% commission on its sale.
On the same date a new machine costing Rs 2,40,000 was purchased .
On 31st December 2012, company decided to change the method of charging depreciation from WDV @ 10% to SLM. Prepare
machinery A/C from 2008 to 2012 assuming that accounts are closed each year on 31 December.( HUM MEIN HAI DUM)
Provision for depreciation
Question 6: On 1st April., 2019, X Ltd purchased a machine for Rs. 1,00,000. On 1stOctober 2020 a new machine was
purchased for Rs 250,000. On 1st April,2022, first machine became obsolete and sold for Rs. 20,000. Depreciation is charged
@ 10% p.a. on WDV.
Prepare machine A/c, provision for depreciation A/c. Accounts are closed on 31st March every year.
Question 7: On 1st April 2017 a firm purchased machinery for 2,00,000. On 1st October in the same accounting year, additional
machinery costing Rs. 1,00,000 was purchased. On 1st October 2018, the machinery purchased on 1st April, 2017 having
become obsolete, was sold for Rs. 90,000. On 1st October 2019, new machinery was purchased for Rs. 2,50,000 while the
machinery purchased on 1st October 2017 was sold for Rs. 85,000 on the same day.
The firm provides depreciation on its machinery @ 10% per annum on original cost on 31 st March every year. Show machinery
Account, Provision for Depreciation Account for the Period of three years ending 31st March, 2020.
Question 8: On 1 April 2018, X ltd purchased a machine for Rs 5,00,000. On 1 October 2019, a new machine costing Rs
3,00,000 was purchased. On 1 January 2020 a new machinery costing Rs. 1,80,000 was purchased.
On 1st December 2020 company purchased another machine for Rs 1,50,000. On 1 April 2021, company sold its first machine
for RS 1,60,000. On 1 July 2022 second machine also became obsolete and sold it for Rs. 80,000. Depreciation is charged @ 10
% on its diminishing value. Prepare machinery A/C, provision for depreciation A/C and machine disposal A/C, assuming that
accounts are closed each year on 31st March.
Question 9:(Concept of change of method of Depreciation with provision for depreciation) On 1 April 2018, X ltd purchased
a machine for Rs 2,00,000. On 1 January 2019, company purchased another machine for Rs. 1,20,000. On 1 October 2019, a
new machine costing Rs 80,000 was purchased. On 1 January 2020, company sold its first machine for Rs 45,000. On 31
March 2021, company decided to change the method of depreciation from SLM @10% to WDV. Prepare machinery A/C and
provision for Depreciation and machinery sold account.
Question 10: On July 1, 2017, A Co. Ltd. Purchases second-hand machinery for Rs. 60,000 and spent Rs. 9,000 on
reconditioning and installing it. On January 1, 2018 the firm purchases new machinery worth Rs. 36000. On June 30, 2019, the
machinery purchased on January 1, 2018 was sold for Rs. 24,000 and on July 1, 2019 fresh plant was installed. Payment for
this plant was to be made as follows:
July 1,2019 15,000

June 30,2020 19,800
June30, 2021 17,400
Payment in 2020 and 2021 include interest of Rs. 4,800 and Rs. 2,400 respectively. The company writes off 10 % on the
original Cost. The accounts are closed every year on 31s March. Show the Machinery Account for 3 years ending 31st March.
2020. (CA FOUND.)

Question 11:X Co. Ltd. has plant and machinery which on 1st Jan. 2018 was entered in the ledger under two separate account
viz. Machinery Rs. 1,28,600 and Provision for Depreciation of Machinery Rs. 72,520. The company maintains a machinery
register showing full details. Depreciation is being charged @ 10% p.a. on cost. On 30.6.18 it was decided to stop operation of
a section of the plant immediately and sell its machinery ; this had been purchased on 1.1.2009 at a cost (including erection)
of Rs. 12,000. It was sold on 15.12.2018 to Alfa Ltd. for Rs. 1600 (ex-factory). The Cost of wages for dismantling was Rs. 100.
New and more efficient machinery was purchased from Bita Ltd. on 1.8.2018 at a cost (including erection) of Rs. 20,000. This
new machinery commenced operation on 1.10.18. Open machinery account ,provision for depreciation on machinery account
and scraped machinery account. ( Bas pyar ho gaya mujhe)
Question 12: P. Ltd. which depreciates its machinery at 10 % p.a. on Diminishing Balance Method, had on 1st January 2003
Rs.9,72,000 on the debit side of Machinery Account. During the year 2003, Machinery purchased on 1st January 2001 for
Rs.80,000 was sold for Rs.45,000 on 1st July 2003 and a new machinery at a cost of Rs. 1,50,000 was purchased and installed
on the same date, installation charges being Rs.8,000. The Company wanted to change the method of depreciation from
Diminishing Balance Method to Straight Line Method with effect from 1st January 2001. Difference of depreciation upto 31 st
December 2003 to be adjusted. The rate of depreciation remains the same as before. Show Machinery Account.
(CMA INTER 12 MARKS)
Question 13: A Company had a balance of Rs. 4,05,000 on 1st January, 2003 in its Machinery Account. 10 % p.a. depreciation
was charged by w.d.v method. On 1st July 2003, the company sold a part of machinery for Rs.87,500, which was purchased on
1st January 2001 for Rs. 1,20,000 as a part of it become useless, and on the same i.e., on 1 st July, 2003, the company
purchased a new machine for Rs. 2,50,000. On 31st December, 2003, the Directors of the company decide to adopt the fixed
installment method of deprecation instead of diminishing balance method. The rate of depreciation will remain the same.
Prepare machinery account in the books of Company for the year ending 2003. [CA-Nov.2004]
Question 14: X Ltd. purchased on 1st January 2001 a second hand plant for Rs.60,000 and immediately spent Rs.40,000 in
putting the same in working condition. On 1st July 2001 additional machinery costing Rs.40,000 was purchased. On 1st
January 2003 the plant purchased on 1st January 2001 became obsolete and was sold for Rs.50,000. On 1st July 2003 new
machinery was purchased at a cost of Rs. 1,20,000. The firm provided depreciation on straight line method at 10 % per annum
on the original cost of the assets. In 2005 the company decided to provide depreciation on written down value basis at 15%
p.a. Show Machinery Account for the calendar years 2001 to 2005.
Answer: Plant and Machinery Account

Date Particulars Rs. Date Particulars Rs.
01.01.01 To Bank A/c (cost) 60,000 31.12.01 By Depreciation A/c:
01.01.01 To Bank A/c (Overhaul) 40,000 Machine I 10,000
01.07.01 To Bank A/c (Machine II) 40,000 Machine II 2,000 12,000
By Balance c/d:
Machine I 90,000
Machine II 38,000 1,28,000
1,40,000 1,40,000
01.01.02 To Balance b/d: By Depreciation A/c:
Machine I 90,000 Machine I 10,000
Machine II 38,000 1,28,000 Machine II 4,000 14,000
By Balance c/d:
Machine I 80,000
Machine II 34,000 1,14,000
1,28,000 1,28,000
01.01.03 To Balance b/d: 01.01.03 By Bank A/c (Sale Proceeds) 50,000
Machine I 80 000 1,14,000 By P&L A/c (Loss on Sale) 30,000
Machine II 34,000 1,20,000 (Rs. 80,000 – Rs. 50,000)
To Bank A/c 31.12.03 By Depreciation A/c
(Machine III) Machine II 4,000
Machine III 6,000 10,000
By Balance C/d
Machine II 30,000
Machine III 1,14,000 1,44,000
2,34,000 2,34,000
01.01.04 TO Balance b/d 31.12.04 By Depreciation A/c
Machine II 30,000 Machine II 4,000
Machine III 1,14,000 1,44,000 Machine III 12,000 16,000

By Balance c/d
Machine II 26,000
Machine III 1,02,000 1,28,000
1,44,000 1,44,000
01.01.05 To Balance b/d 31.12.05 By Depreciation A/c
Machine II 26,000 Machine II 3,900
Machine III 1,02,000 1,28,000 Machine III 15300 19,200
31.12.05 By Balance c/d
Machine II 22100
Machine III 86700 1,08,800
1,28,000 1,28,000
Question 15:( provision for repairs and renewals) The following particulars are available from the books of a public company
having a large fleet of vehicles:
Balance in provision for repairs and renewals account as on 31.3.2016 Rs 11,50,000
Actual repairs charged/incurred during the year ended 31.3.2016 Rs 7,50,000
31.3.2017 Rs 3,20,000
The company makes an annual provision of Rs 4,00,000 on repairs and renewals. Draw up provision for repairs and renewals
account for the years 2015-16 and 2016-17.
Question 16: A firm’s plant and machinery account at 1st January,2015 and the corresponding depreciation provision account,
broken down by year of purchase are as follows:
Year of purchase Plant and machinery at cost Depreciation provision

1998 2,00,000 2,00,000
2004 3,00,000 3,00,000
2005 10,00,000 9,50,000
2006 7,00,000 5,95,000
2013 5,00,000 75,000
2014 3,00,000 15,000
30,00,000 21,35,000
Depreciation is at the rate of 10% per annum on cost. It is the company’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 2015 the following transactions took place:
1. Purchase of plant and machinery amounted to Rs 15,00,000

2. Plant that had been bought in 2004 for Rs 1,70,000 was scrapped.
3. Plant that had bought in 2005 for Rs 90,000 was sold for Rs 5,000.
4. Plant that had been bought in 2006 for Rs 2,40,000 was sold for Rs 15,000.
You are required to calculate the provision for depreciation on plant and machinery for the year ended 31 st December
2015. In calculating this provision you should bear in mind that it is the company’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. You are also required to prepare the
following ledger accounts during 2015.
(i) Plant and machinery account at cost

(ii) Depreciation provision account
(iii) Disposal of plant and machinery account. (ICAI Study material)
Question 17. M/s Anshul commenced business on 1.1. 2011, when they purchased plant and equipment for 7,00,000. They
adopted a policy of charging depreciation at 15% P.A. on diminishing balance basis and over the years, their purchases of
plant have been:

Date Amount
1.1.2012 1,50,000
1.1.2015 2,00,000
On 1.1.2015 it was decided to change the method and rate of depreciation to straight line basis. On this date remaining useful
life was assessed as 6 years for all the assets purchased before 1.1.2015 and 10 years for the assets purchased on 1.1.2015
with no scrap value. Prepare plant and equipment account for the year ended on 31 st December 2015. (ICAI Study material)
Question 18: Voltas Ltd. bought a truck on 1 January, 2000 for Rs. 60,000 and a sum of Rs. 20,000 was spent for various
accessories. On 1 July, 2001 another vehicle was purchased for Rs. 52,000. On 1 July 2002, the first truck was sold for Rs.
60,000. On the same date, another truck was purchased for Rs. 50,000. On 1 July 2003, the second vehicle was sold for Rs.
46,000. Rate of depreciation was 10% on the original cost annually on 31 December. In 2002 the method of charging
depreciation has changed to diminishing value method, on the balance existing on 31-12-2002 the rate being 15%. p.a Prepare
Truck Account for 2000, 2001, 2002 and 2003.
Answer:
Truck Account Cr.
2000 Rs. 2000 Rs.
Jan.1 To Cash 60,000 Dec. 31 By Depreciation Account 8,000
To Cash (Accessories) 20,000 By Balance c/d 72,000
80,000 80,000
2001 2001
Jan.1 To Balance b/d Dec. 31 By Depreciation Account
To Cash (Truck II) 72,000 Truck I 8,000 10,600
52,000 Truck II 2,600
By Balance/d
1,13,400
1,24,000 1,24,000
2002 To Balance b/d 1,13,400 2002 By Cash (Sale of Truck I) 60,000

Jan.1 To Cash (Truck III) 50,000 Julyl By Depreciation Truck I (1) 4,000
Dec. 31 By Depreciation Account (2) 11,160
By Balance c/d 88,240
1,63,400 1,63,400
2003 88,240 2003 46,000

Jan.1 To Balance b/d 7,160 Julyl By Cash (Sale of Truck II) 3,150
July1 To Profit Loss A/c Dec. 31 By Depredation (for 6 months) (3) 6,938
By Depreciation (Truck III) (4) 39,312
By Balance c/d
2004 95,400 95,400
Jan1 To Balance b/d 39,312
Question 19:(Exchange and Loss By Accident) The following information is available from the records of Well Planned
Limited in respect of Motor Vehicles used by it in its business: Vehicle No. 1 was purchased for Rs. 20,000 on 1 January, 2012.
It was sold for Rs. 2,000 on 1 July, 2015. Vehicle No. 2 was purchased on 1 July, 2012 for Rs. 18,000. Vehicle No. 3 was
purchased on 1 January, 2014 for Rs. 12,000 and it was exchanged for a new vehicle No. 5 on January, 1 2016. The cash price
of the Vehicle No. 5 was Rs. 10,000 on that date. Vehicle No.4 was purchased on 1 July 2014 for Rs. 10,500. On 1 July, 2017
this vehicle met with an accident and was sold for Rs. 2,500. The company also received Rs. 1,500 from the insurance
company in full satisfaction of its claim.
Note: When a vehicle has been used for a part of the year, depreciation is calculated in proportion to such part only.
Required : A consolidated Motor Vehicle Account for the years 2012-17. Year ends on 31st December every year.
Depreciation is written off at the rate of 20% p.a. on the original cost. ( HUM MEIN HAI DUM. AUR KISI KE BAS KI BAAT NAHI)

Other methods of depreciation
1. Sum of years of Digit Method.-- It is a variation of Reducing Balance method.
Formula for calculating Depreciation.

The number of years (including present year) of
remaining life of asset.
Original cost ─ scrap value -----------------------------------------------------------------
Total of all digit of life of assets (in years)
Depreciation to be written off in the first year will be 10/55 of the cost of asset less estimated scrap value and
depreciation for second year will be 9/55 of cost of assets less estimated scrap value and so on.
Question 20. cost of machine= 2,00,000

Scrap value of machine = 50,000
Estimated life of asset = 5 years
Calculate depreciation by sum of year’s digit method for the first year and 4th year.
Question 21. Cost of machine = 4,00,000

Scrap value of machine = 1,00,000
Estimated life of asset = 40 years.
Calculate depreciation by sum of years digit method for the first year and 40th year.
(1) Annuity Method

- In this method element of interest on capital invested also considered and it write off the value of asset as well
as interest cost over the life of assets.
- It is assumed that capital invested on assets if invested elsewhere would earned interest which must be
considered as part of cost of Assets.
- Amount of Depreciation is to be charged annually is ascertained from Annuity Tables, to write off interest on
capital as well as capital invested on assets.
Relevant Journal entries are:-

(1) For charging interest on assets Account
Assets A/c Dr.
To Interest A/c
(2) For charging Depreciation on asset
Depreciation A/c Dr.
To Assets A/c
(3) For transferring depreciations to P & L A/c
Profit and loss A/c Dr.
To Depreciation A/c
(4) For transferring interest to Profit & Loss A/c
Interest A/c Dr.
To P & L A/c
Question 22. A lease is purchased on 1st Jan. 2002 for 4 years at a cost of Rs. 20000. It is proposed to depreciate the
lease by annuity method charging 5% interest. A reference to the annuity table shows that to depreciate Re. 1 by
annuity method over 4 years charging 5% interest, one must write off a sum of Rs. 0.282012 (To write off Rs. 20000, one
has to write off every year Rs. 5640.24 (i.e 0.282012 x 20000)
Show the lease account for four year and also the relevant entries in the profit and loss account.
Sol. Lease A/c

2002 Account
1 Jan To Bank 20000 31Dec By Dep. A/c 5640.24
31 Dec To Interest A/C 1000 By Balance c/d 15389.76
(5% on Rs. 20000) 21000 21000
2003
1 Jan To Bal. b/d 15359.79 31 Dec. By Depreciation 5640.24
31Dec To Interest A/c 16127.75 By Bal. c/d 10487.51
31 Dec. By Dep. A/c 16127.75
2004 By Balance c/d
1 Jan To Balance b/d 10487.51 5640.25
31 Dec. To Interest A/C 524.38 5371.65
11011.89 31 Dec. By Depreciation 11011.89

2005
1 Jan To Balance b/d 5371.65 5640.24
To Interest A/c 268.59
5640.24 5640.24
Profit and Loss Account

2002
31 Dec. By Depreciation 5640.24 31 Dec. By Int. 1000
5640.24 1000
2003 2003
31 Dec. By Depreciation 5640.24 31 Dec. By Interest 767.99
5640.24 767.99
2004 2004
31 De. By Depreciation 5640.24 31 Dec. By Interest 524.38
5640.24 524.38
2005 2005
31 Dec. By Depreciation 5640.24 31 Dec. By Interest 268.59
5640.24 268.59
Sinking Fund Method:-The sinking fund method is adopted to provide depreciation in a case where the nature of assets
is such as which require large fund at the time of replacement of such assets. The depreciation fund ensure that when
replacement is due , ready cash will be available.
The amount written off as depreciation is kept aside and invested in readily saleable securities. The interest received on
securities is also reinvested. The securities accumulate and when the life of the assets expires, the securities are sold
and new assets are purchased with the help of the sale proceeds.
Since, the securities always earn some interest, it is not necessary to invest the amount equal to full
amount of depreciation. It may be something less.
 How much amount is to be invested every year so that a given sum is available at the end of a given period,
depends on the rate of interest and will be known from the sinking fund table.
 Sinking fund table shows- how much is to be invested every year together with interest earned so that at the
end of the period one get Rs. 1.00.
At the end of First year: [with the installment

1 For transferring of depreciation to sinking fund: calculated with the help of
Depreciation A/c Dr Sinking Fund Table ]
To Depreciation Fund A/c.
(Being amount of depreciation transferred to Depreciation Fund)
2. For charging depreciation to Profit & Loss A/c:
Profit &Loss A/c Dr.
To Depreciation A/c
(Being the provision made for depreciation)
3. On investment of amount of depreciation:
sinking fund Investment A/c Dr.
To Bank A/c
(Being cash invested)
At the end of Second Year: [with the amount of
1. For interest earned on Depreciation fund investment: interest actually received
Bank A/c Dr. on investment]
To interest on Sinking Fund investment A/c
(being receipt of interest on Sinking Fund Investment)
2. For transfer of aforesaid interest to Sinking Fund [with annual investment]
interest on Sinking Fund investment A/c Dr.
To Sinking Fund A/c
(Being amount of depreciation transferred to depreciation fund)
3. For transferring of depreciation to sinking Fund A/c
depreciation A/c Dr.
To Sinking Fund A/c
(Being amount of depreciation transferred to Depreciation Fund)
4. For charging depreciation to Profit & Loss A/c
profit & Loss A/c Dr.
To Depreciation A/c
(Being the provision made for depreciation)
5. On investment of amount of depreciation and interest:
Sinking Fund Investment A/c Dr.
To Bank

(Being amount of installment of depreciation and interest invested)
In the last year: [ with the amount of interest

1. On receipt of interest on sinking Fund Investment: actually received on
Bank A/c Dr. investment]
To Interest on Sinking Fund Investment A/c
(Being receipt of interest on Sinking Fund Investment A/c)
2. On transfer of amount of interest to Depreciation fund A/c: Interest on
To Sinking Fund A/c
(Being traf. of int. on Sinking Fund Investment to Sinking Fund A/c)
3. For transferring of depreciation to Sinking Fund A/c: [with annual investment]
Depreciation A/c Dr.
To sinking Fund A/c
(Being transfer of depreciation to Sinking Fund A/c )
4. For charging depreciation to Profit & Loss A/c:
Profit and Loss A/c Dr.
To Depreciation A/c
(Being provision of Depreciation.)
5. On receipt of amount from Sinking Fund Investment: [ with the net sale proceed;
Bank A/c Dr. of depreciation fund
To Sinking Fund Investment A/c Investment]
(Being cash received on Sinking Fund Investment)
6. For transfer of profit (if any) earned on Sinking Fund Investment:
To Sinking Fund A/c
(Being traf. of profit on Sinking Fund investment to Sinking Fund A/c.)
7. For transfer of loss (if any) incurred on Sinking Fund Investment:
Sinking Fund A/c Dr.
To Sinking Fund Investment A/c
(Being transfer of loss on Depreciation Fund Investment to Depreciation
fund A/c)
8. Sinking Fund A/c Dr. [with the book value of
To fixed assets A/c assets]
(Being transfer of Balance of fixed Assets to Dep. Fund A/c)
9. Sinking fund A/c Dr.
To Profit and Loss A/c
(Being transfer of balance of Sinking Fund A/c to profit and Loss A/c)
10. Profit and Loss A/c DR.
To Sinking Fund A/c
(Being transfer of balance of Sinking Fund A/c to P & L A/c)
(2) Machine hour Method:-

- Under this method, depreciation is calculated on the basis of machine hour that machine worked.
- Machine hour rate of depreciation is calculated after estimating the total number of hours that machine
would work during its whole life.
- However total number of machine hour during its life may varied from time to time on consideration of
changes in economic and technological conditions, so in those circumstances we will adjust depreciation
accordingly.
- It is slight variation of straight line method.
Question 23:- machine was purchased for Rs. 3, 00,000 having an estimated total working hour of 24000 hours. The
scrap value is expected to be Rs. 20000 and anticipated pattern of distribution of effective hours is as follows
Year
1—3 3000 hour per year

Solution:- Annual depreciation under Machine hour Rate Method.

Year Annual Depreciation
3000
1—3 (300000-20000) x ----------- = Rs. 35000
24000
2600
4—6 (300000-20000) x----------- = Rs. 30333
24000
1800
7—10 (300000-20000) x ----------- = Rs. 21000
24000
(3) Production Units Method:- Under this Method, depreciation is calculated; on the basis of production units
that machine will produce during its useful life.
Production during the year

Depreciation for the period= Depreciable Amount x -------------------------------------
Estimated total production
Question 24:- A Machine is purchased for Rs. 200000. Its estimated useful life is 10 years with a Residual value of Rs.
20000. The Machine is expected to produce 1.5 lakh units during its life time. Expected production is as follows:
Year Production
1—3 20000 Units per year
Sol.
Year Annual Depreciation
20000
1—3 (200000-20000) x ----------- = Rs. 24000
150000
15000
4—7 (200000-20000)x ------------ = Rs. 18000
1500000
10000
8—10 (200000-20000)x ------------ = Rs. 12000
150000
(4) Depletion Method:-
- This method is adopted for wasting assets like quarries, mines etc.
- Under this method, depreciation is calculated on the basis of quantity extracted from total estimated quantity.
- Annual depreciation will be quantity extracted multiplied by rate per unit.
Question 25:- M/S Rinku & Co. took lease of a quarry on 1-1-2003 for Rs. 100,00,000. As per technical estimate the
total quantity of mineral deposit is 2,00,000 tonnes. Depreciation was charged on the basis of depletion method.
Extraction Pattern is given on following table:
Year Quantity of Mineral Extracted
2003 2000 Tonnes
2004 10000 Tonnes
2005 15000 Tonnes
Show the Quarry Account and Depreciation Account for each year from 2003 to 2005.
Solution Quarry lease Account
2003 2003 By Depreciation 100000
1Jan To Bank A/c 10000000 31Dec. 9900000
10000000 By Bal. c/d 10000000
2004
1Jan To Balance b/d 9900000 31Dec. By Depreciation 500000
9900000 2004 A/c 9400000
9900000
2005 To Balance b/d 9400000 2005 By Depreciation 750000
1Jan 9400000 31Dec. A/C 8650000
By Balance c/d
9400000

Depreciation Account
2003 2003
31Dec To Quarry Lease A/c 100000 31Dec By P & L A/c 100000
100000
2004 100000
31Dec To Quarry Lease A/c 500000 2004
500000 31Dec By P & L A/c 500000
2005 500000
31Dec To Quarry Lease A/c 750000 2005 By P & L A/c 750000
750000 31Dec 750000
Important note: practice set of MCQ based questions have been given at the end of year.

CHAPTER 5. RECTIFICATION OF ERRORS
The term 'error' refers to unintentional mistakes in financial information, e.g. mathematical or clerical mistakes, oversight or
misinterpretation of facts, or unintentional misapplication of accounting policies.
While recording transactions and events various errors may be committed unintentionally. When a journal entry contains an
error, the entry can be erased or crossed out and corrected—if the error IS discovered immediately. However, if the errors are
detected after posting to ledger accounts, the correcting entries are made. The correcting entry is recorded in journal and
posted to the general ledger exactly as regular entries are.
Example:
(i) A repair expenses was erroneously debited to Plant and machinery on November 25. The error is discovered on
December 31:
Corrective Entry: 31st Dec. Repair Expenses A/c ———— Dr.
To Plant and Machinery A/c
The corrective entry shows a credit to plant and machinery to cancel of offset the erroneous debit to plant and machinery.
(ii) A collection on account was erroneously credited to sales on Jan.1 The error is discovered on Mach 26.
Corrective Entry: March 26 Sales Account Dr.
To sundry Debtors A/c
The debit to Sales in the correcting entry offset the incorrect credit to sales in the erroneous entry. The credit to Account
Receivable in the correcting entry places the collected amount where it belongs.
Some errors are counter balanced:--- Accounting errors that are undetected can affect a variety of items, including revenues
and expenses for a given period. Some errors are counterbalanced by offsetting errors in the ordinary accounting process in
the "next period. Such errors misstate net income in both periods, but by the end of the second period the errors are
counterbalance, and they affect the balance sheet of only first period, not the second period.
Example: A payment of Rs. 10,000 in March 2003 for Rent for the month April 2003. Instead of recording it as prepaid rent,
the payment was recorded as Rent Expenses. The effect of this recording error would be to:
i. overstate rent expenses for the year 2002-2003 and understate year-end assets by Rs. 10,000 for the first year end
and
ii. Understate rent expense for the second year.
Errors that are not counterbalanced in the ordinary book-keeping process will keep subsequent balance sheets in error
until specific correcting entries are made.
A Trial Balance is very good way of giving a clear indication of some mistakes that may be there. This will be shown
immediately, if the totals of the two columns of the trial balance differ. Thus, trial balance is essential to ensure that mistakes
do not remain unearthed. However, the agreement of trial balance do not show conclusively that no mistakes have remain
undetected. Some errors will not be disclosed by the trial balance whereas some will be. An agreed trial balance, therefore, is
only a reasonable proof of arithmetic accuracy of books
DIFFERENCE IN TRIAL BALANCE: ERRORS:- Apart from error in totalling the two columns of trial balance, the following
mistakes will be shown up by the trial balance , because then the trial balance will not agree:
(a) Mistake in transferring the balance of an account to Trial balance.
(b) Omitting to write the balance of an account in the trial balance.
© Mistake in balancing
(d) Making an entry on the wrong side.
(e) A mistake in the casting of subsidiary books.
(f) Omitting to post the discount columns of the cash book.
In spite of the agreement of the trial balance, the following types of error will not be disclosed because they do not upset the
equation: DEBIT = CREDIT.
Omitting to record a transaction entirely in subsidiary books.
A wrong entry in the subsidiary books.
1. Posting an entry on the correct side but in the wrong account head
2. An error of principle- where by an assets is transferred as an expense or liability is treated as an income.
3. Compensating errors.

 CLASSIFICATION OF ERRORS( most. imp)

a) Error of omission  A transaction entirely omitted to record in original books or
partially omitted while posting.
b) Error of commission  Wrong posting either of amount or on the wrong side, or in the
wrong account.
c) Error of principle  Wrong classification of expenditure or receipt
d) Compensating error  One error compensated by the error i.e. an error which cancels
themselves out.
 STEPS TO LOCATE A MISTAKES:- The following steps are suggested to find out errors:
1. Total the debit and credit columns of trial balance again
2. See the balances of all accounts, including the cash and bank balances, have been written in the trial balance.
3. Find out the difference in die trial balance. Look for such accounts as show this amount it is possible that the balance
of the particular account has been omitted from the trial balance. Account showing equal to half the difference
should also be checked; the amount may have been written on the wrong side of the trial balance.
4. See that there are no mistakes in the balancing of the various accounts.
5. Recheck the totals of the subsidiary books, especially if the mistake is of 1,10,100 and so on.
6. If the difference is a large one, compare the figures with the trial balance of the corresponding date of the previous
year, Any account showing rather large difference over the figure HI she corresponding trial balance of the previous
year, should be rechecked.
7. Posting of all amounts corresponding to the differences or half the difference should be checked
8. If the differences are still not traced posting of all accounts will have to be checked
RECTIFICATION OF ERRORS:-- Correction of errors, if located after some time, is always made by a proper journal entry and
not by simply crossing the wrong amount and inserting the right one. A complete explanation for the correction made should
be given so that no difficulty is experienced later when accounts are checked. From the point of view of rectification, errors
are of two type:—
(a) Error that affect the trial balance; and
(b) Errors that do not affect the trial balance.
SUSPENSE ACCOUNT:-- If the difference in the trial balance is not quickly located, it is usual to put the difference to suspense
account in order to make the trial balance balanced.
(c) If the debit side is short, the suspense account will be debited saying “To differences in trial balance” and
(d) Similarly, the suspense account will be credited if the credit side is short.
(e) The difference in the trial balance is due to type of mistakes which affect only one account such as wrong posting of
an account, mistake in totalling a subsidiary book etc. Such types of mistakes are only reflected in suspense account.
When the difference in trial balance is put to suspense account the account to be corrected will be debited or credited as the
case may be and the journal entry will be completed by crediting or debiting the suspense account. When all the mistakes
have been corrected, the suspense account will show no balance.
CORRECTION IN THE NEXT TRADING PERIOD:-- Since it is necessary to ascertain the profit or loss of each period separately, it
would be necessary to rectify errors in such a way as not to affect the current year's expenses, losses or incomes.
To take an example, if an error committed in 2001-2002 is rectified in 2002-2003 by debiting purchase account, it would mean
that it would be treated as expenditure for 2002-2003. This would be wrong and (proper way is to leave the purchase account
and all other nominal account for 2002-2003 unaffected by cm n 2001-2002.
For this purpose, a separate account, profit and loss adjustment account, should be opened and all debit and credit in respect
of nominal accounts for errors committed in previous trading period should be passed through that account. The balance of
this account is finally transferred to the capital account.
Distinction between Error of Principal and Error of Omission ( most imp.)
Errors of Principal Errors of Omission
 This error does not affect Trial Balance,  This error may affect Trial Balance
 This error is due to wrong classification of  This error is due to complete omission of a

Capital and Revenue expenditure or personal transaction or partial omission
and nominal account  This is a error may or may not affect profit of
 This is not a clerical error. the business.
 This error affects profit of the business.  This error may or may not affect value of assets
 This error will affect value of asset or liability or liability
QUESTION 1. Pass journal entries to rectify the following errors and prepare suspense account:
I. Rs. 1,080 received from Mohan was posted to the debit of his account.
II. Rs. 200 being purchases returns was posted to the debit of purchases account.
III. Rs. 400 received as discount was posted to the debit of discount account.
IV. Rs. 1,148 paid for repairs of motor car was debited to motor car account as Rs. 148.
V. Rs. 400 paid to Suresh was debited to Satish.
QUESTION 2. On 28th February,2017, the trial balance of X did not agree. X put the difference in a newly opened suspense
account. Subsequently, the following errors were located:
i. The returns inward book for January,2017 had been cast Rs.1000 short.
ii. A purchase of Rs. 1,671 had been posted to the debit of the creditor’s account as Rs. 1,617. The creditor is Panna
and Co.
iii. A sale of Rs. 2,000 to Singh and Co. was credited to the account of the customer.
iv. A sale of Rs. 4,000 has been passed through the purchases book. The customer’s account has, however, been
correctly debited.
v. While carrying forward the total of sales book from one page to the next, the amount was written as Rs.
1,76,658 instead of Rs. 1,67,568.
Pass journal entries to rectify the above mentioned errors. Also prepare the suspense account assuming that all
errors have been located.
QUESTION 3. A merchant while balancing his books of account finds that the trial balance shows excess debit of Rs. 1,700.
Being required to prepare the final accounts, he places the difference to a newly opened suspense account which he carries
forward. In the next accounting year, the following errors are discovered:
i. Goods bought from Narayan amounting to Rs. 5,000 had been posted to the credit of Narayan as Rs. 5,500.
ii. A discounted bill receivable for Rs. 20,000 was returned by the bank, as having been dishonored. The amount of the
bill was credited to bank and debited to bills receivable account.
iii. An item of Rs. 1,000 entered in the sales return book was posted to the debit of Pandey who had returned the
goods.
iv. Sundry items of furniture sold for Rs. 26,000 had been entered in the sales book. Ignore depreciation and profit or
loss on the sale.
v. Discount amounting to Rs. 200 from a creditor had been duly entered in the creditor’s account, but not posted to
discount account.
Draft journal entries necessary for rectifying the abovementioned errors. Prepare the suspense account and show
the ultimate effect of the errors on the last year’s profit by preparing profit and loss adjustment account.
QUESTION 4. An accountant prepared a trial balance on 31st december,2017, which revealed a difference in the books of
account. He put the difference in a newly opened suspense account. He detected the following errors:
i. The total of the returns outward book, Rs. 4,200 had not been posted in the ledger.
ii. A purchase of Rs. 3,500 for Y had not been entered in the purchases book. However, Y’s account had been correctly
credited with the amount.
iii. A sale of Rs. 3,900 to Z had been credited to his account as Rs. 2,900.
iv. Furniture sold for Rs. 5,400 had been entered as Rs. 4,500 in sales books.
v. Goods worth Rs. 500 taken by proprietor for personal use had not been recorded at all.
vi. Wages paid for on installation of machinery, Rs. 1,000 had been debited to wages account.
Pass journal entries to rectify the above mentioned errors and prepare suspense account assuming that all the
errors have been located.
QUESTION 5. Pass journal entries to rectify the following errors assuming the existence of suspense account:
(i) Goods bought from Vijay amounting to Rs. 27,500 were posted to the credit of his account as Rs. 25,700.
(ii) Sales book was overcast by Rs. 10,000.
(iii) While carrying forward the total of one page of the purchases book to the next page, the amount of Rs. 64,750
was written as Rs. 61,750.
(iv) Purchases returns to Goenka Brothers worth Rs. 15,500 were not recorded in purchases returns book, but the
account of Goenka Brothers was duly debited for the amount.
(v) Drawings of goods by proprietor costing Rs. 1,500 were not recorded in the books of account.
The suspense account had a debit balance of Rs. 1,600 prior to the above adjustments. Prepare the suspense account.

Answer : Journal entries
(i) Suspense A/c Dr. 1,800

To Vijay 1,800
(Being goods brought from Vijay amounting to Rs. 27,500 was posted
to credit of his account as Rs. 25,700)
(ii) Sales A/c Dr. 10,000
To Suspense A/c 10,000
(Being sales book was over cast by Rs. 10,000)
(iii) Purchases A/c Dr. 3,000
(Being balance of purchases book carried forward as 61,750 instead of
64,750)
(iv) Suspense A/c Dr. 15,500
To Purchases Return A/c 15,500
(Being Purchases return to Goenka Brother worth Rs. 15,500 were not
recorded in Purchase Return Book, now rectified)
(v) Drawings A/c Dr. 1,500
To Purchases A/c 1,500
(Being drawing of goods not recorded earlier, now rectified)
Suspense A/c

To Balance B/d 1,600 By Sales A/c 10,000
To Vijay 1,800 By Purchases A/c 3,000
To Purchase Return A/c 15,500 By Balance c/d 5,900
To Balance B/d 18,900 18,900

5,900
QUESTION 6. Rectify the following errors and prepare the suspense account on the assumption that all the errors has been
located and rectified:
(i) A Sum of Rs. 10,800 received from Mohan was posted to the debit of his account.
(ii) Rs. 2,000 being purchases returns were posted to the debit of purchases account.
(iii) Discount received Rs. 400 was posted to the debit of discount account.
(iv) Rs. 11,480 paid for repairs of motor car were debited to motor car account as Rs. 1,480.
(v) A sale for Rs. 23,500 to Sethi was entered in the sales book as Rs. 25,300.
(vi) While carrying forward the balance on one page in kalra’s account, the amount of Rs. 2,500 was written on the
credit side instead of the debit side.
Answer :
(i) Suspense A/c Dr. 21,600

To Mohan A/c 21,600
(Being a sum of Rs. 10,800 was received from Mohan, posted to his
debit, now rectified)
(ii) Suspense A/c Dr. 4,000
To Purchase A/c 2,000
To Purchase Return A/c 2,000
(Being purchases return wrongly debited to Purchase A/c, now
rectified)
(iii) Suspense A/c Dr. 800
To Discount A/c 800
(Being discount received was debited to discount A/c, now rectified)
(iv) Repairs A/c Dr. 11,480
To Motor Car A/c 1,480
(Being repairs to Motor car was debited to motor car A/c, now
rectified)
(v) Sales A/c Dr. 1,800

To Sethi A/c 1,800
(Being sales of Rs. 23,500 to sethi entered in sales Book as Rs. 25,300,
now rectified)
(vi) Kalara Dr. 5,000
(Being debit balance of Rs. 25,00 in Kalra’s A/c wrongly written on the
credit side of the A/c now rectified
Dr. Suspense A/c Cr.

To Mohan 21,600 By Difference in Trial Balance 11,400
To Purchase A/c 2,000 (Bal. Fig)
To Purchase Return A/c 2,000 By Repairs A/c 10,000
To Discount A/c 8,00 By Kalara 5,000
To Return Outward A/c
26,400 26,400
QUESTION 7. On 28th February, 2017, the trial balance of Zahir did not agree. The proprietor put the difference in a newly
opened suspense account. Subsequently, the following errors were located:
(i) The purchases book for January, 2017 has been cast Rs. 1,000 short.
(ii) A credit sale for Rs. 6,000 has been passed through the purchases book. The customer’s account has, however,
been correctly debited.
(iii) A credit purchase for Rs. 6,710 had been posted to the debit of the creditor’s account as Rs. 6,170; Rajan being
the concerned creditor.
Pass journal entries to rectify the above mentioned errors. Also prepare the suspense account assuming that
there are no other errors.
Answer
1) Purchase A/c 1000
To suspense A/c 1000
(being purchased book has cast short now rectified )
2) Suspense A/c 12000
To purchases 6000
To sales A/c 6000
( being a credit sales has been pass through the purchases book now rectified)
3) Suspense Dr 12880
To Rajan 12880
(being credit purchase for Rs 6710 to Rajan’s debit now rectified )
Suspense A/c
To Purchases A/c 6000 By Differences in trial balances 238800
To Sales A/c 6000 By purchases 1000
To Rajan A/c 12800
24880 24880
QUESTION 8. A book –keeping finds that trial balances is out by excess debit of Rs 500. He puts the differences to a newly
opened suspense account. Later on he detects the following errors :
1) Goods worth Rs 15000 purchased from Ravi but entered in the sales book .
2) Received a promissory note for Rs 25000 from Arun but entered in the bill payable book.
3)An item of Rs 3500 relating to prepaid rent accounted was omitted to be brought forward .
4) An item of Rs 2000 in respect of purchased returns to Roshan had been wrongly entered in the purchased book .
5) Rs 5000 paid to Hari against acceptances was debited to Harish
6) A bill was received for repairs of furniture for Rs 2500 . The amount was debited to furniture account .
Pass journal entries to rectify the above errors .
Answer :-
1) Purchases A/c 15000
Sales A/c 15000
To Ravi 30000
(being goods purchased from Ravi entered in sales book now
rectified )

2 Bill receivables A/c 25000
Bill payable A/c 25000
To Arun 50000
(being promissory note received from Arun entered in bills payable
book now rectified )
3 Prepaid Rent A/c 3500
To Suspense A/c 3500
(being prepare rent accounted omitted to be brought forward now
rectified )
4 Suspense A/c 4000
To Purchase A/c 2000
To Purchase returns A/c 2000
( being Purchase returns to Roshan wrongly entered in purchase
book mow rectified )
5) Bills payable A/c 5000
To Harish 5000
(being cash paid to Hari against our acceptances debited to Harish
now rectified )
6) Repairs A/c 2500
To Furniture A/c 2500
(being repairs to furniture debited to furniture A/c now rectified )
QUESTION 9. On 31st March 2017 the trial balances of Kunal did not agree. To prepare the final accounted the proprietor put
the differences in a newly opened suspense account. In the next accounting year the following errors were located :
1) Rs 18500 paid for the purchased of a machinery was charged to office expenses account .
2) Cash sales of Rs 3550 was posted as Rs 3505
3) Purchase return book was under cast by Rs 100.
Pass journal entries to rectify the above mentioned errors .
Answer :
Machine A/c 18500
To profit and loss adjustment account 18500
(being of machines charges to expenses accounted error now rectified )
Suspense A/c 45
To profit and loss adjustment account 45
(being short cash sales , error now recorded and rectified )
Suspense A/c 100
To profit and loss adjustment account
(under cast of Purchases Return books error now rectified ) 100
QUESTION 10. On 31st March 2017 an accounted of a sole proprietorship concern could not agree his trial balances . He put
the difference in a newly opened suspense accounted and closed the books of accounted for the year. In the subsequent
accounting year the following error in the books for the year 2016-17 were located :
1) Rs 8000 paid for purchase of office furniture was posted to the purchase account.
2) The sales book was over casted by Rs 100.
3) Erections of machinery Rs 2750 had been debited to wages accounted as Rs 5250.
4) A cheque for 7330 was received from Rao after allowing him a discount of Rs 70 . It was endorsed in favour of Sen in full
settlement of Rs 7500, The cheque was dishonoured but no entry for dishonour was passed in the books.
Pass journal entries for rectify the above mentioned errors. Also prepare the suspense account and Profit and loss adjustment
assuming that all the errors have been located.
Answer :- Rectifying journal Entries

Furniture A/c 8000
To P& L Adjustment A/c 8000
(being the cost of office furniture purchased wrongly debited to purchase A/c now
rectified
P&L adjustment A/c 100
To Suspense A/c 100
(being sales book was overcast now rectified )
Machinery A/c 2750
Suspense A/c 2500

To Profit & Loss Adjustment A/c 5250
( being Rs 2750 paid for erection of machinery debited to wages A/c as Rs 5250 now
rectified )
Rao 7400
Profit & loss Adjustment A/c 100
To Sen 7500
(being cheques received from endorsed in favour of Sen in full settlement of Rs 7500
was dishonoured & now the entry was made )
Suspense A/c
To profit & loss A/c Adjustment A/c 2500 BY differences in Trial balances 2400
BY Profit & loss Adjustment A/c 100
2500 2500
Profit & loss Adjustment A/c

To suspense A/c 100 By Furniture A/c 8000
To Sen 100 BY Machinery 2750
To Capital 13050 By Suspense 2500
13250 13250
QUESTION 11.The book of account of Jawahar for the year ended 31st March 2017 were closed with different in the trial
balances carried forward . Subsequently the following errors were detected :
1) Rs 1500 being the total of discount column on the credit side cash book was not posted in general ledger .
2) Closing stock was overstated by Rs 9000 being casting error in the schedule of inventory.
3) Return outward book was under cast by Rs 150.
4) A credit sales of Rs 870 was under wrongly as 780 to the customer‘s account.
5) Rs 6000 being the cost of purchase of office furniture was entered in the purchases book.
Pass rectified entries and prepare suspense account and find out the effect of rectification of errors on profit as on 31-3-17.
QUESTION 12. Before preparing the final accounts, an accountant prepared a trial balances which did not agree. He
transferred the different to a suspense account. Before preparing the final account he was able to locate the followed errors :
1) Rs 20000 paid by way salaries were not posted from the cash book to the ledger.
2) Rs 100 paid for conveyances was debited to car maintenance accounted
3) Purchase account includes purchase of machine costing Rs 25000.
4) The cash column in the cash book on the receipt side was under cast by Rs 300.
Pass journal entries to rectify the above mentioned errors.
Question 13. During the course of an accounting year accountant prepared a trial balances which did not tally. He put the
differences in a suspense accounted. Subsequently, he located the following errors in his book of account :
1) The total of the returns outward book Rs 21500 has not been posted.
2) A sales of Rs 4300 to Ramesh has been credited to him as RS 3400.
3) A sales of Rs 2960 to Shyam has recorded in sales book as Rs 2690.
4) Old furniture sold for cash worth Rs 5400 has been entered in sales account as Rs 4500. There was no profit or loss on
sales.
Pass journal entries to rectify the above mentioned errors.
Answer :-
1 Suspense A/c 21500
To Returns Outward A/c 21500
(being rectification of the error in which total of returns outward book was
not posted )
2 Ramesh 7700
To Suspense A/c 7700
( Sales of Rs 4300 to Ramesh wrongly credited to him as Rs 3400 error now
rectified )
3 Shyam 270
To sales 270
(Being wrong amount of sales to Shyam entered in sales book now rectified
)

4 Sales A/c 4500
Suspense A/c 900
To furniture A/c 5400
(being wrong recording of sales of furniture to sales account error now
rectified
QUESTION 14. At the end of an accounting year trial balances of a concern agree but the followed errors were discovered
after preparing the final accounts.
1) No adjustment entry was preparing for an amount of Rs 2000 of outstanding rent.
2) Purchases book was over cast by Rs 1000.
3) Depreciation of Rs 4000 on machinery had omitted to be recorded in the books
4) Rs 600 paid for purchases of stationery had been debited to purchases account.
5) Sales book was over cast by Rs1000.
6) Rs 5000 received in respect of book debts had credited to sales accounts.
Show the effect of each one of the above-mentioned errors on the net profit of the year to which these errors pertain. If the
net profit as profit and loss account is 322000 what is the correct profit arrived at after the rectification of above errors?
Answer :-
Statement showing effect on profit & loss A/c
Particulars Overstated Understated
No entry for outstanding rent 2000 ----
Purchase overcastted --- 1000
Depreciation omitted to be recorded 4000 ---
No entry
Sales overcastted 1000 ---
Sales overcastted 5000 ---
Profit overstated = 12000-1000 = 11000

Correct profit = 322000-11000
= 311000
QUESTION 15. The book of Ramesh did not agree. The differences of Rs 27000 in trial balances were places to the debit
account. Subsequently the following errors were located. Pass journal entries to rectified the errors and prepare suspense
account .
1) The total of the purchases returns book Rs 2100 has not been posted
2) A sales of Rs 4300 to Ram has been credited to his account as Rs 3400
3) A purchase from Suresh for Rs 4000 has been entered in the sales book. However Suresh has been correctly credited
with Rs 4000.
4) Old furniture sold on credit for Rs 5400 has been recorded in the sales book as Rs 4500.
5) Goods taken away by Ramesh the proprietor for the personal use worth Rs 750 have not been recorded in the book
of account at all.

CHAPTER 6. FINANCIAL STATEMENTS OF PROFIT MAKING ORGANISATIONS

(NON-MANUFACTURING ENTITIES & MANUFACTURING ENTITIES)
FINAL ACCOUNTS OF NON-MANUFACTURING ENTITIES:-

Introduction:-
Non-Manufacturing entities are trading entities which are engaged in the purchase and sale of goods at profit without
changing form of goods.
These entities do not process the goods.
- Profit is obtained by preparing Income statement (i.e trading A/c and profit and loss).
- Financial position of enterprises can be known by preparing Position statement (Balance Sheet).
(a) INCOME STATEMENT:-This statement is prepared at the close of year.

Income statement is divided into two parts for non-manufacturing concerns.
Trading Account:-
At the end of the year every business must ascertain it profit or loss. This is done in two-stage (I) finding out the gross profit
(or gross loss) and then finding out net profit (or net loss).
Gross profit is the excess of the net sales (i.e. sales - sales return) over the cost of goods sold.
Cost of goods sold equal to opening stock + purchases during the year + freight inward - Closing Stock of goods.
The usual way to ascertain gross profit is by means of an account called the Trading Account.
In a Trading Firm where business consist of purchases and sales only, the Trading Account is debited with the;
Value of the opening stock, purchases made during the year; and
any other expenses which have been incurred to bring the purchased goods to the firm’s factory or otherwise to make the
goods ready for sale.
The examples of such expenses are freight, customs duty and octroi duty on goods purchase.
In a manufacturing business, all expenditures which are incurred up to the time the goods are ready for sale is debited to
trading account. Examples are purchase of raw material, wages paid to workmen, fuel and power used to run the machinery,
carriage on purchase etc.
In respect of Sales, the following point should be taken in to consideration: - If goods have been sold but not yet dispatched
then the goods sold should not be included in the closing stock. Such goods should be kept apart.
If property in the goods has not yet passed to the buyer, then it should not be treated as a sale. In such case the entry for sale
should be reversed.
No sales out of the goods received on behalf of others should be treated as sale. Such sales have to be credited to the account
of the consignor. If the sales have already credited to Sales Account, the following entry should be passed:
Sales Account - Dr ****
To consignor's account ****
Sale of Fixed Assets or of investment should be excluded from sales. Thus if old assets is sold, it must not be credited to sales
Account. If it has been credited, the following entry should be passed:
Sales Account — Dr. ****
To assets Account ****
Goods Sent on Approval:-- Goods sent on 'approval' or 'on sale or return' basis, means the delivery of the goods to the
customers with the option to retain or return them within a specified period. When such transactions are few, these
transactions are accounted for as an ordinary sale. If at the year end goods are still lying with customers and the specified
period has not yet expired, the original entry made for sale is cancelled. Like an ordinary closing stock, such goods are
considered as stock lying with customers on behalf of sellers and are valued at cost.
Format of TRADING ACCOUNT For the year ended 31st March, 20…
To Opening Stock ****** By Sales *****
To Purchase (Cash + Credit) ***** Less: Sales Return ***** ******
Less: Purchase Return *****
Goods withdrawn for personal By Abnormal Loss (if any)
use ***** Loss by fire *****
Goods distributed Loss by theft etc. ***** ******
by way of free sample *****
Goods given as charity ***** ****** By Closing Stock ******
To Customs Duty ******
To Octroi Duty ****** By Gross Loss trad. to P & L A/c ******

To Excise Duty ******
To Freight inward ******
To Carriage inward ******
To Wages and Salaries ******
To Rent & Taxes (Factory building.) ******
To Factory Lighting (electricity) ******
To Power & Fuel ******
To Gross Profit carried
to profit & Loss A/c ******
TOTAL ****** TOTAL ******
The Profit and Loss Account starts with the credit from the Trading Account in respect of Gross Profit or Debit if there is
Gross Loss. Thereafter, all those expenses, which have not been debited to trading account, arc debited to profit and loss
account. If there are any incomes or gains, for e.g. rent received on premises sublet. interest on investments, discount
received from suppliers, these will be credited to Profit and Loss Account
Format of Profit and Loss Account (For the year ending on----)

To Gross Loss b/d ****** By Gross Profit b/d ******
To Salaries & Wages ****** By Profit on Sale of fixed assets ******
To Salaries to Proprietor/ Partners'/ Directors' ****** By Profit on Sale of investment ******
To Bonus ****** By Interest ******
To Rent, Rates & Taxes ****** By Dividend ******
To Freight & cartage outward ****** By Commission ******
To Electricity Exp. ****** By Discount ******
To Repair & Maintenance ****** By Rent ******
To Insurance Premium ****** By Sale of Scraps ******
To Staff Welfare exp. ****** .By Miscellaneous Income ******
To Pension & Gratuity ******
To Compensation to workmen ******
To Audit Fees ******
To Printing & Stationery ******
To Postage, Telegram & Telephone ******
To Commission, Brokerage & Discount ******
To Travelling Exp. ******
To Conveyance Exp. ******
To Entertainment Exp. ******
To Sales promotion Exp. ******
To Advertising & Publicity ******
(including free sample distribution) ******
To discount allowed ******
To Bad Debts ******
To Interest ******
To Bank Charges ******
To Legal Charges ******
To General Exp. ******
To Packing Expenses ******
To Motor Car Expenses. ******
To Depreciation: ******
On Building *****
On Plant & machinery *****
On Furniture & Fixture etc. *****
To Loss on sale of fixed assets ******
To Loss on sale of investment ******
To Abnormal loss:
Loss by theft ******
Loss by fire ******
Loss by Embezzlement ******
To Provision for Doubtful Debts ******
To Provision for Taxation ******
To Net Profit trd. to Capital A/c ******
By Net Loss trd. To Capital A/c ******
Total ****** Total ******

(B) Position Statement:-Position statement mainly consist Balance sheet which shows assets, and liabilities and capital of
business. For better understanding of financial position additional statement like cash flow statement, statement showing
earning per share, value added statement etc. are prepared. The statement showing the financial state of affairs is called
Balance Sheet.
BALANCE SHEET:-- The Balance Sheet may be defined as "a statement which sets out the assets and liabilities of a firm or an
institution as at a certain date. All the assets account which have not been closed by transfer to either the Trading Account or
the Profit & Loss account must appear in the balance Sheet otherwise the two side of the balance sheet will not agree and it
will not reflect the correct financial position of the business.
The Balance Sheet similarly is required to give true and fair view of the financial position at the end of the year
The study of the Balance Sheet enables the person to judge whether the firm or institution is financially sound or not.
The Balance Sheet records on one side what the firm or institution possesses, called assets. Assets may be convertible in to
cash or they may be enable the firm to carry on it work (for example patents which permit goods of a certain type to be
produced) or the firm may enjoy some benefits without further payment (like insurance premium relating to the next year.).
On the other side it records the source from which the necessary funds have been derived - contribution by the proprietors
(capital) and loan raised and credit received from outsiders.
The Profit and Loss Account and Balance Sheet are inter-linked. The Balance Sheet described the financial position while
the Profit and Loss Account supplies much of the explanation of the causes leading to the change in the financial position.
Items to be shown on the Assets side of a Balance Sheet:
 Fixed Assets:- Fixed assets are those assets that are not meant to be sold but are meant to be utilised in the firm's
business. Examples are machinery, patents, buildings and goodwill. Fixed assets can be further classified in to tangible,
intangible, wasting and fictitious assets.
Tangible Assets  Those fixed assets which can be seen and touched.
Intangible Fixed  Those fixed assets which can nether seen nor been touched e.g..
Assets Goodwill, Patents. Trade Mark.
Wasting assets  Those fixed assets, which are consumed during the course of time A mine,
for example, will be useless when it has been fully exploited. Such assets
are often called wasting assets.
Fictitious assets  Those assets, which has no value. An example is preliminary expenses.
 Investment:— an expenditure incurred on assets to earn interest, dividend, income, rent or other benefit
 Current Assets:— Those assets which are held:—
 In the form of cash
 For their conversion into cash e.g. stock of finished goods, debtors, Bills Receivable, Accrued income.
 For their consumption in the production of goods or rendering of services e.g. stock of raw materials, WIP.
Item to be shown on the Liabilities side of a Balance Sheet:- The credit balances of those ledger accounts which have not
been closed till the preparation of the Trading and Profit and Loss account, are shown on the 'Liabilities side of the Balance
Sheet.
(a) Liabilities: - It is the claim of outsiders on the assets of business. Usually the following items are included in liabilities:--
i) Long-term liability:-- Those that will be paid after one year.

ii) Current Liability: —— Those that must be settled within one year.
(b) Capital: - Capital is the excess of assets over liabilities. It is the claim of owner in total assets of the business. It refers to
the amount invested in an enterprise by the proprietor or partners, which is increased by the amount of profit
earned and is decreased by the losses incurred and the amount withdrawn whether in the form of cash or
kind.
ARRANGEMENT / MARSHALLING OF ASSETS AND LIABILITIES :
The term ‘Marshalling' refers to the order in which the various assets and liabilities are shown in the Balance Sheet. The
assets and liabilities can be shown either in the order of liquidity or in the order of permanency.

Assets: - Assets can be put down in a Balance Sheet, in two ways - either in the order of liquidity or in the order of
permanence.
i) Liquidity: - It means the ease with which the assets may be converted into cash; those assets which are most
difficult to convert them in cash are written last.
ii) Permanence: Assets that are to be used permanently in the business and are not meant to be sold are written first.
Assets that are most liquid such as cash in hand are written last.
The various assets is grouped in the two order will appear as follows:-
In order of Liquidity In order of Permanence
Cash in hand Goodwill
Cash at Hand Patents
Investments Furniture
Sundry debtors Machinery
Stock of finished goods Land & building
Stock of raw material Prepaid exp,
Stock of WIP Stock of finished goods
Prepaid Exp. Stock of raw material
Land & Buildings Sundry debtors
Machinery Investment
Furniture Cash in hand
Patents Cash at bank
Some assets cannot be easily classified. For example, investment can be easily sold but desire may be to keep them.
Investment may, therefore, be both liquid and semi-permanent according to the intention of the firm.
Liabilities:- Liabilities can also be grouped in two ways — either in order to urgency of permanent or in reverse order. One
way is to first show the capital, then long term liabilities and last of all short term liabilities like amounts due to supplier of
goods or bills payable. The other way is to start with short term liabilities and then show long term liabilities and last of all
capital.
Floating Assets:—Floating assets are those assets which are meant to be converted in cash at earliest opportunity. Examples
are cash, sundry debtors, stock of goods etc. The term floating is derived from the fact that such assets constantly change in
value through transactions that are entered into. The figure total debtors for instance changes from day to day. Those assets
are also known as circulating assets.
FINAL ACCOUNT OF MANUFACTURING ENTITIES
MANUFACTURING ACCOUNT:- In a case where the cost of manufacturing goods is to be ascertained, the Manufacturing
Account is prepared. The main feature of a Manufacturing Account are the following :—
 It is debited with all expenses that are incurred in manufacturing of goods. In this account, besides such
expenses as freight on purchases of raw materials, customs duty, wages, rent and lighting of factory building, we
must also debit the manufacturing account with repairs to plant and machinery. depreciation on machinery, loose
tools, etc.
 In this account, we have to show the value of materials consumed instead of showing figures of opening stock,
purchases and closing stock separately.
 Raw Material consumed:
Opening Stock of Raw material *****
Add: Purchases of Raw Material *****
Less: Closing Stock of Raw Material ***** *****
Note:- Opening and Closing Stocks of finished goods are not entered in Manufacturing Account,
 The opening stock of work-in- progress is debited and closing stock of work-in-progress is credited. The usual basis of
valuation of work in progress is the actual materials used and labour spend on these unfinished goods plus a proper
proportion of manufacturing expenses, generally on the basis of labour.
 In the course of manufacturing some waste material always emerges. when they are sold, the amount realized
credited to “Scrap Account”. This Account is transferred to the credit side of the Manufacturing Account.

 The Balance in Manufacturing Account (i.e. the difference between the debit and credit sides) is the cost of the
goods produced during the period. This is transferred to the debit side of the Trading Account.
Manufacturing Account of ----for the year ending----

To Opening WIP ***** By Sale of Scrap ******
To Raw Material Consumed By Closing WIP ******
Opening Stock **** By Trading Account ******
Add: Purchases **** (Cost of Goods produced
Add: Cartage in ward **** transfrd.)
Add: Freight in ward ****
Less Closing Stock ****
To Wages ******
To Salary to Works Manager ******
To Power. Electricity and Water ******
To Fuel ******
To Depreciation on: ******
Plant and Machinery
Factory Land & Building ****
To Repair to: **** ****
Plant & Machinery
Factory Building ****
To Insurance: **** ****
Plant & Machinery
Factory Building ****
To Factory Rent & Taxes **** ****
To Royalty based on production ****
****
Total ***** Total ******
CONCEPT BASED QUESTIONS
Question: 1. Following are the extract from the Trial Balance of a Company as at 31st March 2017.
Particulars. Dr. (Rs.) Cr. (Rs.)
Sundry Debtors 2,05,000
Bad Debts 3,000
Additional Information:
After preparing the Trial Balance, it is learnt that Mr. X, a debtors has become insolvent and nothing could be recovered from
him and, therefore, the entire amount of Rs.5,000 due from him was irrecoverable,
Create 10 % provision for doubtful debts.
Pass the necessary journal entries and show the relevant accounts.
Question: 2. Following are the extracts from the Trial Balance of a Company as at 1st March 2017.
Particulars Dr. (Rs.) Cr. (Rs.)
Sundry Debtors 2,05,000 ----
Provision for Doubtful Debts ----- 8,000
Bad Debts 3,000 ----
Additional Bad debts Rs.5,000
Maintain the provision for doubtful debts @ 10 % on debtors.
Pass the necessary journal entries and show the relevant accounts.
Provision for Discount on Debtors:--The procedure is the same as for provision for bad debts. First, the profit and loss
account is debited and the provision for discount account credited. This account is carried forward to the next year. Next
year, the actual discounts allowed will be debited to the profit and loss account. The profit and loss account will be debited to
make up the required balance each year. If after providing the required balance a surplus is left in the provision for discount
account, it should be transferred to the credit of profit and loss account. But the provision for discounts should be calculated
on total debtors minus the provision for bad debts.

Question: 3. Following are the extracts from the Trial Balance of a Company as at 31st March 2017.
Particulars Dr. (Rs.) Cr. (Rs.)
Bad Debts 3,000
Discount 1,800
(i)Create a Provision for doubtful debts @ 10% on debtors.
(ii)Create a provision for discount on debtors @ 2% on debtors.
(iii)Additional Discount given to the debtors Rs. 5,000
Pass the necessary entries and show the relevant accounts (including final accounts)
Question: 4. Following are the extract from the Trial Balance of S. Ltd. on 31st March 2017.
Particulars Dr. (Rs) Cr. (Rs)
Sundry Debtors 2,05,000 ----
Provision for Doubtful Debts ---- 8,000
Provision for Discount on Debtors ----- 2,000
Bad Debts 3,000 ----
Discount 1,000 ------
(i)Additional bad Debts Rs. 4,000
(ii)Additional Discount allowed to Debtors Rs. 1,000
(iii)Maintain a provision for bad debts @ 10% on debtors.
(iv)Maintain a provision for discount @ 2% on debtors.
Pass the necessary journal entries and show the relevant accounts (including final accounts).
Question: 5.( mind blowing question) Trial balance as on 31, March 17

Dr. Cr.
S. Debtors 2,00,000 --
Bad Debts 10,000 --
Creditor 1,00,000
(i) Mr. A, a debtor of Rs. 20,000, suffering from financial difficulties, it is expected that he could pay only 60% of the
amount.
(ii) Mr. B, a debtor of Rs. 10,000 also a creditor of Rs. 10,000 .
(iii) Mr. C a debtor of Rs. 5,000 became insolvent and official receiver declared a first and final dividend of 65% of the amount.
(iv) Create provision for doubtful debt @ 5% on debtors.
(v) Create provision for discount @ 2 % on debtors
Question: 6. Trial balance as on 31, March 2017

Dr. Cr.
Debtors 2,00,000
Sales 5,00,000
Purchases 1,00,000
Manufacturing exp. 40,000
(i) goods costing Rs. 60,000 were sent on approval basis for Rs. 80,000. Approval has not yet been received till the
end of 31 March 2017.
(ii) Closing stock was valued at Rs. 20,000.
(iii) Create provision for doubtful debt @ 10%.
Question: 7. Assume in previous question, out of goods sent on approval basis, company has not received approval for 20%
of goods.
Question: 8. Trial balance as on 31st March ,2017

Dr. Cr.
Machine 2,00,000
Addition to machine (1 Oct.,16) 50,000
Rent 40,000
Salary 30,000
Commission received -- 10,000
Fees received 20,000

Adj: (i) Charge depreciation @ 10% p.a. on machine.
(ii) Rent due but not paid Rs. 5,000.
(iii) Commission due but not received Rs. 2,000.
(iv) Fees received in advance Rs. 3,000.
(v) salary includes Rs 12,000 paid for next year.
Question: 9. Trial balance as on 31st march,2017

Dr. Cr.
Machine 1,80,000
Rent 45,000
O/S Rent 5000
Salary 26,000
Prepaid Salary 4,000
Commission Received 12,000
Accrued commission 2,000
Fees earned 17,000
Unearned fees 3,000
Depreciation 20,000
Question: 10. Trial balance as on 31st march ,2017

Dr. Cr.
Capital 3,00,000
Drawings 1,00,000
Adj: (i) Allow interest on capital @ 10% p.a.
(ii) Charge interest on drawings @ 5%.
Question: 11. Dr. Cr.

Gross Profit 3,00,000
Rent 10,000
Salary 20,000
Adj: manager is entitled to a commission of 5% on net profit before commission.
Question: 12. Assume in previous question, manager is entitled to a commission of 5% after charging such commission.

Op. Stock 10,000
Purchases 2,00,000
Sales 5,00,000
Manf. Exp. 20,000
Adj: (i) Closing stock was valued at Rs. 25,000.
(ii) During the year, goods costing Rs. 40,000 were lost due to fire and nothing could be recovered from insurance
company.
Question: 14. Assume in previous question, Insurance company admitted the claim for Rs. 27,000 in full settlement.
Question 14 GST.(14 question has been repeated 2 times. Read carefully. It has been explained in last video class). On 28th
March, 2016, stock worth ₹ 80,000 was destroyed by fire. These goods were purchased paying IGST @ 12%. The stock was
insured and the insurance company admitted a claim of Rs 85,000 only. Give necessary Journal entries and show how it will
be treated in the Final Accounts.
Question: 15. Trial Balance as on 31 march,2017

Dr. Cr.
Opening stock 10,000
Purchases 1,00,000
(i) Closing stock were valued at Rs.20,000

Purchases (Adjusted) 90,000
Stock 20,000

Purchases 90,000
Adj: (i) Goods Costing Rs. 10,000 were lost due to leakage, considered as normal loss.
(ii) Goods costing Rs. 12,000 were lost due to theft.
(iii) Closing stock was valued at Rs. 20,000.
Question : 17GST.(17 question has been repeated 2 times. Read carefully. It has been explained in last video class) Trial
Balance of Mr. Gopal Das as on 31st March, 2019 was as follows:
Heads of Accounts Dr. (₹) Cr. (₹)

Purchases 8,12,525
Sales 12,62,000
Provision for Doubtful Debts 26,000
Sundry Creditors 1,52,630
Bills Payable 20,250
Opening stock 1,33,625
Wages 1,15,685
Salaries 27,875
Furniture 36,250
Postages 21,130
Power and Fuel 6,750
Trade Expenses 29,155
Bad Debts 2,625
Loan to Ram @ 10% p.a. (1.12.2018) 15,000
Cash in Hand and at Bank 50,000
Trade Expenses accrued but not paid 3,500
Drawings 22,260
Capital 50,000
Outstanding Wages 10,000
Input CGST 5,000
Input SGST 5,000
Input IGST 8,000
Output CGST 4,000
Output SGST 4,000
Output IGST 9,500
Total 15,23,880 15,23,880
Prepare Trading and Profit and Loss Account for the year ended 31st March, 2019 and Balance Sheet as at that date after
taking into consideration the following information:
(i) Stock on 31st March, 2019 was ₹ 62,750.
(ii) Depreciation on Furniture is to be charged @ 10%.
(iii) Sundry Debtors include an item of ₹ 2,500 due from a customer who has become insolvent. Remaining debtors
are not considered doubtful of recovery.
(iv) Goods of the value of ₹ 7,500 plus IGST @12% were destroyed by fire and insurance company admitted a claim
for Rs 8,000.
(v) Received goods from Rahul and Co. of ₹ 6,000 plus IGST @12% on 27th March, 2019 but the invoice of
purchases was not recorded in Purchases Books.

Solution: TRADING AND PROFIT AND LOSS ACCOUNT OF GOPAL DAS For the year ended
Particulars ₹ Particulars ₹
To Opening Stock 1,33,625 By Sales 12,62,000

To Purchases 8,12,525 By Loss of Stock by Fire 7,500
Add: Omitted Purchases (Note 1) By Closing Stock 62,750
6,000 8,18,525
To Wages 1,15,685
To Power and Fuel 6,750
To Gross Profit c/d (transferred to Profit 2,57,665
and Loss A/C)
13,32,250 13,32,250
To Loss of Stock by Fire (₹8,400-₹8,000) By Gross Profit b/d
To Salaries By Provision for Doubtful Debts (Note 2) 2,57,665
To Postage 400 Existing Provision 26,000
To Trade Expenses Less: Bad Debts 2,625
To Depreciation on Furniture 27,875 Further Bad Debts 2,500 5,125
To Net Profit transferred to Capital A/C 21,130 By Accrued Interest on Loan
29,155 20,875
3,625 500
1,96,855
2,79,040 2,79,040
BALANCE SHEET
Liabilities ₹ Assets ₹
Current Liabilities Current Assets

Creditors 1,52,630 Insurance Claim 8,000
Add: Omitted Purchases 6,720 1,59,350 Cash in Hand and at Bank 50,000
Bill Payable 20,250 Closing stock 62,750
Outstanding Wages 10,000 Debtors 2,51,000
General Expenses Outstanding 3,500 Less: Further Bad Debts 2,500 2,48,500
Capital Loan to Ram 15,000
Opening Balance 50,000 Add: Accrued Interest 500 15,500
Add: Net Profit for the Year 1,98,855 Input SGST 320
2,46,885 Fixed Assets
Less: Drawings 22,260 2,24,595 Furniture 36,250
Less: Depreciation 3,625 32,625
4,17,695 4,17,695
Notes:
1. Following entry will be passed to record omitted purchases:
Purchases A/C Dr. ₹6,000
Input IGST A/c Dr. ₹720 To
Supplier (Creditor) ₹6,720
2. Since the remaining debtors are not doubtful of recovery, balance in Provision for Doubtful Debts is written back
(credited) to Profit and Loss Account.
3. Input CGST, Input SGST and Input IGST shall be first adjusted against Output CGST, Output SGST and Output IGST
respectively. Thereafter, balance in Input CGST (₹ 1,000) shall be adjusted against Output IGST and balance (₹680) in
Output IGST shall be adjusted against Input SGST leaving a balance to ₹ 320 in Input SGST Account.

Question: 18. Trial Balance as on 31 march 2017

Dr. Cr.
Insurance 1,200
Salary 11,000
Building 3,00,000
Wages 20,000
Adj: (i) Insurance includes a premium of Rs. 170 on a policy, expiring on 30 st September 2017.
(ii) Salary for the month of march 2017 is outstanding.
(iii) Wages includes Rs. 5,000 paid on erection of a cycle shed.
(iv) Charge depreciation @ 10% p.a. on building.
Question : 18 GST.(18 question has been repeated 2 times. Read carefully. It has been explained in last video class). From
the following Trial Balance, prepare Trading and Profit and Loss Account for the year ended 31st March, 2019 and Balance
Sheet as at that date:
Debit Balances (₹) Credit Balances (₹)
Salaries 10,223 Sales 66,420
Bills Receivable 6,377 Capital 50,000
Investments 40,000 Provision for Doubtful Debts 2,500
Furniture 12,000 10% Loan (1.10.2018) 10,000
Opening Stock 4,500 Discount Received 400
Purchases 30,000 Sundry Creditor 9,300
Sundry Debtors 20,000 Bills Payable 5,000
Interest on Loan 400 Outstanding Salaries 500
Insurance Premium 900 Bad Debts Recovered 200
Wages 4,600 Interest on Investment 2,000
Rent 1,520 Trading Commission 7,000
Bad Debts 1,200 Output CGST 10,000
Carriage Outwards 600 Output SGST 10,000
Cash at Bank 12,000 Output IGST 8,000
Depreciation on Furniture 2,500
Accrued Commission 1,000
Advertisement 7,500
input CGST 8,000
input SGST 8,000
input IGST 10,000
1,53,320 1,53,320
Adjustments:
(i) Closing Stock ₹ 6,000
(ii) Goods costing ₹ 1,000 were distributed as free samples while goods costing ₹ 500 were taken by the proprietor
for personal use. These goods were purchased paying CGST and SGST @ 6% each.
(iii) A credit sale of ₹ 2,000 plus IGST @12% was not recorded in the sales book.
(iv) Closing Stock included goods costing ₹ 1,000 which were sold and recorded as sales but not delivered to the
customer.
(v) Maintain provision for Doubtful Debts @ 5%.
(vi) Manager is entitled to commission @ 10% of net profit after charging such commission.
Question: 19. Trial Balance as on 31 March,2017

Dr. Cr.
Gross profit 2,50,000
Stock 10,000
Capital 6,00,000
Indirect expenses 40,000
Reserve --- 50,000

Adj: (i) owner to get a salary of Rs. 12,000 P.a.
(ii) 10% of net profit is to be credited to Reserve.
(iii) It was discovered in April 16, that stock sheets as on 31 March, 16 were overcast by Rs. 1,000. However no entry
was passed in April, 16.
Question: 20. Trial Balance as on 31 March,2017

Dr. Cr.
Loan from Vinod @ 10% 3,00,000
(as on 1 Oct. 2016)
Interest paid 8,000
Loan to Ram @ 15% 2,00,000
(as on 1 July 2016)
Interest received 14,000

Purchases 60,000
Capital 3,00,000
Adj: (i) Goods costing Rs. 10,000 were used for distribution to customer as free sample.
(ii) Goods costing Rs. 5,000 (selling price Rs. 8,000) were used by proprietor for his personal purpose.
Question: 22. ( HAI HUM MEIN DUM) Trail Balance as on 31 March,2017

Dr. Cr
Opening stock 80,000
Purchases 7,00,000
Apprentice Premium 40,000
Machinery 4,00,000
Loose tools 60,000
Equipment 3,00,000
Wages 20,000
Debtors 80,000
Sales 4,50,000
Creditors 30,000
Land and building 2,00,000
Investments 50,000
Capital 10,00,000
Adjustments
(I) It was discovered in April, 2016,,that stock sheets as on 31st March 2016 were overcast by Rs. 1000.
However, no entry was passed in April 2016.
(II) Apprentice premium was unexpired to the extent of Rs 8,500.
(III) A new machine was installed on 31st Dec. 2016, costing Rs 14,000 but it was not recorded in the books and
no payment was made for it. Wages Rs 1,000 paid for its erection has been debited to wages account.
(IV) Loose tools were valued at Rs. 56,000 on 31st March 2017.
(V) Equipments were valued at Rs 3,20,000.
(VI) Value of stock as on 31-03-2017 was Rs. 39,000. This includes goods return by customers on 31-03-2017 to
the value of Rs. 1,500 for which no entry has been passed in the books,
(VII) Sundry debtors include Rs. 2,000 due from Robert and Sundry creditor includes Rs. 1,000 due to him.
(VIII) Building worth Rs.35,000 purchased on 1-4-2015 was wrongly written off against Profit & Loss account.
This asset is to be brought into account on 1-4-2016 taking depreciation at 10% per annum on straight line
basis up to 31-3-2016.
(IX) Investments were sold at 10% profit, but the entire sales proceeds have been taken as sales.
(X) Commission is payable at 2% on sales.
(XI) Received Rs 6,000 Worth of goods on 27th March 2017 but the invoice of purchase was not recorded in
Purchase book.
Question: 23. Mr. X carries on retail business and his trial balance on March 31, 2013 was as follows :
Dr. Cr.
Purchases 565625
Sales 7,06,650
Return inward 4,250 ------
Return outward ---- 3,120
Provision for doubtful debts ----- 5,200
Sundry debtors 38,200 ----

Sundry Creditors ----- 25,526
Bills Payable (Promissory note to be paid) ----- 8,950
Stock (01-04-12) 56,725 -----
Wages 20,137 -----
Salaries 18,575 -----
Furniture 15,075 -----
Alternation to shop 4,500 -----
Postage, Ins. Etc. 13,226 -----
Heating & Lighting 2,350 -----
Trade Exp. 10,314 -----
Rent, Rates & Taxes 13,517 -----
Bad Debts 525 -----
Loan at 15% to Mr. Vinod (1st Dec. 2012) 3,000 -----
Investment (at cost) 11,500 -----
Dividend from investment ---- 1,825
Prepaid insurance 524 -----
Cash in hand and at bank 15,752 -----
Bills Receivable (Amt. due on Promissory Notes) 19,070 -----
Capital Account ---- 77,000
Drawings 16,000 -----
Outstanding Wages ---- 2,019
Rent. Accrued but not paid --- 750
Dep. On Furniture 1,675 ----
Additions to Furniture 500 ---
Total 8,31,040 8,31,040
Prepare Trading & Profit and Loss Account as on 31-03-2013 and Balance-sheet as on that date having regard to the
following information:-
1. Sundry Debtors include an item of Rs. 250 for Goods Supplied to the proprietor and an item of Rs.600 due from a
Customer who has become insolvent.
2. Provision for Doubtful Debt is to be maintained at 5% of sundry debtors.
3. 1/5th of the alteration to the shop is to be written off.
4. Goods to the value of Rs. 1000 have been destroyed by fire and the insurance company has admitted the claim for
Rs 700.
5. Bills Receivable includes a dishonoured promissory note for Rs.2,650
6. Stock at end of the year was Rs. 60,520.
7. Intimation from the bank that a customer’s cheque for Rs. 1,000 had been dishonoured is still to be entered in the
books.
Question: 24. From the following Trial Balance, Extracted from the books of Mr. Shyam, Prepare a Trading and Profit and
Loss Account for the year ended 31st March 2003 and a Balance Sheet as on that date.
Dr. Cr.
Shyam's Capital A/c ---- 1,80,000
Shyam’s Drawing A/C 32,960 ----
Land and Building 50,000 ---
Plant & Machinery 28,540 -----
Furniture & fixture 12,500 ----
Carriage Inward 8,740 ---
Wages (Manf.) 42,940 -----
Salaries 39,340 -----
Bad Debts Provision ----- 3,940
Sale ---- 2,82,460
Sales Return 3,520 -----
Bank Charges 280 ----
Coal, Gas & Water 4,440 ---
Rates & Taxes 1,680 -----
Discount account (Balance) ---- 240
Purchase (adjusted) 61,460 -----
Bills Receivable 12,540 ----
Trade Expenses 3,980 ---
Sundry Debtors 75,600 -----
Sundry Creditors ---- 24,340
Stock (31-3-03) 88,780 ----

Apprentice Premium ---- 6,000
Fire Insurance 980 -----
Cash at bank 26,000 ----
Cash in Hand 2,280 ---
Bad debts 420 -----
Total 4,96,980 4,96,980
Charge depreciation on land & building @ 2.5% on plant & machinery @10% and on furniture & fixture @ 10% Make a
provision of 5% on the sundry debtors for Bad debts. The Bank has intimated that a cheque for Rs. 800 received from
customer has been dishonoured. The customer is in difficulties and it is expected that he would be able to pay 60 % of the
claims on him. Carry forward the following unexpired amounts:—
i.) Fire Insurance Rs. 250

ii.) Rates & Taxes Rs. 480
iii.) Apprentice Premium Rs. 3,800
Trade expenses amounting to Rs. 430 have not yet been paid. Wages include Rs.500 spent on the installation of new
machinery on 1st April 2002. Allow 10 % interest on capital but not charged on drawing.
Answer:
Trading and Profit And Loss A/c
To Purchase (Adjusted) 61460 By sales 282460
To Wages 42940 (-) return 3520 278940
(-) Installment 500 42440
To Carriage Inward 8740
To Coal and Gas 4440
To gross profit 161860
278940 278940
To Depreciation On building 1250 By gross profit 161860

To Depreciation On Plant 2904 By Discount Received 240
To Depreciation On Furniture 1250 By Apprentice Premium 6000
To salary 39340 (-) Advance 3800 2200
To Provision For Bad Debts4100
(-) Old Provision 3940 160
To Bank Charge 280
To Rent & Rates 1680
(-) Prepaid 480 1200
To Trade Expense 3980
(+) Outstanding 430 4410
To Fire Insurance 980
(-) Advance 250 730
To Bad Debts 420
To Interest on capital 18000
To Net Profit 94356
166500 166500
Balance Sheet as on 31-3-2003
LIABILITIES AMOUNT ASSETS AMOUNT
Capital 180000 Land and building 48750
(-) Drawing 32960 Plant 26136
(+) Interest.on capital 18000 Furniture 11250
(+) Net profit 94356 259396 Debtors 72300
Outstanding Trade Expense 430 Bank 25200
Sundry creditors 24340 Prepaid Rates 480
Advance Apprentice Premium 3800 Bill Receivable 12540
Stock 88780
Advance Insurance 250
Cash 2280
287966 287966

Question: 25. From the following figure extracted from the books of Mr. P. you are required to prepare a Trading and
Profit and Loss Account for the year ended 31- 03-2017 and a Balance Sheet as on that date after making necessary
adjustment.
Mr. P's Capital 2,58,000 Bills Payable 5,000

Mr. P’s Drawing 42,000 Stock (01-04-16) 49,175
Purchase 1,96,000 Wages 62,000
Freehold Properties 60,000 Sundry Creditors 40,000
Plant & Machinery 1,00,000 Postage & Telegram 1,400
Return Outward 7,000 Insurance Charges 3,200
Salaries 42,000 Gas & Fuel 2,700
Office Expenses 12,500 Bad Debts 600
Office Furniture & Fixture 25,000 Office Rent 12,600
Discount A/c (Dr.) 1,200 Freight & duty 9,000
Sundry debtors 26,600 Loose tools 7,000
Loan to Mr. D @ 15% p.a. Factory Lighting 1,600
Balance on 01-04-16 40,000 Prov. For doubtful Debts. 800
Cash at Bank 26,600 Interest on loan to Mr. D 3,000
Cash in Hand 3,625
ADJUSTMENTS:
1. Stock on 31-3-17 was valued at Rs. 66,000
2. Wages Rs. 4,600 and Salaries Rs. 3,600 were outstanding.
3. Insurance Prepaid was Rs. 800.
4. A new machine was installed on 31st Dec. 2016, costing Rs 14,000 but it was not recorded in the books and no
payment was made for it. Wages Rs 1,000 paid for its erection has been debited to wages account.
5. Loose tools were valued at Rs. 5,600 on 31st March 17.
6. Depreciate Plant and Machinery by 10 % p.a. Furniture & fixture by 7.5 % p.a and Freehold Property by 2%p.a.
7. Of the Sundry Debtors Rs 600 are bad and should be written off. Maintain Provision of 5 % on Sundry Debtors for
doubtful debts, and 2 % for discount on Debtors and a reserve of 2 % for discount on Sundry creditors.
8. The Manager is entitled to a commission of 5 % of net profit before charging such commission.
Hint :Note:-- Where a regular trial balance is not given, it is advisable to first make out trial balance to be sure that there is no
difference in books or to ascertain a figure that may be missing. (CMA INTER)
Question: 26. From the following Trial Balance of Bannerji, Prepare the Final Accounts for the year ended 31st
March 2017 and the Balance Sheet as at that date.
Dr. Cr.
Land & Building 50,000 Sales 3,85,000
Purchases(adjusted) 2,10,000 Capital account 1,15,000
Stock as on 31-3-17 45,000 Chatterji Loan A/c
Sales Return 1,500 (taken on 1.10.16 @ 18% p.a) 25,000
Wages 45,300 Commission 1,500
Salaries 39,000 Sundry Creditors 25,000
Office Expenses 15,400 Bills Payable 12,350
Carriage Inward 1,200 Expenses Payable 3,300
Carriage outward 2,000 Purchase Return 2,500
Discounts 750 Discount 1,200
Bad Debts 1,200
Insurance 1,500
Plant & Machinery 50,000
Furniture & Fixture 20,000
Bills Receivable 20,000
Sundry Debtors 40,000
Cash in Hand 1,500
Cash at Bank 14,500
Office Equipment 12,000
Total 5,70,850 Total 5,70,850
It was the practice of Bannerji to value stock at 10 % below cost. The opening stock on 01.04.16 was Rs. 49500. Bannerji
desires that the final statement be drawn up according to the cost of the stock.
The following adjustments are also required:-
(I) Depreciate Land & Building @ 6%, Plant & Machinery @10%, Office Equipment @ 20% and Furniture & Fixture
@15%.

(II) Raise a bad & doubtful debt provision of 1.25% on sundry debtors.
(III) Insurance Premium includes Rs. 250 paid in advance.
(IV) Provide interest on capital @ 10 % p.a. and salary to Bannerji @ Rs. 15000 p.a.
(V) 10 % of the final profit is to be kept in general reserve.
Question: 27. The following is the Trial Balance of Shri Arihant as on 31st December 1999:
Dr. (Rs.) Cr. (Rs.)
Capital 14,00,000
Drawings 75,000 --------
Opening stock 80,000 ---------
Purchases 16,20,000 ---------
Freight on purchase 15,000 -----------
Wages 1,10,000 -----------
Sales ---- 25,00,000
Salaries 1,00,000 ------------
Traveling expenses 23,000 ---------
Miscellaneous expenses 35,000 -------
Printing and stationary 27,000 --------
Advertisement expenses 25,000 ----------
Postage and telegrams 13,000 -----------
Discounts 7,600 14,500
Bad debts written off (after adjusting -----------
recovery of bad debts of Rs. 6,000 written 14,000 -----------
off in 1997) 10,00,000 ------
Building. 75,000 -------
Machinery 40,000 --------
Furniture 1,50,000 -------
Debtors -------
Provision for doubtful debts 19,000
Creditors 6,00,000 1,60,000
Investments (12% purchased on 1-10-99) 83,900 -------
Bank balance ------
Total 40,93,500 40,93,500
Adjustments:
(I) Closing stock Rs. 2,25,000.
(II) Goods worth Rs. 5,000 were taken for personal use, but no entry was made in the books.
(III) Machinery worth Rs. 35,000 purchased on 1-1-97 was wrongly written off against Profit & Loss account. This
asset is to be brought into account on 1-1-99 taking depreciation at 10% per annum on straight line basis upto
31-12-98.
(IV) Depreciate building at 2-1/2% P.a., Machinery at 10% p.a. and Furniture at 10% p.a
(V) Provision for doubtful debts should be 6% on Debtors.
(VI) The manager is entitled to a commission of 5% of Net Profit after charging his commission.
Prepare trading and profit and loss account for the year ending 31st December 1999 and a balance sheet as at the date.
Question: 28. The following is the Trail Balance of K on 31st March, 2000.
Dr. (Rs) Cr. (Rs)
Capital ----- 8,00,000
Drawings 60,000 ---
Opening stock 75,000 ------
Purchase 15,95,000 -----
Freight on purchase 25,000 ------
Wages (11 months upto 29-2-2000) 66,000 -------
Sales ---- 23,10,000
Salaries 1,40,000 ------
Postage, Telegrams, Telephones 12,000 ----
Printing & Stationary 18,000 -------
Miscellaneous Expenses 30,000 -------
Creditors ---- 3,00,000
Investments 1,00,000 ------
Discount received ---- 15,000
Debtors 2,50,000 -----
Bad debts 15,000 -----
Provision for debts ------ 8,000

Building 3,00,000 -----
Machinery 5,00,000 ------
Furniture 40,000 -----
Commission on Sales 45,000 ------
Interest on Investments ---- 12,000
Insurance(yearly upto 31-7-2000) 24,000 ----
Bank Balance 1,50,000 ------
34,45,000 34,45,000
Adjustments:
1. Closing stock Rs 2,25000
2. Machinery worth Rs. 45,000 purchased on 1-10-99 was shown as purchases. Freight paid on the Machinery was Rs.
5,000, which is included in Freight on Purchase.
3. Commission is payable at 2.5% on sales.
4. Investments were sold at 10% profit, but the entire sales proceeds have been taken as sales.
5. Write off Bad Debts Rs 10,000 and create a provision for Doubtful debts at 5% of Debtors.
6. Depreciate Building by 2.5% p.a. and machinery and furniture at 10% p.a.
Prepare Trading and Profit & Loss A/c for year ending 31st March, 2000 and a Balance Sheet as on that date.
Answer:
Trading and Profit and Loss account of K For the year ended 31st March, 2000
Particular Rs. Particular Rs
Opening Stock 75,000 By Sales 23,10,000
To Purchase 15,95,000 Less: Sale of
Less: Transfer to Investments 1,10,000 22,00,000
Machinery A/c 45,000 15,50,000
To Freight on Purchase 25,000
Less: Transfer to
Machinery A/C 5,000 20,000
To Wages 66,000
Add: Outstanding 6,000 72,000 By Closing stock 2,25,000
To Gross Profit c/d 7,08,000
24,25,000 24,25,000
To Salaries 1,40,000 By Gross profit b/d 7,08,000
To Postage Telegrams, Telephone 12,000 By interest of investment 12,000
To Printing & Stationary 18,000 By Profit on sale of investment 10,000
To Miscellaneous expenses 30,000 By Discount received 15,000
To Commission on Sales 45,000
Add: Outstanding 10,000 55,000
To Insurance 24,000
Less: Prepaid 8,000 16,000
To Provision for bad &Doubtful debts::
Bad debts 15,000
Add: Written off 10,000
Add: Provision for doubtful
Debts (5% of Rs 240000) 12,000
37,000
less: Old provision 8,000 29,000
To Depreciation:
Building 7,500
Machinery (50000+2500) 52,500
Furniture 4,000 64,000
Total 7,45,000 Total 7,45,000

Balance Sheet of K as at 31st March 2000

Liabilities Rs Assets Rs
Capital 8,00,000 Building 3,00,000
Add: Profit 3,81,000 Less: Depreciation 7,500 2,92,500
Less: Drawing 60,000 11,21,000 Machinery 5,00,000
Creditors 3,00,000 Additions + 50,000
Outstanding Exp. 5,50,000
Wages 6,000 Less: Depreciation 52,500 4,97,500
Commission 10,000 16,000 Furniture 40,000
Less: depreciation 4,000 36,000
Debtors 2,50,000
Less: Bad debts 10,000
less: Provision for
doubtful debts 12,000 2,28,000
Prepaid insurance 8,000
Stock 2,25,000
Bank balance 1,50,000
14,37,000 14,37,000
Question: 29.Following is the Trail Balance of Ram as on 31st March, 2019.

Heads of Accounts Dr. (₹) Cr. (₹)
Purchases 1,50,000
Debtors 2,00,000
Interest earned 4,000
Salaries 30,000
Sales 3,21,000
Purchases Return 5,000
Wages 20,000
Rent 15,000
Sales Return 10,000
Bad Debts Written off 7,000
Creditors 1,20,000
Capital 1,00,000
Drawings 24,000
Provision for Doubtful Debts 6,000
Printing and Stationery 8,000
Insurance 12,000
Opening Stock 50,000
Office Expenses 12,000
Furniture and Fittings 20,000
Provision for Depreciation 2,000
Total 5,58,000 5,58,000
Prepare Trading and profit and Loss Account for the year ended 31st March, 2019 and Balance Sheet as at that time date for
making the following adjustment:
(i) Depreciation Furniture and Fittings by 10% on original cost
(ii) Make a Provision for Doubtful Debts equal to 5% of Debtors.
(iii) Salaries for the month of March amounted to ₹ 3,000 were unpaid which must be provided for. The balance in
the amount includes ₹ 2,000 paid in advances.
(iv) Insurance is prepaid to the extent of ₹ 2,000,
(v) Provide ₹ 8,000 for office expenses.
(vi) Stock costing ₹ 6,000 was taken by Ram for his personal use, cost of which has not been adjusted in the book of
account.
(vii) Closing Stock valued at ₹ 68,000 (Net Realisable Value (Market Value) ₹ 60,000.

Solution TRADING AND PROFIT AND LOSS ACCOUNT For the year ended 31 st March, 2019
Particulars ₹ Particulars ₹
To Opening Stock 50,000 By Sales 3,21,000
To Purchases 1,50,000 Less: Sales Return 10,000 3,11,000
Less: Purchases Return 5,000 By Closing Stock 60,000
1,45,000
Less: For Personal Use 6,000 1,39,000
To Wages 20,000
3,71,000 3,71,000
To Salaries 30,000
1,62,000
Add: Outstanding Salaries 3,000 By Gross Profit b/d
4,000
33,000 By Interest earned
31,000
Less: Paid in Advance 2,000
15,000
To Rent
To Bad Debts 7,000
Add: New Provision 10,000
17,000
Less: Old Provision 6,000
11,000
8,000
To Printing and Stationery
To Insurance 12,000
Less: Prepaid 2,000
10,000
To Office Expenses 12,000
Add: Outstanding 8,000
20,000
To Provision for Depreciation on Furniture
2,000
and Fittings
69,000
To Net Profit transferred to Capital A/C
1,66,000 1,66,000
BALANCE SHEET As at 31st March, 2019

Liabilities ₹ Assets ₹
Current liabilities Current Assets
Sundry Creditors 1,20,000 Stock (Note) 60,000
Outstanding Salaries 3,000 Debtors 2,00,000
Outstanding Office Expenses 8,000 Less: Provision for Doubt Debts 10,000 1,90,000
Capital Prepaid Salaries 2,000
Opening Balance 1,00,000 Prepaid Insurance 2,000
Add: Net Profit 69,000 Fixed Assets
1,69,000 Furniture and Fittings 20,000
Less: Drawing 24,000 Less: Provision for Depreciation 16,000
Stock for 4,000
Personal use 6,000 30,000 1,39,000 (₹2,000 + ₹2,000)
2,70,000 2,70,000
st
Question: 30. Mahindra Traders operates in an industry that has a high rate of bad debts. On 31 March 2012, the Accounts
Receivables showed a balance of Rs. 7,50,000 before any year end adjustment and the balance in the Reserve of doubtful
debts was Rs. 37,500. The year-end balance in the Reserve for Doubtful Debts A/c will be based on the following ageing
schedule.
Days outstanding Amount (Rs.) Probability of collection
Less than 16 4,50,000 0.99
16 – 30 1,50,000 0.94
31 – 45 75,000 0.80
46 – 60 45,000 0.65
61 – 75 15,000 0.50
Over 75 15,000 0.00

Find out the appropriate balance in the Reserve for Doubtful Debts Account as on 31-3-2012. Show how Debtors balance be
shown in the Balance Sheet. Calculate the effect of year end adjustment on Account of Reserve for Doubtful Debts.
Question: 31. A property dealer owned many properties which it had acquired by taking bank loans. There were separate
loan agreements for different properties. In some cases, interest was paid in advance and in other cases it was payable in
arrears. These properties were let out to different tenants on various agreements. Some agreements provided for rentals in
advance while the others provided for rent payable in arrears. The dealer has given the following balances:
31-03-2011 31-03-2012
Interest payable 12,000 14,500
Interest prepaid 8,000 6,400
Rentals due from tenants 15,000 19,000
Rentals received in advance 3,000 2,500
During the year 2011-12, the amount of interest transferred to P & L A/c was Rs. 56,000 and cash collected from tenants for
rentals was Rs. 1,16,000. You are required to prepare Interest A/c and Rental Income A/c for the year ended 2011-12
Question: 32.(THIS QUESTON SHOULD BE SOLVED AFTER FINISHING WHOLE BOOK) Mr. Gavaskar is the proprietor of a large
business. The following Trial Balance was prepared from his books as on 30 thJune, 2012:
Rs. Rs.
Land & Buildings 80,000 12% Bank Loan (U.B.I.) 1,00,000
Cash at Bank 50,000 (No movement during the year)
Motor Car 40,000 Capital Accounts 1,50,000
Furniture 20,000 Bills Payable 10,000
Sundry Debtors 1,20,000 Sundry Creditors 1,30,000
Cash in hand 10,000 Returns Outward 8,000
Stock (1.7.11) 1,10,000 Discount Received 2,000
Return Inward 10,000 Sales 9,00,000
Printing & Stationery 4,000
Drawings 16,000
Bills Receivable 10,000
Travelling Expenses 12,000
Discount Allowed 4,000
Miscellaneous Expenses 38,000
Postage 2,000
Joint Venture Suspense A/c 2,000
Investments (Market value
Rs. 28,000) 30,000
Interest on Bank Loan 8,000
Salaries (including advance
For Rs. 4,000) 54,000
Entertainment Expenses 4,000
Purchases 6,50,000
Carriage Inwards 8,000
Advertisements 18,000
13,00,000 13,00,000

1. On 2nd January, 2012, Mr. Gavaskar entered into a Joint Venture with Mr. Shastri with an agreement to share the profits
and losses equally. Shastri supplied goods totalling Rs. 60,000 which wrongly passed through the Purchase Day Book. The
goods were sold for cash at profit of 25% on sales and stood credited to Sales Account. Shastri had earlier incurred an amount
of Rs. 4,000 on account of Freight ad Insurance. Joint Venture Suspense Account represents expenses incurred by Gavaskar on
Joint Venture.
2. Bills Receivable for Rs. 8,000 endorsed on 21stMarch, 2012 in favour of creditors were subsequently dishonoured but no
entry for the dishonour has been passed.
3. Three cheques of Rs. 3,000, Rs. 4,000 and Rs. 6,000 issued to parties on 29thJune, 2012, were lying unpresented on 30-6-12.
4. Sales included a sum of Rs. 60,000 received from sale of goods on behalf of Mr. Kapil, the cost of these goods to Mr. Kapil
was Rs. 50,000. Mr. Gavaskar is entitled to a commission of 5% on sales, for which effect should be given and reimbursement
of selling expenses of Rs. 2,000 were debited to Miscellaneous Expenses Account.
5. 1/3rdof the advertisement expenses are to be carried forward.
6. Of the Debtors a sum of Rs. 2,000 is to be written off as bad debt. Create provision for doubtful debts @ 2%.
7. Depreciate fixed assets by 10% except Motor Car which is to be depreciated at 20%.
8. Value of Stock at the end is Rs. 90,000.
9. During the year some goods (Invoiced at Rs. 1,00,000) were sent to sundry customers on sales on approval. On 30thJune,
2012 of these goods Rs. 20,000 remained with customers as the period of approval did not expire as yet. Proper adjustment
should be made in respect of the above. Mr.Gavaskar makes his invoices at cost plus 25%.
You are required to prepare Trading and Profit & Loss Account for the year ended 30 thJune, 2012 and a Balance Sheet as at
30thJune, 2012.
Answer : Trading A/c for the year ended 30 th June, 2012
Particulars Rs. Rs. Particulars Rs. Rs.
To, Opening Stock 1,10,000 By, Sales 9,00,000
To, Purchase A/c 6,50,000 Less : Return Inward 10,000
Less : Return Outward 8,000 8,90,000
6,42,000 Less : Joint Venture sales 80,000
Less : Supplies by Less : Sales on 8,10,000
Mr. Sastri 60,000 5,82,000 Consignment 60,000 7,50,000
To, Carriage Inward 8,000
By, Closing Stock 90,000
To, Profit & Loss A/c 1,56,000 Add : Goods sold on
- G. P. transferred Approval 16,000 1,06,000
[Rs. 20,000 ×(100/125)]
8,56,000 8,56,000
Profit & Loss A/c
To, Printing & Stationery 4,000 By, Trading A/c 1,56,000
To, Travelling Expenses 12,000 - G. P. transferred
To, Discount Allowed 4,000 By, Discount Received 2,000
To, Miscellaneous By, Profit on Joint Venture 7,000
Expenses 38,000 (W.N. 1)
Less : Consignment By, Commission Received 3,000
Expenses 2,000 36,000 (Rs.60,000 × 5%)
To, Postage 2,000
To, Interest on Bank Loan 8,000
To, Salaries 54,000
Less : Advance Salary 4,000 50,000
To, Entertainment
Expenses 4,000
To, Advertisement 18,000
(W.N. 3)
To, Bad Debts 2,000
To, Provision for Doubtful
Debts 2,520
To, Depreciation:

Land & Building 8,000
Motor Car 8,000
To, Capital A/c 7,480
- N. P. transferred
1,68,000 1,68,000
Balance Sheet as at 30thJune, 2012

Liabilities Rs. Rs. Assets Rs. Rs.
Capital 1,50,000 Land & Building 80,000
Less: Drawings 16,000 Less: Depreciation @ 10%
Add: Net Profit 1,34,000 8,000 72,000
7,480 1,41,480 Machinery 40,000
12% Bank Loan (U.B.I.) 1,00,000 Less: Depreciation @ 20%
8,000 32,000
Creditors 1,30,000 20,000
Add: Bill endorsed
Furniture
Dishonoured
8,000 2,000 18,000
Less: Depreciation @ 10%
1,38,000 Investment 30,000
Less : Supplies by Stock 1,06,000
Mr. Sastri 60,000 78,000 1,20,000
Debtors
55,000 Add: Bill endorsed
Consignment Creditors
dishonoured 8,000
Amount due to Mr. Sastri 71,000 1,28,000
Bills Payable 10,000 Less: Return Inward not

Recorded 2,000
1,26,000
Less: Provision for Bad

Debts
2,520 1,23,480
10,000
50,000
Bills Receivable
10,000
Cash at Bank
4,000
Cash in hand
Advance Salary
4,55,480 4,55,480
Working Note In the books of Mr. Gavaskar Joint Venture Account
To, Mr. Sastri A/c 60,000 By, Cash A/c 80,000
To, Mr. Sastri A/c 4,000 (Sales Proceeds)
- Freight & Insurance [Rs.60,000 × (100/75)]
To, Bank A/c 2,000
- Expenses
To, Profit on Venture :
Mr. Sastri A/c 7,000
Profit & Loss A/c 7,000 14,000
80,000 80,000

Mr. Sastri Account

By, Joint Venture A/c 60,000
To, Balance c/d 71,000 - Freight & Insurance
71,000 - Share of Profit 71,000

3. After the date on which AS 26 became mandatory, the expenditure incurred on intangible items would have to be expensed off
when they are incurred.So, the Advertisement Expense is not carried forward to the next year and full amount is shown in the Profit
& Loss A/c.
Question: 33. R retired from a company and started a business in Chennai. On retirement he got Rs. 1,00,000 from his
employer which he invested in his business on 1.1.12. He got from Life Insurance Corporation Rs. 20,000 on the maturity of
his policy which he also invested in his business. He draws Rs. 1,000 for his personal expenses every month from 30 th April,
2012. The following figures are extracted from his books on 31stDecember, 2012 :
Rs. Rs.
Purchases 3,10,000 Bad Debts 2,000
Cartage 5,000 Sundry Debtors 45,000
Salaries & Wages 24,000 Bills Receivable 30,000
Electricity Charges 4,500 Cash in hand 8,997
Travelling 8,900 Sales 3,00,000
Telephone 4,300 Income from Personal 20,000
Investments
Advertisement 10,000 Creditors 85,000
Repairs & Renewal 3,303 Bank Overdraft 80,000
Plant & Machinery 1,50,000 Buildings(Cr.) 10,000
You are requested to prepare a Trading and Profit & Loss Account of the business for the period ended31stDecember, 2012
and also the Balance Sheet as on that date after taking into consideration the following further information :
(1) Purchases include Rs. 10,000 representing the value of Furniture purchased.
(2) Rs. 4,000 representing erection wages on Plant & Machinery are debited to Salaries & Wages.
(3) Electricity charges include Rs. 2,500 paid as deposits to Electric Supply Company. There are bills outstanding to the
extent of Rs. 500.
(4) Advertisement includes Rs. 4,000 representing the cost of a Neon Sign.
(5) A dishonoured bill of Rs. 5,000 stands debited to the debtor. 50% thereof considered doubtful and has to be
provided accordingly.
(6) A debtor of Rs. 1,000 was declared insolvent on 30.12.12 and it is expected that nothing would be recovered from
his estate.
(7) Provide 5% discount on net realisable debtors.
(8) R received Rs. 25,000 in respect of a business with B. The sum received stood credited to Sundry Creditors. It is
noted that a sum of Rs. 5,000 was due to R as his share of profit from that business.
(9) During the period there was a fire damaging stock costing Rs. 50,000. The damaged goods were sold for Rs. 20,000.
This sum of Rs. 20,000 is included in Sales. The Insurance Company paid Rs. 25,000towards the loss of stock. The
godown containing the stock was also damaged to the extent of Rs. 15,000, which has also been paid by the
Insurance Company. The total amount received from the Insurance Company was credited to Building Account.
(10) Bank overdraft represents 80% of the drawing power.
(11) The bank overdraft was given on the hypothecation of stock-in-trade. You are informed that the bank had a margin
of 33 1/3 %.
(12) The manager of the business is entitled to a commission of 5% on the gross profit.
(13) Provide 10% depreciation on Plant & Machinery and on Furniture & Fittings and 5% on Building. Depreciation to be
provided on closing balance for full year

CHAPTER 7. FINANCIAL STATEMENTS OF NON PROFIT ORGANISATIONS
Question: 1 From the following information relating to Indian Cricket club, prepare Income and Expenditure Account for the ending
st
31 March 2016 and Balance Sheet as at that date. Abstract of Hon. Secretary’s Cash Book for the year is as follows:
Rs. Rs.
To Member’s Subscription 80,000 By Upkeep of Field and Pavilion 20,000
To Member’s Admission Fee 3,000 By Expenses regarding Tournament 37,000
To Sale of Old Balls, Bats, etc. 500 By Rates and Insurance 2,000
To Hire of Ground 3,000 By Telephone 3,500
To Subscription for Tournament 40,000 By Printing and Stationary 1,000
To Bank Drawn 40,000 By General Charges 2,200
To Donation 1,00,000 By Secretary’s Honorarium 5,000
By Grass Seeds 1,300
By bats, Balls, etc. 27,000
By Bank Lodged 1,67,500
2,66,500 2,66,500
Assets on 1 April, 2015 Rs.
Cash at Bank 30,000
Stock of Bats, Balls, etc. 15,000
Printing and Stationary 2,000
Subscriptions due 5,000
st
Liabilities on 1 April, 2015 Nil
st
Donation and Surplus on account of tournament should be kept in reserve for a Permanent Pavilion subscriptions due at 31 march,
2016 Rs. 7,500. write off 50% on Bats, Balls Account and 25% of Printing and Stationary Account.
Answer: surplus- 32,250, Opening B/S = 52,000 Closing B/S= 1,87,250
Question 2. You are required to calculate the income from subscriptions for the year ending December 31,2016 and show them in
the Income and Expenditure Account and the Balance Sheet of a Club:
st
Receipts & payment account for the year ended 21 December 2016
Receipts Amount Payments Amount
To Subscriptions:
For 2015 12,500
2016 75,000
2017 15,00 1,02,500
(a) Subscription outstanding on December31,2015 15,000
(b) Subscription outstanding on December31,2016 12,500
(c) Subscription Received in Advance on December 31,2015 15,000
[Answer. Rs. 1,00,000]
Question 3.Calculatethe amount of subscriptions to be shown in 1999 in Income & expenditure A/c.
Subscription received in 1999 as: Rs.
1998 5,000
1999 45,000
2000 4,000 Rs. 54,000
Subscriptions outstanding in 1998 Rs. 7,500
Subscriptions outstanding in 1999 Rs. 7,500
Subscriptions Received in Advance in 1998:
For 1999 Rs. 6,500
For 2000 Rs 2,000
Life membership subscriptions received in 1999 Rs. 5,000
[Answer. Rs. 56,500]

Question 4. Calculate the amount of Stationery Consumed during the year 2017 from the following data:
Stock of stationery on January 1,2017 2,400

Creditors for stationery on January 1,2017 1,600
Advance paid for stationery carried forward from 2016 160
Amount paid for stationery during the year 2017 8,640
Stock of stationary on December 31,2017 400
Creditors for stationery on December 31,2017 1,040
Advance paid for stationery on December 31,2017 240 [Answer. Rs. 10,000]
Question 5.Gavaskar Cricket Club given you the following receipts and Payments Account for the year ended 31 st March 2017;
Receipts Rs Payments Rs.
To Balance of Cash on By Salaries and Wages 12,000
1st April 2016: By Sports Equipment 46,785
At Office 150 By Stationery and Printing 1,220
At Bank 14,200 14,350 By Maintenance of Ground 6,000
To Subscriptions 61,100 350 By Prizes 1,060
To Admission Fees By Balance of Cash on
To Interest on Investments @ 9% 9,000 3 1st March, 2017:
per annum for full year At Office 380
At Bank 17,355 17,735
84,800 84,800
The Following additional information is provided to you:
On 1st April 2016 On 31st March 2017
Subscriptions Due 480 560
Subscriptions Received in Advance 80 40
Sports Equipment 21,800 29,700
Land & Buildings (cost less depreciation) 80,000 76,000
Prepare Income and expenditure A/c for the year ended 31st March, 2017 and Balance Sheet as at that date: [Answer:surplus-
7405, opening B/S = 2,16,630, Closing B/s = 2,23,995]
Question 6. Shanti Library Society showed the following position on 31st December 2015.
Balance Sheet as at 31st Dec., 2015
Liabilities Rs. Assets Rs
Capital Fund 79,300 Electrical Fittings 15,000
Expenses Due 700 Furniture 5,000
Books 40,000
Investments in Securities 15,000
Cash in Bank 2,500
Cash on Hand 2,500
80,000 80,000
The Receipt and Payments A/c for the Year ending on 31st December 2016 is given below:
Receipts Rs. Payments Rs.
To Balance b/d By Electric charges 720
Cash at Bank 2,500 By Postage & Stationery 500
Cash on hand 2,500 5,000 By Telephone charges 500
To Entrance fees 3,000 By Books Purchased
To membership subscription 20,000 (on 1-1-16) 6,000
To sale proceeds of old papers 150 By Outstanding expenses paid 700
To hire of lecture Hall 2,000 By Rent A/c 8,800
To Interest on securities 800 By Investment in securities 4,000
By Salaries A/c 6,600
By Balance c/d
Cash at Bank 2,000
Cash on Hand 1,130
30,950 30,950
You are required to prepare an Income & Expenditure Account for the year ending 31-12-16 and Balance Sheet as on that
date after making the following adjustments:
1. Membership subscription included Rs. 1,000 received in advance.

2. Provide for outstanding Rent Rs. 400 and Salaries Rs. 300.

3. Books to be depreciated @ 10% including additions. Electrical fittings and furniture are also to be depreciated at the
same rate.
4. 75% of the entrance fees are to be capitalised.
5. Interest on securities is to be calculated @ 5% p.a. including purchases of investments made on
1-7-2016 for Rs. 4000.[ANS: Deficit = 1,670, closing B/S = 81,580 ]
Question 7. From the Following particulars relating to Charitable Hospital, prepare (1) receipts and Payment for the
year ended 31st March, 2016 and (2) Balance Sheet as on 31st March 2016.
Expenditure Rs Income Rs
To Medicines Used 2,99,800 By subscriptions 5,60,000
To Honorarium to Visiting Doctors 1,20,000 By Donations 95,000
To salaries 2,75,000 By interest on Investment @ 11% p.a 1,10,000
To Printing & Stationery 11,000 By Income from Film Show:
To Electricity & Water 4,750 Proceeds 1,14,500
To Rent 60,000 Less: Expenses 7,800 1,06,700
To Depreciation on furniture & Fixtures 21,000
To depreciation on Equipment 32,500
To Surplus i.e. excess of income over
expenditure 47,650
8,71,700 8,71,700
Additional Information's
On 31.3.2015 (Rs.) On 03.03.2016 (Rs.)
Subscription due 1,200 1,600
Subscriptions received in advance 640 1,000
Electricity and Water Bills Unpaid 920 1,150
Stock of Medicines 78,200 97,500
Estimated value of equipment 1,16,000 1,39,000
Furniture and Fixture (cost less depreciation) 2,10,000 1,89,000
Land ---- 1,00,000
Interest Accrued on Investments in 11%Debentures

costing Rs. 10,25,000 (face value Rs. 10,00,000) 27,500 27,500
Cash in Hand 3,400 1,600
Cash at Bank 90,000 ?
Answer: capital fund(opening) Rs 15,49,740, Subscriptions received Rs 5,59,960, Medicines Purchased Rs 3,19,100,
Equipment Purchased: 55,500
Question: 8. The Lok Kalyan Dispensary had the following Income and Expenditure Accounts for the Year ended 31-3-16
Expenditure Rs. Income Rs.

To Salaries 2,35,000 By Subscriptions 2,50,000
To Surgery and Dispensary 30,000 By Interest 90,000
To Rent and Taxes 5,000 By Donation 40,000
To Insurance 2,000 By Miscellaneous Receipts 3,000
To Office Expenses 8,000
To Depreciation on:
Building 37,500
Furniture 1,200
Instruments 1,000 39,700
To surplus i.e. excess
of income over expenditure 63,300
3,83,000 3,83,000

Other information is as follows:

On 31-3-2015(Rs) On 3 1-3-2016 (Rs)
Cash in hand and at bank ? 1,87,000
Government securities (face value Rs. 10,00,000) 8,00,000 8,00,000
Subscription in arrear 70,000 1,00,000
Subscriptions received in advance 2,000 6,000
Salaries unpaid 10,000 15,000
Furniture 20,000 19,800
Land & Building 20,00,000 19,62,500
Surgery expenses due 2,000 3,000
Stock of Medicines 3,000 1,000
You are required to prepare the Receipts and Payments Account for the year ended 31st March, 2016 and also the Balance
Sheet as on 31st March, 2016.
Working Notes:(a) Balance Sheet as on 31st March, 2015

Liabilities Rs. Assets Rs.
Subscriptions Received in Advance 2,000 Cash in Hand and at Bank 1,08,000
Salaries Unpaid 10,000 Government Securities 8,00,000
Surgery Expenses Due 2,000 Subscriptions Outstanding 70,000
Capital Fund 30,22,000 Furniture 20,000
Balancing Figure) Land and Building 20,00,000
Instruments 35,000
Stock of Medicines 3,000
30,36,000 30,36,000
(b) Receipts on account of Subscriptions: Rs
income on account of subscriptions 2,50,000
add: subscriptions Outstanding on 31-3-15 70,000
subscriptions Received in Advance on 31-3-16 6,000
3,26,000
Less: Subscriptions Outstanding on 31-3-2016 1,00,000
Subscriptions received in Advance on 31-3-15 1,02,000
2,24,000
(d) Calculation of Payment on Account of surgery and Dispensary:
Expenses on surgery and Dispensary for the year 30,000
Add: surgery Expenses Due on 31-3-15 2,000
Stock of medicine on 31-3-2016 1,000
33,000
Less: surgery Expenses Due on 31-3-2016 3,000 6,000
Stock of medicine on 31-3-153,000 27,000
(e) Furniture purchased during the year:
Value of Furniture on 31-3-2016 19,800
Add: Depreciation for the year 1,200
21,000
Less: Value of Furniture on 31-3-15 20,000
1,000
(f) Calculation of Instruments Purchased: 39,000

value of Instruments on 31-3-2016 1,000
add: Depreciation for the year 40,000
35,000
Less: Value of Instruments on 31-3-2015 5,000

Question: 9 The Following Income and Expenditure account of H.P Club is given for the year ended on 31.3.2017.
Rs. Rs.
To Opening Stock of Provisions(goods) 10,000 By Subscriptions 86,000
To Purchases of Provisions 80,000 By Donations 30,000
To Salaries 60,000 By Entrance Fees 8,000
To Printing and Stationery 5,000 By Sale of Provision 68,000
To general Expenses 3,000 By Closing Stock of Provisions
Depreciation on Equipments 1,000 5,000
To Excess of Income
Over Expenditure 38,000
1,97,000 1,97,000
The Following further informations are given:
Balance Sheet of the Club as on 31st March, 2016
Rs. Rs.
Creditors for Provision 8,000 Equipment (at written down value) 10,000
General Fund 37,000 Stock of provisions 10,000
Cash in hand and at Bank 20,000
Subscriptions Receivable 5,000
45,000 45,000
Balance Sheet of the Club as on 31st March, 2017

Rs. Rs.
Creditors for Provision 10,000 Equipment (at written down value) 15,000
General Fund 75,000 Stock of provisions 5,000
Subscriptions Receivable 20,000
85,000 85,000
Prepare a Receipt and Payment Account of the club for the year ended on 31st March, 2017, from the above information.
Answer: Receipt and Payments A/c of the H.P. Club For the ended 31st March, 2017
Rs. Rs.
To Balance b/d By Salaries 60,000
Cash in Hand & at bank 20,000 By Printing & Stationery 5,000
To Subscriptions 86,000 By General Expenses 3,000
Less: Outstanding on 31.3.17 20,000 By Creditors for provision 28,000
66,000 By Equipment:
Add: Outstanding on 31-3-16 5,000 71,000 As on 31-3-2017 15,000
To donations 30,000 Add: depreciation for the year 1,000
To Entrance Fees 8,000 16,000
To Sale of Provision 68,000 Less: Equipment
As on 31-3-16 10,000 6,000
By Balance c/d
Cash in hand and a bank 45,000
1,97,000 1,97,000
Question: 10. From the following Receipts and Payments Account of Excellent Recreation Club for the year ended 31.3.16 and
additional information given, prepare an Income and Expenditure Account for the year ended 31.3.16 and Balance Sheet.
Opening Balance : Secretary's Salary 12,000
Cash in hand & at Bank 3,180 Salaries to staff 25,000
Subscription 18,000 Charities 1,000
Sale of old Newspapers 2,500 Printing & Stationery 600
Legacies 4,000 Postage Expenses 120
Interest on Investments 2,000 Rates and Taxes 1,500
Endowment Fund Receipts 20,000 Upkeep of the Land 2,000
Proceeds of Sport & Concerts 4,020 Purchase of Sports Materials 10,000
Advertisement in the year book 5,000 Telephone expenses 3,480
Balance of cash and bank 3,000

Assets and Liabilities as on 31.3.15 and 31.3.16 were as follows:

31.3.15 31.3.16
(Rs.) (Rs.)
Subscription in arrears 2,000 1,000
Subscription received in advance 500 400
Land 10,000 10,000
Depreciation shall be charged at 10% p.a. under the diminishing value method. Legacies received shall be capitalised.
Investments were made in Securities, the rate of interest being 12% p.a. the date of investments was 1.6.14 and the amount
of investments was Rs. 20,000. Due date of interest 31stMarch, every year. Stock of sports materials on 31.3.16 were useless
and value NIL. [CA-May-96]
[Answer: Deficit i.e. Excess of Expenditure over Income: 24,880 and Balance Sheet : 36,200]
Question: 11 From the following receipts and Payments A/c of Mumbai Club, Prepare Income and Expenditure A/c for
the year ended 31.12.1996 and its balance Sheet as on that date:
Cash In Hand 4,000 Salary 2,000
Cash at Bank 10,000 Repair Expenses 500
Donations 5,000 Purchase of Furniture 6,000
Subscriptions 12,000 Misc. Expenses 500
Entrance fees 1,000 Purchase of Investments 6,000
Interest on Investments 100 Insurance Premium 200
Interest Received from Bank 400 Billiard Table 8,000
Sale of Old Newspaper 150 Paper, Ink. Etc. 150
Sale of Drama tickets 1,050 Drama Expenses 500
Cash in Hand (Closing) 2,650
Cash at Bank (Closing) 7,200
33,700 33,700
Information:
1. Subscriptions in arrear for 1996, Rs. 900 and subscriptions in advance for 1997, Rs. 350.
2. Insurance premium Outstanding Rs. 40.
3. Misc. Expenses Prepaid Rs. 90.
4. 50% of donation is to be capitalised.
5. Entrance fees are to be treated as revenue income.
6. 8% interest has accrued on investment for five months.
7. Billiard Table costing Rs.30,000 was purchased during the last year and Rs. 22,000 were paid for it.
[CA Nov-97 foundation-20 marks] [ Answer: Surplus 14,150, Balance Sheet: 53,040]
Question: 12 The following information were obtained from the books of Delhi Club as on 31.3.1998, at the end of the
first year of the Club. You are required to prepare Receipts and Payments Account, Income and Expenditure Account
for the year ended 31.3.1998 and a Balance Sheet as at 31.3.1998 on mercantile basis:
Donations received for Building and Library Room Rs. 2,00,000

Other revenue income and actual receipts: Revenue Actual
(Income Rs.) Receipts (Rs.)
Entrance Fees 17,000 17,000
Subscription 20,000 19,000
Locker Rent 600 600
Sundry Income 1,600 1,060
Refreshment Account --- 16,000
3. Other Revenue Expenditure and actual Payments:
Revenue Actual
Expenditure Payments
Land (Cost Rs. 10,000) ----- 10,000
Furniture (cost Rs. 1,46,000) ----- 1,30,000
Salaries 5,000 4,800
Maintenance of Playgrounds 2,000 1,000
Rent 8,000 8,000
Refreshment Account ----- 8,000

Donations to the extent of Rs. 25,000 were utilized for the purchase of Library Books. Balance was still unutilized. In order to
keep it safe, 9% govt. Bonds of Rs. 1,60,000 were purchased on 31-3-1998. Remaining amount was put in the Bank on 31-3-98
under the term deposit. Depreciation at 10% p.a. was to be provided for the whole year on Furniture and Library Books.
[CA INTER -Nov. 98]20 marks [Answer:Overdraft; 1,08,140; Surplus 15,100, Balance Sheet 3,40,440]
Question: 13. Mahaveer Sport Club given the following Receipts and Payments account for the year ended March 31, 2017
Receipts Rs Payments Rs
To Opening Cash & Bank Balance 5,200 By Salaries 15,000
To Subscriptions 34,800 By Rent & Taxes 5,400
To donations 10,000 By Electricity Charges 600
To Interest on Investments 1,200 By Sports Goods 2,000
To sundry Receipts 300 By Library Books 10,000
By Newspaper & Periodicals 1,080
By Miscellaneous Expenses. 5,400
By Closing Cash and Bank Balance 12,020
51,500 51,500
As on 31. 3.16 . As on 31. 3.17.
Outstanding Expenses:
Newspaper and Periodicals 400 500
Rent and Taxes 600 1,000
Electricity Charges 800 ---
Library Books 10,000 ---
Sports Goods 8,000 -----
Furniture and Fixtures 10,000 -----
Subscriptions Receivable 5,000 12,000
Investment- Government Securities 50,000 ---
Accrued Interest 600 600
Provide Depreciation on:
Furniture and Fixtures @ 10% p.a
Sports Goods @ 20% p.a.
Library Books @ 10%p.a.
You are required to prepare Club's Opening Balance Sheet as on 1.4.16, Income and Expenditure Account forthe year ended
on 31.3.17 and Balance Sheet as on that date. [CMA-INTER DEC-99]20 marks
Question: 14 prepare the Income and Expenditure Account and the Balance Sheet from the following information.
Receipts and Payment Account of Zee club, Delhi For the year ending on 31st December 2012
To Balance b/d (cash) 1,025 By Upkeep of fields 220
To Subscriptions: By Salaries 600
2011 40 By Drama Expenses 450
2012 2,050 By Newspapers 150
2013 60 2,150 By Books 100
To Admission Fees 40 By Municipal Taxes 40
To Life Membership Subscription 100 By Charity 350
To Donations (on 1.8.2012) 500 By 12% General Investments 500
To Subscription for Tournament 1,500 (on 1.8.2012)
(on 1.8.2012) By 12% Tournament Fund
To sales of old newspapers 45 Investments (on 1.8.2012) 1,500
To sale of old bats etc. 50 By Tournament Expenses 1,200
To Proceeds of drama tickets 950 By Bats, Balls etc. 700
To Sale of old furniture 60 By Printing and Stationery 100
(costing Rs. 100) By Furniture 250
To Interest on 12% general Invest. 12.50 By Balance c/d (cash) 3,760
To Interest on 12% Tournament
Fund Investments 37.50
To Subs.for Governor's Party 3,450
9,920 9,920

Additional Information
a. There are 500 members each paying an annual subscription of Rs.5. Rs.50 are still in arrear for the year 2011.
b. Municipal taxes amounting to Rs.40 per year have been paid upto 31 March 2013 and Rs.50 are outstanding for salaries.
c. On 1.1.2012 the club owned building valued at Rs.5,000, Stock of Bats and Balls Rs. 1,500, Printing and Stationery Rs.200,
Cash at Bank Rs.3,000, Books Rs.500 and Furniture Rs,600.
d. Write 50% off Bats and Balls (without considering sale), 25% off printing and stationery.
e. Special subscription for governor's party outstanding Rs.550.
f. Admission fees to be treated as of revenue nature but Life Membership is to be treated as of Capital nature.
[Ans. Surplus Rs. 1,035; Closing Balance Sheet Total Rs. 17,545]
Question: 15 Prepare Income and Expenditure Account and Balance Sheet of Ramdas College Sports Club, Delhi from the
following information: (‘000)
To Balance b/d Cash 150 By Balance b/d (Bank Overdraft) 3,000
Stamps 50 By Insurance (paid up to 30.6.2012) 300
To subscriptions 7,000 By Miscellaneous Expenses 3,875
To Entrance fees 200 By Postage Expenses 200
To Life Membership Subscription 500 By refreshment Room Expenditure 2,100
To General Donations 2,000 By Furniture (Purchased on [1.10.11]) 600
To Cricket Fees 250 By Honorarium to Cricket coach 600
To Refreshment Room Receipts. 3,100 By Sports Equipment (on 1.10.11) 2,200
To Sale of Old periodicals 72 By 10% RBI Tax Free Bonds 10,000
To Interest on Govt. Securities 144 (on 1.1.12) (Pavilion)
(T.D.S. @ 20%) By Balance c/d:
To Donation for club Pavilion 10,000 Cash in Hand 52
(on 1.1.2012) Cash at Bank 514
Stamps 25 591
23,466 23,466
Particulars 1.4.2011 31.3.2012

Rs.'000 Rs. '000
Club Pavilion Fund 5,000 ?
Sports Equipment 4,500 ?
Furniture 3,200 ?
Stock of Foodstuff 120 80
6% Government Security (Face Value Rs.30,00,000) 2,580 ?
Subscription Outstanding 600 250
Subscription in Advance - 300
Outstanding Miscellaneous Expenses 200 250
Accounting policies followed by Ramdas Sports Club, Delhi are as under:
The sports equipment and furniture are to be depreciated @25% and 10% p.a. respectively.
One-half of the entrance fees and life membership fee are to be treated as income.
(CMA INTER 16 MARKS) [Answer. Surplus Rs.2,872; Closing Balance Sheet Total Rs.22,022]
Question: 16 Prepare Income and Expenditure Account and Balance Sheet of Bhagat Singh College Sports Club. Delhi
Receipts and Payments Account of Bhagat Singh College Sports Club, Delhi for the year ended on 31 st March 2003.
To Balance b/d Cash 500 By Rent 9,750
Bank 4,000 By miscellaneous Expenses 28,800
Stamps 300 By Postage Expenses 1,200
To Subscription By Furniture 8,000
4,650 By Creditors for Sports Material 12,200
67,200 By cost of prizes (to be awarded) 4,150
2,600 74,450 By Cash Purchase of Sports
To Entrance Fees 8,000 Materials 2,000
To general donations 4,050 By Match Expenses 7,030
To Donations for Prize Fund 2,800 By Balance c/d
To Sale of old Sports Materials 5,200 Cash 545
To Interest on Prize Fund Investments 300 Bank 26,000
To Miscellaneous Receipts 225 Stamps 150
99,825 99,825

Information
Particulars 1.4.2002 31.3.2003
Rs. Rs.
Sports Materials 4,000 5000
Furniture 40,000 ?
5% Prize Fund Investment (Face Value Rs. 12,000) 11,700 ?
Creditors for Sports Materials 1,400 2,950
Subscription in arrears 4,750 ?
Subscription in advance 1,400 ?
Prize Fund 12,000 ?
Rent paid in advance -- 750
Outstanding rent 750 ?
Outstanding Miscellaneous Expenses 2,280 4,020
Miscellaneous Expenses paid in advance 750 850
Book Value of Sports Materials sold was Rs.4,000. Depreciation on furniture is to be provided @10%. Half of entrance fees to
be capitalised. There are 720 members, each paying an annual subscription of Rs. 100
[Answer, Surplus Rs.19,005 Closing Balance Sheet Total. Rs.91,995] (CMA INTER 16 MARKS)
Question: 17 The following is the Receipts and Payments Account of Apollo Club in respect of the year to 31 March 2003.
To Balance b/d By Salaries 3,000
Cash in hand 2,000 By Stationery 1,000
To Subscriptions: By Rates and Taxes 300
2001-2002 3,000 By Telephone Charges 1,500
2002-2003 4,000 By 8% Securities at par 5,000
2003-2004 1,000 8,000 By Sundry Expenses 200
To Profit on sports 3,000 By Balance c/d
To Interest on 8% Securities 1,000 Cash in hand 3,000
The following additional facts are ascertained:
a. There are 500 members, each paying an annual subscription of Rs.10; Rs.3,500 being in arrears for 2001-2002 at the
beginning of 2002-2003. During 2001-2002, subscriptions were paid in advance by 30 members for 2002-2003.
b. Stock of stationery at 31 March 2002 was Rs.400 and at 31 March 2003, Rs.500.
c. At 31 March 2003, the rates and taxes were prepaid to the following 31st January. The yearly charge being Rs.300.
d. A quarter's charge for telephone is outstanding, the amount accrued being Rs.300. The charge for each quarter is
same for both 2001 -2002 and 2002-2003.
e. Sundry Expenses accruing at 31 March 2002 were Rs.50 and at 31 March 2003 Rs.60.
f. At 31 March 2002 Building stood in the books at Rs.30,000 and it is required to write off depreciation at 10% p.a.
g. Face Value of 8% Securities at 31 March 2002 was Rs. 15,000 which was purchased at that date for Rs. 10,000.
Additional Securities worth Rs.5,000 are purchased at par on 31 March 2003.
You are required to prepare:
i.) An Income and Expenditure Account for the year ended 31 March 2003, and
ii.) A Balance Sheet at that date.
[Ans. Surplus Rs.590; Closing Balance Sheet TotalRs. 52,150] (CMA INTER 16 MARKS)
Question: 18 The following is the Receipts and Payments Account of Modern Club for the year ending on 31st March 2013.
Cash in hand 150 Honorarium of Secretary &Treasurer 4,800
Bal. as per Bank Pass Book 8,230 8,380 Rates and Taxes 1,260
Subscriptions 10,710 Printing and Stationery 470
Receipts from fees 2,400 Other Miscellaneous Expenses 1,530
Net proceeds of variety Entertainment 4,270 Ground man’s wage 840
Bank interest 230 Expenditure on fetes 2,390
Bar takings 7,450 Payments for bar Purchases 5,770
Cash Overspent 20 Repairs 320
New Car (less sale proceeds of old car
Rs. 3,000) 12,600
Balance as per pass Book 3,480
33,460 33,460

You are given the following additional information: 1.4.2012 31.3.2013
Subscription due 1,200 980

Unpresented cheques being payment on printing 90 30
Club premises at cost 29,000 ---
Depreciation on club premises 18,800 ---
Car at cost 12,190 ---
Depreciation on car 10,290 ----
Value of bar stock 710 870
Amount due for bar purchases 590 430
Cash overspent represents amount of honorarium to the treasurer not drawn due to shortage of fund. But the total salary
payable to him for the year was already included in 4,800. Depreciation is to be provided @ 5% p.a. on the w. d. v of the
premises and @ 15% p.a. on car for the whole year. You are required to adjust bank balance according to cash book and
prepare:
An Income and Expenditure Account and a Balance Sheet as on 31 March 2013 (ICWA—INTER) (CA- PE2 NOV 2004(20
MARKS) [Answer. Surplus Rs.6,090.
Question: 19 Following is the summary of bank transactions of club for the year ending 31st March 2013
To Petty cash in hand 150 By Rent 600
To Balance as per Pass Book 2,000 By Entertainment 800
To Subscriptions 2,500 By Advertisement (for 2011-2012 200
To Entertainment 1,900 Rs.50)
To Legacy (to be capitalized) 800 By Capital Expenditure 2,000
To Donation for Books 500 By Upkeep of Grounds 300
To General Donation 500 By Bank Charges 30
By Salary 1,500
By Petty Expenses 80
By Balance as per Pass Book 2,770
By Petty Cash in Hand 70
8,350 8,350
Information:
1.4.2012 31.3.2013
Rs. Rs.
Unpresented cheque being payment for rent 100 50
Interest on fixed deposit of Rs. 10,000 not entered in the pass book. ----- 600
Entry in respect of bank charges was not passed through the cash --- 30
book.
A member deposited subscription for 2013-2014 ---- 20
Direct into bank, not passed through the cash book
Cheques deposited for subscription but not yet cleared 800 600
By the bank
Prepare Income and expenditure Account for the year ending 31st March 2013 and Balance Sheet as on that date.
[Ans: Surplus. Rs. 1870; Closing Balance Sheet Total Rs. 15,990]
Question: 20 The Lok Kalyan Dispensary had the following:
Income and Expenditure Account for the year ending on 31st March 2012
Expenditure Rs. Income Rs.
Salaries 23,500 Subscriptions 25,000
Surgery and Dispensary 3,000 Interest 9,000
Rent and Taxes 500 Donations 4,000
Insurance 200 Miscellaneous Receipts 300
Office Expenses 800
Depreciation:
Building 3,750
Furniture 120
Instruments 100 3,970
Surplus 6,330

Information 31.03.2011 31.3.2012

Rs. Rs.
Cash in hand and at bank ? 18,700
4.5% Tax free Government Securities
(Face Value Rs.2,00,000) 1,80,000 1,80,000
Subscription outstanding 7,000 10,000
Subscription received in advance 200 600
Salaries unpaid 1,000 1,500
Land and Buildings 1,00,000 96,250
Surgery Expenses due 200 300
Stock of medicines 300 100
Prepare Receipts and Payments Accounts of the year ending on 31st March 2012
( Ans; Opening cash and bank balance Rs 10,800)
Question: 21 From the following Receipts and Payments Account of a Modern (India) Club and from the supplied information,
prepare income and Expenditure Account for the year ended 31st March 2013 and Sheet as on that date:
To Balance b/d 7,000 By Tournament Expenses 1,100
To Donation for Building 8,000 By Furniture 2,000
To General Donations 200 By Curtains 800
To Legacies 6,000 By Crockery 400
To Sale of old furniture 75 By Sports Materials 1,200
(costing Rs.80) By Salaries 1,300
To Endowment Fund Receipts 10,000 By Honorarium 2,600
(to be capitalized) By Charities 8,000
To Sale of Newspapers 400 By Advertisements 250
To sale of Sports Materials 80 By Rent and Taxes 1,400
To Rent Received from use of hall 1,500 By Advance against Construction of Building 5,000
To advertisement in the year book 400 By Cost of Entertainment 1,450
To proceeds of Concerts 1,200 By Payment to Creditors of last year 400
To Subscriptions: By Electric Installation Expenses 3,000
2011-2012 600 By Library Books 800
2012-2013 14,000 By Newspapers 1,300
2013-2014 800 15,400 By Postage 700
To Tournament Fund 1,500 By Bar Expenses including Purchase 1,600
By 7% investments Purchased on 1.10.12 10,000
51,755 51,755
Information :
Balance on 31st March 2013; Sports Material Rs. 100, Bar Stock Rs. 120, Postage Rs. 20.
Subscription outstanding on 31st March 2013 was Rs. 70.
Salary outstanding on 31st March 2013 Rs. 50
Salary paid included Rs. 80 paid for 2011-2012 and Rs. 10 for 2013-2014.
Investments included investments out of Building Donations Rs. 8,000.
[Ans: Deficit Rs. 975; Opening Capital fund Rs. 7200, Total of Closing Bal. Sheet Rs. 31,755
Question: 22 From the following Trial Balance of the Gayatri Education Society as on 31st March 2017, prepare an
Income and Expenditure Account and a Balance Sheet.
Dr. (Rs.) Cr. (Rs.)
Furniture and Fittings 12,500
Additions to Furniture during the year 3,200
Library Books 17,500
Additions to Library during the year 4,300
Buildings 2,75,000
General Investments 1,50,000
Reserve Fund 15,000
Sundry Debtors and Creditors 5,000 14,500
Entrance Fees 15,200
Examination Fees 2,400

Subscriptions Received 20,000
Certificate Fees 500
Hire of Society’s Hall 6,500
Interest realized on Investment 5,500
Sundry Receipts 600
Staff salaries 10,200
Printing and Stationery and Advertising 1,000
Taxes and Insurance 800
Examination Expenses 600
Subscription of Periodicals 1,200
Prize Trust Fund 16,000
Prizes Trust Investment 15,800
Prize Trust Income 650
Prize Awarded 450
Prize Fund Bank Balance 275
Donations received (to be capitalized) 18,000
General Expenses 375
Capital Fund 3,89,150
Cash at Bank 5,500
Cash at office 300
5,04,000 5,04,000
The following further information is supplied to enable you to make the necessary adjustments:
Rs.
Subscriptions to be received 4,500
Subscriptions received in advance 500
Interest on General Investment accrued 450
Staff Salaries outstanding 1,800
Taxes and Insurance paid in advance 500
Provide depreciation at the following rates (including the additions):
On Library Books @ 15%
On Furniture and Fittings @ 5%
On Building @ 1% p.a.
The market value of General Investments on 31st March 2017 was Rs. 1,30,000, but you are not requiredto bring down the
book value to this level. Ignore Income Tax.
[Ans. Surplus-Rs.32,870; Total of Closing Bal. Sheet Rs.4,88,020.] (CMA INTER 16 MARKS)
Question: 23 A political association prepared its accounts on 31st of December every year. Following information is available
for the year 2017:
They started the year with Rs. 20,000 cash and bank balance and ended with a cash and bank balance of Rs. 9,650.
They received subscription amounting to Rs. 8,350 of which Rs. 250 represented arrears of 2016, Rs. 7,600 for current year
and Rs. 500 received in advance for the year 2018.
They received Rs. 5,200 donation to Capital Fund and Rs. 8,500 to Election Fund. Balance of Election Fund on 1-1-2017
amounted to Rs. 150 and election expenses paid during the year were Rs. 7,200.
They held Rs. 10,000 investments on 1-1-2017 and interest received on investment during 2017 amounted to Rs. 1,400.
Office space was purchased during the year at a cost of Rs. 30,000 out of which Rs. 20,000 was to be treated as loan and the
balance was paid in cash.
Office furniture was valued at Rs. 1,500 on 1-1-2017 and Rs. 1,700 was paid for additions during the year.
At the end of the year, furniture was valued at Rs. 2,500. Cost of literature published and distributed amounted to Rs. 750 and
Rs. 1,200 was collected on distribution of literature.
Other payments during the year 2017 were as follows :
Salaries: Rs. 10,500 (out of which Rs. 500 related to the year 2018)
Rent: Rs. 1,700 (Out of which Rs. 500 related to the year 2016)
Meeting and Propaganda Rs. 1,650 (Rs. 300 paid for arrangement of meetings to be held in the year 2018)
Stationery Rs. 1500
Prepare:1.Receipt and Payment Account for the year ended 31-12-2017;

2. Income and Expenditure Account for the year ended 31-12-2017;
3. Balance Sheet as at 1-1-2017; and
4. Balance Sheet as at 31 -12-2017.

Answer:
Dr. Receipt and Payment Account for the year ending December 31, 2017 Cr.
Receipt Amount Payment Amount
To Balance b/d 20,000 By Building (payment for
To Subscription Received 8,350 Purchase of office space) 10,000
To Interest Received 1,400 By Furniture Purchased 1,700
To Sale of Literature 1,200 By Salaries Paid 10,500
To Donation to Capital Fund 5,200 By Rent Paid 1,700
To Donation to Election By Meeting and
Fund 8,500 Propaganda Expenses Paid 1,650
By Stationery Purchased 1,500
By Cost of Literature Paid 750
By Election Expenses 7,200
By Balance c/d 9650
44,650 44,650
Income and Expenditure Account for the year ending December 31, 2017 Cr.
Expenditure Amount Income Amount
To Salaries 10,000 By Subscription 7,600
To Rent 1,200 By Interest on Investments 1,400
To Stationery Consumed 1,500 By Sale of Literature 1,200
To Meeting & Propaganda 1,350 Less Cost of Literature 750 450
By Excess of Expenditure Over
To Depreciation on Office Income 5,300
Furniture:
Balance on 1-1-2017 1,500
Add Purchased 1,700
3,200
Less Closing Balance 2,500 700
14,750 14,750
Balance Sheet as at January 1, 2017

Liabilities Amount Assets Amount
Rent Outstanding Election Fund 500 Cash 20,000
Capital Fund (Bal. figure) 150 Subscription Outstanding 250
31,100 Investments 10,000
Furniture 1,500
31,750 31,731
Balance Sheet as at December 31, 2017

Subscription Received in Cash 9,650
Advance 500 Advance Salary 500
Loan for Building 20,000 Advance for Meetings 300
Election Fund on 1-1-2017 150 Investments 10,000
Add Donation 8,500 Furniture on 1-1-2017 1,500
8,650 Add: Purchased 1,700
Less Expenses 7,200 1,450 3,200 700
Capital Fund on 1-1-2017 31,100 Less Depreciation Building. 2,500
Add Donation 5,200 30,000
36,300
Less Deficit 5,300 31,000
52,950 52,950

Question: 24 Following is the receipts and payment Account of Roshnara club for the year ending December 31, 2001:
Balance b/d By salaries 15,000
Cash 20,000 By electricity Bills 20,000
Bank 50,000 By foodstuffs for restaurant 40,000
To subscription 2000 10,000 By telephone bills 25,000
2001 80,000 By 18% investments 78,000
2002 8,000 (31-3-2001)
To donation to sports fund 20,000 By sport expenses 40,000
To sale of furniture (book value Rs.5,000) 8,000 By subscription for periodicals 10,000
To sale of old periodicals, newspapers etc. 2,000 By balance c/d
To sale of foodstuffs 80,000 Cash 17,000
To rent of ground for Marriages 10,000 Bank 43,000
2,88,000 2,88,000
(a) During 2001, the club had 90 members, each paying an annual subscription of Rs.1,000. Out of twelve members, who had
not paid annual subscription during 2000, ten members cleared their arrears in 2001 and the arrears of subscription of
remaining two members who left the club on 1-1-2001 were treated as irrecoverable.
(b) During 2001 Rs.2500 was deposited with Mahanagar Telephone Nigam Limited for adjustment of telephone bills. On 31-
12-2001 following statement was received from MTNL office:
Amount deposited 25,000

Interest on deposit 2,000
27,000
Less Telephone rent and bills for 2001 15,000
Balance of deposit on 31-12-2001 12,000
(c) Advance payment of subscription for periodicals magazines, newspapers etc., amounted to Rs.2000 and Rs.4000 at the end
of 2000 and 2001 respectively.
(d) Stock of foodstuffs for restaurant run by the club amounted to Rs.12,000 and Ras.15,000 at the end of 2000 and 2001
respectively.
(e) On 1-1-201 other balances were as follow:

Furniture 80,000
Building 5,00,000
Sports fund 10,000
(f) Depreciate furniture and building @20%
Prepare Income and Expenditure Account and Balance sheet as 31-12-2001
Answer: Balance sheet as at December 31, 2000

Sports fund 10,000 Cash 20,000
Capital fund Bank 50,000
(balancing figure) 6,66,000 Advance subscription for periodicals 2,000
Subscription outstanding 12,000
Stock of foodstuffs 12,000
Furniture 80,000
Building 5,00,000
6,76,000 6,76,000
Income and Expenditure Account for the year ending December 31, 2001
To Salaries 15,000 By Subscription for 2001 80,000
To Electricity Expenses 20,000 Add Outstanding for 2001 10,000 90,000
To Foodstuff Purchased 40,000 By Sale of Old Periodicals 2,000
Add Opening Stock 12,000 By Interest on Deposit with MTNL 2,000
52,000 By Profit on Sale of furniture 3,000
Less Closing Stock 15,000 37,000 (Rs.8,000 - Rs.5,000)
To Telephone Expenses 15,000 By Sale of Foodstuff 80,000
To Sports Expenses 40,000 By Rent of Ground for Marriages 10,000

Less Sports Fund on 1-1-2001 10,000 By Excess of Expenditure Over Income 35,000
30,000
Less Donation 20,000 10,000

To Subscription for Periodicals 10,000
Add Advance on 1-1-2001 2,000

12,000
Less Advance on 31-12-2001 4,000 8,000
To Depreciation on Furniture 15,000
To Depreciation on Building 1,00,000
To Subscription for 2000 Written off 2,000
2,22,000 2,22,000
Balance Sheet as at December 31, 2001

Subscription Received in Advance 8,000 Cash 17,000
Sports Fund on 1-1-2001 10,000 Bank 43,000
Add Donation 20,000 Advance Subscription for Periodicals 4,000
30,000 Subscription Outstanding 10,000
Less Sports Expenses 40,000 Stock of Foodstuffs 15,000
10,000 Investments 78,000
Transferred to Income Deposit with MTNL 12,000
& Expenditure A/c 10,000 — Furniture 80,000
Less Sold 5,000
Capital Fund on 6,66,000
Less Deficit 35,000 75,000

6,31,000 Less Depreciation 15,000 60,000
Building 5,00,000
Less Depreciation 1,00,000 4,00,000

6,39,000 6,39,000
Question:25 The following is the Income and Expenditure Account of Delhi Youth Club for the year ended 31st March, 2001 :
Dr. Income and Expenditure Account for the year ended 31st March, 2001 Cr.
To Salaries 19,500 By Subscription 68,000

To Rent 4,500 By Donation 5,000
To Printing 750
To Insurance 500
To Audit Fees 750
To Games & Sports 3,500
To Subscriptions written off 350
To Misc. Expenses 14,500
To Loss on Sale of furniture 2,500
To Depreciation :
Sports Equipment 6,000
Furniture 3,100
To Excess of Income over expenditure 17,050
73,000 73,000

31-3-2000 31-3-2001
Rs. Rs.
Subscription in arrears 2,600 3,700
Advance Subscriptions 1,000 1,500
Outstanding expenses:
Rent 500 800

Salaries 1,200 350
Audit Fees 500 750
Sports Equipment less depreciation 25,000 24,000
Furniture less depreciation 30,000 27,900
Prepaid Insurance — 150
st
Book value of furniture sold is Rs. 7,000. Entrance fees capitalised Rs. 4,000. On 1 April, 2000, there was no cash in hand but Bank
Overdraft for Rs. 15,000. On 31st March, 2001, Cash in hand amounted to Rs. 850 and the rest was Bank balance. Prepare the
Receipts and Payments Account of the Club for the year ended 31st March, 2001. [ICWA—Adapted]
Answer: Receipts and Payments Account for the year ended 31-3-2001
To Subscription A/c 67,050 By Balance b/d: Bank
15,000
To Donation A/c 5,000 By Salary 19,500
Add Outstanding last year 1,200
Less Outstanding this year 350 20,350
To Entrance Fees A/c 4,000 By Rent 4,500
Add Outstanding last year 500
Less Outstanding this year By 800 4,200
Printing 750
To Furniture A/c (Sale of furniture) 4,500 By Insurance 500
(7,000-4,500) Add Prepaid this year 150 650
By Audit Fees 750
Add Outstanding last year 500
Less Outstanding this year By 750 500
Games & Sports 3,500
By Miscellaneous Expenses 14,500
By Sports Equipment (Purchased) 5,000
By Furniture (Purchased) 8,000
By Balance c/d
Cash 850
Bank (balancing figure) 7,250
80,550 80,550
Question 26: From the following information, prepare Balance Sheet as at December 31, 2001 :
Income and Expenditure Account for the year ending December 31, 2001
To Salaries 15,000 By Subscriptions 40,000
To Audit Fees 2,000 By Sale of Foodstuff 20,000
To Purchase of Foodstuffs 15,000 By Rent 5,000
Less Closing Stock of Foodstuffs 3,000 12,000
To Insurance Premium 1,000
To Depreciation on Fixed Assets 3,000
To Excess of Income over Expenditure 32,000
65,000 65,000
Receipts and Payment Account for the year ending December 31, 2001
To Balance b/d 5,000 By Salaries 10,000
To Subscription 2001 35,000 By Audit Fees for 2000 1,000
2002 6000 By Purchase of Foodstuffs 15,000
To Rent Received 4,000 By Insurance Premium 2,000
To Sale of Foodstuffs 20,000 By Fixed Assets 20,000
By 12% Fixed Deposit (31-12-2001) 10,000
70,000 70,000
On 31-12-2000, following balances appeared in the books of Delhi Club : Building—Rs.50,000 ; Furniture—Rs. 10,000.

Question:27. Following is the Income and Expenditure Account of Victoria Club for the year ending 31 st March ,2006:
To dep. On equipment 1200
To Salaries & Wages 19,000 By Subscription 30,000
To Misc. Expenses By Entrance fees received 1,000
( including Insurance) 2,000 By Annual Sports Income
To Audit fees 1,000 Receipts 6,000
To Chief Executive ‘ Less: Expenses 3,000 3,000
Honorarium 4,000
To Printing and Stationary 1,800
To Annual day
Celebration Exp. 6,000
Less – Donation 4,000 2,000
To Interest on Bank Loan 600
To Excess of Income over
Expenditure 2,400
34,000 34,000
Additional Information :
31.3.05 31.03.06
(Rs.) (Rs)
(i) Subscription outstanding 2,400 3,000
(ii) Subscription received in advance 1,800 1,080
(iii) Salaries outstanding 1,600 1,800
(iv) Sports equipment (after deducting depreciation) 10,400 10,800
(v) Prepaid Insurance - 240
(vi) Cash in Hand ? 6,400
The Club owned a Sports’ ground of Rs. 40,000
The Club took a loan of Rs. 8,000 from a bank during the year 2004 – 05,which was not paid in 2005 – 06.
Audit fee of 2005 – 06 was outstanding, but an Audit fee of Rs. 800 for 2004 – 05 was paid in 2005 – 06.
Prepare Receipts and payments Account for the year ending 31st March,2006 and a Balance Sheet on that date.
Answer: Opening balance of cash Rs. 5560. (CA-Inter2006 – May)
Question.28. Following is the Receipts and Payments Account of M/s Tiptop Club for the year ended 31st March. 2006:
Receipts Rs. Payment Rs.
To Cash in hand on 9,000 By Payment for cosmetics 15,000
1st April ,2005 By Honorarium to Beautician 8,000
To Subscription 45,000 By Salaries 18,000
To Donation 4,500 By Sunday expenses 1,000
To Interest on Investments 3,000
At 6% for the year BY Rent for building 12,000
To Fashion show 50,500 By Equipments purchased 13, 000
Proceeds By Fashion show expenses 34,000
By Cash in hand on 11,000
31stMarch , 2006
Total 1,12,000 Total 1,12,000
Additional information:
On 1stApril , On31 March,
2005 2006
(i) Subscription due 500 2,000

(ii) Subscription received in advance 1,500 1,000
(iii) Stock of cosmetics 10,000 7,000
(iv) Amount due to cosmetics suppliers 8,000 11,000
(v) Rent paid in advance 1,000 1,500
(vi) Salary outstanding 1,500 2,000
(vii) Value of Equipments 21,500 29,000
(viii) Value of Furniture and Fixtures 40,000 36,000
You are required to prepare Income and Expenditure Account for the year ended 31stMarch ,2006 and Balance Sheet as on
date of M/s Tip top Club. Show all working. (CA-PCC 2006 – Nov [16 Marks)

Hints : Calculation of subscription :
Subscription received 45,000
Less : Due (Last year) (500)
Less : Due ( Current year) 2,000
Add : Received in advance( Last year ) 1,500
Less : Received in advance ( Current year) (1,000)
Subscription of the year 47,000
Calculation of Purchase of Cosmetics :
Cosmetic A/c
Particulars Rs. Particulars Rs.
To Cash 15,000 By Bal . b/d 8,000
To Balance C/d 11,000 By Purchase (18,000)
26,000 26,000
Calculation of Consumption of Cosmetics :

Opening Stock 10,000
Add: Purchase 18000
Less:Closing stock (7,000)
21,000
4. Calculation of Salaries:
Salary Paid 18,000
Less: Outstanding Salary (Last year) (1,500)
Add: Outstanding Salary (Current year) 2,000
18,500
Calculation of Operating Capital : Balance Sheet ( as on 31.3. 06)
Capital 1,21,000 Subscription due 500
Subscription received in advance 1,500 Stock of Cosmetic 10,000
Due to Cosmetic Supplier 8,000 Rent paid in advance 1,000
Salary Outstanding 1 ,500 Investment 50,000
Equipment 2,500
Furniture and fixture 40,000
Cash 9,000
1,32,000 1,32,000
Question 29:Following is the Receipts and Payments Account of Nanoo Club for the year ended 31 st March, 2009:
Opening Balance: Salaries 1,20,000
Cash 10,000 Creditors 15,20,000
Bank 3,850 Printing and stationery 70,000
Subscription received 2,02,750 Postage 40,000
Entrance donation 1,00,000 Telephone and fax 52,000
Interest received 58,000 Repairs and maintenance 48,000
Sale of fixed assets 8,000 Glass and table lined 12,000
Miscellaneous income 9,000 Crockery and cutlery 14,000
Receipts at coffee room 10,70,000 Garden upkeep 8,000
Wines and spirits 5,10,000 Membership fees 4,000
Swimming pool 80,000 Insurance 5,000
Tennis court 1,02,000 Electricity 28,000
Closing balance:
Cash 8,000
Bank 2,24,600
21,53,600 21,53,600
Following additional information is provided to you:
1. Assets and liabilities as on 1.4.2008 were as follows:
Fixed assets (Net) 5,00,000
Stock 3,80,000
Investment in 12% government securities 5,00,000
Outstanding subscription 12,000
Gratuity fund 1,50,000
Prepaid insurance 1,000
Sundry creditors 1,12,000
Subscription received in advance 15,000
Entrance donation received pending membership 1,00,000

2.Subscription received in advance as on 31.3.09 was Rs. 18,000.

3.Outstanding subscription as on 31.3.09 was Rs. 7,000.
4.Outstanding expenses as on 31.3.09 are:
Salaries : Rs. 8,000
Electricity : Rs. 15,000
5. 50% of the entrance donation was to be capitalised. There was no pending membership as on 31.3.09.
6.The cost of assets sold as on 1.4.08 was Rs. 10,000. Depreciation was provided @ 10% p.a. on fixed assets on written down
value basis,
7. A sum of Rs. 20,000 received in October, 2008 as entrance donation from an applicant was to be refunded, as he has not
fulfilled the requisite membership qualification. The refund was made on 3.6.09.
8.Purchases made during the year 2008-09 amounted to Rs. 1500,000.
9.The value of closing stock as on 31.3.09 was Rs. 2,10,000.
10.The Club as a matter of policy charges off to Income and Expenditure account, all purchases made on account of crockery,
cutlery, glass and linen in the year of purchase.

(i) Income and Expenditure account for the year ended 31st March, 2009.
(ii) Balance Sheet as on 31st March, 2009. (CA-PCC- MAY 2009)20 MARKS
Answer: Income and Expenditure Account of Nanoo club For the year ended 31st March, 2009
To Salaries (W.N.8) 1,28,000 By Subscriptions (W.N.2) 1,94,750
To Printing and stationery. 70,000 By Entrance donation (W.N.3) 90,000
To Postage 40,000 By Interest (W.N.4) 60,000
To Telephone & Fax 52,000 By Miscellaneous income 9,000
To Repairs and maintenance 48,000 By Profit from operations (W.N.6) 92.000
To Glass and table linen 12,000 By Excess of expenditure over income
To Crockery and cutlery 14,000 transferred to capital fund (deficit) 30,250
To Garden upkeep 8,000
To Membership fees 4,000
To Insurance (W.N.5) 6,000
To Electricity charges (W.N.8) 43,000
To Loss on sale of assets 2,000
(10,000-8,000)
To Depreciation (W.N.9) 49,000
4,76,000 4,76,000
Balance sheet of Nanoo Club As on 31st March, 2009

Capital fund (W.N. 10). 10,89,600 Fixed assets (W.N.9) 4,41,000
Gratuity fund 1,50,000 Stock 2,10,000
Sundry creditors (W.N.7) 92,000 Investments in 12% Government securities 5,00.000
Subscription received in advance 18,000 Subscription outstanding 7,000
Entrance donation refundable 20,000 Interest accrued (W.N.4) 2,000
Outstanding salary 8,000 Bank 2,24,600
Outstanding electricity charges 15,000 Cash 8.000
13,92,600 13,92,600
Working Notes:
(1) Opening Balance Sheet as on 1" April, 2008
Capital funds (Bal. Fig.) 10,29,850 Fixed assets 5,00,000
Sundry creditors 1,12,000 Stock 3,80,000
Subscription received in advance 15,000 Investment in 12% Government securities 5,00,000
Entrance donation received in advance Subscription outstanding 12,000
(pending membership) 1,00,000 Prepaid insurance 1,000
Gratuity fund 1,50,000 Cash 10,000
Bank 3,850
14,06,850 14,06,850

Subscription
Particulars Amount
Subscription received during the year 2,02,750
Add: Outstanding subscription on 31.3.2009 7.000
Add: Received in advance as on 1.4.2008 15,000
2,24,750
Less: Outstanding subscription as on 1.4.2008 (12,000)
Less: Received in advance as on 31.3.2009 (18,000)
1,94,750
Entrance donation
Particulars Amount
Entrance Donation received during the year 1,00,000
Add: Received in Advance as on 1.4.2008 1,00,000
2,00,000
Less: Refundable to Ineligible Member 20,000
1,80,000
Less: 50% Capitalized 90,000
90,000
Interest Received
Particulars Amount
Interest on Rs. 5,00,000 @ 12% p.a. 60,000
Less: Interest received during the year 58,000
Interest accrued as on 31.3.2009 2,000
Interest credited to Income and Expenditure A/c 60,000
Insurance
Particulars Amount
Insurance paid during the year 5,000
Add: Prepaid insurance as on 1.4.2006 1,000
6,000
Profit from Operations
Cost of Goods sold:
Opening Stock as on 1.4.2008 3,80,000
Add: Purchases 15,00,000
18,80,000
Less: Closing Stock 2,10,000
Cost of Goods Sold (A) 16,70,000
Receipts from operations
Receipts from Coffee Room 10,70,000
Receipts from Wines & Sprits 5,10,000
Receipts from Swimming Pool 80,000
Receipts from Tennis Court 1,02,000
Total of Receipts (B) 17,62,000
Profit from operations (B-A) 92,000
Sundry Creditors
Opening Balance as on 1.4.2008 1,12,000
Add: Purchases made during the year 15,00,000
16,12,000
Less: Payment made during the year 15,20,000
Closing Balance as on 31.3.2009 92,000
(8) (a) Salary
Salary paid as on 31.3.2009 1,20,000
Add: Outstanding Salary as on 31.3.2009 8,000 1,28,000
(b) Electricity charges paid 28,000
Add: Outstanding Electricity charges as on 31.3.2009 15,000 43,000
(9) Fixed Assets
Fixed Assets as per Trial Balance 5,00,000
Less: W.D.V. of Assets sold 10,000
4, 90,000
Less: Depreciation @ 10% on Rs. 4,90,000 49,000
Fixed Assets as on 31.3.2009 4,41,000

(10) Capital fund

Capital fund as on 31.3.2008 10, 29,850
Add: Entrance donation capitalized 90,000
11, 19,850
Less: Deficit 30,250
10,89,600
Question 30: On the basis of the following information’s, prepare Income and Expenditure a/c for the year ended 31
March,2010: Receipts and Payments Account for the year ended 31st March, 2010
To Cash in hand (opening) 1,300 By Salaries 2,58,000
To Cash at Bank (opening) 3,850 By Rent 71,500
To Subscriptions 4,94,700 By Printing & Stationery 3,870
To Interest on 8% Govt. Bonds 4,000 By Conveyance 10,600
To Bank Interest 160 By Scooter purchased 50,000
By 8% Govt. Bonds 1, 00,000
By Cash in hand (closing) 840
By Cash at Bank (closing) 9,200
5,04,010 5,04,010
1. Salaries paid include Rs. 6,000 paid in advance for April, 2010. Monthly salaries paid were Rs. 21,000.
2. Outstanding rent on 31st March, 2009 and 31st March, 2010 amounted to Rs.5,500 and Rs. 6,000 respectively,
3. Stock of printing and stationery material on 31st March, 2009 was Rs. 340; it was Rs.365 on 31st March, 2010.
4. Scooter was purchased on 1st October, 2009. Depreciation @ 20% per annum is to be provided on it.
5. Investments were made on 1st April, 2009.
6. Subscriptions due but not received on 31st March, 2009 and 31" March, 2010 totalled Rs. 14,000 and Rs. 12,800
respectively. On 31 March, 2010 subscriptions amounting to Rs. 700 had been received in advance for April, 2010.
(CA-IPCC- MAY 2010)8 MARKS
Answer :Income and expenditure Account for the year ended 31st march, 2010
To Salaries (W.N. 1) 2,52,000 Subscription (W.N.6) 4,92,800
To Rent(W.N.2) 72,000 Interest on 8% Government bonds
To Printing and stationery (W.N.3) 3,845 (W.N.5) 8,000
To Conveyance 10,600 Bank interest 160
To Depreciation on Scooter (W.N.4) 5,000
To Surplus i.e. excess of income
over expenditure 1,57,515
5,00,960 5,00,960
Working Notes:
1. Salaries paid 2,58,000
Less .Salary paid in advance for April, 2010 6,000
Salaries for the year 2,52,000
2. Rent paid 71,500
Add: Outstanding rent as on 31.3.2010 6,000
77,500
Less: Outstanding rent as on 31.3.2009 5,500
Rent for the year 2009-2010 72,000
3. Printing and stationery 3,870
Add: Stock as on 31.3.2009 340
4,210
Less : Stock as on 31.3.2010 365
Printing and stationery consumed during the year 2009-2010 3,845
4. Depreciation on scooter 5,000
5. Interest on Government bonds received 4,000

Add: Interest due but not received as on 31.3.2010 4,000
Interest income for the year 2009-2010 8,000

6. Subscription received 4,94,700
Add: Accrued subscription as on 31.3.2010 12,800
5,07,500
Less .Accrued subscription as on 31.3.2009 14,000
Unearned subscription for April, 2010 700 (14,700)
Income for the year 2009-2010 4,92,800
Question: 31 The Young Trust runs a Charitable Hospital and a Dispensary. The following information is available for the year ended
31st March, 2009 from the books of accounts:
Dr. Cr.
Rs. Rs.
Capital Fund 9,00,000
Donations received during the year 6,00,000
Recovery of the Rent 2,75,000
Fees received from patients 3,00,000
Recovery of Food Supplies 1,40,000
Surgical Equipments 4,55,000
Building & Operation Theatres 3,20,000
Consumption in the Hospital of:
Medicines 1,20,000
Food Stuff 90,000
Chemicals 30,000
Closing Stock of Hospital
Medicines 20,000
Food Stuff 4,000
Chemicals 1,000
Sales of Medicines (Dispensary) 3,10,000
Opening Stock of Medicines (Dispensary) 55,000
Purchase of Medicines (Dispensary) 3,00,000
Salaries:
Administrative Staff 30,000
Doctors/Nurses 1,50,000
Assistant at the Dispensary 15,000
Electricity & Power Charges:
Hospital 1,05,000
Dispensary 2,000
Furniture &Equipments 80,000
Ambulance 30,000
Postage & Telephone Expenses less recovery 26,000
Subscription to Medical Journals 21,000
Ambulance Maintenance Charges less recovery 800
Consumption of Bed Sheets 90,000
Fixed Deposits made on 01-04-2008 for three years at interest
@11%p.a. 5,00,000
Cash & Bank Balances 41,300
Sundry Debtors (Dispensary) 60,500
Sundry Creditors (Dispensary) 41,000
Remuneration to Trustees, Trust Office Expenses etc. 21,000
a. The dispensary supplied medicines to the hospital worth Rs. 60,000, for which no adjustment was made in the books.
b. The closing stock of the medicines was Rs. 40,000 at the dispensary.
c. The stock of medicines on 31st March, 2009 at the hospital included Rs. 4,000 worth of medicines belonging to the
patients, which has not been considered while arriving at the figure of consumption of medicines.
d. The donations were received towards Corpus of the Trust.
th
e. On 15 August, 2008, surgical equipments were donated having market value of Rs. 40,000.
f. The hospital is to receive the grant of 25% of the amount spent on treatment of the poor patients from the Red Cross
Society. Such expenditure was Rs. 50,000.
g. Out of the fees recovered from the patients, 10% is to be given to the Specialist retained by the Hospital.
h. Depreciation on the assets on the closing balances :
Surgical Equipments @ 20%
Building @ 5%
Furniture &Equipments @ 10%
Ambulance @ 30%
Income and Expenditure Account of the Hospital, Dispensary and Trust, Statement of Affairs of the Trust for the year ended 31-3-09.
(CA-IPCC- NOV 2010)16 MARKS

st
Answer: Income and expenditure Account of Dispensary for the year ended 31 march, 2009)
To Opening stock of medicines 55,000 By Sales of medicine 3,10,000
To Purchase of medicines 3,00,000 By Supply of medicines to hospital 60,000
To Salaries to assistants 15,000 By Closing stock of medicines 40,000
To Electricity & power charges 2,000
To Surplus transferred to trust income &
expenditure account (Bal.Fig.) 38,000
4,10,000 4,10,000
st
Income & Expenditure Account of Hospital For the year ended 31 March, 2009)
To Consumption of: By Fees received from patients 3,00,000
Medicines (W.N.1) 1,84,000 By Recovery for rent 1,40,000
Food stuff 90,000 By Recovery of food supplies 2,75,000
Chemicals 30,000 3,04,000 By Ambulance maintenance charges less
To Salaries: recovery 800
Admn. staff 30,000 By Grant receivable from Red Cross Society
Doctors & nurses 1.50,000 1,80,000 (25% of 50.000) 12,500
To Electricity & power charges 1,05,000 By Deficit transferred to trust income &
To Consumption of bed sheets 90,000 expenditure account 1,33,700
To Subscription to medical journals 21,000
To Retainership of specialists outstanding (W.N.2)
To Depreciation on: 30,000
Surgical equipments 99,000
Building 16,000
Furniture & fixtures 8,000
Ambulance 9,000
1,32,000
8,62,000 8,62,000
Income & Expenditure Account of the Young Trust For the year ended 31st March, 2009)
To Deficit from hospital 1,33,700 By Surplus from dispensary 38,000
To Postage & telephone expenses less recovery 26,000 By Interest accrued on fixed deposits 55,000
To Remuneration to trustees, trust office expenses By Deficit (Excess of expenditure over income) 87,700
etc. 21,000
1,80,700 1,80,000
Statement of Affairs of Young Trust As on 31st March, 2009)
Capital fund: Building 3,20,000
Opening balance 9,00,000 Less: Depreciation 16,000 3,04,000
Add: Donations: Surgical equipment 4,55,000
Cash 6,00,000 Add: Donation 40,000
Surgical equipment 40,000 4,95,000
15,40,000 Less: Depreciation 99,000 3,96,000
Less: Deficit 87,700 14,52,300 Furniture 80,000
Sundry creditors(dispensary) 41,000 Less: Depreciation 8,000 72,000
Outstanding retainership to Ambulance 30,000
specialist (W.N.2) 30,000 Less: Depreciation 9,000 21,000
Stock:
Medicines:
Dispensary . 40,000
Hospital 16,000
Food stuff Hospital (20,000 - 4,000)
Chemicals 4,000
Sundry debtors (Dispensary) 1,000 61,000
Grant receivable from Red Cross 60,500
Society
fixed deposits 12,500
Interest accrued 5,00,000
Cash & bank balance 55,000
41,300
15,23,300 15,23,300

Working Notes :
1. Consumption of medicines in hospital:
Medicines 1,20,000
Supplies received from dispensary 60,000
Medicines in stock belonging to patients 4,000
Total 1,84,000
2. Calculation of fee given to specialist:
10% of Rs. 3, 00,000 = Rs. 30,000
Note: It is assumed that surgical equipment donated on 15th August 2008 was not included in the closing balance of surgical
equipments as on 31st March, 2009
Question: 32:The following is the Receipt and Payment Account of Park View Club in respect of the year ended 31st March
2011.
Receipts Amount Payment Amount
To Balance b/d 1,02,500 By Salaries 2,08,000
To subscriptions: By Stationery 40,000
2008-09 4,500 By Rent 60,000
2009-10 2,11,000 By Telephone Exp. 10,000
2010-11 7,500 2,23,000 By Investment 1,25,000
To profit on sports meet 1,55,000 By Sundry Expenses 92,500
To Income from investments 1,00,000 By Balance c/d 45,000
5,80,500 5,80,500
1. There are 450 members each paying annual subscription of 500. On 1 April, 2010, outstanding subscription was Rs. 5,000.
2. There was an outstanding telephone bill for Rs. 3,500 on 31st March, 2011.
3. Outstanding sundry expenses as on 31 March, 2010 totalled Rs. 7,000.
4. Stock of stationery:
On 31st March, 2010 Rs. 5,000
On 31st March, 2011 Rs. 9,000
5. On 31st March, 2010 building stood in the books at Rs. 10, 00,000 and it was subject to depreciation @ 5% p.a.
6. Investment on 31st March, 2010 stood at Rs. 20, 00,000.
7. On 31st March, 2011, income accrued on the investments purchased during the year amounted to Rs. 3,750.
Prepare an Income and Expenditure Account for the year ended 31st March, 2011 and the Balance Sheet as at that date.
(CA-IPCC- MAY 2011)16 MARKS
Answer:
Income and Expenditure A/c
To Salaries 2,08,000 By Subscriptions (W.N.2) 2,25,000
To Stationery consumed (W.N.3) 36,000 By Profit on sports meet 1,55,000
To Rent 60,000 By Income on investments 1,00,000
To Telephone expenses 10,000 Add: Income accrued 3,750 1,03,750
Add: Outstanding on 31.311 3,500 13,500
To Sundry expenses 92,500
Less: Outstanding on 31.3.10 (7,000) 85,500
To Depreciation of building 50,000
To Surplus (excess of income overexpenditure)
30,750
4,83,750 4,83,750
Balance Sheet as at 31st March 2011
Capital fund (W.N. 1) 31,05,500 Outstanding subscriptions 14,500
Add: Surplus 30,750 31,36,250 Investment
Subscriptions received in advance 7,500 (20,00,000 + 1,25,000) 21,25,000
Outstanding telephone bills 3,500 Add: Interest accrued on
investments 3,750 21,28,750
Building 10,00,000
Less: Depreciation (50,000) 9,50,000
Stock of stationery 9,000
Cash balance 45,000
31,47,250 31,47,250

Working Notes: Balance Sheet as at 31st March 2010
Outstanding sundry expenses 7,000 Building 10,00,000
Capital fund (Bal.fig) 31,05,500 Investments 20,00,000
Stock of stationery 5,000
Cash balance 1,02,500
Outstanding subscriptions 5,000
31,12,500 31,12,500
Calculation of subscriptions accrued during the year subscription A/c

To Outstanding Subscriptions By Cash A/c 2,23,000
(as on 1.4.10) 5,000 By Outstanding subscriptions (as on 31.3.11)
To Income & Expenditure A/c 2,25,000 (Bal. fig) 14,500
To Subscriptions received in advance for 2011-12 7,500
2,37,500 2,37,500
Question 33:Bear Bar Club was registered in a city and the accountant prepared the following Receipts and Payments Account
for the year ended March 31, 2011 and showed a deficit of Rs. 14,520.
Receipts Amount Payments Amount
Subscriptions 62,130 Premises 30,000
Fair receipts 7,200 Honorarium to Secretary 12,000
Variety show receipts (net) 12,810 Rent 2,400
Interest 690 Rate & Taxes 3,780
Bar Collection 22,350 Printing & Stationary 1,410
Excess Cash spent 1,000 Sundry Expenses 5,350
Deficit 14,520 Wages 2,520
Fair Expenses 7,170
Bar purchases payments 17,310
Repair 960
New car (less proceeds of old car Rs. 9,000) 37,800
1,20,700 1,20,700
The following additional information are:

01.04.2010 31.03.2011
Cash in hand 450 .........
Bank balances as per pass book 24,690 10,440
Cheque issued not presented for sundry expenses 270 90
Subscriptions due 3,600 2,940
Premises at cost 87,000 1,17,000
Accumulated depreciation on premises 56,400 ........
Car at cost 36,570 46,800
Accumulated depreciation on car 30,870 .......
Bar stock 2,130 2,610
Creditors for the bar purchases 1,770 1,290
Cash excess spent represent honorarium to secretary not withdrawn due to cash deficit.
His annual honorarium is Rs. 12,000.
Depreciation on premises and car is to be provided at 5% and 20% on written down value method.
You are required to prepare the correct Receipts and Payments Account, Income and Expenditure Account and Balance Sheet
on March 31, 2011.
(CA-IPCC- Nov 2011)16 MARKS
Note:- MCQ Based questions have been given at the end of the book.

CHAPTER 8. FINANCIAL STATEMENTS FROM INCOMPLETE RECORDS

Question:1 The closing capital of Mr A on 31.3.2007 was Rs 1,50,000. On 1.4.2006 his capital was Rs 60,000. during the year he
had drawn Rs 40,000 for domestic expense. He introduced Rs 25,000 as additional capital in February 2007. find out his
profit for the year. ( CA-2007(NOV)- 2 MARKS)
Question:2 A retail trader does not keep double entry system. His Balance Sheet as at 1st January 2017 was as follows :
Balance Sheet
Creditors 4,000 Cash in Hand 500
Capital 12,000 Cash at Bank 6,000
Stock 5,000
Debtors 3,300
Furniture 1,200
16,000 16,000
His position as at the end of the year 2017 was: Cash in Hand Rs. 4,000; Cash at Bank Rs. 2,000 Stock Rs. 5,500, Debtors Rs.
4,600, Furniture Rs. 1,500 and Creditors Rs. 6,000. He withdrew during the year Rs. 9,000 out of which he spent Rs. 6,000 on
the cost of purchasing a motor car for the business. Prepare necessary Statement to determine profit earned during the year
and a balance Sheet as at 31st December 2017 after making the following adjustments:-
a). Depreciation: Furniture and Motor Car @ 10%

b). Write off bad debts Rs. 200.
c). Provide 5% for doubtful debts. [Ans.:- Net Profit: Rs. 7,430; Total of Statement of Affairs = Rs. 22,430]
Question:3 Mr. A does not maintain complete double entry books of accounts. From the following details determine the profits
for the year and statement of affairs at the end of the year:
1-1-2017 31-12-2017
Stock 40,000 60,000

Debtors 30,000 40,000
Cash 2,000 1,000
Bank 10,000 5,000 (O.D)
Creditors 15,000 25,000
Outstanding expenses 5,000 8,000
Furniture (cost) 3,000 2,000
Rs. 1,000 (cost) furniture was sold for Rs. 5,000 on 1-1-2017; 10% depreciation is to be charged on furniture. Mr. A has drawn
Rs.1,000 per month. Rs. 2,000 was invested by Mr. A into the business in 2017.
Bank balance on 1-1-2017 is as per cash book, but the bank overdraft on 31-12-2017 is as per bank statement. Cheques of Rs
2000 drawn in December, 2017 have not been encashed within the year. (Profit Rs 7800)
Question:4 Rashika had Rs. 3,00,000 in bank on 1st January, 2016 when she started her business. She closed her accounts on
31st March, 2017. Her single entry books (in which he did not maintainany account for the bank) showed her position
as follows :
31.3.16 31.3.17 31.3.16 31.3.17

Rs. Rs. Rs. Rs. Rs.
Cash in hand 2,000 3,000 Debtors 1,000 2,000
Stock in trade 19,000 29,000 Creditors 5,000 3,000
On 1st February,2016 She began drawing 700 per month for his personal expenses from the cash box of business. Her
account in the bank had the following entries :
Deposits Rs. Withdrawals Rs.

1.1.2016 3,00,000 ----
1.1.16 to 31.3.16 ---- 2,23,000
1.4.16 to 31.3.17 2,30,000 2,70,000

The above withdrawals included payments by cheques of Rs. 2,00,000 and Rs. 60,000 respectively during the periods from 1st
January, 2016 to 31st March, 2016 and from 1st April 2016 to 31st March, 2017 for the purchase of machinery for the
business; and the deposits after 1st January, 2016 consisted wholly of sale price received from customers by cheques. Draw
up Rashika’s statement of affairs as at 31st March, 2016 and 31st March, 2017 respectively and work out her profit or loss for
the year ended 31st March, 2017. Give your comment on accuracy of profit calculated. (ICAI study material)
Question:5 A and B are in partnership, sharing profits and losses in the ratio of two-thirds and one-third respectively, The books
are kept on a single entry system and their statement of affairs as at 31st December 2016 showed the position as
follows :
STATEMENT OF AFFAIRS 31st December, 2016
Rs. Rs.
Capital: Freehold buildings 6,000
A 10,000 Plant and machinery 2,000
B 4,000 Office furniture 500
Loan 1,000 Stock 4,000
Creditors 5,000 Cash 500
Bills payable 500 Bills receivable 1,500
Debtors 6,000
20,500 20,500
On 31-12-2017 , the books disclosed the following position : Debtors Rs. 8,000, Creditors on open account Rs. 8,500 creditors
on loan account Rs. 1,600 and Cash Rs. 800. The stock was valued at Rs. 4,200 and the bills receivable amounted to Rs. 1,400.
An examination of the cash book showed that during the year A had drawn on account of profits Rs. 1,500 and B Rs. 600. A
had in addition withdrawn Rs. 2,000 on account of capital on 30th June, 2017. The partners agree to reduce the previous
valuation of the Plant and Machinery by 5 per cent and the office furniture by 10 per cent by way of depreciation and to
charge 5 per cent by way of interest on capital. Prepare—
(1) A statement of profit, dividing the profits between 'A' and 'B'.
(2) A statement of affairs showing the position, as at December 2017. (CMA. Inter Modified)
Question:6 Pyare and Lal started business on 1st January 2016 with Rs. 50,000 as capital contributed equally but the profit-
sharing ratio was 3 :2 . Their drawings were Rs. 300 and Rs. 200 per month respectively. They had kept no accounts
except the following information:
31-12-16 31-12-17
Machinery at cost Rs. 20,000 Rs. 25,000
Stock-in-trade 30,000 30,000
Debtors 50,000 60,000
Cash 2,000 500
Creditors 30,000 20,000
Outstanding expenses 4,000 3,000
Bank balance (as per Pass Book) 6,000 8,000
Provision is to be made for depreciation at 10% on the cost of machinery as at the end of each year. Debtors on 31-12-16
include Rs. 5,000 for goods sent out on consignment at 25% above cost, and the goods were not sold until 2017. A cheque for
Rs. 1,000 had been deposited on 31-12-16 but was credited on 2-1-2017.
A cheque for Rs. 2,000 issued on 26-12-17 was presented on 3-1-2018. A cheque for Rs. 1,000 was directly deposited by a
customer on 27-12-17 and a cheque for Rs. 500 deposited in December 2017 was dishonoured. No adjustment for these was
made. Determine the profits for 2016 and 2017 and draw up a Balance Sheet as on 31.12.2017. (CA Inter)
Question:7 Suraj does not maintain his books of account under the double entry system but keeps slips of paper from which he
makes up his annual accounts. He has borrowed moneys from a bank to whom he has to render figures of profits every
year. He has given the bank the following profit figures:
Year ending Profits

31st December Rs
2013 20,000
2014 38000
2015 45.000
2016 58,000
2017 65,000

The bank appoints you to audit the statements and verify whether the figures of profits reported are correct or not. For this
purpose, the following figures are made available to you:
(a) Position as on 31st December, 2012: Sundry debtors Rs. 20,000; Stock-in-trade (at 95% of the cost )Rs. 47,500; Cash in
hand and at bank Rs. 12,600; Trade creditors Rs. 6,000. Expenses due Rs. 1,600.
(b) He had borrowed Rs. 5,000 from his wife on 30th September, 2012 on which he had agreed to pay simple interest at 12%
p. a. The loan was repaid along with interest on 31st December, 2014.
(c) In December,2013, he had advanced Rs. 8,000 to A for purchase of a vacant land. The property was registered in March,
2015 after payment of balance consideration of Rs. 32,000. Costs of registration incurred for this were Rs. 7,500.
(d) Suraj purchased jewellery for Rs. 15,000 for his daughter in October 2015. Marriage expenses incurred in January,2016
were Rs 24,000
(e) A new DVD was purchased by him in March 2017 for Rs. 18,000 and presented it to his friend in November 2017.
(f) His annual household expenses amounted to a minimum of Rs. 24,000 .
(g) The position of assets and liabilities as on 31st December 2017 was found to be: Overdraft with bank (secured against
property)Rs. 12,000, Trade creditors Rs. 10,000 , Expenses payable Rs. 600; Sundry debtors (including Rs. 600 due from a
peon declared insolvent by court) Rs. 28,800; Stock-in-trade (at 125% of cost to reflect market value) Rs. 60,000 and Cash
on hand Rs. 250.
It is found that the rate of profit has been uniform throughout the period and the proportion of sales during the years to total
sales for the period was in the ratio of 3 : 4 : 4 : 6 : 8. Ascertain the annual profits and indicate differences, if any, with those
reported by Suraj to the bank earlier.(C.A. Inter, May, 1992)
CONVERSION METHOD
Question:8 From the following, prepare total debtors account and total creditors account and find out credit sales and credit
purchases:
Rs. Rs.
Debtors as on 1st January 5,000 Bad debts written off 1,200
Creditors as on 1st January 4,000 Bad debts recovered 300
Debtors as on 31st December 4,000 Bills receivable endorsed to creditors 4,000
Creditors as on 31st December 6,000
Bills receivable received during the year 10,000 Bills receivable dishonoured by customers 1,000
Bills payable issued during the year 8,000 Endorsed bills receivable dishonoured 500
Cash received from customers 30,000 Bills receivable discounted 2,000
Cash returned to customers 500 Discounted bills receivable
Cash paid to suppliers 20,700 Dishonoured 700
Discount allowed by suppliers 270 Sales returns 600
Discount allowed to customers 150 Purchases returns 200
Question:9 Murga Ram carries on business as retail merchant. He does not maintain regular books. From cash sales effected by
him he effects business and other payments, always retains cash of Rs. 1,000 in hand and deposits the balance in the
bank account. The stock inventories for the year ended 31st December, 2017 are lost. However, he informs you that he
has sold goods invariably at a price which yields him a profit of 33 1/3% on cost. From the following additional
information supplied to you, prepare necessary final accounts for the year ended 31st December, 2017:
Assets and liabilities 1st Jan. 2017 31st Dec. 2017

Cash in hand 1,000 1,000
Sundry creditors 4,000 9,000
Cash at bank N.A(?). 8,000
Sundry debtors 10,000 35,000
Stock of goods 28,000 N.A(?)
Analysis of the bank pass book reveals the following information:
0.
Payment to creditors 70,000
Payment for business expenses 12,000
Receipts from debtors 75,000
Loan from Ajit taken on 1st January, 2017 @ 10% p.a. 10,000
Cash deposited in the bank 10,000
In addition, he paid to the creditors for goods Rs. 2,000 in cash and salaries Rs. 4,000 in cash. He also withdrew Rs. 8,000
cash for his personal expenses. (Gross profit—31,000 and net profit—Rs 14,000, Balance sheet 56,000)

Question:10 JhunjhunLal submits to you the following figures relating to his business in respect of the year ending 31st
December, 2017. You are required to prepare a Trading and Profit and Loss Account for the year ended, and a Balance
Sheet as at 31st December 2017. Any difference in the cash balance is assumed to be drawings:
Rs.
Cash paid into bank 1,50,000
Private dividends paid into bank 2,000
Private payments out of Bank 26,000
Payment for goods out of Bank 1,22,000

Cash received from debtors 2,50,000
Payments for goods by cash and cheques 1,60,000
Wages 40,000
Delivery Expenses 7,000
Rents & Rates 2,000
Lighting & Heating 1,000
General Expenses 4,600
The Assets & Liabilities are as follows :
Assets and Liabilities 1st January 31st December
2017 2017
Stock 20,000 15,000
Bank Balance 8,000 12,000
Cash in hand 300 400
Trade Debtors 14,000 20,000
Trade Creditors 27,300 30,000
Investments 50,000 50,000
(CMA. Inter)
Question:11 Mungerilal is a small trader, and is financially incapable of engaging the services of an accountant. He keeps no
books but only an account with a bank in which all takings are lodged after meeting business expenses and his personal
drawings and through which all payments for business purchases are passed.
You are required to ascertain his trading result for the year ended 31st March, 2017 and the financial position of his
business as on that date from the following information supplied by him
(a) The Bank statement shows deposits during the year of Rs. 12,020 and withdrawals of Rs. 11,850.
(b) Rs. 1,000 had been placed in fixed deposit account on 31st December, 2015 at 10% per annum and withdrawn with interest
on 30th June, 2016.
(c) The assets and liabilities on 31st March, 2017 were: Stock Rs. 1,100; Book Debts Rs. 1,150; Bank Balance Rs. 320:
Furniture Rs. 2,000 and Trade creditors Rs. 400.
(d) In the absence of reliable information, estimates are supplied on the following matters :
(i) The Stock and Book Debts have each increased by Rs. 100 during the year.
(ii) The Trade creditors were Rs. 200 on 1st April, 2016.
(iii)During the year personal expenses amounted to Rs. 800 and business expenses Rs. 700. Ignore fractions.
( Gross profit Rs 620, net loss Rs 55, Balance Sheet total Rs 4570) [ICMA (Inter), Dec. 97 ]
Question:12 A trader commenced business in a retail shop on 1st July, 2017 in premises for which he paid a rent of Rs. 160 per
month. The only records he kept, apart from his bank statements, were files of paid invoices and unpaid invoices for
goods purchased, together with a notebook in which he recorded a few sales on credit to special customers who paid
him by cheques. Cash received from cash sale was paid into the till out of which he paid certain amounts, of which he
kept a rough record, and he made weekly banking out of the balance in the till. He paid all suppliers for goods
purchased by cheque. An analysis of the bank statements for the 6 months ended 31 December, 2017 was as follows:

Rs. Rs.
Deposits into bank: Withdrawals from bank:
Capital paid into open account 3,200 Shop fixtures and fittings 1,600
Loan from father-in-law Household furniture 1,440
(Interest free) 1,600 Suppliers (for purchases) 7,872
Cheques from suppliers (for Rent 800
goods returned) 224 Rates 240
Special customers 240 Insurance on stocks 160
Total of weekly cash banking 9,544 Electricity 144
Balance on 31st December, 2017 2,552
14,808 14,808
The trader estimates that the total amounts paid out of the till before making the weekly banking for the six months were :
Drawings Rs. 1,600, Wages Rs. 1,120 and Sundry shop expenses Rs. 640. You ascertain that as on 31st December,2017: Stocks,
correctly taken at cost, were Rs. 1,376. The balance in the till was Rs. 208, including a post-dated cheque for Rs. 120, cashed
for a customer. Cheques for Rs. 136 from special credit customers paid into the bank had not been cleared. One for Rs. 56
was cleared on 3rd January, 2018 and the other for Rs. 80 was returned dishonoured and the customer could not be traced.
This sum is considered as bad. Other special customers owed Rs. 192.
The following cheques had been issued but had not been presented: Rent for December Rs. 160 and Lighting charges Rs.
120. The cash paid into the bank included Rs. 240 from a sale of surplus shop fittings. There was no profit or loss on this
transaction.
The insurance premium covered the year to 30th June, 2018 and the rates covered the period of 9 months to 31st March,
2018. Suppliers' unpaid invoices amounted to Rs. 1,792 and there was Rs. 32 owing for electricity.
You are required to prepare the balance sheet as at 31st December, 2017 and the trading and profit and loss account for the
half year ended on that date. [ICWA (Stage I)
Question:13 The following is the balance sheet of the retail business of Mr. Padamsi as at 31st December, 2016 :
Mr. Padamsi's capital 1,25,000 Furniture and fittings 25,000

Creditors for goods 30,000 Stocks 75,000
Outstanding expenses (rent) 1,000 Sundry debtors 20,000
Cash at bank 35,000
Cash in hand 1,000
1,56,000 1,56,000
You are furnished with the following information:
(1) Mr. Padamsi always sells his goods at a profit of 25% on sales.
(2) Goods are sold for cash and credit. Credit customers pay by cheque only.
(3) Payments for purchases are always made by cheque.
(4) It is the practice of Mr. Padamsi to send to the bank every week-end the takings of the week after paying every week
salaries of Rs. 250 to the clerk, sundry expenses of Rs. 50 and personal expenses Rs. 100.
Analysis of the bank pass book for the period ending 31st March, 2017 disclosed the following:
Payments to creditors Rs. 75,000

Payment of rent Rs. 4,000
Amount remitted to the bank Rs.1,35,000 (including cheques for Rs. 10,000 received from customers to
whom the goods were sold on credit).
The following are the balances on 31 March, 2017 :
Stocks 32,500
Creditors for goods 32,500
Sundry debtors 30,000
On the evening of 31 March, 2017, the cashier absconded with the available cash in the cash box. You are required to
prepare a statement showing the amount of cash defalcated by the cashier and also a profit and loss account for the period
ended 31 March, 2017 and a balance sheet as on that date. [ICWA Inter]

Question:14 Mr. Reddy does not maintain complete records of his business but gives you the following information:
31st March 1999 31st March 1998
Rs. Rs.
Machineries 2,00,000 1,50,000
Sundry Creditors 86,000 ?
Sundry Debtors ? 93,000
Stock-in-trade 70,000 50,000
Furniture 27,000 30,000
Cash at Bank 15,600 18,700
His cash transactions for the year ended 31st March. 1999 included the following (besides certain other items)
Payments to creditors 4,10,000

Cash sales (25% of total Sales) 1,70,000
Business expenses 82,000
Cash purchases 1,30,000
Collection from debtors 5,27,000
Withdrawn for household expenses 30,000
He maintains a uniform rate of gross profit of 25% on turnover. Outstanding business expenses on 31st March. 1999
amounted to Rs. 5,000. Addition of new machinery was made on October 1, 1998. Some old furniture (book value Rs. 6,000)
was sold during the year and the proceeds stands credited to Furniture Account. Provide depreciation on Machineries @ 15%
p.a. and on Furniture @ 10% p.a. (excluding sold item).Mr Reddy requests you to prepare Trading and Profit and Loss Account
for the year ended 31st March, 1999 and a Balance Sheet as on that date. (ICWA (Inter)
Question:15 On 31 December 1994, John's books and records were destroyed by fire. The following information was available:
(a) The Balance Sheet of John as on 31st December 1993 was as follows :
Capital and Liabilities Rs. Property and Assets Rs

Capital 4,20,000 Fixtures 1,00,000
Creditors for: Stock 1,50,000

Goods 94,000 Debtors 1,20,000
Electricity charges 2,000 Rates in advance 4,500
Accounting charges 5,000 1,01,000 Cash in hand 15,000
Cash at bank 1,31,500

5,21,000 5,21,000
(b) The Insurance company agreed to pay Rs. 95,000 for fixtures and Rs. 1,05,000 for stock without production of accounts;
the stock, however, was Rs. 1,15,000.
(c) From Bank statements and the cheque books which were in his house, the following information on payments was
available :
Rs. Rs.
Personal Expenses 80,000 Rates 13,500
Sundry Expenses 6,500 Rent 51,700
Accountancy Charges 8,000 Goods for Resale 21,58,000
Electricity 7,500 Fixtures 20,000
(d) Total banking for the year amounted to Rs. 24,50,200.

(e) All cash takings were banked with the exception of the following payments during the year:
(i) An assistant's salary of Rs. 18,000 per annum.
(ii)Goods for resale averaging Rs. 10,500 per month.
(iii) Drawings varied between Rs. 20,000 and Rs. 30,000 per month.
(f) Rs. 2,500 per month for 9 months was received in cash for subletting a portion of the shop and this was not banked.
(g) During the year sale proceeds for waste paper amounting to Rs. 30,500 were paid into the bank.
(h) On 31-12-1994 (a) Debtors were Rs. 2,05,000. (b) Creditors for goods were Rs. 90,000, for electricity Rs. 800, for
accounting charges Rs. 750 and for rent Rs. 4,700. (c) Rates in advance Rs. 6,500, (d) Cash in hand Rs. 17,000, (e) During the
year a bad debt of Rs. 6,000 was incurred. (f)The rate of gross profit as a percentage of sale was 20%. You are required to
compile a Trading and Profit and Loss Account for the year ended 31st December 1994 and Balance Sheet as on that date.
[ICWA (Final), Dec, 1995]

Question:16 Shri Kapoor has a trading for which the following procedure is followed :
(1) All collections are deposited with the bank each day.
(2) All payments except petty expenses are made by cheque.
(3) To meet petty expenses a cheque for Rs. 1,500 is withdrawn from the bank on the 1st day of each month.
The following figures are available from Shri Kapoor's records :
1-1991 31-12-1991
Cash in hand 150 300
Balance in Bank 30,000 21,000
Debtors 1,00,000 1,25,000
Creditors 90,000 1,00,000
Stock
15,000 25,000
Payment made to creditor during the year Rs 120000.
Personal drawings out of bank Rs. 6,000.
Shri Kapoor sells goods at a profit of 25% on sales.
Prepare Profit and Loss Account for the year ended 31st December 1991 and Balance Sheet as on that date from the above
information. (CA Inter)
Question:17 A is an importer of fancy goods, operating from rented premises, which is on lease of Rs. 1,000 per month. He
prepares his accounts as on 31st December each year. On the night of December 31, 1997 all his books and records
were destroyed in a fire.The following was his summarized financial position as on 31st December, 1996
Rs. Rs.
Fixed Assets :
Motor Car 20,000
Furniture 10,000 30,000
Current Assets :
Stock-in-trade (at cost) 2,00,500
Debtors 24.000
27,060
Balance at Bank
590
Cash in hand
500
Prepaid Rates 2,52,650
Current Liabilities : 1,10,200
Creditors for purchases
Accrued Rent 2,000
Due for Hire purchase Installments 2,790 1,14,990
The following further information is also available :
(a) A buys goods for resale only from one manufacturer in Japan, who allowed a rebate of 3% of the goods purchased by him
in excess of Rs. 5,00,000 in a calendar year. The rebate due for the year ended 31st December, 1997 was Rs. 12,480.
(b) All goods are sold at a standard gross profit margin of 40% on selling price. Any rebate due is to be ignored for the
purpose.
(c) Stock at cost on 31st December, 1997 amounted to Rs. 90,200.
(d) Weekly cash expenses out of cash sales (before depositing the same into the bank) have been :
Drawings Rs. 300

Carriage Outward 500
Petrol 100
General Expenses 50
Cash in hand on 31st December, 1997 amounted to Rs. 1,670

(e) His bank statements for the year reveal the following information:
Paid for purchase of goods 10,10,500

Car expenses 6,680
Rent 13,000
Rates for the year ended 31st March, 1998
3200
Hire-purchase installments (Final Payments)
2790
Salaries 1,12,460
Travelling Expenses 36,800
Printing & Stationery 6,400
Advertisement 12,280
Insurance (for business) 3,000
Lorry Hire Charges 48,700
Drawings 37,000
Balance as on 31st December, 1997 2,31,800
(f) Depreciation on motor car and furniture is to be provided @ 30% and 15% respectively. Prepare Trading and Profit and
Loss Account for the year ended on 31st December, 1997 and the Balance-sheet as on that date. (CA Inter)
Question:18 On 1st Jan 2006, Mr X Started a business with capital of Rs 15,00,000. On the same date he purchased a
building for Rs. 4,00,000 and furniture of Rs. 2,00,000. He also purchased goods costing Rs. 1,50,000 on cash basis and
goods costing Rs. 1,00,000 on credit basis. He sold all goods for Rs. 7,50,000 (out of which Rs. 4,50,000 was on cash basis).
He paid Rs. 70,000 to his creditors and received a discount of Rs. 10,000.
He received Rs 80,000 from debtors and allowed them discount of Rs. 6,000. Rs.10,000 due from debtors could not be
recovered. During the year Mr. X had paid salary of Rs. 20,000 . Rent of Rs. 30,000 and commission of Rs. 5000.
On 1 Oct 2006, Mr. X had also taken a loan of Rs. 3,00,000 from his bank @ 10% p.a. Interest had not yet been paid. On 1 st
Dec 2006, he further introduced Rs 1,00,000 as his capital. At the end of 2006, salary due but not paid was 12,000 and Rent
still outstanding was Rs. 8,000. Depreciate fixed assets @ 10% p.a. Calculate profit from various methods .(CA Final - 16 marks)
Question:19 Mr. Dinesh, a trader, does not keep his books on a double entry basis. The following information is
available from his books and other records for the year ended 31st March 1994. On the basis of the information, compile a
trading A/c, profit and loss A/c for the year ended 31st March 1994 and a Balance Sheet as on that date:
(1) 31.3.1993 (Rs.) 31.3.1994 (Rs.)
Liabilities and Assets
Bank Balance 20,000 9,400
Prepaid Expenses 3,000 2,000
Stock 70,000 60,000
Debtors for Sales 2,30,000 ---
Bills Receivable Nill ?
Furniture at written down value 70,000 82,000
Creditors for purchases 2,20,000 2,60,000
Outstanding Liabilities for expenses 30,000 15,000

(2) Receipts and payments during 1993-94 : Rs.
Collection from Debtors (after allowing 2 1/2 % discount) 5,85,000

Proprietor's Drawings 50,000
Capital introduced by Proprietor 95,150
Purchase of furniture in the middle of the year 20,000 96,000
14% Government Securities purchased at 96% on 1.4.1993
1,97,000 5,000
Expenses
3,92,000
Sale of Scrap
Payment to Creditors (after receiving 2% discount)
61,250
Proceeds of Bills Receivable discounted at 2%
(3) Sales are made so as to realize a profit of 33 1/3% on sale proceeds.
(4) Goods worth Rs. 5,000 were taken by the proprietor.
(5) During the year bills receivable worth Rs. 1,50,000 were drawn on debtors. Of these, bills
amounting to Rs. 30,000 were endorsed in favour of the creditors. Of this later amount, a bill for
Rs. 5,000 was dishonoured by the debtor.
(6) Sales and purchases are made only on credit. [I.C.W.A. (Final), June 1995]
Question:20 .Mr. Mukherjee commenced business on 1st January, 1996, with a capital of Rs.50,000. He immediately purchased
furniture of Rs. 24,000. During the year he received from his uncle a gift of Rs. 3,000 and he borrowed from his father a
sum of Rs. 5,000. He had withdrawn Rs. 600 per month for his household expenses. He had no Bank account and all
dealings were in cash. He did not maintain any books but following information is given
Rs.
Sales (including cash sales Rs. 30,000) 1,00,000
Purchases (including cash purchases Rs. 10,000) 75,000
Carriage Inwards 700
Wages 300
Discount allowed to Debtors 800
Salaries 6,200
Bad debts written on 1,500
Trade Expenses 1,200
Advertisements 2,200
He used goods worth Rs. 1,300 for personal purposes and paid Rs. 500 to his son for examination and college fees. On 31st
December, 1996, his Debtors were worth Rs. 21,000 and creditors Rs. 15,000. Stock-in-trade was valued at Rs. 10,000.
Furniture to be depreciated by 10% p.a. Prepare Trading and Profit and Loss Account for the year ended on 31 December,
1996 and Balance Sheet as at 31 December 1996. (ICWA Inter)
Question:21 The following is the Balance Sheet of Sanjay, a small trader, as on 31.3.96 : (Figures in Rs. '000)
Liabilities Assets Rs.
Capital 200 Fixed Assets 145
Creditors 50 Stock 40
Debtors 50
Cash in Hand 5
. Cash at Bank 10
250 250
A fire destroyed the accounting records as well as the closing cash of the trader on 31.3.97. However, the following
Information was available:

(a) Debtors and creditors on 31.3.97 showed an increase of 20% as compared to 31.3.96.
(b) Credit Period :
Debtors — 1 month; Creditors — 2 months
(c) Stock was maintained at the same level throughout the year.
(d) Cash sales constituted 20% of total sales.
(e) All purchases were for credit only.
(f) Current ratio as on 31.3.97 was exactly 2.
(g) Total expenses excluding depreciation for the year amounted to Rs. 2,50,000.
(h) Depreciation was provided at 10% on the closing value of fixed assets.
(i) Bank and cash transactions :
(1)Payments to creditors included Rs. 50,000 by cash.
(2)Receipts from debtors included Rs. 5,90,000 by way of cheques.
(3)Cash deposited into the bank Rs. 1,20,000.
(4)Personal drawings from bank Rs. 50,000.
(5)Fixed assets purchased and paid by cheques Rs. 2,25,000.
You are required to prepare :
(a) The Trading and Profit & Loss Account of Sanjay for the year ended 31.3.97; and
(b) A Balance Sheet on that date.
Assume cash destroyed by fire is written off in Profit and Loss Account.[C.A. (Inter) May 1997, CMA INTER]
Question:22 K Azad, who is in business as a wholesaler in sunflower oil, is a client of would/accounting firm. You are required to
draw up his final accounts for the year ended 31.3.1996:
From the files, you pick up his Balance Sheet as at 31.3.1995 reading as below:
BALANCE SHEET as at 31.3.1995

Liabilities Rs. Rs.
K. Azad's Capital 1,50,000
Creditors for Oil Purchases 2,00,000
12% Security Deposit from Customers 50,000
Creditors for Expenses :
Rent 6,000
Salaries 4,000
Commission 20,000
Assets 4,30,000
Cash and Bank Balances 75,000
Debtors 1,60,000
Stock of Oil (125 tins) 1,25,000
Furniture 30,000
Less : Depreciation 3,000 27,000
Rent Advance(security for 2 months) 12,000
Electricity Deposit 1,000
3-Wheeler Tempo Van 40,000
Less : Depreciation 10,000 30,000
A Summary of the rough Cash Bank of K. Azad for the year ended 31.3.1996 is as below: 4,30,000
CASH AND BANK SUMMARY
Receipts: Rs.
Cash Sales 5,26,500
Collections from Debtors 26,73,500
Payments:
To Landlord 79,000
Salaries 48,000
Miscellaneous Office Expenses 12,000
Commission 20,000
Personal Income-tax 50,000

Transfer on 1.10.95 to 12% Fixed Deposit 6,00,000
To Creditors for Oil Supplies 24,00,000
A scrutiny of the other records gives you the following information :
(i) During the year oil was purchased at 250 tins per month basis at a unit cost of Rs. 1,000. 5 tins were damaged in transit
in respect of which insurance claim has been preferred. The surveyors have since approved the claim at 80%. The damaged
ones were sold for Rs.1,500 which is included in the cash sales. One tin has been used up for personal consumption. Total
number of tins sold during the year was 3,000 at a unit price of Rs. 1,750.(ii) Rent until 30.9.95 was Rs. 6,000 per month and
was increased thereafter by Rs. 1,000 per month. Additional advance rent of Rs. 2,000 was paid and this is included in the
figure of payments to landlord.
(iii) Provide depreciation at 10% and 25% of WDV on furniture and tempo van respectively.
(iv)It is further noticed that a customer has paid Rs. 10,000 on 31.3.96 as security deposit by cash. One of the staff has
defalcated. The claim against the Insurance Company is pending. You are requested to prepare final accounts for the year
ended 31.3.96. [CA. (Inter), May 1996]
TRADING AND PROFIT AND LOSS ACCOUNT
To Opening Stock 1,25,000 By Sales 52,50,000

To Purchases 30,00,000 By Damaged Stock A/c 5,000
Less: Transferred to By Closing Stock 1,19,000

Drawings A/c 1,000 29,99,000
53,74,000
53,74,000
To Salaries 44,000 22,50,000
To Miscellaneous Office Expenses 78,000 By Gross Profit b/d 22,50,000
To Loss of Deposit 12,000 By interest on Fixed Deposit 36,000
To Interest on Security Deposits 10,000 By Profit on Damaged Stock 500
To rent 6,000
To Depreciation :
Furniture 2,700
Tempo Van 7,500 10,200
To Capital A/c
(Net Profit Transferred) 21,26,300
22,86,500 22,86,500
BALANCE SHEET as on 31st March, 1996

RS. Rs. Rs. Rs.
K. Azad's Capital Furniture 27,000
Balance 1,50,000 Less: Depreciation 2,700 24,300
Add: Net Profit 21,26,300 3-WheelerTempo Van 30,000
22,76,300
Less: Drawings 51,000 22,25,300 Less: Depreciation 7,500 22,500
Closing Stock
12% Security Deposit from Customers 60,000 1,19,000
Interest Payable on Security Deposit 6,000 Debtors 22,11,500
Creditors for Oil Purchases 8,00,000 Cash and Bank Balances 66,000
Outstanding Rent 7,000 Fixed Deposit 6,00,000
Interest Accrued on Fixed
Deposit 36,000
Rent Advance(security deposit) 14,000
Electricity Deposit 1,000
Insurance Claim Receivable 4,000
30,98,300 30,98,300

Question:23 The following is the Balance Sheet of Sri Agni Dev as on 31st March, 2001:
Capital Account 2,52,500 Machinery 1,20,000
Sundry Creditors for purchases 45,000 Furniture 20,000
Stock 33,000
Debtors 1,00,000
Cash in hand 8,000
Cash at Bank 16,500
2,97,500 2,97,500
Riots occurred and fire broke out on the evening of 31st March, 2002, destroying the books of accounts and Furniture. The
cashier was grievously hurt and the cash available in the cash box was stolen. The trader gives you the following information:
(i) Sales are affected as 25% for cash and the balance on credit. His total sales for the year ended 1-3-2002 were 20% higher
than the previous year. All the sales and purchases of goods were evenly spread throughout the year (as also in the last year).
(ii) Terms of credit
Debtors 2 Months
Creditors 1 Month
(iii) Stock level was maintained at Rs. 33,000 all throughout the year
(iv) A steady Gross Profit rate of 25% on the turnover was maintained throughout. Creditors are paid by cheque only, except
for cash purchase of Rs. 50,000.
(v) His private records and the Bank Pass-book disclosed the following transactions for the year.
(a) Miscellaneous business expenses Rs. 1,57,500 (including Rs. 5,000
paid by cheque and Rs.7,500 was outstanding as on 31st March, 2002)
(b) Repairs Rs. 3,500 (paid by Cash)
(c) Addition to Machinery Rs. 60,000 (paid by cheque)
(d) Private drawings Rs.30,000 (paid by cash)
(e) Travelling expenses Rs. 18,000 (paid by cash)
(f) Introduction of additional capital by depositing into the Bank Rs. 5,000
(vi) Collection from debtors were all through cheques.
(vii) Depreciation on Machinery is to be provided @ 15% on the Closing Book Value.
(viii) The cash stolen is to be charged to the Profit and Loss Account.
(ix) Loss of furniture is to be adjusted from the Capital Account.
Prepare Trading and Profit and Loss Account for the year ended 31st March. 2002 and a Balance Sheet as on that date. Make
appropriate assumptions whenever necessary. All workings should form part of your answer. [CA PE-II, Nov. 2002]
Answer: TRADING AND PROFIT AND LOSS ACCOUNT OF SRI AGNI DEV

To Purchases 7,20,000 By Closing Stock 33,000
9,93,000 9,93,000

To Business Expenses 1,57,500 By Gross Profit b/d 2,40,000
To Repairs 3,500
To Depreciation 27,000
To Travelling Expenses 18,000
To Loss by theft 1,500
To Net Profit
32,500
2,40,000 2,40,000
BALANCE SHEET OF SRI AGNI DEV as at 31st March, 2002

Capital 2,52,500 Machinery 1,80,000
Add. Additional Capital 5,000 Less: Depreciation 27,000 1,53,000
Net Profit 32,500
2,90,000 Stock in Trade 33,000
Less: Loss of Furniture 20,000 Sundry Debtors 1,20,000
Drawings 30,000 2,40,000
Bank Overdraft 2,667
Sundry Creditors 55,833
Outstanding Expenses 7,500 .
3,06,000 3,06,000
Working Notes:
1. Sales during 2001-02
Debtors as on 31st March, 2001 1,00,000
(Being equal to 2 months’ sales)
Total credit sales in 2000-01, 1,00,000x 6 6,00,000
Cash Sales, being equal to1/3rd of credit sales or ¼ of the total 2,00,000
Sales in 200-01 8,00,000
Increase, 20% as stated in the problem 1,60,000
Total sales during 2001-02 9,60,000
Cash sales : ¼th 2,40,000
Credit sales: 1/3th 7,20,000
2. Debtors equal to two months’ credit sales 1,20,000
3. Purchases
Sales in 2001-02 9,60,000
Gross Profit @ 25% 2,40,000
Cost of goods sold being purchases 7,20,000
(Since there is no change in stock level.)
4. Sundry Creditors for goods

Rs. 7,20,000 – Rs. 50,000/12 = Rs. 6,70,000/12 55,833

5. Collections from Debtors
Opening Balance 1,00,000
Add. Credit Sales 7,20,000
8,20,000
Less: Closing Balance 1,20,000
7,00,000
6. Payment to Creditors
Opening Balance 45,000
Add: Credit Purchases (Rs. 7,20,000 –Rs. 50,000) 6,70,000
7,15,000
Less: Closing Balance 55,833
Payment by cheque 6,59,167
Question:24 Lucky does not maintain proper books of accounts. However, he maintains a record of his bank transactions and also
is able to give the following information from which you are requested to prepare his final accounts for the year 2003:
1.1.2003 31.12.2003
Debtors 1,02,500 —
Creditors — 46,000
Stock 50,000 62,500
Bank Balance — 50,000
Fixed Assets 7,500 9,000
Details of his bank transactions were as follows: Rs.
Received from debtors 3,40,000
Additional capital brought in 5,000
Sale of fixed assets (book value Rs. 2,500) 1,750
Paid to creditors 2,80,000
Expenses paid 49,250
Personal drawings 25,000
Purchase of fixed assets 5,000
No cash transactions took place during the year. Goods are sold at cost plus 25%. Cost of goods sold was Rs. 2,60,000.
(CA PE-II. Nov., 2004)
Question:25 Complete the following annual financial statements on the basis of ratios given below:
PROFIT AND LOSS ACCOUNT
Rs. Rs.
To Cost of goods sold 6,00,000 By Sales 20,00,000
To Operating expenses --
To Earnings before Interest and Tax --

To Debentures Interest 10,000 By Earnings before Interest and Tax —
To Income-tax ---
To Net Profit ---
BALANCE SHEET as at 30th June, 1990

Net worth Fixed assets —
Share capital — Current assets:
Reserve and surplus — Cash —
10% Debentures — Stock —
Sundry creditors 60,000 Debtors 35,000
(i) Net profit to sales 5%

(ii) Current ratio 1.5
(iii) Return on net worth 20%
(iv) Inventory turnover 15 times
(based on cost of goods sold)
(v) Share capital to reserves 4 : 1
(vi) Rate of Income-tax 50% [CA Inter, Nov., 1990)
Question:26 . The books of account of RukRuk Maan of Mumbai showed the following figures:
31.3.2008 31.3.2009
Furniture & Fixtures 2,60,000 2,34,000
Stock 2,45,000 3,20,000
Debtors 1,25,000 ?
Cash in hand & Bank 1,10,000 ?
Creditors 1,35,000 1,90,000
Bills Payable 70,000 80,000
Outstanding Salaries 19,000 20,000
An analysis of the cash book revealed the following :
Cash sales 16,20,000
Discount allowed to debtors 20,000
Payment to Creditors 9,73,000
Discount received from creditors 32,000
Payment for bills payable 4,30,000
Drawings for domestic expenses 1,20,000
Salaries paid 2,36,000
Rent paid 1,32,000
Sundry trade expenses 81,000

Depreciation is provided on furniture & fixtures @ 10% p.a. on diminishing balance method. RukRuk Maan maintains a steady
gross profit rate of 25% on sales. You are required to prepare trading and profit and loss account for the year ended 31st
March, 2009 and Balance Sheet as on that date.(CA- MAY 2010) 16 MARKS
Answer: Trading & Profit & Loss Account

To Opening stock 2,45,000 By Sales:
To Purchases : Cash 16,20,000
Cash 6,15,000 Credit (W.N. 3) 11,00,000
Credit (W.N.1) 15,00,000 By Closing stock 3,20,000
To Gross profit c/d 6,80,000
30,40,000 30,40,000
To Salaries (W.N.vi) 2,37,000 By Gross profit b/d 6,80,000
To Rent 1,32,000 By Discount received 32,000
To Sundry trade expenses 81,000
To Discount allowed 20,000
To Depreciation on furniture & fixtures 26,000
To Net profit 2,16,000
7,12,000 7,12,000
Balance Sheet as at 31st March, 2009

Capital Fixed assets
Opening balance (W.N.7) 5,16,000 Furniture & fixtures 2,34,000
Add: Net profit 2,16,000 Current assets:
7,32,000 Stock 3,20,000
Less: Drawings 1,20,000 6,12,000 Debtors (W.N.4) 1,47,000
Current liabilities & provisions: Cash & bank (W.N.6) 2,01,000
Creditors 1,90,000
Bills payable 80,000
Outstanding salaries 20,000
9,02,000 9,02,000
Working note:
1. Bills payable account

To Cash/Bank 4,30,000 By Balance b/d 70,000
To Balance c/d 80,000 By Trade creditors (Bal. fig.) 4,40,000
5,10,000 5,10,000
2. Creditors Account
To Cash/Bank 9,73,000 By Balance b/d 1,35,000
To Bills payable A/c (W.N.1) 4,40,000 By Credit purchases (Bal- fig.) 15,00,000
To Discount received 32,000
To Balance c/d 1,90,000
16,35,000 16,35,000
3. Calculation of credit sales
Rs.
Opening stock 2,45,000
Add: Purchases
Credit purchases 15,00,000 21,15,000
23,60,000
Less: Closing Stock 3,20,000
Cost of goods sold 20,40,000
Gross profit ratio on sales 25%
Total sales ( 20,40,000 x 100/75) 27,20,000
Less: Cash sales 16,20,000
Credit sales 11,00,000

4. Debtors Account
To Balance b/d 1,25,000 By Cash/Bank 10,58,000
To Credit sales (W.N.3) 11,00,000 By Discount allowed 20,000
By Balance c/d (Bal. fig) 1,47,000
12,25,000 12,25,000
5. Salaries
Salaries paid during the year 2,36,000
Add: Outstanding salaries as on 31.03.2009 20,000
2,56,000
Less: Outstanding salaries as on 31.03.2008 19,000
2,37,000
6. Cash/Bank Account
To Balance b/d 1,10,000 By Cash purchases 6,15,000
To Cash sales 16,20,000 By Creditors 9,73,000
To Debtors 10,58,000 By Bills payable 4,30,000
By Drawings 1,20,000
By Salaries 2,36,000
By Rent 1,32,000
By Sundry trade expenses 81,000
27,88,000 27,88,000
7. Balance Sheetas on 31st March, 2008

Creditors 1,35,000 Furniture & fixtures 2,60,000
Bills payable 70,000 Stock 2,45,000
Outstanding salaries 19,000 Debtors 1,25,000
Capital (Bal. fig.) 5,16,000 Cash & bank 1,10,000
7,40,000 7,40,000
Question 27: Mr. A. runs a business of readymade garments. He closes the books of accounts on 31st March, 2010. The
Balance Sheet as on 31s* March, 2010 was as follows:
A's capital a/c 4,04,000 Furniture 40,000
Creditors 82,000 Stock 2,80,000
Debtors 1,00,000
Cash in hand 28,000
Cash at bank 38,000
4, 86,000 4, 86,000
You are furnished with the following information:
1. His sales, for the year ended 31st March, 2011 were 20% higher than the sales of previous year, out of
which 20% sales was cash sales. Total sales during the year 2009-10 were Rs. 5,00,000.
2. Payments for all the purchases made by cheques only.
3 Goods were sold for cash and credit both. Credit customers pay by cheques only.
4. Depreciation on furniture is to be charged 10% p.a.
5. Mr. A sent to the bank the collection of the month at the last date of the each month after paying salary of Rs. 2,000
to the clerk, office expenses Rs. 1,200 and personal expenses Rs. 500.

Analysis of bank pass book for the year ending 31st March, 2011 disclosed the following:
Payment to creditors 3,00,000

Payment of rent up to 31st March, 2011 16,000
Cash deposited into the bank during the year 80,000
The following are the balances on 31st March, 2011
Stock 1,60,000
Debtors 1,20,000
Creditors for goods 1,46,000
On the evening of 31st March, 2011 the cashier absconded with the available cash in the cash book.
You are required to prepare Trading and Profit and Loss A/c for the ended 31sl March,2011 and Balance Sheet as on that date.
All the workings should form part of the (CA- MAY 2011) 16 MARKS
Answer: Trading and Profit and Loss Account for the year ending 31st March 2011

To Opening stock 2,80,000 By Sales (W.N.3)
To Purchases (W.N.1) 3,64,000 Credit 4,80,000
To Gross Profit 1,16,000 Cash 1,20,000 6,00,000
By Closing stock 1,60,000
7,60,000 7,60,000
To Salary 24,000 By Gross Profit 1,16,000
To Rent 16,000
To Office expenses 14,400
To Loss of Cash (W.N.6) 23,600
To Depreciation of furniture 4,000
To Net Profit 34,000
1,16,000 1,16,000
Balance Sheet as on 31st March, 2011

A's Capital 4,04,000 Furniture 40,000
Add: Net Profit 34,000 Less: Depreciation (4,000) 36,000
Less: Drawings (6,000) 4,32,000 Stock 1,60,000
Creditors 1,46,000 Debtors 1,20,000
Cash at bank 2,62,000
5,78,000 5,78,000
Working Notes(1) Calculation Of Purchases
Creditors Account

To bank account 3,00,000 By balance b/d 82,000
To balance c/d 1,46,000 By purchases (bal. fig) 3,64,000
4,46,000 4,46,000
(2)Calculation of total sales
Rs.
Sales for the year 2009-10 5, 00,000
Add: 20% increase 1, 00,000
Total sales for the year 2010-11 6, 00,000
(3)Calculation of credit sales

Total sales 6,00,000
Less: Cash sales' (20% of total sales) (1,20,000)
4,80,000

(4) Calculation of cash collected from debtors
Debtors Account

To Balance b/d 1,00,000 By Bank A/c (Bal. fig) 4,60,000
To Sales A/c 4,80,000 By Balance c/d 1,20,000
5,80,000 5,80,000
5. Calculation of closing balance of cash at bank

Bank Account

To Balance b/d 38,000 By Creditors A/c 3,00,000
To Debtors A/c 4,60,000 By Rent A/c 16,000
To cash A/c 80,000 By Balance c/d 2,62,000
5,78,000 5,78,000
(6) Calculation of the amount of cash defalcated by the cashier
Cash balance as on 1st April 2010' 28,000

Add: Cash sales during the year 1, 20,000
1, 48,000
Less: Salary (Rs. 2,000x12) 24,000
Office expenses (Rs. 1,200 x 12) 14,400
Drawings of A (Rs. 500 x 12) 6,000
Cash deposited into bank during the year 80,000 1, 24,400
Cash balance as on 31st March 2011
(defalcated by the cashier) 23,600

CHAPTER 9. INSURANCE CLAIMS

QUESTION:1 On 31st August, 2016 a fire occurred in the premises of a firm which carried on the business of general
merchandise. From the various books, which were saved from fire, it was ascertained that
Sales from 1 January to 31 Aug., 2016 12,80,000

Purchases from 1 Jan. to 31 Aug., 2016 8,40,000
Stock on hand on 31st Dec., 2015 2,36,000
Gross profit for the past five years had averaged at 35% on sales. The value of the salvaged stock was agreed at Rs.
30,000. Draft a statement showing amount of the claim. There was no average clause.
QUESTION:2 Pacific Traders have taken out a fire policy of Rs. 80,000 covering its stock-in trade. A fire occurred on 31st
March 2016 and stock was destroyed with the exception of the value of Rs. 20,680. Following particulars are available
from the books of account of the firm:
Stock as on 31st Dec, 2015 30,000
Purchases to the date of fire 1,30,000
Sale to the date of fire 90,000
Commission paid to the Purchase Manager on purchases 2%
Carriage paid on purchases 800
Average gross profit on cost 50%
The policy was subject to average clause. You are required to arrive at the
(i) Total loss of stock, and
(ii) Amount of claim to be made against the insurance company.
QUESTION:3 On 31st August, 2016 the premises and stock of a firm were totally destroyed by fire, the books of
accounts, however, were saved. In order to make a claim on their fire policy, they ask you to advise on the basis of the
following information. The stock in hand has always been valued at 5% below cost:
2013-14 2014-15 2015-16 2016-17
Rs. Rs. Rs. Rs.
Opening stock as valued 22,800 ---- …… ……
Purchases less returns 91,000 1,10,000 1,20,000 41,000
Sales less returns 1,40,000 1,70,000 1,86,000 75,000
Wages 28,400 31,200 34,200 12,000
Closing stock 30,400 36,100 39,900 ?
Prepare a statement for submission to the insurance company in support of your claim for loss of stock. The company
closes its books of account every year on 31st March. [C.S. (Inter) Dec. 1995 modified)
QUESTION:4 A fire occurred in the premises of Agni on 25th August, 2017 when a large part of the stock was destroyed.
Salvage was Rs. 15,000. Agni gives you the following information for the period January 1, 2017 to August 25, 2017:
(a) Purchases Rs. 85,000
(b) Sales Rs. 90,000
(c) Goods costing Rs. 5,000 were taken by Agni for personal use.
(d) Cost price of stock on January 1, 2017 was Rs. 40,000.
Over the past few years, Agni has been selling goods at a constant gross profit margin of 33 1/3%. The insurance policy was
for Rs. 50,000. It included an average clause. Agni asks you to prepare a statement of claim to be made on the insurance
company. [C.A. (Inter) November 1997]
QUESTION:5 A fire occurred on 15th December 1996 in the premises of Risky Co. Ltd. From the following figures,
calculate the amount of claim to be lodged with the insurance company for loss of stock
Stock at cost on 1st April, 1995 20,000
Stock at cost on 31st March, 1996 30,000
Purchases during the year ended 31st March. 1996 40,000
Purchases from 1st April, 1996 to 15th Dec, 1996 88,000
Sales during the year ended 31st March. 1996 60,000
Sales from 1st April. 1996 to 15th December, 1996 1,05,000
During the current year cost of purchases have risen by 10% above last year's levels. Selling prices have gone up by 5%. Salvage
value of stock after fire was Rs. 2,000. [C.S. (Inter Dec. 1997] [C.A. Inter]

QUESTION:6 The premises of RASHIKA Enterprise, a proprietary concern, were damaged by fire on 12th February, 2017.
As a result, some trading stock was totally destroyed, and in addition, stock costing Rs. 96,000 was partly damaged. The
insurance company agreed to reduce the value of the damaged stock to Rs. 52,800. On 31st December,2016, the stock-
in-trade of the concern was valued at Rs. 4,12,000. Subsequently the following purchases were made:
8th January, 2017 1,09,920
21st January, 2017 72,000
27th January, 2017 5,360
14th February,2017 42,400
20th February, 2017 2,24,000
8th March, 2017 1,37,600
Additional information for the three months ended on 31st March, 2017 are given below;
(a) 50 per cent of the damaged goods were sold before 31st March, 2017 at a profit of 15%.
(b) With the exception of the damaged goods the firm has earned a gross profit of 30% of the cost of goods sold.
(c) The sales during the three months ended 31st March, 2017, were Rs. 6,54,360.
(d) The undamaged stock at 31st March. 2017, was valued at Rs. 2,03,280.
(e) The firm has an insurance cover for loss and damage to stock by fire.
Prepare a statement of insurance claim. [I.CW.A. (final) June 1998](sirf main, bus main, yes sirf main)
QUESTION:7 Nixon prepares accounts on 30th June each year but on 30th September, 2013, fire destroyed the greater
part of his stock. Following information was collected from his books:
Stock on 30th June, 2013 29,250

Purchases from 1st July, 2013 to 30th September, 2013 60,000
Wages from 1st July, 2013 to 30th September, 2013 22,750
Sales from 1st July, 2013 to 30th September, 2013 1,00,000
Average percentage of gross profit to cost is 33.33%. Stock of the value of Rs. 7,000 was salvaged. Policy was for Rs. 25,000.
Claim was subject to average clause. Following additional information is available:
(a) Stock in the beginning was calculated at 10% less than cost.
(b) Purchases include purchase of plant of Rs. 5,000.
(c) Plant was installed in August and firm's own men had spent time amounting to Rs. 250 which was included in wages. You
are required to calculate the claim for the loss of stock.
Hints:- Actual cost of opening stock= 29,250 x 100/90
Purchases = 60,000- 5,000 = 55,000, Wages = 22,750- 250 = 22,500
Gross Profit = 1/3 on cost or ¼ on sale , Stock on the date of fire = 35,000
QUESTION:8 On 1st April, 2017 the godown of Stone Ltd was destroyed by fire. The records of the company revealed
the following particulars:
Stock on 1st January, 2016 75,000

Stock on 31st December, 2016 80,000
Purchases during 2016 3,10,000
Sales during 2016 4,00,000
Purchases from 1st January, 2017 to the date of fire 75,000
Sales from 1st January, 2017 to the date of fire 1,00,000
In valuing closing stock of 2016, Rs. 5,000 was written off whose cost was Rs. 4,800. A part of this stock was sold in 2017 at a
loss of Rs. 400 on the original cost of Rs. 2,400. The remainder of the stock is now estimated at original cost. Stock salvaged
was Rs. 5,000. The godown and the stock therein were fully insured. Indicate from above, amount of the claim to be made
against the insurance company. (I.C.W.A., Final)
QUESTION:9 A fire broke out in the warehouse of Raghwan Traders Ltd on 30th Sept., 2015. The Company wishes to file
a claim with the insurance company for loss of stock and gives you the following information to enable you to prepare a
statement of the amount to be claimed:
(i) The last accounts of the Company were prepared on December 31st 2014; (ii) Sundry Debtors on 31st December, 2014 Rs.
20,000; (iii) Cash received from debtors Rs. 72,000; (iv) Sundry debtors on 30th September, 2015 Rs. 15,000; (v) Stock on 31st
December, 2014 Rs. 7,500; (vi) Purchases from 1st January 2015 to 30th September, 2015 Rs. 62,500, (vii) Cash Sales from 1st
January, 2015 to 30th September, 2015, Rs. 13,000 (viii) G.P. Rate on credit sales is 20% and on Cash sales 15%. Prepare the
necessary statement, showing all your workings to arrive at the amount of the claim.

Answer: Note: Sundry Debtors Account will be prepared to find out Sales during Jan 1st to Sept. 30th 2015
Sundry Debtors A/c

To Balance b/f. 20,000 67,000 By Cash 72,000
To Sales (credit) By Balance c/d. 15,000
(Balancing Figure)
87,000 87,000
Calculation of claim for the Loss of Stock — Trading Account for the year ended 30th September, 2015

To Opening Stock 7,500 By Sale: Credit 67,000
To Purchases 62,500 Cash 13,000
To Gross Profit 15,350 By Stock on the date of fire
(Balancing figure) 5,350
85,350 85,350
Amount of Claim — Rs. 5,350.
Working Note:
Gross profit on credit sales 67,000 x 20 = Rs. 13,400

100
Gross profit on cash sales 13,000 x 15 = Rs. 1,950
100
Total gross profit = Rs.15,350
QUESTION:10 ( IMP QUESTION)The storehouse of Top Manufacturer caught fire on 31st March, 2016 and due to fire a
great part of stock was burnt to ashes. The stock was covered by an insurance policy of Rs. 1,00,000 and claim was
subject to an average clause. From the following information prepare statement showing the claim of Top Manufacturer:
(i) They used to —
(a) Sell goods to wholesalers on one month credit at wholesale price which is a catalogue price less 15%. Further cash
discount of 5% on wholesale price is allowed to those wholesalers who make immediate payment.
(b) Sell goods to retailers at retailer's price which is a catalogue price less 10%. Terms cash payment only.
(c) Send goods to branches at catalogue price which is cost plus 100%.
(ii) Figures for the goods sold or dispatched were:
(a) Credit sale upto 31st March, 2016, to wholesalers at wholesale price Rs. 3,40,000 worth.
(b) Net cash sales (after deducting cash discount) up to 31st March 2016 to wholesalers Rs. 3,23,000 worth.
(c) Cash sales to retailers up to 31st March, 2016 Rs. 90,000 worth.
(d) Goods sent to branches up to 31st March. 2016 Rs. 3,00,000 worth.
(e) Stock on 1st Jan. 2016 was Rs. 2,50,000 at catalogue price. Purchases at catalogue price from 1st Jan, 2016 to 31st
March, 2016 were Rs. 12,50,000.
(f) Stock salvaged Rs. 45,000 at cost price.
Answer:- loss of stock by fire Rs 1,05,000, claim under average clause= 70,000
QUESTION:11 (IMP QUESTION)Fire occurred in the premises of M/s. Low Luck Traders twice during the accounting year 2012-
13, that is on 31st July 2012 and again on 30th November 2012. From the following particulars, calculate the claim to be
lodged in respect of the goods lost by fire on the aforementioned dates :
(1) The stock as at 31st March 2012 was valued at Rs. 9,90,000.
(2) The purchases from 1st April 2012 to 31st July 2012 amounted to Rs. 35,60,000 and included furniture purchased of
Rs. 10,000.
(3) Sales for the period from 1st April 2012 to 31st July 2012 amounted to Rs. 50,00,000.
(4) The purchases from 1st August 2012 to 30th November 2012 amounted to Rs. 49,50,000 of which goods costing
Rs. 1,05,000 were received on 10th December 2012.
(5) The sales for the period from 1st August 2012 to 30th November 2012 amounted to Rs. 60,60,000 out of which sales
on 'sales or return basis amounted to Rs. 1,00,000. No intimation was received from the customers in respect of 60% of the
goods sold on approval basis.

(6) Information regarding sales and gross profit of the last three years was as follows:
Year Sales Gross Profit
2009-10 1,00,00,000 12,00,000

2010-11 1,20,00,000 9,60,000
2011-12 1,35,00,000 13,40,000
(7) In the beginning of year 2012-13, the selling price was raised by 20%.
(8) The closing stock of 2011-12 was undervalued by Rs. 10,000.
(9) The value of the goods salvaged on 31st July 2012 was Rs. 3,00,000.
(10) The value of the goods salvaged on 30th November 2012 was also Rs. 3,00,000.
(11) The expenses of the salvage operations were Rs. 20,000 on 31st July 2012 and Rs. 10,000 on 30th November
2012.
(12) The firm had taken out a fire insurance policy of Rs. 6,00,000 on 1 st April 2012. At the time of receiving the
insurance claim on 31st July 2012, no additional premium was paid for restoration of the insurance policy to its
original amount. The policy was subject to the average clause.(CMA Final June 1993).
B—LOSS OF PROFITS POLICY
Scope and Coverage:- Fire insurance provides cover only for material damage occurring to buildings, plant and machinery and
fixtures, etc. But this result in partial or total stoppage of business, leading to trading losses and the policy does not provide
cover for such losses. In order to give complete protection to the insured, a new type of insurance, known as 'loss of profits
insurance' or 'consequential loss insurance' has come into vogue.
Important Definitions
1. Indemnity period. Indemnity period is any period not exceeding 12months from the date of damage during which the results of
the business shall be affected due to fire.
2. Standard sales. Standard turnover refers to the sales affected in the proceeding period corresponding to the indemnity
period. Standard sales of the precedingperiod must be adjusted in the light of future prospects.
3. Actual turnover:- turnover during indemnity period.

4. Short sales. It is the difference between standard turnover and actual turnover or sales. It refers to loss of sales due to fire
which has resulted in dislocation of the business.
5. Annual turnover. It is the turnover during the 12months immediately before the date of damage.
Question 12: calculate claim for loss of profit.
Actual sales during indemnity period= 60,000

Standard sales = 2,00,000
Net profit during preceding year = 80,00
Standing charges (insured 80%) = 50,000
Sales during preceding year = 12,00,000
Allowed increase working expense = 3000
Saving in expense = 7,000
3. PROCEDURE STEPS FOR CALCULATING CLAIM
Step 1.Calculation of short sales by comparing the sales made during the abnormal period with the standard sales.
Question 13.Fire occurred on 1st March,2015. Normalcy was achieved on 1st May 2015. Sales from 1st March to 1st May,
2015, Rs. 20,000; sales from1st March to 1st May,2014 (preceding year), Rs. 1,00,000. Company has shown an increase of
10% during 2015 over the sales of 2014.Calculate short sales.
Step 2. Calculate of gross profit. Calculate gross profit of the financial year preceding the year of fire.
Gross profit calculated for the Claim purpose is different from that calculated in a normal way.
Step 3.Calculation of rate of gross profit. Calculate rate of gross profit on sale with the help of gross profit calculated.
Sales for this purpose will be the sales of the preceding financial year.

Question14.(When there is a net profit) From the following trading and profit and loss account you are required to calculate
gross profit for the purpose of insurance claim :
TRADING AND PROFIT AND LOSS ACCOUNT for the year ending 31st December 2014
Rs. Rs.
To Stock 4,00,000 By Sales 10,00,000
To Purchases 4,00,000 By Stock at the end 80,000
To Direct expenses 2,80,000
To Gross profit 3,00,000
10,80,000 10,80,000
To Variable, expenses By Gross profit
10,000 3,00,000
To Standing charges
1,80,000
To Net profit
1,10,000
3,00,000 3,00,000
Standing charges insured only to the extent of Rs. 90,000.
Question 15. (When there is loss) From the following profit and loss account you are required to calculate the gross profit for
the purpose of insurance claim:
PROFIT AND LOSS ACCOUNT for the year ending 31st December 2015
Rs. Rs. Rs.
To Variable expenses 15,000 By Gross profit 60,000
To Standing charges 90,000 By Net loss 45,000
1,05,000 1,05,000
Standing charges are insured only to the extent of Rs 60,000. Sales during previous year Rs 10,00,000
Step 4. Calculate loss of profit on short sales.
Question 15A. Standard sales = 5,00,000

Actual sales during indemnity period = 1,00,000
Growth rate= 20%
G.P rate for purpose of claim = 25%
Calculate loss of profit
Step 5.Calculate allowed increased working expenses – it will be lower of following three:
Actual increase in expense.
Coverage required
----------------------------------------------X Increased working expenses
Coverage required + uninsured standing charges
(III) G.P rate X sales generated due to increase in working expense.
Question 16.From the following particulars prepare a claim for loss of profit under the consequential Loss Policy.
Date of fire ……………. 30th June, 2015

Period of indemnity six months
Sum insured 40,000
Turnover for the year ended 30th June, 2015 2,00,000
Net profit for the accounting year ending 31st March, 2015 12,500
Standing charges for the accounting year ending 31st March, 2015 28,500
Turnover for the year ending 31st March, 2015 1,98,000
Turnover for the indemnity period from 1-7-15 to 31-12-15 56,000
Turnover for the period from 1-7-14 to 31-12-14 1,10,000
The turnover of the year 2015-16 had shown a tendency of increase of 10% over the turnover of the preceding year.
Question 16A. Increase in working expense Rs 60,000

Annual turnover Rs 8,00,000
Growth factor 10%

G.P. rate = 20%(for purpose of claim)
Total sales during indemnity period = 2,00,000( out of this sales of Rs 1,20,000 could be maintained
due to increase in working expense.
Total standing charge Rs 1,00,000( out of this Rs 70,000 are insured)
Calculate allowed increase in working expense.
Step 6.calculate Saving in expenses.
Total claim Will be = step 4 + step 5 – step 6
4. EFFECT OF AVERAGE CLAUSE:--The whole of the claim, calculated above will be reduced on average clause basis.
Following is the procedure :
Step 1.Calculate sales of preceding twelve months from the date of fire(Annual turnover).
Step 2.Calculate gross profit on annual turnover
Step 3. Calculate claim on average basis. Reduce the final claim on the basis or following formula :
Policy
------------------------------------------------------------X Total claim
Gross profit on annual turnover
Question 17 On 31st December 2015, a fire damaged the premises of Rohan Bros, and the business of the company was
disorganised until 31st March, 2016. The company is insured under a loss of profits policy for Rs.2,60,000 with six months’
period of indemnity.
The company’s accounts for the financial year ended 31st October 2015 showed a turnover of Rs. 7,00,000 with net profit of
Rs. 80,000; the standing charges covered under insurance and debited in the accounts amounted to Rs. 2,00,000. The
turnover for the twelve months ended 31st December 2015 was Rs. 7,80,000. During the period of dislocation it was Rs.
80,000, whereas during the corresponding period in the preceding year it was Rs. 1,70,000. A sum of Rs. 22,400 was spent to
reduce the effect of the loss, but there was no saving of standing charges as the result of fire. Prepare the claim to be
submitted to the insurance company. Hints:- Short sales = 90,000, Rate of gross profit= 40%
Question 18. From the following details, determine the amount of claim under a loss of profit policy.
Indemnity period 4 months

Date of fire 1-4-2015
Dislocation continued up to 1-8-2015
Sum insured Rs. 60,000
Sales for the last accounting year 2,40,000
Net profit for the last accounting year 34,000
Standing charges for the last accounting year all insured 26,000
Sales for the dislocation period i.e. 1-4-15 to 1-8-15 30,000
Sales for the year 1-4-14 to 31-3-15 3,20,000
Sales for the corresponding period in the preceding year
i.e. 1-4-14 to 1-8-14 1,00,000
The policy contains ‘special circumstances clause’ which stipulates for increase of turnover (standard and annual) by 10% as
there is an upward trend in the business.
Question 19. There was a serious fire in the premises of M/s. Fortunate on 1st September, 2000. Their business activities
were interrupted until 31st December, 2000, when normal trading conditions were re-established. M/s. Fortunate are
insured under the loss of profit policy for Rs. 42,000 the period of indemnity being six months. You are able to ascertain the
following information:
(1) The net profit for the year ended 31st December. 1999 was Rs. 20,000.
(2) The annual insurable standing charges amounted to Rs. 30,000 of which Rs. 2,000 were not included in the definition
of insured standing charges under the policy.
(3) The additional cost of working in order to mitigate the damage caused by the fire amounted to Rs. 600, and, but for

this expenditure, the business would have had to shut down.
(4) The saving in insured charges in consequence of the fire amounted to Rs. 1,500.
(5) The turnover for the period of four months ended April 30, August 31, and December 31 in each of the years 1999 and
2000 was as under:
Rs. Rs: Rs,
1999 65,000 80,000 95, 000

2000 70,000 80,000 15,000
You are required to compute the relevant claim under the terms of the loss of profits policy.[CA. (Final)]
(Ans:- total claim for loss of profit Rs 15076, claim under average clause Rs 12,922-) Note: answer should be revised by you
after studying lecture 5 of this chapter.
Question 20. From the following information, you are required to work out the claim under the loss of profits policy.
(1) Cover — Gross profit Rs. 1,00,000.

(2) Indemnity period —6 months.
(3) Damage—due to a fire accident on 28th December — accounting year ends on 31st December.
(4) Net profit plus all standing charges in the prior accounting year Rs. 1,50,000.
(5) Standing charges uninsured —Rs. 25,000.
(6) Turnover of the last accounting year was Rs. 5,00,000.
(7) The annual turnover, namely, the turnover for 12 months immediately preceding the fire —Rs. 5,20,000.
(8) As a consequence of fire, there was a reduction in certain insured standing charges at the rate of Rs. 25,000.
(9) The standard turnover was Rs. 2,60,000.
(10) Increased costs of working during the period of indemnity were Rs. 20,000.
(11) Turnover during the period of indemnity was Rs. 1,00,000 and out of this turnover Rs. 80,000 was maintained due to
increased cost of working. [C.A. Inter (New)]
Question 21.The premises of XY Limited were partially destroyed by fire on' 1st March 1992 and as a result, the business was
partially disorganized upto 31st August 1992. The Company is insured under a Loss of Profit Policy for Rs. 1,65,000 having an
indemnity period of 6 months. From the following information, prepare a claim under the policy:
(1) Actual turnover during the period of dislocation (1-3-1992 to 31-8-1992) 80,000
(2) Turnover for the corresponding period in previous year (1-3-1991 to 31-8-1991) 2,40,000
(3) Turnover for the 12 months immediately preceding the fire (1-3-91 to 28-2-92) 6,00,000
(4) Net profit for the last financial year 90,000
(5) Insured standing charges for the last financial year 60,000
(6) Uninsured standing charges 5,000
(7) Turnover for the last financial year 5,00,000 Due to substantial increase in trade, before and up to the time of the fire,
it was agreed that an adjustment of 10% should be made in respect of the upward trend in turnover. The company
incurred additional expenses amounting to Rs. 9,300 immediately after the fire and but for this expenditure, the turnover
during the period of dislocation would have been only Rs. 55,000. There was also a saving during the indemnity period, of
Rs. 2,700 in insured standing charge as a result of the fire. (C. A. Inter, Nov 1992)
Answer: Computation of loss of profit insurance claim
(1) Rate of gross profit:

Net profit for the last financial year 90,000
Add: Insured standing charges 60,000
1,50,000
Turnover for the last financial year 5,00,000
Rate of gross profit

(2) Short sales:
Standard Turnover 2,40,000
Add: 10% increasing trend 24,000
Less: Turnover during the dislocation period (which is at par with the 2,64,000
indemnity period of 6 months) 80,000

1,84,000

(3) Annual (Adjusted) Turnover:
Annual Turnover (1-3-91 to 28-2-92) 6,00,000
Add: 10% increasing trend 60,000
6,60,000
(4) Additional Expenses:
(a) Actual Expenses 9,300
(b) Gross profit on sales generated by additional expense
7,500
(Coverage required is GP on annual (adjusted) turnover)
9,071
Least of the above three figures, i.e. Rs. 7,500 is allowable.

(5) Claim:
Loss of Profit on short sales (30% on Rs. 1,84,000) 55.200
Add: Allowable additional expenses 7,500
62,700
Less: Savings in insured standing charges 2,700
60,000
Application of average clause
= 50,000
Question 22. Raghwan Ltd. gives you the following.Trading and Profit and Loss Account for the year ending 31-12-1994.

To Purchases 1,50,000 By Closing Stock 35,000
To Wages (Rs. 10,000 for skilled labour) 80,000 .
To Manufacturing Exp. 60,000
4,35,000 4,35,000
To Office Expenses 30,000 1,20,000

By Gross Profit
To Advertising(fixed) 8,000 2,000
By Interest on Securities
To Selling Exp. (fixed) 20,000
To Commission on sales 26,000
To Carriage outward 8,000
To Net Profit 30,000
1,22,000 1,22,000
The Company had taken out a consequential loss policy for Rs. 1,00,000. Fire occurred on 1st May, 1995, as a result of which
sales were seriously affected for a period of 4 months. You are given following further information:
(a) Sales figures were as follows : From 1st January, 1994 to 30th April 1994 Rs. 1,50,000; From 1st May, 1994 to 31st Aug.,
1994 Rs. 1,80,000; From 1st May 1995 to 31st Aug., 1995 Rs. 30,000; From 1st January, 1995 to 30th April, 1995 Rs.

1,20,000; (b) Due to rise in material prices, net profit during 1995 was expected to decline by 2% on sales, (c) Standing
charges to the extent of Rs. 4,000 were not insured. Ascertain the claim for loss of profits.(d) trend of Percentage decline in
sales in 1995 as compared with sales in 1994 is 20%. (C.A. Inter)
Answer: G.P. Rate 21%, short sales 1,14,000, Coverage required Rs. 62,160, amount of claim = Rs. 23,940.
SPECIAL QUESTION ONLY FOR MY STUDENTS( BECAUSE YOU ARE SPECIAL)
Question 24. A fire occurred in the premises of a businessman on 31st January, 2010, which destroyed stocks.
However, stock worth Rs. 5,940 was salvaged. The company's insurance policy covers the following:
Stocks 6,00,000
Loss of Profit (including standing charges) 3,75,000
Period of indemnity Six Months.
The summarised Profit and Loss Account for the year ended 31st December, 2009 is as follows:
Turnover 30,00,000
Closing Stock 7,87,500
37,87,500
Opening Stock Purchases 6,18,750
Standing Charges 27,18,750
Variable Charges 2,51,250
1,20,000 37,08,750
Net Profit 78,750

The transactions for the month of January 2010 were as under:
Turnover 1,50,000
Payments to Creditors 1,60,020
Trade Creditors:
1-1-10 2,26,000
31-1-10 2,30,980
The company's business was disrupted until 30-4-10, during which period the reduction in the turnover amounted to
Rs. 2,70,000 as compared with the turnover of same period corresponding in the previous year. You are required to submit
the claim for insurance for loss of stock, and loss of profits.
Question:25. In January, 2010 a firm took an insurance policy for Rs. 60 lakhs to insure goods in its godown against fire
subject to average clause. On 7th March, 2010 a fire broke out destroying goods costing Rs. 44 lakhs. Stock in the godown was
estimated at Rs. 80 lakhs. Compute the amount of insurance claim. (CA-IPCC- MAY 2010)2 MARKS
Answer:
Question: 26 A trader intends to take a loss of profit policy with indemnity period of 6 months; however, he could not decide
the policy amount. From the following details, suggest the policy amount:
Turnover in last financial year 4,50,000

Standing charges in last financial year 90,000
Net profit earned in last year was 10% of turnover and the same trend expected in subsequent year.
Increase in turnover expected 25%
To achieve additional sales, trader has to incur additional expenditure of Rs. 31,250. (CA-IPCC- nov 2010)4 MARKS
Answer: G.P. Rate 30%, policy amount 2,00,000.
Question 27: On 30th March, 2011 fire occurred in the premises of M/s Suraj Brothers. The concern had taken an insurance
policy of Rs. 60,000 which was subject to the average clause. From the books of accounts, the following particulars are
available relating to the period 1st January to 30th March, 2011.

st
1. Stock as per Balance Sheet at 31 December, 2010, Rs. 95,600
2. Purchases (including purchase of machinery costing Rs. 30,000) Rs. 1, 70,000.
3. Wages (including wages Rs. 3,000 for installation of machinery) Rs. 50,000.
4. Sales( including goods sold on approval basis amounting to Rs. 49,500.) Rs. 2,75,000. No approval has
been received in respect of 2/3rd of the goods sold on approval.
5. The average rate of gross profit is 20% of sales.
6. The value of the salvaged goods was Rs. 12,300.
You are required to compute the amount of the claim to be lodged to the insurance company. (CA-IPCC- MAY 2011)5 MARKS
Answer: Claim for loss of stock Rs 48,211
Question: 28. A fire occurred in the premises of M/s. Fireproof Co. on 31st August, 2010. From the following particulars
relating to the period from 1st April, 2010 to 31st August, 2010 you are requested to ascertain the amount of claim to be filed
with the insurance company for the loss of stock. The concern had taken an insurance policy for Rs. 60,000 which is subject to
average clause.
(i) Stock as per Balance Sheet at 31-03-2010 99,000

(ii) Purchases 1,70,000
(iii) Wages (including wages for the installation of a machine Rs. 3000) 50,000
(iv) Sales 2,42,000
(v) Sale value of goods drawn by partners 15,000
(vi) Cost of goods sent to consignees on 16th August, 2010, lying unsold with them 16,500
(vii) Cost of goods distributed as free samples 1,500
While valuing the stock at 31st March, 2010, Rs. 1,000 was written off in respect of a slow moving item. The cost of which
was Rs. 5,000. A portion of these goods were sold at a loss of Rs. 500 on the original cost of Rs. 2,500. The remainder of the
stock is now estimated to be worth the original cost. The value of goods salvaged was estimated at Rs. 20,000. The average
rate of gross profit was 20% throughout. (IPCC- nov 2011)10 MARKS
Question 29. On 30th March, 20X2 fire occurred in the premises of M/s Suraj Brothers. The concern had taken an insurance
policy of ₹ 60,000 which was subject to the average clause. From the books of accounts, the following particulars are
available relating to the period 1st January to 30th March 20X2.
1. Stock as per Balance Sheet at 31st December, 20X1, ₹ 95,600.
2. Purchases (including purchase of machinery costing ₹ 30,000) ₹ 1,70,000
3. Wages (including wages 3,000 for installation of machinery) ₹ 50,000.
4. Sales (including goods sold on approval basis amounting to ₹ 49,500) ₹ 2,75,000. No approval has been
received in respect of 2/3rd of the goods sold on approval.
5. The average rate of gross profit is 20% of sales.
6. The value of the salvaged goods was ₹ 12,300.
You are required to compute the amount of the claim to be lodged to the insurance company. (ICAI Study material)
Question 30. On 29th August, 20X2, the godown of a trader caught fire and a large part of the stock of goods was
destroyed. However, goods costing ₹ 1,08,000 could be salvaged incurring fire fighting expenses amounting to ₹ 4,700.
The trader provides you the following additional information:
Particular ₹
Cost of Stock on 1st April, 20X1 7,10,500
Cost of Stock on 31st March,20X2 7,90,100
Purchases during the year ended 31st March,20X2 56,79,600
Purchases from 1st April,20X2 to the date of fire 33,10,700
Cost of goods distributed as samples for advertising from 1st April,
20X2 to the date of Fire 41,000
Cost of goods withdrawn by trader for personal use from 1st April,
20X2 to the date of fire 2,000
Sales for the year ended 31st March,20X2 80,00,000
Sales from 1st April,20X2 to the date of fire. 45,36,000

The insurance company also admitted firefighting expenses. The trader had taken the fire insurance policy for ₹
9,00,000 with an average clause. Calculate the amount of the claim that will be admitted by the insurance
company. (ICAI Study material)
Question 31. A fire occurred in the premises of M/s. Fireproof Co. on 31st August, 20X1. From the following particulars
relating to the period from 1st April, 20X1 to 31st August, 20X1, you are requested to ascertain the amount of claim to be
filed with the insurance company for the loss of stock. The concern had taken an insurance policy for ₹ 60,000 which is
subject to an average clause.
S.No. Particular ₹
(i) Stock as per Balance Sheet at 31-03-20X1 99,000

(ii) Purchases 1,70,000
(iii)Wages (including wages for the installation of a machine ` 50,000
3,000)
(iv) Sales 2,42,000
(v) Sale value of goods drawn by partners 15,000
(vi) Cost of goods sent to consignee on 16th August, 20X1, lying unsold with them
16,500
(vii) Cost of goods distributed as free samples 1,500
While valuing the stock at 31 st March, 20X1, ₹ 1,000 were written off in respect of a slow moving item. The cost of which
was ₹ 5,000. A portion of these goods were sold at a loss of ₹ 500 on the original cost of ₹ 2,500. The remainder of the
stock is now estimated to be worth the original cost. The value of goods salvaged was estimated at ₹ 20,000. The average
rate of gross profit was 20% throughout. (ICAI Study material)
Question 32. A fire occurred in the premises of Sri. G. Vekatesh on 1.4.2013 and a considerable part of the stock was
destroyed. The stock salvaged was ₹28,000. Sri Venkatesh had taken a fire insurance policy for ₹17,10,000 to cover the
loss of stock by fire.
You are required to ascertain the insurance claim which the company should claim from the insurance company
for the loss of stock by fire. The following particulars are available:
₹ ₹
Purchases for the year 2012 9,38,000 Stock on 1.1.12 1,44,000
Sales for the year 2012 11,60,000 Stock on 31.12.2012 2,42,000
Purchases from 1.1.13 to 1.4.13 1,82,000 Wages paid during 2012 1,00,000
Sales from 1.1.13-1.4.13 2,40,000 Wages paid 1.1.13-1.4.13 1,80,000
Sri Venkatesh had in June 2012 consigned goods worth ₹50,000, which unfortunately were lost in an accident. Since there
was no insurance cover taken, the loss had to be borne by him full.
Stocks at the end of each year for and till the end of calendar year 2011 had been valued at cost less 10%. From 2012,
however there was a change in the valuation of closing stock which was ascertained by adding 10% to its costs.
Question 33. On 30.09.2013 the stock of Harshvardhan was lost in a fire accident. From the available records the following
information is made available to you to enable you to prepare a statement of claim of the insurer:

₹ ₹
Stock at cost on 1.4.2012 75,000 Sales less returns for the year ended 6,30,000
31.3.2013
Stock at cost on 31.3.2013 1,04,000
Purchase less returns up to 30.09.2013 2,90,000
Purchases less returns for the year 5,07,500
ended 31.3.2013 Sales less returns up to 30.09.2013 3,68,100
In valuing the stock on 31.03.2013 due to obsolescence 50% of the value of the stock which originally cost ₹ 12,000 had
been written-off. In May 2013, ¾th of these stocks had been sold at 90% of original cost and it is now expected that the

balance of the obsolete stock would also realize the same price, subject to the above, G.P had remained uniform
throughout. Stock to the value of ₹14,400 was salvaged. (ICMAI Study material)
Question 34. Sony Ltd.’s. Trading and profit and loss account for the year ended 31 st December, 20X1 were as follows:
Trading and Profit and Loss Account for the year ended 31.12.20X1
Particular ₹ Particular ₹
To Opening stock 20,000 By Sales 10,00,000
To Purchases 6,50,000 By Closing stock 90,000
To Manufacturing expenses 1,70,000

10,90,000 10,90,000
To Administrative expenses 80,000 By Gross profit 2,50,000
To Selling expenses 20,000
To Finance charges 1,00,000
To Net profit 50,000
2,50,000 2,50,000
The company had taken out a fire policy for ₹ 3,00,000 and a loss of profits policy for ₹ 1,00,000 having an indemnity
period of 6 months. A fire occurred on 1.4.20X2 at the premises and the entire stock were gutted with nil salvage value. The
net quarter sales i.e. 1.4.20X2 to 30.6.20X2 was severely affected. The following are the other information:
Sales during the period 1.1.X2 to 31.3.X2 2,50,000
Purchases during the period 1.1.X2 to 31.3.X2 3,00,000

Manufacturing expenses 1.1.X2 to 31.3.X2 70,000
Sales during the period 1.4.X2 to 30.6.X2 87,500

Standing charges insured 50,000
Actual expense incurred after fire 60,000
The general trend of the industry shows an increase of sales by 15% and decrease in GP by 5% due to increased cost.
Ascertain the claim for stock and loss of profit. (ICAI Study material)
Question 35. From the following particulars, you are required to calculate the amount of claim for Buildwell Ltd., whose
business premises was partly destroyed by fire:
Sum insured (from 31st December 20X1) ₹ 4,00,000
Period of indemnity 12 months
Date of damage 1st January, 20X2
Date on which disruption of business ceased 31st October, 20X2
The subject matter of the policy was gross profit but only net profit and insured standing charges are included.
The books of account revealed:
(a) The gross profit for the financial year 20X1 was ₹ 3,60,000.
(b) The actual turnover for financial year 20X1 was ₹ 12,00,000 which was also the turnover in this case.
(c) The turnover for the period 1st January to 31st October, in the year preceding the loss, was ₹ 10,00,000.

During dislocation of the position, it was learnt that in November-December 20X1, there has been an upward trend in
business done (compared with the figure of the previous years) and it was stated that had the loss not occurred, the trading
results for 20X2 would have been better than those of the previous years.
The Insurance company official appointed to assess the loss accepted this view and adjustments were made to the pre-
damaged figures to bring them up to the estimated amounts which would have resulted in 20X2. The pre-damaged figures
together with agreed adjustments were:
Period Pre-damaged Adjustment to Adjusted

figures be added standard
turnover
₹ ₹ ₹
January 90,000 10,000 1,00,000
Feb. to October 9,10,000 50,000 9,60,000
November to December 2,00,000 10,000 2,10,000
12,00,000 70,000 12,70,000

Gross Profit 3,60,000 46,400 4,06,400
Rate of Gross Profit 30% (actual for 20X1), 32% (adjusted for 20X2). Increased cost of working amounted to ₹ 1,80,000.
There was a clause in the policy relating to savings in insured standard charges during the indemnity period and this
amounted to ₹ 28,000.
Standing Charges not covered by insurance amounted to ₹ 20,000 p.a. The actual turnover for January was nil and
for the period February to October 20X2 ₹ 8,00,000.
Question 36. On account of a fire on 15th June, 20X2 in the business house of a company, the working remained disturbed
upto 15th December 20X2 as a result of which sales was affected. The company had taken out an insurance policy with an
average clause against consequential losses for ₹ 1,40,000 and a period of 7 months has been agreed upon as indemnity
period. An increase of 25% was marked in the current year’s sales as compared to the last year. The company incurred an
additional expenditure of ₹ 12,000 to make sales possible and made a saving of Rs 2,000 in the insured standing charges.
Particular Rs
Actual sale from 15th June,20X2 to 15th Dec,20X2 70,000
Sales from 15th June 20X1 to 15th Dec 20X1 2,40,000
Net profit for last Financial year 80,000
Insured standing charges for the last financial year 70,000
Total standing charges for the last financial year 1,20,000
Turnover for the last financial year 6,00,000
Turnover for one year: 16th June 20X1 to 15th June 20X2 5,60,000
Answer: short sales 2,30,000, G.P. Rate 25%, allowed increased working expense Rs 9,333, total loss of profit Rs 64,833, claim
under average clause Rs 51866.40.

Question 37. Monalisa & Co. runs plastic goods shop. Following details are available from quarterly GST Return filled.
20X1 20X2 20X3 20X4
₹ ₹ ₹ ₹
From 1st January to 31st March 1,80,000 1,70,000 2,05,950 1,62,000
From April to
1st 30th
June 1,28,000 1,86,000 1,93,000 2,21,000
From 1st July to 30th September 1,53,000 2,10,000 2,31,000 1,75,000
From 1 October to 31 December 1,59,000 1,47,000 1,90,000 1,48,000
6,20,000 7,13,000 8,19,950 7,06,000

Total
Period Rs
Sales from 16-09-20X3 to 30-09-20X3 34,000
Sales from 16-09-20X4 to 30-09-20X4 Nil
Sales from 16-12-20X3 to 31-12-20X3 60,000
Sales from 16-12-20X4 to 31-12-20X4 20,000
A loss of profit policy was taken for Rs 1,00,000. Fire occurred on 15th September, 20X4. Indemnity period was for 3
months. Net Profit was Rs1,20,000 and standing charges (all insured) amounted to Rs 43,990 for year ending 31st
December, 20X3. Determine the insurance claim.
Answer: standard adjusted sales 1,88,600; short sales Rs 60,600, G.P. Rate 20%, amount of claim under average clause
7,430; upward trend 15%.

CHAPTER 10. PARTNERSHIP(admission, retirement and death)

Concept of profit and loss appropriation account
Question 1 to question 10 deleted from your SYLLABUS. So relax….
NOTE:-- FEW QUESTIONS HAVE BEEN SOLVED FROM OTHER BOOK. DO NOT WORRY. JUST GO THROUGH THOSE
QUESTIONS. AFTER FEW LECTURES QUESTIONS HAVE BEEN SOLVED FROM GIVEN BOOK TO YOU
Adjustment for wrong computation of past profit
Question:11. Weak, Able and Lazy are in partnership sharing profits and losses in the ratio of 2:1:1. It is agreed that interest
on capital will be allowed @ 10% P.a. and interest on drawing will be charged @ 8% p.a. (No interest will be charged/allowed
on current Accounts.) The following are the particulars of Capital and Drawings Accounts of the partner:
Weak Able Lazy
Capital (01.01.2001) 75,000 40,000 30,000
Current Account (01.01.2001) 10,000 5,000 (Dr.) 5,000
Drawings 15,000 10,000 10,000
The draft accounts for 2001 showed a net profit of Rs. 60000 before taking into account interest on capitals and drawings and
subject to following rectification of errors:
a. Life insurance premium of Weak amounting to Rs. 750 paid by the firm on 30 th June, 2001 has been charged to
Miscellaneous Expenditure Account.
b. Repair of machinery amounting of Rs. 10,000 has been debited to Plant Account and depreciation thereon charged
@ 20%.
c. Traveling Expenses of Rs. 3,000 of Able for a pleasure trip to U.K. paid by the firm on 30 th June 2001 has been
debited to traveling Expenses Account.
You are required to prepare the Profit and loss Appropriation Account for the year ended 31st Dec. 2001 and partners current
Account for the year.( CA-inter-16 marks)
[And: Adjusted Net Profit – 55,750, Distributable Profit as per P & L App. A/c – 42,800, Balance of Current Account: Weak –
22,520, Able – 6,180, Lazy – (Dr.) 1,700]
Question:12. X and Y formed partnership sharing profits as 2:1. The term was to distribute mercantile profit. But cash profit
has been calculated all through. Now it is desired to convert cash account into mercantile accounts. The details are
Cash profit Closing Closing

Outstanding Outstanding
Income Expenses
Rs. Rs. Rs.
1st Year 10,000 1,000 500
2nd Year 12,000 3,000 1,000
3rd Year 18,000 2,000 800
Pass conversion entry. [ICWA (Stage 1) June 1998]

Question:13 Anand and Bharat are in partnership sharing profit and losses in the ratio of 3:2. With effect from 1 st January 1998,
they decided to share the profits earned in any year on the following basis:
Up to Rs. 25,000 Equally

Excess over Rs. 25,000 Anand 2/3rd
Bharat 1/3rd
They also decided to ascertain the income on mercantilist basis with effect from the accounting year 1997. Although profits were
shared on the basis of the new agreement, these were ascertained on cash basis only. It was agreed to make the necessary
adjustments at the end of 2000. The relevant information is given below
1997 1998 1999 2000

Rs. Rs. Rs. Rs.
Profits already shared — 21,000 23,000 31,000
As on 31st December
Accrued Income 2,000 3,500 5,000 2,500
Outstanding Expenses 500 1,000 1,300 300
You are required to give the necessary entries to correct the partners' accounts showing your workings assuming that books of
accounts were duly closed at the end of each year. [I.C.W.A. Final modified]
Computation of new, sacrificing and gaining ratio-- In case of admission
Question:14 P,Q, and R are partners in a firm sharing profit and losses in the ratio of 3:2:1. They admit S as a partner with 1/4 th
share of profits. Calculate new profit sharing ratio [Answer: 3:2:1:2]
Question:15. A,B, and C are partners in a firm sharing profit and losses in the ratio of 3:2:1. New partner D is admitted for 1/4th
share. Only A and B contributes toward the share of D. calculate the new profit sharing ratio.
Question:16 P and Q are partners in a firm sharing profits and losses in the ratio of 3:2 R is admitted as partner with 1/8th share in
profits. It is decided that P and Q will share profits and losses in future in the ratio of 4:3. Calculate the new profit sharing ratio and
the sacrificing ratio. [Answer: 4:3:1 and 4:1]
Question:17. A and B are partners sharing profit and losses in the ratio of 3:2. C is admitted as a new partner. A gives 1/3 of his
share and B gives 1/10 of his share in favour of C. Calculate new and sacrificing ratio.
In case of retirement or death of a partner
Question:18. X,Y,Z are partners sharing profit in the ratio of 3:2:1. Y retires and his share was purchased by X and Z in the ratio of
4:1. calculate new and gaining ratio.
Valuation of goodwill
Question:19. Profits earned during last three years by X Ltd are as follows:
2004 --- 5,00,000
2005 --- 6,00,000
2006 --- 4,00,000
Calculate goodwill on the basis of three year’s purchase price by
(a) average profit method

(b) weighted average profit method(if weights are not given)
(c) weighted average profit method if weights given are 1,3,6 respectively.
Question:20. (Calculation of Future Maintainable Profits)

TATA Ltd. desirous of selling its business to IOCM Ltd. has earned the following profits (after tax) in the past three years: Rs. 4,00,000,
Rs. 5,50,000 and Rs. 6,40,000. Following facts need to be taken into consideration:
(i) Directors' fees Rs. 50,000 per year will not be payable by IOCM Ltd. whose existing board can easily manage the additional work.

(ii) Rent of Rs. 10,000 per month paid by TATA Ltd. will not be a charge against the profits of IOCM Ltd. as the latter company has
its own premises.
(iii) TATA Ltd. has not transferred its trade investments to IOCM Ltd. Hence, interest of Rs. 9,000 would not be earned by the
purchasing company.
TATA Ltd. had outsourced some of its business work for an annual contract of Rs. 1,24,000. However IOCM Ltd. has enough surplus
staff to manage the same. Hence savings of this cost. Calculate the Future Maintainable Profits.
Question:21. Average profit = 2,50,000

Capital employed = 20,00,000
Normal rate of return = 10%. Calculate goodwill on the basis of three year’s purchase of super profit .
Question:22. Capital employed = 6,00,000

Average profit = 1,00,000
Normal expected return= 10%
Calculate goodwill by
(a) capitalization method
(b) super profit capitalization method
Treatment of goodwill
Question:23. A,B and C are partners sharing profit in 3:2:1. from 1 Jan 2008, they decided to share future profit equally. On that
date goodwill of the firm was valued at Rs 3,00,000. make adjustment entry(table entry)
Question:24. X and Y are partners sharing profit and losses in the ratio of 3:2. Z is admitted as a new partner for ¼ share in profit.
He has to bring Rs 1,00,000 as his capital and Rs 20,000 for his share of goodwill. Make journal entries if
Case 1. he brings his share of goodwill in cash. Partners withdrew half of goodwill in cash.
Case 2. he does not bring his share of goodwill in cash.
Question:25. A,B,C and D are partners sharing profit in the ratio of 4:3:2:1. C retires and his share was purchased by remaining
partners in the ratio of 1:1:1. Goodwill of the firm was valued at Rs. 2,40,000. Make table entry.
Question:26. A,B and C are partners sharing profits in ratio of 2:2:1. B retires and D is admitted as a new partner. Goodwill of the
firm valued at Rs. 1,80,000. New ratio among A,C and D will be 1:2:2. Make table entry.
Question:27. A,B,C are partners sharing profit in ratio of 2:2:1. D is admitted as a new partner for 1/5 th share. Goodwill of the firm
was valued at Rs. 2,00,000 . D brings following assets on behalf of his Capital and his share of goodwill.
Machine = 2,00,000
Furniture = 1,00,000
Cash = 1,60,000
Stock = 40,000
Goodwill = 25,000
Make journal entries.
Question:28. Sen and Chatterjee were partners sharing profit and losses as 3 : 2. They admitted Roy as third partner with effect from 1 -
1 -1998, the new profit-sharing ratio being 5:3:2. They again took Ghose as their fourth partner as on 1-1-1999, the new profit-sharing ratio
coming to 9 : 5 : 4 : 2 . On 1-1 -2000, Bose was taken in as their fifth partner, the profit-sharing ratio now being agreed as 7 : 4 : 3 : 3 : 3.
Chatterjee died on 1-1-2001 and you are requested to estimate the values of his share of goodwill, which had never been raised in the
books of account, nor was any premium received from any entrant. On enquiry you find that the respective values of the goodwill of
the firm were as follows:
Date: 1-1-1998 1-1-1999 1-1-2000 1-1-2001
Value Rs. 4,000 Rs. 6,000 Rs. 8,000 Rs. 12,000
Estimate the amount payable to the legal representatives of Chatterjee and state how such amount would be contributed by the
continuing partners, provided they do not raise any goodwill account in the books and-agree to share profit from 1-1-2001 on the
following basis : Sen 40%,Roy 25%, Ghose 20% and Bose 15% (Adapted from M.Com., Calcutta University)

Concept of joint life policy:- In case of admission / retirement of a partner
Question:29. X,Y,Z are partners sharing profit equally. They had taken a joint Life policy for Rs. 2,40,000 on which premium paid is
treated as an expense. Y retires. On that date surrender value of policy was 60,000. Show treatment (without raising JLP Account)
Question:30. A,B,C are partners sharing profits in 2:1:2: They had taken J.L.P. for Rs. 1,20,000. C retires. On that date surrender
value of policy was Rs. 40,000. Make jounal entry if partners decided to show J.L.P. in book of firm.
Question:31. A and B are partners sharing profit in the ration of 3:2. They had taken a J.L.P. for Rs. 5,00,00. C is admitted as a new
partner for ¼ share. On that date surrender value of policy was Rs. 2,40,000. Make adjustment entry.
In Case of death of a partner :

Question:32. Raja , Ram and Ranjan were partner sharing profit equally. Ram died they had taken a J.L.P. for Rs. 6,00,000. Claim
was admitted with insurance company. On the date Surrender value of policy was Rs. 2,40,000 . Make journal entries if:
(a) J.L.P. was treated as an expense.

(b) J.L.P. was treated as an asset.
(c) J.L.P. was treated as an asset and reserve account is maintained.
ADMISSION AND RETIREMENT OF A PARTNER
Question:33. A and B are partners sharing profit in the ratio of 3:2. Following is the balance sheet of the firm as on 31March, 2008:
BALANCE SHEET as on 31st March, 2008
Creditors 38,000 Cash in hand at bank 10,000
Salary outstanding 12,000 Debtors 40,000
Capitals: Less: Provision for doubtful
A 40,000 tful
Debts 4,000 36,000
B 38,000 78,000 Bills receivable 15,000
Stock 18,000
Investments 14,000
Furniture 5,000
Building 30,000
1,28,000 1,28,000
C is admitted as a new partner for ¼ share. He brings Rs20,000 as his capital and Rs6,000 for his share of goodwill. Partners decided
to withdrew 40% of their share of goodwill from the firm. At this date it is found that estimated value of provision for doubtful
debts is Rs.6,500, and furniture Rs.4,500, building Rs.45,000; whilst an investment not recorded in the books is worth Rs. 4,300 and
a contingent liability of Rs. 1,200 has become a certain liability. You are required to prepare revaluation account and balance sheet
after giving effect to the above.
Question:34. Taking the previous question, if it has been agreed among the partners that assets and liabilities are to be shown at
old values, you are required to prepare revaluation account and anew balance sheet after the admission of C.
Question:35. Akash and Patal were carrying on business in partnership since 1994. Their balance sheet as on 31-3-96 was as follows:
Capital— Goodwill 4,000
Akash 39,700 Motor cars 16,500
Patal 21,300 61,000 Furniture and fixtures 6,200
Profit and loss account 9,000 Stock
Creditors 26,700 Debtors 29,400
Bills payable 1,500 Cash at bank 39,600
Cash in hand 2,300
200
98,200
98,200
st
On 1 April, 1996 they decided to admit Bhuban as a partner on the following conditions:

(a) Bhuban will receive 1 /5th of the future profits (after charging interest @5% on capitals), subject to a minimum of Rs. 6,000 per
annum. Any deficiency in his share of profits is to be met from Akash's share.
(b)The goodwill of the firm is valued at Rs. 8,000.
(c) An independent valuation revealed that motor cars are worth Rs. 19,000, while the value of furniture is only Rs. 5,700, Rs. 1,500,
of the debtors are likely to become bad.
(d) Bhuban was to bring in capital equal to l/5th of the capitals of Akash and Patal arrived at after giving effect to the foregoing
considerations.
During the year ended-31st March. 1997 the firm earned a profit of Rs. 30,000 (before-charging interest on capitals).
You are required to—
(i) Show journal entries in respect of transactions taking place at the time of Bhuban's admission.
(ii) Show the balance sheet immediately after Bhuban's admission.
(iii) Show the profit and loss appropriation account for the year ended 31st March, 1997, assuming that adjustments in respect of
guaranteed profits are to be made through the profit and loss appropriation account. [I.C.W.A., (Final)]
Question:36. The following is the balance sheet of A, B and C sharing-profits and losses in the proportion of 6/14, 5/14 and 3/14:
Rs. Rs.
Creditors 18,900 Cash 1,890
Bills payable 6,300 Debtors 26,460
General reserve 10,500 Stock 29,400
A's capital 35,400 Furniture 7,350
B’s capital 29,850 Land and Buildings 45,150
C’s capital 14,550 Goodwill 5,250
1,15,500 1,15,500
They agreed to take D into partnership and give him 1/8th share on the following terms:
(i) That furniture is depreciated by Rs. 920.
(ii) That stock is depreciated by 10%.
(iii) That a provision of Rs. 1,320 be made for outstanding repair bills,
(iv) That the value of land and buildings having appreciated be brought up to Rs. 59,850.
(v) That the value of goodwill be brought up to Rs. 14,070.
(vi) That D should then bring in Rs. 14,700 as his capital.
(vii) That after making the above adjustments the capital accounts of the old partners be adjusted on the basis of the proportion of
D's capital to his share in the business i.e. actual cash to be paid off or brought in by the old partners as the case may be. Pass the
necessary journal entries and prepare the balance sheet of the new firm.
Question:37. A and B are partners in a firm sharing profits in the ratio of 2: 1. The balance sheet of the firm on 31st December,
1996 was as follows:
Rs. Rs.
Creditors 1,400 Bank 1,004
Investment provision 400 Bills receivable 2,500
Workmen compensation fund 1,200 Debtors 4,000
General reserve 2,100 Less: Provision 500 3,500
Capital: A 6,000 Stock 3,000
B 4,900 10,900 Investments 5,000
996
Goodwill
16,000 16,000

On the above date C is admitted for 2/5th share in the profits of the firm. Following revaluations were made at the time of
admission:
(1) Accrued incomes not appearing in the books Rs. 100. (2) Market value of investments is Rs. 4,500. (3) Claim on account of
compensation is estimated at Rs. 150. (4) Provision for doubtful debts is required at Rs. 600. (5) X, an old customer, whose account
was written off as bad, has promised to pay Rs. 350 in settlement of his full claim. (6) A and B had purchased a machinery on hire
purchase system for Rs. 3,000 of which only Rs. 100 are to be paid. Both machinery and unpaid liability did not appear in the
balance sheet. (7) There was a joint life policy on the lives of A and B for Rs. 15,000. Surrender value of the policy on the date of
admission amounted Rs. 2.400. It was decided to record this as an asset of the new firm. (8) C is required to bring necessary
amount for his capital and his share of goodwill Rs. 2,400.
Capital of other partners should also be in their profit sharing ratio. You are required to make journal entries and prepare new
balance sheet after the admission of C.(Ans:- Profit on revaluation= 6,600)
Question:38. Arun and Anand were partners sharing their profits in the ratio of 3: 2. Their position as on 31st March, 1991 was 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 Fund 4,000 Stock 12,000
Sundry Creditors 12,000 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. 3000 as premium out of his share of Rs. 3,600.
(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.
(e) Rs. 2,000 creditors were paid at 5% discount.
Pass necessary entries to give effect to above arrangement and prepare the Balance Sheet of the new firm.
Question:39. Quick and Slow are partners in a firm sharing profits and losses in the ratio of 3 : 2. The Balance Sheet of the firm as
on 31 March, 1993 was as under.
Liabilities Rs. Rs. Assets Rs.

Capital Accounts
Quick 1,20,000 Furniture & Fixtures 60,000
Slow 77,000 1,97,000 Office Equipments 30,000
General Reserve 30,000 Motor Car 75,000
Sundry Creditors 96,000 Stock 50,000
Cash at Bank 18,000
3,23,000 3,23,000
Smooth was admitted as a new partner with effect from 1st April, 1993 and it was agreed that he would bring some private
furniture worth Rs. 10,000 and private stock costing Rs. 8,000 and in addition contribute Rs. 50,000 cash towards capital.He would
also bring proportionate share of goodwill which is to be valued at two year's purchase of the average profits of the last three
years. The profits of the last three years were:
1992-93 52,000
1991-92 32,000
1990-91 28,000

However, on a checking of the past records, it was noticed that on 1.4.91 a new furniture costing Rs. 8,000 was purchased but
wrongly debited to revenue and in 1992-93 a purchase invoice for Rs. 4,000 dated 25.3.93 has been omitted in the books. The firm
charges depreciation on furniture @ 10% p.a. Your calculation of goodwill is to be made on the basis of correct profits.
On revaluation value of stock is to be reduced by 5% and Motor car is worth Rs. 85,000. Smooth duly paid the required amount for
goodwill and cash towards capital. It was decided that the future profits of the firm would be shared as Quick-50%, Slow-30% and
Smooth-20%. Assuming the above mentioned arrangements were duly carried out, show the Capital Accounts of the partners and
the Balance Sheet of the firm after Smooth's admission. [I.C.W.A.(Inter) Dec. 1993]
Question:40. M/s NEPTUNE & CO’s Balance hseet as at 31st March, 2001:
Bank overdraft (State Bank) 54,000 Cash at Bank of India 800
Sundry Creditors 1,56,000 Sundry Debtors 2,80,000
Capital Accounts: Stock 1,00,000
Mr.A Motor Cars Cost as per
Balance as per last B/S 4,02,000 last B/S 1,60,000
Add: Profit for the year 95,400 4,57,400 Less: Depreciation till date 54,000 1,06,000
4,97,400 Machinery
Less: Drawing 40,000 Cost as per last B/S 3,00,000
Mr. B Less: Depreciation .
Balance as per last B/S 2,00,000 Till date 1,40,000 1,60,000
Add: Profit for the year 95,400 Land and Building 2,40,000
2,95,400
Less: Drawings 76,000 2,19,400 .
8,86,800 8,86,800
You have examined the foregoing Draft of the Balance Sheet and have ascertained that the following adjustments are required to
be carried out:
a) Land and Buildings are shown at cost less Rs. 60,000 being the proceeds of the sale during the year of premises costing Rs.
70,000.
b) Machinery having a net book value of Rs. 4,300 had been scrapped during the year. The original cost was Rs. 12,300.
c) Rs. 2,000 paid for the license fees for the year ending 30th September, 2001 had been written off.
d) Debts amounting to Rs. 10,420 were considered to be bad and further debts amounting to Rs. 5,400 were considered doubtful
and required 100% provision. Provision for doubtful debts had previously been made for Rs. 10,000.
e) An item in the Inventory was valued at Rs. 37,400 , but had a realizable value of Rs. 26,000 only. Scrap materials having a value
of Rs. 6,600 had been omitted from the stock valuation.
f) The cashier had misappropriated Rs. 700.
g) The cash-book for the year ending 31stMarch,2001 included payments amounting to Rs. 6,924, the cheques having been made
out, but not dispatched to suppliers until April, 2001.
h) Interest is to be allowed on the Partners’ Opening Capital Account balances less drawings during the year at 9%. You are
(a) Profit & Loss Adjustment Account for the year
(b) Capital Accounts of the partners. (CA Inter Nov., 2001)

Question:41. On 31st, March, 1996 the Balance Sheet of M/s Arun, Varun and Taran sharing profit and losses in the ratio of
6:5:3, stood as follows.

Sundry Creditors 37,800 Cash 3,780
Bills Payable 12,600 Sundry Debtors 52,920
General Reserve 21,000 Stock 58,800
Capital Accounts: Furniture 14,700
Arun : 70,800 Land & Buildings 90,300
Varun : 59,700 Goodwill 10,500
Tarun : 29,100
Total 2,31,000 Total 2,31,000
They agree to admit Nitin as a partner giving him l/8th share, on 1.4.1996 on the following terms :--
(i.) Furniture to be depreciated by Rs. 1,840.

(ii.) Stock shall be valued 10% less than the balance sheet value
(iii.) A provision of Rs.2,640 be made for outstanding repair bill.
(iv.) The value of land and buildings having appreciated be brought upto Rs. 1,19,700
(v.) Value of goodwill be brought upto Rs.28,140.
(vi.) Nitin should bring in cash Rs 29,400 as his Capital.
After making the above adjustments the capital accounts of the old partners be adjusted on the basis of proportion of Nitin's
Capital to his share in the business by bringing in or taking out cash. You are required to prepare revaluation Account, Capital
account of Partners, Cash Account and Balance Sheet as on 1.4.1996 after Nitin's admission.
[Answer. Profit on Revaluation-19,040; Partner's Capital: Arun-88,200, Varun-73,500, Tarun-44,100, Nitin-29,400, Balance
sheet- 2, 88,240, New Ratio - 6:5:3:2, Sacrificing Ratio 6:5:3.)
Question:42. X and Y are partners in a business started in 1997, sharing profit and losses in the ratio of 5:4. After the accounts for
the calendar year 2000 were made up and their proportionate shares taken note of in their individual accounts, they decide to
share profit and losses equally retrospectively for and from the year 2000. It was also discovered that in ascertaining the results in
prior years, certain adjustments, details of which are given below, had not been noticed.
Particulars 1997 1998 1999 2000
Profit as per accounts 72,000 78,000 90,000 1,08,000
Incomes not taken into account 5,400 4,500 3,600 6,300
Expenses not provided for 9,000 6,000 10,800 7,200
On 31st Dec., Reserves stood at Rs. 54,000, Capitals of X and Y Rs. 1,2600 and Rs. 96,000 respectively on 31 st Dec., 2000.
On 1st Jan. 20001, Z was decided to be admitted as a partner and was allotted 1/5 th share. Goodwill was decided to be ascertained
by capitalizing at 20% the average profit of the immediately tow proceeding years before admission. Z would bring in proportionate
capital. Capitals of X and Y are to be equal, the difference to be adjusted in their current accounts.
Profits for 2001, were Rs. 1,26,000. Drawings of X, Y and Z for the year were Rs. 54,000, Rs. 48,000 and Rs. 18,000
Respectively. Incomes not taken into account are received in subsequent year. Expenses not provided for are paid in subsequent
year. Prepare capital and current accounts of the partners for the Year 2001.
Question:43. Laurel and Hardy are partners of the firm LH &Co., from 1.4.2003. Initially both of them contributed Rs. 1,00,000 each
as capital. They did not contribute any capital thereafter. They maintain accounts of the firm on mercantile basis. They were sharing
profits and losses in the ratio of 5:4. After the accounts for the year ended 31.3.2007 were finalized, the partners decided to share
profits and losses equally with effect from 1.4.2003.
It was also discovered that in ascertaining the results in the earlier years certain adjustments, details of which are given below,
had not been noted.

Year ended 31st March 2004 2005 2006 .2007

Rs. Rs. Rs. Rs.
Profit as per accounts prepared and finalized 1,40,000 2,60,000 3,20,000 3,60,000
Expenses not provided for (as at 31st March) 30,000 20,000 36,000 24,000
Incomes not taken into account( 31st March) 18,000 15,000 12,000 21,000
Question:44 The partners decided to admit Chaplin as a partner with effect from 1.4.2007. It was decided that Chaplin would be
allotted 20% share in the firm and he must bring 20% of the combined capital of Laurel and Hardy. Following is the Balance sheet
of the firm as on 31.3.2007 before admission of Chaplin and before adjustment of revised profits between Laurel and Hardy.
Balance Sheet of LH & Co. as at 31.3.2007

Capital Accounts: Plant and Machinery 60,000
Laurel 2,11,500 Cash on Hand 10,000
Hardy 1,51,500 Cash at Bank 5,000
Sundry Creditors 2,27,000 Stock in Trade 3,10,000
5,90,000 5,90,000
(i) Profit and Loss Adjustment account;
(ii) Capital accounts of the partners; and
(iii) Balance Sheet of the firm after the admission of Chaplin. (CA-PE2- MAY 2007)20 MARKS
Question:45 A and B are equal partners. They admit C and D as partners with 1/5 and 1/6 share respectively. What is the profit
sharing ratio of all the partners? (CA-PE2- MAY 2007) 2 MARKS
RETIREMENT OR DEATH OF A PARTNER:
Question:46. P, Q, and R were partners sharing profit and losses in the ratio of P 5/10, Q 3/10, R 2/10. They had taken out a joint
life policy of the face value of Rs. 20,000. On 31st December, 1997 its surrender value was Rs. 4,000. On this date the balance sheet
of the firm stood as under:
Sundry creditors 5,300 Fixed assets 25,000
Expenses outstanding 700 Stock 11,000
Reserve 3,000 Book debts 9,000
Capitals: Cash at bank 2,000
P 20,000
Q 10,000
R 8,000 38,000
47,000 47,000
On this date Q decided to retire and for the purpose : (i) Goodwill was valued at Rs. 15,000; (ii) Fixed assets were valued at Rs.
30,000; and (iii)Stock was considered as worth Rs. 10,000.
Q was to be paid through cash brought in by P and R in such a way as to make their capitals proportionate to their new profit-
sharing ratio which was to be P 3/5 and R2/5. They also decided to maintain minimum cash of Rs 1,000 in their bank Account.
Goodwill was to be passed through books without raising a goodwill account; the joint life policy was also not to appear in the
balance sheet. Record these matters in the journal of the firm and prepare the resultant balance sheet. (C.A. INTER)

Question:47. The following is the Balance Sheet of A, B and C who were equal partners on 31st December 1995:—
BALANCE SHEET
A’s Capital 33,600 Plant and Machinery (at cost) 49,000
B’s Capital 25,200 Furniture 4,800
C’s Capital 12,000 Stock-in-trade 22,800
10% Mortgage Loan 12,000 Sundry Debtors 21,600
Sundry Creditors 16,600 Cash in Hand 1,200
99,400 99,400
On 1st January 1996, C retired from business and claimed his share in the Secret Reserve/ Profit arising out of the following-
a. During the year 1995, purchase of Machinery at a cost of Rs. 5,000 was charged to Purchases Account, the Installation charges of
Rs. 300 to erect the machinery, being charged to machinery repairs account.
b. Rs. 1,200 received from a debtor towards rent of property sub-let, was credited to his personal account, instead of rent account,
so as to reduce his debit balance from Rs. 1,600 to Rs. 400 debit.
c. Interest on Mortgage Loan was paid in advance up to 31 st December 1996, and the whole amount was charged to interest
Account in 1995.
After rectifying the above errors, it was mutually decided as under:—
a) The Goodwill of the firm is valued at three times the average profit of the last three years. Such profits should be the correct
profits and not the book profits. The book profits for the last three year were: 1993 Rs. 13,830; 1994 Rs. 32,000 ; 1995 Rs.
12,010.Machinery is depreciated by 10% and the provisions for bad and doubtful debts are made at 5% on Debtors.
b) (deleted point due to AS 26).
c) C should be paid half of his dues in cash which shall be brought in by A and B in their profit-sharing proportion and the other
half shall be left in the business as C’s Loan fetching 15% interest.
Prepare C’s Capital Account, Profit and Loss Adjustment Account and the Balance Sheet of A and B after C’s retirement.
[C.A. Inter May]
Question:48 The balance sheet of X, Y and Z, who were sharing profits in the ratio of 4 : 3 : 2 respectively stood as follows on 31st
December, 1998:
4,140 Cash at bank 3,300
Capital
Sundry account's:
creditors Sundry debtors 3,045
X 12,000 Less: Provision 105 2,940
Y 9,000 Stock 4,800
Z 6,000 Plant and machinery 5,100
27,000 Land and building 15,000
31,140 31,140
Y having given notice to retire from the firm, the following adjustments in the books of the firm were agreed upon:
(a) That land and building be appreciated by 10 per cent, (b) The provision for bad debts is no longer necessary, (c) That the
stock be appreciated by 20 per cent, (d) That adjustment be made in the accounts to rectify a mistake previously made whereby Y
was credited in excess by Rs. 810 while X and Z were debited in excess by Rs. 420 and Rs. 390 respectively.(e) That the goodwill of
the firm be fixed at Rs. 5,400 and Y share of the same be adjusted to that of X and Z who are going to share in future profits in the
ratio of 2 : 1. (f)That 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 and prepare the balance sheet of the new firm showing Y
balance as loan.(I.C.W.A. Inter)
Question:49. Manish, Jatin and Paresh were partners sharing Profits/Losses in the ratio of Manish 40 per cent, Jatin 35 per cent,
and Paresh 25 per cent. The draft Balance Sheet of the partnership as on 31st December, 2001 was as follows:

Balance sheet as on 31 december 2001
Rs. Rs.
Sundry Creditors 30,000 Cash on hand and at Bank 67,000
Bills payable 8,000 Stock 42,000
Loan from Jatin 30,000 Sundry Debtors 34,000
Current Accounts: Less: Provision for
Manish 12,000 Doubtful Debts 6,000 28,000
Jatin 8,000 Plant and Machinery
Paresh 6,000 26,000 (at cost) 80,000
Capital Accounts: Less: Depreciation 28,000 52,000
Manish 90,000 Premises (at cost) 75,000
Jatin 50,000
Paresh 30,000 1,70,000
2,64,000 2,64,000
Jatin retired on 31st December, 2001. Manish and Paresh continued in partnership sharing profits/losses in the ratio of Manish 60
per cent and Paresh 40 per cent. 50 per cent of Jatin's Loan was repaid on 1.1.2002 and it was agreed that of the amount then
remaining due to him a sum of Rs.-80,000 should remain as loan to partnership and the balance to be carried forward as ordinary
trading liability. The following adjustments were agreed to be made to the above mentioned Balance Sheet:
(i) Rs. 10,000 should be written off from the premises.

(ii) Plant and Machinery was revalued at Rs. 58.000.
(iii) Provision for doubtful debts to be increased by Rs. 1,200.
(iv) Rs. 5,000 due to creditors for expenses had been omitted from the books of account,
(v) Rs. 4,000 to be written off on stocks.
(vi) Provide Rs. 1,200 for professional charges in connection with revaluation.
As per the deed of partnership, in the event of the retirement of a partner, goodwill was to be valued at an amount equal to one
year's purchase of the average profits of the preceding three years on the date of retirement. Before determining the said average
profits a notional amount of Rs. 80,000 should be charged for remuneration of partners. The necessary profits before charging
such remuneration were:
Year ending 30.12.1999 Rs. 1,44,000
Year ending 31.12.2000 Rs. 1,68,000
Year ending 31.12.2001 Rs. 1,88,200 (as per draft accounts)
It was agreed that, for the purpose of valuing goodwill, the amount of profit for the year 2001 be recomputed after charging the
loss on revaluation in respect of premises and stock, the unprovided expenses (except professional expenses) and increase in the
provision for doubtful debts. The continuing partners decided to eliminate goodwill account from their books. You are required to
prepare:
(i) Revaluation Account;

(ii) Capital Accounts (merging current accounts therein);
(iii) Jatin's Account showing balance due to him; and
(iv) Balance Sheet of Manish and Paresh as at 1st January. 2002. [CA Inter May, 2002]
Question:50 Following two problems are regarding issues in Partnership Accounts, kindly solve both :
(i) Anil and Mukesh are partners sharing profit and losses in the ratio of 3 : 2. Govind is admitted for 1/4 share of firm.
Thereafter Madan enters for 20 paisa in a rupee. Compute new profit sharing ratios under both the admission of
partners.
(ii) The following Goodwill Account was opened by the partners of R and S, on the admission of H as a new partner into firm
Om and Sons. Calculate the share of profit agreed to be given to "H".

Goodwill A/c.
Dr. Cr.
Rs. Rs.
1-4-2010 To R's Capital A/c 24,800 1-4-2010 By R's Capital A/c 12,400
1-4-2010 To S's Capital A/c 18,600 1-4-2010 By S's Capital A/c 12,400
1 -4-2010 By H's Capital A/c 18,600
43,400 43,400
(CA- MAY 2010) 5 MARKS
Answer:
(i)1. At the time of admission of Govind :
Let the total share of profit at the time of admission of Govind is 1 Share of New Partner 'Govind' = ¼ Remaining share
of profit = 1 – ¼ = ¾
new share of Anil
New share of Mukesh
New profit sharing of Anil, Mukesh&Govind is
2. At the time of admission of Madan:

Let total share at the time of admission of Madan is 1 Share of new partner 'Madan = 1/5 Remaining share =1-1/5 =
4/5
Now,
New share of Anil
New share of Mukesh= 4/5 x 6/20 = 6/25

New share of Govind= 4/5 x 5/20 =5/25
New profit sharing ratio of Anil, Mukesh, Govind and Madan is
(ii) Share of H in profit sharing ratio;

H’s Share
Question:51. Amit and Sumit are partners sharing profits and losses in the ratio of 3: 2. Their Balance Sheet as on 31st March 2011
is given below:
Capital Accounts : Land & Building 3,20,000
Amit 1,76,000 Investment(Market value Rs. 55,000) 50,000
Sumit 2,54,000 4,30,000 Debtors 3,00,000
Loan from Puneet 3,00,000 Less: Provision for
doubtful debts 10,000 2,90,000
General Reserve 30,000 Stock 1,10,000
Employer's Provident Fund 10,000 Cash at Bank 50,000
Creditors 50,000 _______
Total 8,20,000 Total 8,20,000
They decided to admit Puneet as a new partner from 1 st April, 2011 on the following terms:
1. Amit will give 1/3rd of his share and Sumit will give 1/4th of his share to Puneet.
2. Puneet's loan account will be converted into his capital.
3. The Goodwill of the firm is valued at Rs. 3,00,000. Puneet will bring his share of Goodwill in cash and the same was
immediately withdrawn by the partners.
4. Land and building was found undervalued by Rs. 1, 00,000.
5. Stock was found overvalued by Rs. 60,000.
6. Provision for doubtful debts will be made equal to 5% of debtors.
7. Investments are to be valued at their market price.

It was decided that the total capital of the firm after admission of new partner would be Rs. 10,00,000. Capital accounts of
partners will be readjusted on the basis of their profit sharing ratio and excess or deficiency will be adjusted in cash . You are
(a) Revaluation A/c.
(b) Partner's Capital A/c.
(c) Balance Sheet of the firm after admission of new partner (CA- MAY 2011) 16 MARKS
Answer : Revaluation A/c
To Stock 60,000 By Land & building 1,00,000
To Provision for doubtful debts 5,000 By Investments 5,000
To Profit transferred to
Amit's capital A/c 24,000
Sumit's capital A/c 16,000
1,05,000 1,05,000
Partner’s Capital Account

Particulars Amit Sumit Puneet Particulars Amit Sumit Puneet
To Amit's capital A/c — — 60,000 By Balance b/d 1,76,000 2,54,000
To Puneet's capital A/c — — 30,000 By Puneets' Loan A/c — — 3,00,000
To Bank A/c 60,000 30,000 — By Puneet's capital A/c
To Balance c/d 4,00,000 3,00,000 3,00,000 By Bank A/c (W.N.2) 60,000 30,000 —
By Revaluation A/c — — 90,000
By General reserve 24,000 16,000 —
By Bank 18,000 12,000 —
1,82,000 18,000 ---
4,60,000 3,30,000 3,90,000 4,60,000 3,30,000 3,90,000
Balance Sheet (After admission of a new partner – puneet As on 1st April 2011)
Capital accounts Land and building (3,20,000+1,00,000) 4,20,000
Amit 400,000 Investments 55,000
Sumit 300,000 Debtors 3,00,000
Puneet300,000 10,00,000 Less: Provision for doubtful debts (15,000) 2,85,000
Creditors 50,000 Stock (1,10,000-60,000) 50,000
Employers' Provident Fund 10,000 Cash at bank (W.N.3) 2,50,000
10,60,000 10,60,000
Working Notes:
(1) Calculation of incoming partner's share, new profit sharing ratio and sacrificing ratio.
Amit Sumit
Old profit sharing ratio 3/5 2/5
Surrendered by old partners 3/5x1/3=1/5 2/5x1/4=1/10
Remaining share 3/5 -1/5 =2/5 2/5-1/10=3/10
Employer's Provident Fund is current liability as it is assumed to be representing employer's contribution to provident fund
which is yet to be deposited. Puneet's total share in profits = 1/5 + 1/10 =3/10
New profit sharing ratio of Amit: Sumit: Puneet = 2/5 : 3/10 : 3/10 = 4:3:3 Sacrificing ratio of Amit: Sumit is 1/5 :1/10 : or 2:1
(2) Calculation of Share of goodwill be old partners

Goodwill of the firm was Rs. 3, 00,000
Share of Puneet in goodwill
Goodwill will be distributed among the old partners in their sacrificing ratio of 2:1 i.e. Rs. 60,000 by Amit and Rs.
30,000 by Sumit.

Calculation of Closing Balance of Bank Account after admission. Bank A/c

To Balance b/d 50,000 By Amit's capital A/c 60,000
To Puneet's capital A/c 90,000 By Sumit's capital A/c 30,000
To Sumit's capital A/c 18,000 By Balance c/d 2,50,000
To Amit's capital A/c 1,82,000
3,40,000 3,40,000
Question:52. A, B and C are carrying on partnership business as equal partners. On 31st December, 2007 C dies and the capitals of
the partners after necessary adjustments stood at Rs. 20,000, Rs. 30,000 and Rs. 50,000 respectively. A and B could settle the
account of the executors of C only on 31st March, 2008, by which time the partnership made a profit of Rs. 9,000. As there was no
contract regarding the share to be given in the subsequent profits made by the firm, the executors wanted to exercise option
available under Section 37 of the Partnership Act. Determine the amount payable to the executors.
Question:53. (2 questions have been printed under question 53. So read carefully)A, B and C were partners of a firm sharing
profits and losses in the ratio of 3 : 4 : 3. The Balance Sheet of the firm, as at 31st March, 1998 was as under :
Capital Accounts : Fixed Assets 1,00,000
A 48,000 Current Assets :
B 64,000 Stock 30,000
C 48,000 1,60,000 Debtors 60,000
Reserve 20,000 Cash and Bank 30,000 1,20,000
Creditors 40,000
2,20,000 2,20,000
Partner C died on 30th September,1998. It was agreed between surviving partners and the legal representatives of C that :
(i) Goodwill of the firm will be taken at Rs. 60,000.
(ii) Fixed Assets will be written down by Rs. 20,000.
(iii) In lieu of profits, C should be paid at the rate of 25% per annum on his capital as on 31 st March, 1998.
The profits for the year ended 31 st March, 1999, after charging depreciation of Rs. 10,000 (depreciation upto 30th September
was agreed to be Rs. 6,000) were Rs. 48,000.
Partners’ Drawings Accounts showed balances as under :
A Rs. 18,000 (drawn evenly over the year)
B Rs. 24,000 (drawn evenly over the year)
C (up-to-date of death) Rs. 20,000
On the basis of the above figures, please indicate the entitlement of the legal heirs of C, assuming that they had not been
paid anything.(13 marks) (Intermediate–Nov. 2000)
Question 53. (2 questions have been printed under question 53. So read carefully)) Ram, Rahim and Robert are partners,
sharing Profits and Losses in the ratio of 5 : 3 : 2. It was decided that Robert would retire on 31.3.2005 and in his place Richard
would be admitted as a partner with new profit sharing ratio between Ram, Rahim and Richard at 3 : 2 : 1.
Balance Sheet of Ram, Rahim and Robert as at 31.3.2005:

Capital Accounts: Cash in hand 20,000
Ram 1,00,000 Cash in Bank 1,00,000
Rahim 1,50,000 Sundry Debtors 5,00,000
Robert 2,00,000 Stock in Trade 2,00,000
General Reserve 2,00,000 Plant & Machinery 3,00,000
Sundry Creditors 8,00,000 Land & Building 5,30,000
Loan from Richard 2,00,000 ________
16,50,000 16,50,000
Retirement of Robert and admission of Richard is on the following terms:
(a) Plant & Machinery to be depreciated by Rs. 30,000.
(b) Land and Building to be valued at Rs. 6,00,000.
(c) Stock to be valued at 95% of book value.
(d) Provision for doubtful debts @ 10% to be provided on debtors.
(e) General Reserve to be apportioned amongst Ram, Rahim and Robert.

(f) The firm’s goodwill to be valued at 2 years purchase of the average profits of the last 3 years. The relevant figures are:
Year ended 31.3.2002  Profit Rs. 50,000
(g) Out of the amount due to Robert Rs. 2,00,000 would be retained as loan by the firm and the balance will be settled
immediately.
(h) Richard’s capital should be equal to 50% of the combined capital of Ram and Rahim.
Prepare:
(i) Capital accounts of the partners; and
(ii) Balance Sheet of the reconstituted firm. (16 Marks) (PE-II – Nov. 2005)
ADMISSION CUM RETIREMENT/DEATH OF A PARTNER
Question:54. Avinash, Basuda Ltd. and Chinmoy Ltd. were in partnership sharing profit and losses in the ratio of
9 : 4 : 2. Basuda Ltd. retired from the partnership on 31.3.1998, when the firm's balance sheet was as under :
(Rs. in thousand)
Sundry creditors 600 Cash and bank 284
Capital accounts: Sundry debtors 400
Avinash 2,700 Stock 800
Basuda Ltd. 1,200 Furniture 266
Chinmoy Ltd. 600 4,500 Plant 850
Land and building 2,500
5,100 5,100
Basuda Ltd.'s share in goodwill and capital was acquired by Avinash and Chinmoy Ltd. in the ratio of 1: 3,the continuing partners
bringing in the necessary finance to pay off Basuda Ltd. The partnership deed provides that on retirement or admission of a
partner, the goodwill of the firm is to be valued at three times the average annual profits of the firm for the four years ended on
the date of retirement or admission. The profits of the firm during the four years ended 31st March, 1998 in thousands of rupees
were:
1994-95 450
1995-96 250
1996-97 600
1997-98 700
The deed further provided that goodwill account is not to appear in the books of accounts at all. The continuing partners agreed
that with effect from 1st April, 1998, Ghanashyam, son of Avinash is to be admitted as a partner with 25% of share profits. Avinash
gifts to Ghanashyam, by transfer from his capital account, an amount sufficient to cover up 12J3% of capital and goodwill
requirement. The balance 12.5% of capital and goodwill requirement is purchased by Ghanashyam from Avinash and Chinmoy Ltd.
in the ratio of 2 : 1.
The firm asks to you :
(i) Prepare a statement showing the continuing partner's shares;
(ii) Pass journal entries including for bank transactions; and
(iii)Prepare the balance sheet of the firm after Ghanashyam's admission. [C.A. (Inter), May 1998]
Question 55.Shiv and Mohan are partners in a firm sharing profits and losses equally. On 31st March, 2011, the balances of
their capital accounts were Rs. 3, 00,000 and Rs. 2, 00,000 respectively. The average profits of the firm are Rs. 1, 36,000
and the rate of normal profit is 20%. On 1st April, 2011 they agreed to admit Hari as a partner for one fourth share Hari
will bring Rs. 1,00,000 as capital.
You are required to compute the value of the Goodwill of the firm on admission of Hari, if goodwill is to be calculated on
the basis of:
1. 5 years purchase of super profit
2. Capitalization method
3. 3 years purchase of average profit. (CA- MAY 2011) 5 MARKS

Question 56: Ramu, Shamu and Raju were partners sharing profits and losses in the ratio of 3 :2 :2. Their Balance Sheet as on
01-01-2009 was as follows:
Capital Accounts Fixed Assets 80,000
Ramu 30,000 Stock 15,000
Shamu 20,000 Debtors 12,000
Raju 20,000 70,000 Cash & Bank 1,951
Reserves 14,000
Creditors 24,951
1, 08,951 1, 08,951
On 1st October, 2009 Ramu died. His heirs agreed that:
(i) Goodwill of the firm is valued at 2 years' purchase of average profit of past three years. Profits for the year 2006, 2 007 and 2008
were Rs. 30,000, Rs. 40,000 and Rs. 47,600 respectively,
(ii) Fixed Assets be revalued at Rs. 1, 01,000.
(iii) Profit to be shared, earned in subsequent period after death of Ramu till settlement of his executors' claim. Ramu' s heirs
account was settled on 31-12-2009 by bringing in required cash by remaining partners in equal proportion leaving cash balance of
Rs. 1,234. Each partner had drawn @ Rs. 1,000 per month for personal use.
Profit for the current year after charging depreciation of Rs. 9,000 (Rs. 6,000 for first three quarters and Rs. 3,000 for l ast quarter)
was Rs. 46,600 earned evenly through-out the year.
You are requested to prepare Profit & Loss Appropriation A/c, Cash & Bank A/c, Ramu's Executor's A/c and Partners' Capital
Accounts for the year ended on 31-12-2009 assuming remaining partners' decided not to retain goodwill in the books.
(CA- NOV 2010) 16 MARKS
Question 57: A and B are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals are Rs. 60,000 and Rs. 40,000
respectively. They admit C as a new partner who will get 1/6th share in the profit of the firm. C brings in Rs. 25,000 as his
capital. Find out the amount of goodwill on the basis of the above information. (CA- MAY 2010) 2 MARKS
Answer: Computation of Goodwill
th
C brings capital for 1/6 share in profit = Rs. 25,000
Total capital of the firm = Rs. 25,000 x 6 = Rs. 1,50,000
Capital of old partners should be = Rs. 1, 50,000 – Rs. 25,000 = Rs. 1,25,000
Actual combined capital of old partners
= Rs. 60,000 + Rs. 40,000 = Rs. 1,00,000
So, the goodwill of the firm = Rs. 1,25,000 – Rs. 1,00,000 = Rs. 25,000
Question 58 :X, Y and Z are partners sharing profits and losses in the ratio of 4 : 3 : 2 resp ectively. On 31st March, 2011 Y retires
and X and Z decide to share profits and losses in the ratio of 5:3. Then immediately, W is admitted for 3/10th shares in profits,
2/3rd of which was given by X and rest was taken by W from Z. Goodwill of the firm is valued at Rs. 2,16,000. W brings requir ed
amount of goodwill. Give necessary Journal Entries to adjust goodwill on retirement of Y and admission of W if they do not want to
raise goodwill in the books of accounts.(CA- MAY 2011) 4 MARKS
Answer:
Date Particulars Dr. Rs. Cr. Rs.
31.3.11 X's capital A/c Dr. 39,000
Z's capital A/c Dr. 33,000
To Y's capital A/c (3/9 x Rs. 2,16,000) 72,000
(Being Y's share of goodwill adjusted in the capital of gaining partner)
1.3.11 Cash A/c Dr. 64,800
To W's capital A/c 64,800
(3/10 x 2,16,000) (Being the amount of goodwill brought in by W)
31.2.11 W's capital A/c Dr. 64,800
To X's capital A/c 43,200
To Z's capital A/c 21,600
(Being the goodwill credited to sacrificing partners in sacrificing ratio 2:1)
Working note:
Calculation of gaining ratio of X and Z
Gaining ratio = new ratio-old ratio
For X = 5/8-4/9
= 13/72
Z = 3/8 – 2/9
= 11/72
Gaining ratio = 13:11

CHAPTER 11. DISSOLUTION OF PARTNERSHIP FIRM
IN CASE OF SOLVENCY OF A PARTNER

Question:1 Strong and Weak are partners in a firm sharing profits and losses in the ratio of 4:1. They decided to dissolve the
partnership on 31-3-2016 on which date their Balance Sheet Stood as follows;
Liabilities Rs. Assets Rs. Rs.

Capital Accounts: Plant 60,000
Strong 80,000 Furniture 2,000
Weak 30,000 1,10,000 Debtors 45,000
Bank Loan 10,000 Less: Provision for Bad Debts 2,000 43,000
Creditors 40,000 Trade Marks 6,000
Stock 30,000
Cash 14,000
Advertisement Suspense 5,000
1,60,000 1,60,000
The realization showed the following result:
(a) Debtors realized 90% of the book value.
(b) Trade Marks Rs. 4,000.
(c) The Goodwill was sold for Rs. 5,000.
(d) Plant and Stock were taken over by Strong for Rs. 72,000 and Rs. 18,000 respectively.
(e) An unrecorded assets estimated at Rs. 3,000 was sold for Rs. 1,000.
(f) Discounts amounting to Rs. 400 were allowed by creditors while paying their claims.
(g) The expenses of realization amounted to Rs. 2,000.
You are required to prepare the Realization Account, Cash Book and Partners Capital accounts, assuming that settlement was made
on 1st April, 2016. (ICWA Inter)
Question: 2 A, B and C are partners sharing profit and losses in the ratio 2:2:1. They agreed to dissolve the firm on 31st March 2017
on which date their date their Balance Sheet was as under.
Balance Sheet as on 31 March. 2017

Capital Account Machine 4,00,000
A 3,00,000 Furniture 3,00,000
B 2,00,000 Building 8,00,000
C 1,00,000 6,00,000 Goodwill 2,00,000
General Reserve 80,000 Debtors 1,50,000
Profit and Loss A/c 20,000 -Provision for doubtful
Investment Fluctuation Fund 50,000 debt 10,000 1,40,000
Provision for taxation 1,00,000 Investment 2,20,000
Provident Fund 1,20,000 Stock 1,30,000
Bank Loan 7,00,000 Cash 20,000
Creditors 2,10,000 Bank 30,000
Bills Payable 2,50,000 Preliminary expenses 40,000
Outstanding salary 1,50,000
22,80,000 22,80,000
During the dissolution, the following were cash and non-cash transaction
(a) Machine was sold for Rs. 2,80,000
(b) Furniture was sold at a loss of 10%
(c) Building was sold for Rs. 9,00,00
(d) Debtors were realised in full
(e) Investment was taken over by A at an agreed value of Rs. 1,40,000
(f) Creditors were paid at a discount of 10%
(g) Bank loan was paid along with accrued interest of Rs. 60,000
(h) B agreed to pay outstanding salary of Firm
(i) Expenses on dissolution was Rs. 30,000
Prepare necessary account to close the books of firm.

Question: 3 X, Y and Z were partners sharing profit and losses in the ratio of 2:2:1. On 31stMarch 2017, they decided to dissolve
their partnership firm on that date their balance sheet stood as follow:
Balance Sheet as on 31 Dec. 2017

Capital Account Machine 6,00,000
X 2,00,000 Building 8,00,000
Y 2,00,000 Goodwill 3,00,000
Z 1,00,000 5,00,000 Debtor 2,50,000
Current A/C Stock 1,50,000
X 60,000 Cash 2,00,000
Y 1,40,000 2,00,000 Investment 5,00,000
General reserve 3,00,000 Joint Life Policy 80,000
Bank Loan 8,00,000 Advertising Suspense 40,000
Mortgage loan(secured by building) 6,00,000 Profit & Loss A/C 60,000
Creditors 4,00,000 Z’s current A/C 20,000
Bills Payable 1,00,000
Outstanding expense 1,00,000
30,00,000 30,00,000
The following information are given regarding Dissolution of firm
(a) Assets realised as follow:

Machine 4, 60,000
Building 9,40,000
Investment 4,00,000
(b) Stock was taken over by X at its market value of Rs. 1,80,000
(c) JLP was surrendered
(d) Debtors were assigned to creditors in full settlement of their claim
(e) Bank loan was paid at a prepayment premium of 5%
(f) There was an unrecorded typewriter worth Rs. 40,000 which was sold for Rs. 25,000
(g) An equipment worth Rs. 60,000 not recorded in the book was taken over by Z at 50,000
(h) Expenses on dissolution were Rs. 40,000 which was paid by Y.
Close the books of firm
Question: 4. Satya, Shiva and Sunder have been in partnership for a number of years, sharing profit and losses in the ratio of 4:3:3
on 31 Dec. 2017, they decided to dissolve their partnership firm on that date their Balance Sheet stood as follow:
Balance Sheet
Capital Account Trade marks 40,000
Satya 3,00,000 Machine 2,00,000
Shiva 4,00,000 7,00,000 Furniture 3,00,000
General Reserve 2,10,000 Equipment 1,50,000
Provision for bad debts 10,000 Building 8,00,000
Workmen compensation fund 1,40,000 Debtors 1,40,000
Provident fund 60,000 Bank 2,00,000
Provision for depreciation on building 1,20,000 Stock 1,60,000
Mrs. Satya’s Loan 80,000 Investment 40,000
Shiva’s Loan 1,40,000 Sunder’s Capital A/c 1,20,000
12% bank loan 2,00,000
Creditors 1,30,000
-Provision for discount 15,000 1,15,000
Loan from NBFC 3,00,000
Outstanding Rent 25,000
21,50,000 21,50,000
It has been agreed to dissolve the firm according to following understanding.
i Satya agreed to take over machine for Rs. 1,60,000 and also agreed to discharge his wife’s loan.
ii An unrecorded asset estimated at Rs. 20,000 was sold for Rs. 12,000.

iii An unrecorded tools worth Rs. 32,000 was taken over by an unrecorded liability for Rs. 40,000 in full settlement of their
claim.
iv One customer, whose account was written off as bad, now paid Rs. 2000 to the firm.
v There was an unrecorded asset worth Rs. 80,000. Half of which was handed over to settle half of an unrecorded liability of
Rs. 60,000 and balance of unrecorded liability was paid in cash. The remaining unrecorded asset was sold in the market at
a loss of 10%.
vi Sunder took the responsibility of dissolution of firm for which he was allowed Rs. 70,000. Actual expenses on dissolution
Rs. 20,000 which was paid by Sunder from Firm Account.
vii Satya agreed to discharge a hire purchase debt relating to Machine at Rs. 25,000.
viii Shiva agreed to pay o/s rent by giving his personal motor car.
ix Equipment was auctioned for Rs. 1,20,000. The auctioneer is entitled to a commission of 10%.
x Debtors worth Rs. 30,000 were untraceable and remaining realized at a discount of 20%.
xi Bills payable were due for payment one month after the date of dissolution but they were paid immediately at a discount
of 12% p.a.
xii There was a contingent liability for Rs. 16,000 which become certain liability on date of dissolution.
xiii Other assets were realized as follow: Furniture at 120%, Building at 90% of its book value. Investment at 110%
xiv All other liabilities were paid at its book value. Close the books of Firm.( HUM MEIN HAI DUM)
Question 5: Satya, Shiva and Sundar have been in partnership for a number of years, sharing profits and losses in the ratio of
4:3:3. On 30th June 1996 they decided to dissolve the firm on which date the balance sheet stood as below:
BALANCE SHEET As on 30th June 1996

Partner’s capital accounts Fixed Assets 6,00,000
Satya 4,00,000 Sundry debtors 4,00,000
Shiva 3,00,000 Stock 1,00,000
Sundar 3,00,000 Cash 1,00,000
Trade Creditors 2,00,000
12,00,000 12,00,000
During the dissolution the following were the cash and non-cash transactions:
(a) Satya agreed to settle a hire purchase debt relating to a motor car. The amount of Rs.60,000 is to be adjusted to his capital
account.
(b) Debtors were assigned to satya for an agreed sum of Rs.3,60,000.
(c) Sundar agreed to settle one creditor for Rs.20,000 by giving him his personal motor car.
(d) The fixed assets include motor car at a book value of Rs.1,00,000. Motor car was taken by Shiva at an agreed value of Rs.90,000.
The other fixed assets were sold in an auction for Rs.6,00,000. The auctioneer is entitled to a commission of 5%.
(e) Realisation expenses amounted to Rs.10,000.
(f) The remaining creditors were paid at a discount of 5%.
(g) Stock was sold at a loss of 10%. Close the books of the firm.(CMA INTER 12 MARKS)
Question6.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 1st April, 1999 on which late the firm’s position was as under:
Balance Sheet as at 1st April, 1999

Capital Accounts: Plant & Machinery 80,000
Cloud 60,000 Furniture & Fixtures 45,000
Storm 40,000 Motor Car 25,000
Rain 30,000 Stock in Trade 30,000
Current A/c: Sundry Debtors 71,000
Cloud 8,000 Cash at Bank 14,000
Storm 10,000 Current A/c:
Sundry Creditors 1,20,000 Rain 3,000
2,68,000 2,68,000
The following information is given:

(i) Plant costing Rs. 40,000 was taken over by Cloud at an agreed valuation of Rs. 45,000 and the remaining machineries realized
Rs. 50,000
(ii) Furniture & Fixtures realized Rs. 40,000.
(iii) Motor car was taken over by storm for Rs. 40,000.
(iv) Sunday debtors included a bad debt for Rs. 1,200 and the rest portion was realized
(v) Stock worth Rs. 5,000 was taken over by Rain for Rs. 5,200 and the rest realized at 20 % above their book value.
(vi) A creditor for Rs. 2,000 was untraceable and other creditors accepted payments allowing 15% discount.
(vii) Realization expenses amounted to Rs. 5,000.
You are required to show the Realization Accounts and the Capital Accounts of the partners on dissolution showing final payments
to them. [CA (Inter)]
Question:7 Ram, Rahim and Auntony were in partnership sharing profits and losses in the ration of ½, 1/3 and 1/6 respectively.
They decided to dissolve the partnership firm on 31.3.1998, when the Balance Sheet of the firm appeared as under:
Balance Sheet of the Firm As on 31.3.1998

Sundry Creditors 5,67,000 Goodwill A/c 4,56,300
Bank Overdraft 6,06,450 Plant and Machinery 6,07,500
Joint Life Policy Reserve 2,65,500 Furniture 64,650
Loan from Mrs. Ram 1,50,000 Stock 2,36,700
Capital Accounts: Sundry Debtors 5,34,000
Ram 4,20,000 Joint Life Policy 2,65,500
Rahim 2,25,000 Commission Receivable 1,40,550
Auntony 1,20,000 7,65,000 Cash on Hand 48,750
23,53,950 23,53,950
The following details are relevant for dissolution:
(i) The joint life policy was surrendered for Rs. 2,32,500.
(ii) Ram took over goodwill and plant and machinery for Rs. 9,00,000.
(iii) Ram also agreed to discharge bank overdraft and loan from Mrs. Ram.
(iv) Furniture and stocks were divided equally between Ram and Rahim at an agreed valuation of Rs. 3,60,000
(v) Sundry debtors were assigned to firm’s creditors in full satisfaction of their claims.
(vi) Commission receivable was received in total in time.
(vii) A bill discounted was subsequently returned dishonored and proved valueless Rs. 30,750 (including Rs. 500 noting charges).
(viii) Ram paid the expenses of dissolution amounting to Rs. 18,000.
(ix) Auntony agreed to receive Rs. 1,50,000 in full satisfaction of his rights, title and interest in the firm.
You are required to show the account relating to closing of books on dissolution of the firm.[C.A (Inter).1998]
QUESTION 8.X,Y,Z were partners sharing profit and losses in the ratio 3:2:1. Due to persistent losses and the continued illness of X,
the firm decided to get dissolved on 31st March, 1994. Its accounts were closed for the last time on 31st December 1993 on which
date its Balance Sheet was as under:

Capital accounts: Plant and machinery 60,000
X 48,000 Furniture and fittings 10,000
Y 33,000 81,000 Motors cars 40,000
Loan of X 22,000 Stock 55,000
Trade Creditors 80,000 Sundry debtors 40,000
Bank overdraft 30,000 Capital accounts Z 8,000
2,13,000 2,13,000
Between 31st December, 1993 and 31st march, 1994 goods of the value of Rs. 30,000 were purchased and sales amounted to Rs.
45,000. In addition to payment to trade creditors payments made were for salaries and wages Rs. 12,000 and for general and office
expenses Rs. 6,000. Drawings of each partner were Rs. 800 p.m. On 31st march 1994, debtors and stock in trade and creditors were
Rs. 60,000, Rs. 70,000 and Rs. 45,000 respectively.
In dissolution proceedings the partners agreed to transfer the entire business (with all assets and liabilities including partner’s loan)
as a going concern to D for a consideration of Rs. 90,000. Costs of dissolution amounted to Rs. 2,800 which was met by X. Show the
necessary accounts for the dissolution of firm and also the capital accounts of the partners, assuming that all of them are solvent.
(CA Inter)

QUESTION 9. A, B and C were partners sharing profits and losses in the ration of 2:3:1. The position of the firm as on 1st January
1994 was:

Capital Accounts: Fixed assets 30,000
A 20,000 Debtors 40,000
B 40,000 Stock 20,000
C 10,000 70,000 Loans and advances 32,000
General reserve 30,000
Capital reserve 12,000
Bank overdraft 10,000
1,22,000 1,22,000
On this date the partners decided to change their profit and loss sharing ratio to 2:4:1. Goodwill valued at Rs.30,000. No entries
were however passed to give effect to this change. On 31st December, 1994 the balance sheet of the firm was:

A’s Capital 20,000 Fixed assets 28,000
Less: Drawings 2,000 18,000 Debtors 37,000
B’s Capital 40,000 Stock 65,000
Less: Drawings 4,000 36,000 Loans and advances 22,000
C’s Capital 10,000
Less: Drawings 1,000 9,000
General reserve 72,000
Capital reserve 12,000
1,52,000 1,52,000
On this date the firm was sold as a going concern to C for a total value of Rs. 1,70,000. C brought in sufficient cash to pay out A and
B. Pass journal entries in the books of the firm as on 31st December 1994 assuming that the same books are not continued after
take-over. C.A (Inter)
QUESTION 10. A,B and C are partners of a firm, sharing profits and losses equally, whose balance sheet as at 30 th September, 2017
was as under:

Capital accounts: Plant and machinery
A 20,000 Less depreciation 23,760
B 25,000 Furniture and fittings 4,240
C 12,500 Sundry debtors 14,165
Current accounts: Joint life policy 12,105
A 18,600 Bills receivable 8,610
C 7,200 Stock-in-trade 29,940
Sundry creditors 17,720 B’s current account 12,400
Bills payable 8,400 Cash at bank and on hand 4,200
1,09,420 1,09,420
The value of the joint life policy shown in the balance sheet represents the surrender value of the policy taken by the firm for Rs.
30,000 to enable the settlement of accounts with a partner’s estate in case of death of a partner during the continuance of the firm.
A died on 1st October, 2017. The remaining partners could not arrive at any understanding with the legal representative of A with
the result that it was decided that the firm would be dissolved, subject to the following adjustments:
(a) The sum assured was realized from the insurance company;
(b) Plant and machinery realized only 70% of the book value;
(c) Furniture and fittings were taken over by partner C, at a market value of Rs. 2,500.
(d) Bills receivable and sundry debtors had to be discounted by 4%
(e) Stock-in-trade comprised:
(i) easily marketable items 70% of the inventory which realized its full value;

(ii) obsolete items-10% of the total inventory which had to be discarded; and
(iii) The rest of the items which realized 50% of their book value.
(f) A liability for Rs. 1,500 which had not been recorded in the firm’s books had to be settled by the firm before its dissolution. Draw
up accounts showing inter se settlement among the partner(CA INTER 16 MARKS)
IN CASE OF INSOLVENCY OF ONE OR MORE PARTNER/PARTNERS
Question: 11 (Fixed Capital) A, B and C were partners sharing profit and losses in the ration of 2:1:1. Firm was dissolved on 31
December, 2017 due to insolvency of C. On that date their Balance Sheet was as Follow.
Balance Sheet as on 31 Dec. 2017

Capital Account Fixed assets 18,00,000
A 2,00,000 Bank 2,00,000
B 3,00,000 Other current assets 6,00,000
C 1,00,000 6,00,000 Profit & Loss A/c (Dr.) 4,00,000
Current A/c C’s current A/c 1,00,000
A 3,00,000
B 2,00,000 5,00,000
General Reserve 4,00,000
Liabilities 16,00,000
31,00,000 31,00,000
I. Fixed assets realized at Rs. 11,00,000.
II. Other current assets were sold at Rs. 2,00,000.
III. C could pay only Rs. 60,000 to the firm. Close the books of firm.
Question: 12. A, B, C and D were partners sharing profit and loss in the ratio 2:1:1:1. Firm was dissolved due to insolvency of D. On
that date Balance Sheet was as follow.
Balance Sheet

A’s Capital Account 15,00,000 Bank 3,00,000
B’s Capital Account 10,00,000 Other assets 27,00,000
General reserve 2,00,000 Profit and loss A/c 5,00,000
Liabilities 13,00,000 C’s Capital A/c 3,00,000
D’s Capital A/c 2,00,000
40,00,000 40,00,000
I. Assets realized Rs. 16,00,000.
II. Liabilities were paid in full.
III. D’s private estate realized at Rs. 6,00,000 and his private liabilities were Rs. 4,20,000. Close the books of firm.
Question: 13 (Fluctuating capital) A, B, C and D were partners sharing profit and losses in the ratio of 4:3:2:1. The firm was
dissolved due to insolvency of D. On that date their Balance Sheet was as follow.
Balance Sheet

Capital A/c Bank 2,00,000
A 4,90,000 Other assets 28,00,000
B 3,00,000
C 1,00,000
D 10,000 9,00,000
General Reserve 3,00,000
Liability 18,00,000
30,00,000 30,00,000
I. Assets were sold for Rs. 16,00,000
II. D’ private estate worth Rs. 3,00,000 and private liabilities were Rs. 2,00,000. His private estate realized at Rs.
2,40,000.Close the books of firm.

Question 14. A, B and C are partners sharing profits in the ratio of 2: 2: 1. Their balance sheet on 31st December, 2000, the date of
dissolution was as follows:
Liabilities Rs Assets Rs.
Capitals: A 7,000 Assets – Fixed 21,000
B 3,000 Current 2,000
C 1,000 Current account- C 3,000
Current accounts: A 2,000
B 1,000
Reserve account 2,000
Creditors 10,000
26,000 26,000
All assets, leaving Rs. 500 out of current assets which constituted bank balance, realizedRs. 8,000. C is unable to bring his share of
loss and is declared insolvent. On the date of dissolution it was found that a contingent liability in respect of a bill discounted Rs.
800 has matured and the firm recovered only Rs. 200 from the acceptor of the bill. This amount is not included in Rs. 8,000 above.
Realization expenses amounted to Rs. 100. Prepare ledger accounts.
Question15.The firm of Kapil and Dev has four partners and as of 31st March, 1995, its Balance Sheet stood as follows:
Capital A/cs :
F. Kapil 2,00,000 Land 50,000
S. Kapil 2,00,000 Building 2,50,000
R. Dev 1,00,000 Office equipment 1,25,000
Current A/cs Computers 70,000
F.Kapil 50,000 Debtors 4,00,000
S. Kapil 1,50,000 Stocks 3,00,000
R. Dev 1,10,000 Cash at Bank 75,000
Loan from NBFC 5,00,000 Other Current Assets 22,600
Current Liabilities 70,000 Current A/c :
B.Dev 87,400
13,80,000 13,80,000
The partners have been sharing profits and losses in the ratio of 4 : 4 : 1 : 1. It has been agreed to dissolve the firm on 1.4.1995 on
the basis of the following understanding:
(a) The following assets are to be adjusted to the extent indicated with respect to the book values:
Land 200% Building 120% Computers 70%

Debtors 95% Stocks 90%
(b) In the case of the loan, the lenders are to be paid at their insistence a prepayment premium of 1%.
(c) B. Dev is insolvent and no amount is recoverable from him. His father, R. Dev, however, agrees to bear 50% of his deficiency.
The balance of the deficiency is agreed to be apportioned according to law.
(d) That the realisation of the assets and discharge of liabilities is carried out immediately, show the Cash A/c, Realisation Account
and the Partners' Accounts. [C.A. (Inter) May 1995]
Question 16. A, B and C are partners sharing profits and losses in the ratio of 4:3:2. The balance sheet as on 31-12-1997 stood as follows:
Liabilities Rs. ,4ssefs Rs.
S. Creditors 20,000 Cash 2,000
Bank Overdraft 15,000 Debtors 18,000
(secured against Stock) Less Reserve
Loan 25,000 for Doubtful Debts 1,000 17,000
(against the Stock 25,000
mortgage of Machinery 40,000
machinery) Profit and Loss
Capitals: A 20,000 A/c (Dr. Balance) 9,000
B 10,000
C 3,000
93,000 93,000

The firm was dissolved on that date. Stock was taken over by the banker and it realized Rs. 20,000. Bank paid back Rs. 4,000
after recovering its overdraft and interest due there on. Machinery was disposed of for Rs. 24,000 and debtors realized Rs. 14,000
only. Loan was fully paid off along with interest due Rs. 1,000. Sundry creditors were discharged at 10% discount. Expenses
amounted to Rs. 300 which was paid by A. C became insolvent and only Rs. 950 could be recovered from his private assets.
Prepare necessary ledger accounts to close the books of the firm assuming that the required cash was brought in by the partners
to make the final payments.
QUESTION 17. A, B and C are partners in A & Company sharing profits and losses in the ratio of 2:2:1 respectively. The Balance
Sheet of A& Company as at 31stMarch, 1993 is as follow
BALANCE SHEET
Capitals : Fixed Assets 2,00,000
A 1,46,000 Current Assets :
B 54,000 Stocks 1,25,000
C 50,000 Debtors 1,25,000
Cs Loan Account 25,000 Cash 5,000
Loan from Mrs. A 50,000 B’s Current Account 20,000
Provisions for Bad Debts
25,000
4,75,000 4,75,000
The firm was dissolved on the date of Balance Sheet due to continued losses. After preparing the above balance sheet as on
31.3.1993, it was discovered that purchases amounting to Rs. 20,000 in March, 1993 were not recorded in books, though the goods
were received during March, 1993.
Fixed Assets realized Rs. 1,00,000, Stocks Rs. 1,05,000 and Debtors Rs. 1,02,500. Creditors were paid after deduction of discount
@ 2%. The expenses on realisation came to Rs. 5,400. A agreed to take over the loan of Mrs A. B is insolvent and his estate is
unable to contribute anything. Prepare the relevant accounts to close the books of A & Company applying the decision of Garner
us. Murray. (C.A. (Inter) Nov. 1993 (Loss on realization Rs 1,20,000)
QUESTION 18. (CA-2003-Nov) Neptune, Jupiter, Venus and Pluto had been carrying on business in partnership sharing profits and
losses in the ratio of 3:2:1:1. They decide to dissolve the partnership on the basis of the following Balance Sheet as on 30-4-03.
Liabilities: Rs. Rs. Assets Rs. Rs.

Capital A/c Premises 1,20,000
Neptune 1,00,000 Furniture 40,000
Jupiter 60,000 1,60,000 Stock 1,00,000
General Reserve 56,000 Debtors 40,000
Capital Reserve 14,000 Cash 8,000
Sundry Creditors 20,000 Capital Overdrawn:
Mortgage Loan 80,000 Venus 10,000
Pluto 12,000 22,000
3,30,000 3,30,000
(i) The assets were realized as under:

Debtors 24,000
Stock 60,000
Furniture 16,000
Premises 90,000
(ii) Expenses of dissolution amounted to Rs. 4,000.
(iii) Further Creditors of Rs.12,000 had to be met.
(iv) General Reserve unlike Capital Reserve was built up by appropriation of profits.
You are required to prepare Realization Account, Partners, Capital Accounts and the Cash Account assuming that Venus became
insolvent and nothing was realized from his private estate. Apply the principles of Garner vs Murray. (CA INTER 16 MARKS).

QUESTION 19. (2008-May) write short notes on Garner Vs Murray case.

Solution. A Partner may owe some money to partnership firm. This money should be paid by him to the firm. However, in case he
becomes insolvent he may not be in a position to pay the amount owed by him to the firm in full. The amount not so paid is a loss
to the firm. This loss has to borne by the solvent partners on the basis of the following rule based on the decision given in the case
of realization.
The solvent partners should bring in cash as per their share of loss on realization.
The loss on account of insolvency of the partner should then be borne by the solvent partners in the ratio of their capitals after
bringing in cash, such loss on realization.
In order to calculate the above ratio of capital for this purpose, it has to be seen whether capitals of partners are fixed or
fluctuating. In case of fixed capital no adjustment will be made and the ratio of fixed capital will be taken. If capital is fluctuating,
ratio should be calculated on the basis of correct capital immediately before dissolution.
Question 20. Tilak, Sham and Farid were in partnership sharing profits and losses in the ratio of 2:2:1. On 30 thSeptember, 2000 their
Balance Sheet was as follows:

Capital Account: Premises 50,000
Tilak 80,000 Fixtures 1,25,000
Sham 50,000 Plant 32,500 43,200
Farid 20,000 1,50,000 Stock 54,780
Current Accounts: Debtors
Tilak 29,700
Sham 11,300
Farid (Dr.) 14,500 26,500
Bank Overdraft 44.330
3,05,480 3,05,480
Tilak decides to retire on 30thSeptember, 2000 and as Farid appears to be short of private assets, Sham decides that he does not
wish to take over Tilak's share of partnership, so all three partners decide to dissolve the partnership with effect from
30thSeptember, 2000. It then transpires that Farid has no private assets whatsoever.
The premises are sold for Rs. 60,000 and the plant for Rs. 1,07,500. The fixtures realize Rs. 20,000 and the stock is acquired by
another firm at book value less 5%. Debtors realize Rs. 45,900. Realisation expenses amount to Rs. 4,500. The bank overdraft is
discharged and the creditors are also paid in full. You are required to write up the following ledger accounts in the partnership
books following the rules in Garner vs. Murray: (CA Study Material)
(i) Realisation Account;

(ii) Partners' Current Account;
(iii) Partners' Capital Accounts showing the closing of the firm's books.
Solution: Realisation Account
Sept. 30 Sept. 30
To Premises 50,000 By Sundry Creditors 84,650
To Plant 1,25,000 By Bank:
To Fixtures 32,500 Premises 60,000
To Stock 43,200 Plant 1,07,500
To Debtors 54,780 Fixtures 20,000
To Bank (Creditors) 84,650 Stock 41,040
To Bank (Expenses) 4,500 Debtors 45,900 2,74,440
Loss on Realisation transferred
to.
Partner's Current A/c
Tilak 14,216
Shyam 14,216
Farid 7,108 35,540
3,94,630 3,94,630

Partner's Capital Accounts
Tilak Shyam Farid Tilak Shyam Farid

Rs. Rs. Rs. Rs. Rs. Rs.
To current A/c - - 21,608 By Bal. b/d 80,000 50,000 20,000
To Farid A/c 990 618 - By Current A/c 29,700 11,300 -
To Cash A/c 1,08,710 60,682 - By Tilak - - 990
By Shyam - - 618
1,09,700 61,300 21,608 1,09,700 61,300 21,608
To bal. b/d - - 14,508 By bal. b/d 29,700 11,300 -
To Realisation loss 14,216 14,216 7,108 By Cash A/c 14,216 14,216 -
To Cap. A/c 29,700 11,300 - By Cap. A/c - - 21,608
43,916 25,516 21608 43,916 25,516 21608
Working Notes: Bank Account
To Realisation A/c 2,74,440 By Balance b/d 44,330

By Realisation A/c (Creditors) 84,650
By Realisation A/c (Expenses) 4,500
By Thin's Capita! A/c 94,494
By Short's Capital A c 46,466
2,74,440 2,74,440
Question 21. Ajay, Vijay, Ram and Shyam are partners in a firm sharing profits and losses in the ratio of 4:1:2.3. The following is
their Balance Sheet as at 31 March, 1996:

Sundry Creditors 3,00,000 Sundry Debtors 3,50,000
Capital A/c's Less: Doubtful Debts 50,000
Ajay 7,00,000 3,00,000
Shyam 3,00,000 10,00,000 Cash in hand 1,40,000
Stocks 2,00,000
Other Assets 3,10,000
Capital A/c's:
Vijay 2,00,000
Ram 1,50,000
13,00,000 13,00,000
On 31 March, 1996, the firm is dissolved and the following points are agreed upon:
1. Ajay is to take over sundry debtors at 80% of book value.
2. Shyam is to take over the stocks at 95% of the value and
3. Ram is to discharge sundry creditors.
Other assets realize Rs. 3,00,000 and the expenses of realization come to Rs. 30,000.Vijay is found insolvent and Rs. 21,900 is
realized from his estate. Prepare Realization Account and Capital Accounts of the partners. Show also the Cash A/c. The loss arising
out of capital deficiency may be distributed following the decision in Garner vs. Murray.(1996 -November) (16 Marks)
Solution: Realisation A/c

Rs. Rs.
To sundry Debtors 3,50,000 By Sundry Creditors 3,00,000
To Stock2,00,000 By Provision for Doubtful
To Other assets 3,10,000 Debts 50,000
To Ram's Capital A/c By Ajay's Capital A/c
(Creditors) 3,00,000 (Debtors) 2,80,000
To Cash By Shyam's Capital A/c
(Expenses on realization) 30,000 (Stock) 1,90,000
By Cash (Other assets) 3,00,000
By Ajay's Capital A/c 28,000
By Vijay's Capital A/c 7,000
By Ram's Capital A/c 14,000
By Shyam's Capital A/c 21,000
(Loss on realisation)
11,90,000 11,90,000

Question 22.P, Q, R and S had been carrying on business in partnership sharing profits & losses in the ratio of 4:3:2:1. They decided
to dissolve the partnership on the basis of following Balance Sheet as on 30 thApril, 2011:

Capital Accounts Land & building 2,46,000
P 1,68,000 Furniture & fixtures 65.000
Q 1,08,000 2,76,000 Stock 1.00,000
General reserve 95,000 Debtors 72,500
Capital reserve 25,000 Cash in hand 15.500
Sundry creditors 36,000 Capital overdrawn:
Mortgage loan 1,10,000 R 25,000
S 18,000 43,000
5,42,000 5,42,000
(i) The assets were realized as under:

Land & building 2,30,000
Furniture & fixtures 42,000
Stock 72,000
Debtors 65,000
(ii) Expresses of dissolution amounted to Rs. 7,800.
(iii) Further creditors of Rs. 18,000 had to be met.
(iv) R became insolvent and nothing was realized from his private estate.
Applying the principles laid down in Garner Vs. Murray, prepare the Realisation Account, Partners' Capital Accounts and Cash
Account. (Nov 2011) (16 Marks)
IN CASE OF INSOLVENCY OF ALL PARTNERS
Question 23. A, B and C are equal partners whose Balance Sheet on December 31, 1991 Was follows

Sundry Creditors 5,000 Cash in hand 50
A's Loan 1,000 Stock 800
Capital A/c’s. Debtors 1,000
A 800 Plant & Machinery 2,000
B 500 1,300 Furniture & Fittings 800
Land & Buildings 2,000
C’s Capital (overdrawn) 650
7,300 7,300
Due to lack of liquidity and weak financial position of the partners the firm is dissolved. A and C are not able to contribute
anything and sum of Rs. 200 received from B. All of them are declared insolvent. The assets realized: Stock Rs. 500; Plant and
Machinery Rs. 1,000; Furniture and Fittings Rs. 200; Land and Building Rs. 800 and Debtors Rs. 550 only. Realisation expenses
amounted to Rs. 50. You are required to close the firm's books.
Question 24. The Balance Sheet of A, B and C, who are sharing profits and losses in the ratio of 2 : 2 : 1, was as follows on 31st
March, 1995, the date of dissolution :

Sundry Creditors 1,20,000 Cash 1,000
Bank Loan (with a Stock 60,000
charge on Stock) 50,000 Other Assets 1,09,000
Capital: Goodwill 30,000
A 30,000 Capital:
B 20,000 C 20,000
2,20,000 2,20,000

Stock realized Rs. 52,000 and other assets were sold for Rs. 90,000. Expenses on realisation amounted to Rs. 3,000.Assuming that all
the partners are insolvent. Prepare the necessary ledger accounts to close the books of the firm. (Delhi B.Com. Hons.)
Question: 25. A, B, and C were partners sharing profit in the ratio of 3:1:1. Partnership firm was dissolved due to insolvency of all
partners. On that date their Balance Sheet was as follow:
Balance Sheet

Capital A/c Machinery 4,00,000
A 2,00,000 Building 6,00,000
B 1,00,000 Goodwill 2,00,000
C 50,000 3,50,000 Equipment 3,00,000
Bank loan (secured by building) 5,00,000 Stock 2,00,000
Mortgage loan (floating charge) 6,50,000 Debtors 5,00,000
Creditors 4,00,000 Profit and loss A/c 3,00,000
Bills payable 2,00,000
C’s Loan 4,00,000
25,00,000 25,00,000
I. Assets were realized as follows:
Machinery 2, 00,000
Building 5, 50,000
Equipment 1, 00,000
Stock 1, 50,000
Debtors 3, 00,000
II. Private assets and liabilities of each partners were as follow:
Particulars Private estate Private liabilities
A 2,00,000 2,40,000
B 3,00,000 2,60,000
C 1,00,000 1,50,000
Close the Books of Firm.
Question 26. A,B and C were in partnership sharing profits and losses in the ratio of 2:3:5. They prepared the following balance
sheet on 31-12-96, when they decided to dissolve. BALANCE SHEET as on 31-12-96

Loan from Bank Plant and Machinery 5,00,000
(against the security Debtors 50,000
of Plant and Machinery) 3,00,000 Stock 50,000
Loan from C 40,000 Advance to A 40,000
Trade Creditors 2,50,000 Cash 10,000
Bills Payable 10,000 Profit & Loss A/c
Capitals : (Dr. Balance) 1,50,000
A 60,000
B 80,000
C 60,000 2,00,000
8,00,000 8,00,000
Plant and Machinery realized Rs. 3,50,000; Debtors, Rs. 30,000 and Stock Rs. 40,000. A has a private estate, valued at Rs. 1,00,000
and his liabilities amounted to Rs. 40,000. The private estate realized only Rs. 60,000, B is insolvent. C can pay only 50 paise in the
rupee of what is payable on his own account to the firm. Prepare the necessary ledger accounts, assuming that the loss on
realisation is to be determined after considering the amount ultimately paid to the creditors. [CA Inter]

Question 27.Rahim, Zaidi and Tahir shared profits and losses in the ratio of 5 : 3 : 2 respectively. On 31st December, 1995, their
balance sheet was as follows:

Trade Creditors 30,000 Furniture 11,000
Bank Loan 10,000 Stock 48,000
Rahim's Capital Cash 1,000
30,000 Profit and Loss Account 40,000
Zaidi's Capital Account 20,000
Tahir's Capital Account 10,000
1,00,000 1,00,000
The Bank had a charge on all the assets. Furniture realized Rs. 3,000 while the entire stock was sold for Rs. 25,000, Zaidi's private
estate realized Rs. 6,000; his private creditors were Rs. 5,000. Tahir was unable to contribute anything. Rahim paid one-third of
what was finally due from him (taking the payment also into account) except on account of other partners. Prepare Realisation
Account, Cash Book and Partners' Capital Accounts, passing all matters relating to realization of assets and payment of liabilities
through the Realization Account. Clearly show your calculation regarding cash brought in by Rahim. [CA Inter)
PIECEMEAL DISTRIBUTION
Question 28. A Partnership firm was dissolved on 30th June, 1999. Its Balance Sheet on the date of dissolution was as follows:

Capitals: Cash 5,400
Ram 38,000 Sundry Assets 94,600
Shyam 24,000
Mohan 18,000 80,000
Loan A/c –Shyam 5,000

S. Creditors 15,000
1,00,000 1,00,000
The Assets were realized in installments and the payments were made on the proportionate capital basis. Creditors were paid
14,500 in full settlement of their account. Expenses of realization were estimated to be Rs. 2,700 but actual amount spent on this
account was Rs. 2,000. This amount was paid on 15th September. Draw up a Memorandum of distribution of Cash, which was
realized as follows:
On 5th July 1999 Rs. 12,600

On 30th August, 1999 Rs. 30,000
On 15th Spetember, 1999 Rs, 40,000
The partners shared profits and losses in the ration of 2:2:1. Give working notes.
Question 29.East, South and North are in partnership sharing profits and losses in the ratio 3:2:1 respectively. They decide to
dissolve the business on 31st December, 1998, on which date their balance sheet was as follows:

Capital accounts: Land and building 30,810
East 38,700 Motor car 5,160
South 10,680 Investment 1,080
North 11,100 60,480 Stock 19,530
Loan account: North 3,000 Debtors 11,280
Creditors 10,320 Cash 5,940
73,800 73,800
The assets were realized piecemeal as follows and it was agreed that cash should be distributed as and when realized-

15th January 1999 Rs. 10,380

20th February 1999 27,900
23rd March 1999 3,600
15th April 1999 North took over investment at value of 1,260
27th April 1999 19,200
Dissolution expenses were originally provided for an estimated amount of R. 2,700, but actual amount spent on 29th March,
1999 was Rs.1,920. The creditors were settled for Rs. 10,080. You are required to prepare a statement showing distribution of
cash amongst the partners. [ICWA (Inter) June 96] [C.A Inter]
Question 30. The firm of LMS was dissolved on 31.3.95, at which date its Balance Sheet stood as follows:

Creditors 2,00,000 Fixed Assets 45,00,000
Bank Loan 5,00,000 Cash and Bank 2,00,000
L’s Loan 10,00,000
Capital
L 15,00,000
M 10,00,000
S 5,00,000 .
47,00,000 47,00,000
Partners share profit equally. A firm of Chartered Accountants is retained to realize the assets and distribute the cash after
discharge of liabilities. Their fees which are to include all expenses is fixed at Rs. 1,00,000. No loss is expected on realization since
fixed assets include valuable land and building. Realizations are:
S. No Amount in Rs.
1 5,00,000
2 15,00,000
3 15,00,000
4 30,00,000
5 30,00,000
The Chartered Accountant firm decided to pay off the partners in ‘Higher Relative Capital Method. You are required to prepare
a statement showing distribution of cash with necessary working.[C.A.(Inter) 1995]
Question 31. Anagha , Anita and Alka were in partnership sharing profits and losses as 3:2:1 respectively. The partnership was
dissolved on 30th June 1991 when the position was as follows:

Captials: Cash in hand 28,000
Anagha 1,40,000 Sundry debtors 2,94,000
Anita 70,000
Alka 14,000 2,24,000 Stock-in-trade 1,12,000
Creditors 2,10,000 .
4,34,000 4,34,000
There was a bill for 10,000 due on 30th November 1991, under discount. It was agreed that the net realizations should be
distributed in their due order (at the end month) but as safely as possible. The realizations and expenses were:
Stock and debtors Expenses
31st July 1991 Rs, 84,000 Rs. 7,000
31st August 1991 1,26,000 5,400
30th September 1991 70,000 4,900
31st October 1991 77,000 3,500
30th November 1991 35,500 3,5,00

The stock was completely disposed of and amounts due from debtors were realized, the balance being irrecoverable. The acceptor of
the bill under discount met the bill on the due date. Prepare a statement for piecemeal distribution of cash
Question 32. A,B and C were partners sharing profits and losses in the ration of 5:3:2 respectively. Their Balance Sheet on 31.12.13:

Capital: Land and building 25,000
A 10,000 Stock 38,000
B 42,000 Debtors 35,000
C 60,000 1,12,000 Bills receivable 15,000
Bank overdraft secured by Cash 5,000
Land and building 38,000 P & L accounts 20,000
Mrs. A’s loan 2,000
Wages payable 3,000 Current A/cs:-
Sundry creditors 20,000 A 25,000
B 6,000
C 6,000 37,000
1,75,000 1,75,000
On 10th April, 2014 Mr. A was declared insolvent and only Rs. 8,000 could be recovered from his private assets. Prepare cash
distribution statement.
Note: A bill of Rs. 2,000 was discounted with the Bank. The Partnership firm was dissolved at the above date and assets were
realized piecemeal as under:-
Date of Realizations Amount Realized

10th Feb. 2014 ---- 30,000
12th March 2014 ---- 53,000
10th April 2014 ---- 12,000
Additional Information: (1) Land & Building was realized on 10th Feb. 2014.
(2) Discounted bill was duly honoured on 11th March 2014. (B.Com M.S. University)
Tutorial Notes: A B C
Capital balances as per balance sheet 10,000 42,000 60,000
Less: Debit balance on current
Account 25,000 6,000 6,000
Balance (15,000) 36,000 54,000
Less: profit and loss a/c debit balance 10,000 6,000 4,000
Net balances payable as shown in the statement (25,000) 30,000 50,000
Question 33.(Maximum Possible Loss Method) A B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their capital
were Rs. 9,600, Rs. 6,000 and Rs. 8,400 respectively. After paying creditors, the liabilities and assets of the firm were:
Rs. Rs.
Liability for interest Investments 1,000
on loans from : Furniture 2,000
Spouses of partners 2000 Machinery 1,200
Partners 1,000 Stock 4,000
The assets realised in full in the order in which they are listed above. B is insolvent. You are required to prepare a statement showing the
distribution of cash as and when available applying maximum possible loss procedure

Question 34.The partners Amit, Bhatia and Charan have called upon you to assist them in winding up the affairs of their partnership
on 30thJune, 2000. Their Balance Sheet as on that date is given below:

Sundry Creditors 17,000 Cash at Bank 6,000
Capital Accounts: Sundry Debtors 22,000
Amit 67,000 Stock in trade 14,000
Bhatia 45,000 Plant and Equipment 99,000
Charan 31,500 Loan - Amit 12,000
Loan – Bhatia 7,500
1,60,500 1,60,500
1) The partners share profit and losses in the ratio of 5:3:2

2) Cash is distributed to the partners at the end of each month
3) A summary of liquidation transactions are as follows:
July 2000
Rs. 16,500 - collected from Debtors; balance is un-collectable.
Rs. 10,000 - received from sale of entire stock.
Rs. 1,000 - liquidation expenses paid.
Rs. 8,000 - cash retained in the business at the end of the month.
August 2000
Rs. 1,500 - liquidation expenses paid. As part payment of his Capital, Charan accepted a piece of equipment for Rs. 10,000
(book value Rs. 4,000).
Rs. 2,500 - cash retained in the business at the end of the month.
September 2000
Rs. 75,000 - received on sale of remaining plant and equipment.
Rs. 1,000 - liquidation expenses paid. No cash retained in the business.
Required: Prepare a schedule of cash payments as of September 30, showing how the cash was distributed. Apply HCRM.
(Study Material)
Solution Statement Showing Distribution of Cash
creditors Capital
Rs. A (Rs.) B (Rs.) C (Rs.)
Balance Due 17,000 55,000 37,500 31,500
July
Balance available 6,000
Realisation less expenses and cash retained 17,500
Amount available and paid 23,500 17,000 6,500
Balance Due _ 55,000 37,500 25,000
August
Expenses paid and
balance carried forward 4,000
Available for distribution 4,000
Cash paid to 'B' and Equipment given to C _ 4,000 10,000
(Excess paid to 'C Rs. 7,333) 55,000 33,500 15,000
September
Amount realised less expenses 74,000
Amount paid to partners 76,500 41,500 25,400 9,600
13,500 8,100 5,400

EXAMINATION QUESTIONS
Question 35:-What is Piecemeal payments method under Partnership Dissolution? Briefly explain the two methods followed for
determining the order in which the payments are made?
Answer: Assets sold in case of dissolution of partnership are realized only in small installments over a period of time. In such
situation the choice is either to distribute whatever is collected or to wait till whole amount is collected. Generally, the first course
is adopted. In order to ensure that the distributed cash amongst the partners is in proportion to their interest in the partnership
concern either of the two methods described below may be followed for determining the order in which the payment should be
made,
(i) Maximum Loss Method: Each installment realized is considered to be the final payment i.e. outstanding assets and claims are
considered worthless and partners' accounts are adjusted on that basis each time when a deposit is made following either Garner
Vs. Murray rule or the profit sharing ratio rule.
(ii) Highest Relative Capital Method: Under this method, the partner who has the higher relative capital, that is, whose capital is
greater in proportion to his profit sharing ratio is first paid off. This method is also called as proportionate capital method
Question: 36 A, B, C and D are sharing profits and losses in the ratio 5:5:4:2. Frauds committed by C during the year were
found out and it was decided to dissolve the partnership on 31st March 2010 when their Balance Sheet was as under:
Capital Building 1,20,000
A 90,000 Stock 85,500
B 90,000 Investments 29,000
C - Debtors 42,000
D 35,000 Cash 14,500
General reserve 24,000 C 15,000
Trade creditors 47,000
3,06,000 3,06,000
Following information is given to you :
(i) A cheque for Rs. 4,300 received from debtor was not recorded in the books and was misappropriated by C.
(ii) Investments costing Rs. 5,400 were sold by C at Rs. 7,900 and the funds transferred to his personal account. This sale was
omitted from the firm's books,
(iii) A creditor agreed to take over investments of the book value of Rs. 5,400 at Rs. 8,400. The rest of the creditors were paid off
at a discount of 2%.
(iv) The other assets realized as follows :
Building 105% of book value
Stock Rs. 78,000
Investments The rest of investments were sold at a profit of Rs. 4,800
Debtors The rest of the debtors were realised at a discount of 12%

(v) The bills payable were settled at a discount of Rs. 400.
(vi) The expenses of dissolution amounted to Rs. 4,900.
(vii) It was found out that realization from C's private assets would only be Rs. 4,000.
Prepare the necessary Ledger Accounts.(IPCC NOV 2010 16 MARKS)
Answer: Realization Account

In RS. In RS.
To Building 1,20,000 By Trade creditors 47,000
To Stock 85,500 By Bills payable 20,000
To Investment 29,000 By Cash
To Debtors 42,000 Building 1,26,000
To cash-creditors paid 37,828 Stock 78,000
(W.N.1) Investments (W.N.2) 23,000
To cash-expenses 4,900 Debtors (W.N. 3) 33,176 2,60,176
To cash-bills payable 19,600 By Debtors-unrecorded 4,300
(20,000-400) By Investments-unrecorded 7,900
To partners’ Capital A/cs
A 171
B 171
C 137
D 69 548
3,39,376 3,39,376
Cash Account
To Balance b/d 14,500 By Realisation-creditors paid 37,828

To Realisation By Realisation-bills payable 19,600
Building 1,26,000 By Realisation-expenses 4,900
Stock 78,000 By Capital account
Investments 23,000 A 90,528
Debtors 33,176 B 90,528
To C's capital A/c 2,60,176 D 35,292 2,16,348
4,000
2,78,676 2,78,676
Question:37 P, Q and R are partners sharing profits and losses in the ratio of 2:2:1. Their Balance sheet as on 31st March,
2009 is as follows :
Capital Accounts: Plant & Machinery1,08,000
P 1,20,000 Fixtures 24,000
Q 48,000 Stock 60,000
R 24,000 1,92,000 debtors 48,000
Reserve fund 60,000 Cash 60,000
Creditors 48,000
3,00,000 3,00,000

They decided to dissolve the firm. The following are the amounts realised from the assets:
Plant and Machinery 1,02,000

Fixtures 18,000
Stock 84,000
Sundry debtors 44,400
Creditors allowed a discount of 5% and realisation expenses amounted to Rs. 1,500. A bill for Rs. 4,200 due for sales tax was
received during the course of realisation and this was also paid. You are required to prepare :
(a) Realisation account

(b) Partners capital account
(c) Cash account.
Answer: Realisation Account

To Debtors A/c 48,000 By Creditors A/c 48,000
To Stock A/c 60,000 By Cash A/c (assets realized):
To Fixtures A/c 24,000 Plant & Machinery 1,02,000
To Plant and Machinery A/c 1,08,000 Fixtures 18,000
To Cash A/c (Creditors) 45,600 Stock 84,000
To Cash A/c (Sales Tax) 4,200 Debtors 44.400 2,48,400
To Cash A/c (realisation
expenses)
To Profit on realisation 1,500
P 2,040
Q 2,040
R 1,020 5,100
2,96,400 2,96,400
Partners’ Capital Accounts
Particulars P Q R Particulars P Q R
To Cash A/c (Bal. fig.) 1,46,040 74,040 37,020 By Balance b/d By 1,20,000 48,000 24,000
Reserve fund By 24,000 24,000 12,000
Realisation A/c (Profit) 2,040 2,040 1,020
1,46,040 74,040 37,020 1,46,040 74,040 37,020
Cash Account

To Balance b/d 60,000 By Realisation A/c (Creditors) 45,600
To Realisation A/c (assets realised) 2,48,400 By Realisation A/c (Expenses) 1,500
By Raslisation A/c (Sales tax) 4,200
By Partners' Capital Accounts
P 1,46,040
Q 74,040
R 37,020
3,08,400 3,08,400

AMALGAMATION, CONVERSION AND SALE OF PARTNERSHIP FIRM
Question 38. X and Y are partners of X&Co. sharing profits and losses in the ratio of 3:1 and Y and Z are partners of Y &Co. sharing
profit and losses of 2 :1. On 31-3-93, they decide to amalgamate and form a new firm M/s XYZ& Co. wherein X, Y and Z would be
partners sharing profits and losses in the ratio of 3 : 2 : 1. The balance sheets of two firms on the above date were as under :
Liabilities X & Co. Y & Co. Assets X & Co. Y & Co.
Capital Fixed Assets :
X 4,80,000 — Building 1,00,000 —
Y 3,20,000 4,00,000 Machinery 3,00,000 3,20,000
Z — 2,00,000 Furniture 40,000 12,000
Reserves 1,00,000 3,00,000
Creditors 2,40,000 2,32,000 Stock 2,40,000 2,80,000
Due to X & Co. — 2,00,000 Debtors 3,20,000 4,00,000
Bank Loan 1,60,000 — Cash at Bank 60,000 1,80,000
Cash in hand 40,000 20,000
Due from Y and Co. 2,00,000 —
Advances — 1,20,000
13,00,000 13,32,000 13,00,000 13,32,000
The amalgamated firm took over the business on the following term:
(a) Building of X & Co. was valued at Rs. 2,00,000.

(b) Machinery of X & Co. was valued at Rs. 4,50,000 and that of Y& Co. at Rs. 4,00,000
(c) Goodwill of X& Co. Rs. 1,00,000 and Y&Co. 82,000 but the same will not appear in the book of XYZ & Co.
(d) Partners of the new firm will bring necessary cash to pay other partners to adjust their capital according to the profit sharing
ratio. Show entries in the books of M/s XYZ & Co. and prepare the Balance Sheet as on 31-3-93.(C.A.Inter,May 93)
Question 39. Ram, Rahim and Robert are partners of the firm 'RR Traders' for the past 5 years. The partners decided to dissolve the
firm consequent to insolvency of partner Robert in October, 2002. The Balance Sheet of the firm as on 31.10.2002 is furnished
below. They share profits and losses equally:
Capital Accounts: Land and Building 5,00,000

Ram 4,50,000 Plant and Machinery 2,00,000
Rahim 4,50,000 Furniture and Fittings 50,000
Robert 2,00,000 Stock in Trade 3,00,000
General Reserve 2,10,000 Debtors 5,00,000
Creditors 2,90,000 Cash at Hand/Bank 50,000
16,00,000 16,00,000
The partners Ram and Rahim decided to form a new firm 'RR Enterprises' and takeover all the assets and liabilities of the firm at
values given below:
Land and Building Rs 3,50,000

Plant and Machinery Rs. 1,50,000
Furniture and Fittings Rs. 20,000
Stock in Trade Rs. 2,00,000
Debtors include Rs. 3,00,000 due from SK & Co. owned by Robert. (Nothing is recoverable from the said concern.) Other debtors
can be recovered fully. Prepare:
(i) Realisation account Partners' capital accounts in the books of RR Traders; and
(ii) The Balance Sheet of RR Enterprises (immediately after commencement).CA PE-II, May, 2003}

Question 40. Avinash ,Rohit and Madwesh were carrying on business in partnership sharing Profits and Losses in the ratio of 5:4:3
respectively. The Trial Balance of the firm as on 31st March, 2002 was the following:
Particulars Dr. Rs. Cr. Rs.
Plant and machinery@ cost 1,05,000 -
Stock 60,000 --
Sundry debtors 85,000 --
Sundry Creditors -- 1,05,000
Capital A/c:
Avinash -- 70,000
Rohit -- 50,000
Madwesh -- 30,000
Drawings A/cs:
Avinash 30,000 --
Rohit 25,000 --
Madwesh 20,000 --
Depreciation on Plant and Machinery -- 35,000
Trading Profit for the year -- 1,29,800
Cash at Bank 94,800 --
4,20,000 4,20,000
(a) Interest on Capital Accounts at 10% on the amount standing to the credit of partners' capital accounts at the beginning
of the year was not provided before preparing the above Trial Balance.
(b) On 31st March, 2002 they formed a Private Ltd. Company Anagha (P) Ltd. to take over the partnership business.
(c) You are further informed as under:
(i) Plant and Machinery is to be transferred at Rs. 80,000.
(ii) Equity Shares of Rs. 10 each of the company are to be issued to the partners at par in such numbers to ensure that by
reason of their shareholdings alone, they will have the same rights of sharing Profits and Losses as they had in the
partnership. Balance if any in their Capital Accounts will be settled by giving 71/2% Preference Shares at par.
(iii) Before transferring the business, the partners withdrew by cash from partnership the following amounts over and above
the drawings as shown in the Trial Balance:
(a) Avinash Rs. 20,000
(b) Rohit Rs. 10,600
(c) Madwesh Rs. 14,200
(iv) All Assets and Liabilities except Plant and Machinery and the Bank Balance are to be transferred at their value in the
books of the partnership as at 31stMarch, 2002. (v) You are required to prepare:
(a) Profit and Loss Adjustment Account for the year ending 31 st March, 2002.
(b) Capital Accounts showing all the adjustments required to dissolve the partnership.
(c) A statement showing the number of shares of each class to be issued by the company to each of the partners to
settle their accounts.
(d) Prepare Balance Sheet of the company Anagha (P) Ltd. as on 31.3.2002 after takeover of the business.
CA PE 2- 2002-Nov 16 MARKS
Answer : Profit and Loss Adjustment Account for the year ending 31st March, 2002
Particulars Rs. Rs. Particulars Rs.
To Interest on Avinash 7,000 By Balance b/d 1,29,800
Capital Rohit 5,000
Madwesh 3,000 15,000 By Plant and Machinery 10,000
To Capital Avinash 52,000
Accounts Rohit 41,600
Madwesh 31,200 1,24,800
1,39,800 1,39,800

(b) Partners' Capital Accounts

Particulars Avinash Rohit Madwesh Particulars Avinash Rohit Madwesh
To Drawing as By Balance b/d 70,000 50,000 30,000
per Trial By Profit and
Balance 30,000 25,000 20,000 Loss
To Additional Adjustment A/c 52,000 41,600 31,200
Drawings 20,000 10,600 14,200 By Interest on
To Balance c/d 79,000 61,000 30,000 Capital 7,000 5,000 3,000
1,29,000 96,600 64,200 1,29,000 96,600 64,200
To EquityShares 50,000 40,000 30,000 By Balance b/d 79,000 61,000 30,000
29,000 21,000
To Preference
Shares 79,000 61,000 30,000 79,000 61,000 30,000

(C)Statement showing the number and classes of shares issued to the partners
Particulars Avinash Rohit Madwesh

Closing Capital Balance (After Adjustments) 79,000 61,000 30,000
50,000 40,000 30,000
Taking Madwesh's Capital as base for ensuring
same rights of share holding-Equity Shares of Rs. 29,000 21,000 —
10 each to be issued
(d) Balance
Balance to beSheet ofby
settled Anagha (P)½Ltd.
issue of As on 31st March,
% Preferences Shares 2002 (after takeover of the business)
Shares capital: Fixed Assets:

12,000 Equity shares of 10 each at par) Plant and Machinery 80,000
.Issued for consideration other than 1,20,000 Current Assets:
cash) Stock 60,200
7'/2% references Shares (Issued for 50,000 Debtors 85,000
consideration other than cash) Cash at Bank 50,000
Current Liabilities and Provisions: 1,05,200
Sundry Creditors
2,75,200 2,75,200
Plant and Machinery 80,000

Stock: 60,200
Debtors 85,000
Cash at Bank (94,800-44,800) 50,000
2,75,200
Less: sundry creditors 1,05,200
Purchase consideration 1,70,000
QUESTION 41. Riu, Inu and Sinu were running partnership business sharing Profits and Losses in 2:2:1 ratio. Their Balance Sheet as
on 31st March, 2003 stood as follows:

Balance Sheet as on 31st March, 2003 (Figures in Rs. '000)

Fixed Capital: Fixed Assets 400.00
Riu 300.00 Investments 50.00
Inu 200.00 Current Assets:
Sinu 100.00 600.00 Stock 100.00
Current Accounts: Debtors 275.00
Riu 60.00 Cash & Bank 125.00 500.00
Sinu 40.00 100.00
Unsecured Loans 100.00
Current Liabilities 150.00 ______
950.00 950.00
On 1.4.03, they agreed to form a New Company RIS (P)Ltd. with Inu and Sinu each taking up 200 shares of Rs. 10 each, which shall
take over the firm as a going concern including Goodwill, but excluding Cash & Bank Balances.The following are also agreed upon :
(a) Goodwill will be valued at 3 year's purchase of Super profits.

(b) The Actual Profit for the purpose of Goodwill valuation will be Rs. 2,00,000.
(c) The Normal Rate of Return will be 18% per annum on Fixed Capital.
(d) All other Assets and Liabilities will be taken over at Book values.
(e) The Purchase Consideration will be payable partly in Shares of Rs. 10 each and party in cash. Payment in Cash being to meet
the requirement to Discharge Riu, who has agreed to retire.
(f) Inu and Sinu are to acquire Interest in the new company at the ratio 3 :2.
(g) Realization expenses amounted to Rs. 51,000.
You are required to prepare Realization Account, Cash and Bank Account, RIS (P) Limited Account and Capital Account of
Partners.CA- 2004-May (16 MARKS)
QUESTION 42.(CA-PE 2 2006- may ) Firm X & Co. consists of partners sharing Profits and Losses in the ratio of 3 : 2. The firm Y &
Co. consists of partners B and C sharing Profits and Losses in the ratio of 5 : 3.On 31 st March, 2006 it was decided to amalgamate
both the firms and forma new firm XY & Co., wherein A, B and C would be partners sharing Profits and Losses in the ratio of 4 : 5 : 1.
Balance Sheet as at 31.3.2006
Liabilities X&Co Y& Co. Assets X & Co. Y & Co.

Capitals: Cash in Hand/Bank 40,000 30,000
A 1,50,000 — Debtors 60,000 80,000
B 1,00,000 75,000 Stock 50,000 20,000
C — 50,000 Vehicles — 90,000
Reserve 50,000 40,000 Machinery 1,20,000
Creditors 1,20,000 55,000 Building 1,50,000 _____=
4,20,000 2,20,000 4,20,000 2,20,000
The following were the terms of amalgamation:
(i) Goodwill of X & Co. was valued at Rs. 75,000. Goodwill of Y & Co.was valued at Rs. 40,000. Goodwill a/c not to be opened in the
books of the new firm but adjusted through the Capital Accounts of the partners.
(ii) Building,Machinery and Vehicles are to be taken over at 2,00,000. 1,00,000 and 74,000 respectively,
(iii) Provision for doubtful debts at 5,000 in respect of X & Co. and 4,000 in respect Y & Co. are to be Provided.
You are required to:(i) Show, how the Goodwill Value is adjusted amongst the partners.
(ii) Prepare the Balance Sheet of XY & Co. as at 31.3.2006 by keeping partners’ Capital in their profit sharing ratio by taking capital
of 'B' as the basis. The excess or deficiency to be kept in the respective Partners' Current Account.

Answer : Adjustment for raising and writing off of goodwill
Raised in old profit sharing ratio Total Written off in new ratio Difference
X & Co -3:2 Y & Co.- 5:3
A. 45,000 --------- 45,000 Cr. 46,000 Dr. 1,000 Dr.

B. 30,000 25,000 55,000 Cr. Rs
57,500 Dr. 2,500 Dr.
C. -------- 15,000 15,000 Cr. 11,500 Dr. 3,500 Cr.
75,000 4,00,00 1,15,000 1,15.000 Nil
(ii) Balance Sheet of X Y & Co. (New firm as on 31.3.2006
Capital Accounts: 1,72,000 Vehicle 74,000
A 2,15,000 Machinery 1,00,000 2,00,000
B 43,000 Building 70,000
C Current Accounts 22,000 Stock 1,31,000
A 18,000 Debtors 70,000
C Creditors: 1,75,000 Cash & Bank
6,45,000 6,45,000
Working notes:
1. Balance of Capital Accounts at the time of amalgamation of firms

X & Co. Profit and loss sharing ratio 3:2 A's Capital B's Capital
Balance as per Balance Sheet 1,50,000 1,00,000
Add: Reserves 30,000 20,000
Revaluation profit (Building) 30,000 20,000
Less: Revaluation loss (Machinery) (12,000) (8,000)
Provision for doubtful debt. (3,000) (2,000)
1,95,000 1,30,000
Y & Co. Profit and loss sharing ratio 5:3 B's Capital C's Capital
Balance as per Balance sheet 75.000 50,000

Add: Reserves 25,000 15,000
Less: Revaluation (Vehicle) (10,000) (6,000)
Provision for doubtful debts (2,500) (1,500)
87,500 57,500
2. Balance of Capital Accounts in the balance sheet of the new firm as on 31.3.2006
Particulars A Rs B Rs C Rs
Balance b/d: X & Co. 1,95,000 1,30,000 --------
Y&Co. ---------- 87,500 57,500
1,95,000 2,17,500 57,500
Adjustment for goodwill (1,000) (2,500) 3,500
1,94,000 2,15,000 61,000
Total capital Rs. 4.30,000 (B's capital i.e. Rs. 2,15,000x2) to
be contributed in 4:5:1 ratio. 1,72,000 2,15,000 43,000
Transfer to Current Account 22,000 — 18,000

QUESTION 43. (CA2006-may) 'X' and 'Y' carrying on business in partnership sharing Profits and Losses equally, wished to dissolve
the firm and sell the business to 'X' Limited Company on 31-3-2006, when the firm's position was as follows:

X's Capital 1,50,000 Land and Building 1,00,000
Y's Capital 1.00,000 Furniture 40,000
Sundry Creditors 60,000 Stock 1,00,000
Debtors 66,000
Cash 4,000
3,10,000 3,10.000
The arrangement with X Limited Company was as follows :
(i) Land and Building was purchased at 20% more than the book value,
(ii) Furniture and Stock were purchased at book values less 15%.
(iii) The goodwill of the firm was valued at Rs. 40,000.
(iv) The firm's debtors, cash and creditors were not to be taken over, but the company agreed to collect the book debts of
the firm and discharge the creditors of the firm as an agent, for which services, the company was to be paid 5% on all
collections from the firm's debtors and 3% on cash paid to firm's creditors,
(v) The purchase price was to be discharged by the company in fully paid equity shares of Rs. 10 each at a premium of Rs.
2 per share. The company collected all the amounts from debtors. The creditors were paid off less by Rs. 1,000
allowed by them as discount. The company paid the balance due to the vendors in cash.
Prepare the realization account, the Capital Accounts of the partners and the cash account in the books of partnership firm.
(CMA INTER 16 MARKS)( MAST QUESTION)
Question:- 44. S and T were equal partners. Their Balance Sheet on 31st March, 2008 stood as follows:

Capital Accounts: Stock 2,70,000
S 6,40,000 Debtors 3,65,000
T 6,60,000 13,00,000 Furniture 75,000
Creditors 3,27,500 Joint Life policy 47,500
Bank Overdraft 1,50,000 Plant 1,72,500
Bills payable 62,500 Building 9,10,000
18,40,000 18,40,000
The operations of the business was carried on till 30th September, 2008. S and T both withdrew in equal amounts half the amount
of profits made during the current period of 6 months after 10% per annum had been written off on Building and Plant and 5% per
annum written off on Furniture. During the current period of 6 months, creditors were reduced by 50,000, Bills payable by Rs.
11,500 and Bank overdraft by 75,000.
The Joint Life policy was surrendered for Rs. 47,500 on 30th September, 2008. Stock was valued at Rs. 3,17,000 and debtors at
3,25,000 on 30th September, 2008. The other items remained the same as on 31st March, 2008.
On 30thSeptember, 2008 the firm sold its business to ST Ltd. The value of goodwill was estimated at Rs. 5,40,000 and the remaining
assets were valued on the basis of the. Balance Sheet as on 31st September, 2008. The ST Ltd. paid the purchase Consideration in
Equity shares of Rs. 10 each. You are required to prepare a Realization A/c and Capital accounts of the partners.
Answer:- Realization Account

To Sundry assets: By Creditors 2,77,500
Stock 3,17,000 By Bills Payables 51,000
Debtors 3,25,000 By Bank overdraft 75,000
Plant 1,63,875 By Shares in ST Ltd. (W.N.3) 18,80,000
Building 8,64,500
Furniture 73,125
To Profit
S 2,70,000
T 2.70,000 5,40,000
22,83,500 22,83,500

Partners' Capital Accounts
Date Particulars S T Date Particulars S T

2008 2008
April 1 To Cash-Drawings 20,000 20,000 April 1 By Balance b/d 6,40,000 6,60,000
Sept. (W.N.2) Sept. 30 By Profit (W.N.2) 40,000 40,000
30 To Shares in ST Ltd. 9,30,000 9,50,000 By Realization A/c (Profit) 2,70,000 2,70,000
9,50,000 9,70,000 9,50,000 9,70,000
Working Notes: 1.Ascertainment of capital as on 30.9. 2008(Balance Sheet as at 30 thSeptember, 2008)
Sundry creditors 2,77,500 Building 9,10,000
Bills payable 51,000 Less: Depreciation 45,500 8,64,500
Bank overdraft 75,000 Plant 1,72,500
Total capital (bal. fig) 13,40,000 Less: Depreciation 8,625 1,63,875
Furniture 75,000
Stock 3,17,000
Debtors 3,25,000
17,43,500 17,43,500
1. Profit earned during six months ended 30 September,2008

Total capital (of S and T) on 30thSeptember, 2008 (W.N.I) 13,40,000
Capital on 1stApril, 2008
S 6,40,000
T 6,60,000 13,00,000
Net increase (after drawings) 40,000
Drawings are half of profits so, actual profit earned is Rs. 40,000 x2 = Rs. 80,000 (shared equally by partners S and T). Half of the
profits, has been withdrawn by both the partners equally i.e. drawings Rs. 40,000 (Rs. 80,000 x1/2) withdrawn by S and T in 1 :1 (i.e.
(Rs. 20,000 each).
2. Purchase consideration
Total assets (W.N.1) 17,43,500
Add .-Goodwill 5,40,000
22,83,500
Less: Liabilities (2,77,500 + 51,000 + 75,000) 4,03,500
Purchase consideration 18,80,000

Assumption: This solution is determined on the basis that reduction in bank overdraft is after surrender of Joint Life Policy.
Otherwise, the reduction in bank overdraft may be taken as before surrender of Joint Policy. Accordingly, the solution will change.
QUESTION 45. Mr. Malik and Mr. Dinesh were carrying on business as equal partners. The firm's Balance Sheet as on 31 stDecember,
1999 was as follows:

Bank Overdraft 30,000 Plant and Machinery 1,82,000
Bills Payable 12,500 Office Furniture 15,000
Capital Accounts: Book Debts 73,000
Malik 1,50,000 Joint Life Policy 9,500
Dinesh 1,48,000 Leasehold Premises 34,500
Profit and Loss A/c
(debit balance) 26,000
Drawings Account:
Malik 9,000
Dinesh 3,000
4,06,000 4,06,000
The business was carried on till 30thJune 2000. The partners withdrew in equal amounts half the amount of profits made during the
period of six months (From January - June 2000) after 10% p.a. had been written off Leasehold premises, 10% p.a. off plant and
machinery and 5% p.a. off office furniture. Meanwhile sundry creditors were reduced by Rs. 10,000. On 30th June, 2000 stock was
valued at Rs. 63,400. Bill Payable was reduced by Rs. 2,300 and Bank Overdraft by Rs. 15,000. Book Debts were valued at Rs.
65,000. The Joint Life Policy was realized for Rs. 9,500 and the amount was utilized to reduce the Bank Overdraft and other items
remained the same as on 31stDecember, 1999.
On 30thJune, 2000 the firm sold the business to a Limited Company. The value of the goodwill was estimated at Rs. 1,08,000 and the
rest of the assets were valued on the basis of the Balance Sheet as on 30 thJune, 2000. The Company paid the purchase
consideration in fully paid equity shares of Rs. 10 each, at par. Prepare a Realisation Account and Capital Account of the partners as
on 30th June, 2000. ( CA Study Material)
Rs. Rs.
To Leasehold Premises 32,775 By Sundry Creditors 55,000
To Plant and Machinery 1,72,900 By Bank Overdraft 5,500
To Office Furniture 14,625 By Bills Payable 10,200
To Stock 63,400 By Ltd. Co. (PC) 3,85,500
To Book Debts 65,000
To Net Profit on Realisation
M 54,000
D 54,000 1,08,000
4,56,700 4,56,700
* It has been assumed that bank overdraft of Rs. 15,000 is before crediting proceeds of joint life policy.
M D M D
To Profit & Loss By Balance b/d 1,50,000 1,48,000
A/c Debit By Profit and
Balance 13,000 13,000 Loss A/c 17,500 17,500
To Drawing 9,000 3,000 By Realisation
To Drawings 8,750 8,750 A/c Profit 54,000 54,000
To Shares in Ltd. Co. 1,90,750 1,94,750
2,21,500 2,19,500 2,21,500 2,19,500

Working Notes:
Fixed Assets:
Leasehold premises Less: 34,500
Depreciation @ 10% p.a. 1,725 32,775
Plant and Machinery Less: 1,82,000
Depreciation @ 10% p.a. 9,100 1,72,000
Furniture 15,000
Less: Depreciation @ 5% p.a. 375 14,625
Current Assets:
Stock 63,000
Book Debts 65,000
3,48,700
Less: Current Liabilities:
Sundry Creditors
Overdraft (15,000-9,500) 55,500
Bills Payable 5,500
Net Assets as on June 30, 10,200 71,200
2,77,500
Statement of Profit earned during the period Jan. 1, to June 30
Net Assets as on June 30 Rs. Rs.

Net Assets as on Jan. 1
M 1,50,000
D 1,48,000
2,98,000
Less: Profit & Loss A/c Debit Balance 26,000
2,72,000
Less Drawings 12,000
Increase in net assets after drawings 2,60,000
17,500
Add: Profit withdrawn by partners 17,500
Net Profit earned during the period 35,000
2. Purchase Consideration
Leasehold Premises 32,775

Plant and Machinery 1,72,900
Furniture 14,625
Stock 63,400
Book Debts 65,000
Goodwill 1,08,000
4,56,700
Less: Liabilities:
Creditors 55,500
Overdraft 15,000
Less: Joint Life Policy 9,500 5,500
Bills Payable 10,200 71,200
Net Assets to be paid for 3,85,500
QUESTION 46. Anand and Bhupesh were carrying on business as equal partners. The firm's Balance Sheet as on 31 stDecember, 1999
was as follows:

Capital Account: Fixed Assets:
Anand 1,38,000 Leasehold Building 80,000
Bhupesh 1,52,000 Plant and Machinery
Bank Loan 40,000 Furniture 1,80,000
Current Liabilities: Current Assets: 20,000
Bills Payable 10,000 Book Debts 68,000
Cash at Bank 2,000
4,10,000 4,10,000

The business was carried on till 30thJune, 2000. The partners withdrew in equal amounts half the amount of profits made during the
period of six months (from January 2000) after charging depreciation on:
Leasehold Building - 10% per annum

Plant and Machinery - 10% per annum
Furniture - 10% per annum
Meanwhile sundry creditors were reduced by Rs. 15,000, Bills payable by Rs. 2,500 and Bank Loan by Rs. 20,000.
On 30thJune Stock was valued at Rs. 70,000, Book Debts were Rs. 75,000 and Cash at Bank was 2,500.
On 30thJune 2000, the firm sold the business to a Limited Company for Rs. 4,00,000 payable in Equity Shares of Rs. 10 each. The
partners decided to take shares in the profit sharing ratio, any difference to be settled in cash.You are required to prepare:
I. Balance Sheet as on 30th June, 2000.

II. Statement of profit earned during the period six months ended on 30-06-2000.
III. Realisation Account.
IV. Capital Accounts of the partners. (CA – Inter 16 Marks)
Solution: Statement of Net Assets as on 30th June, 1988:
Rs. Rs.
Fixed
Leasehold Building 80,000
Plant & Machinery 1,80,000
Less: Depreciation 9,000 1,71,000
Furniture 20,000
Current Assets
Stock 70,000
Book Debts 75,000
Cash at Bank 2,500
4,13,500
Less: Bank Loan 20,000
Bills payable 7,500 82,500
Net assets as on 30thJune, 1988 3,31,000
Statement of Profit earned during the period 1st January, 1988
Rs.
Net Assets as on 30th June, 1988 3,31,000
Net Assets as on 1st January, 1988
Capital — A 1,38,000
Capital — B 1,52,000 2,90,000
Increase in Net Assets after drawings 41,000
Add: Profit withdrawn by partners 41,000
Net Profit earned during the period 82,000
Realisation Account
To Plant & Machinery 1,71,000 By Bank Loan 20,000
To Leasehold Building 76.000 By Sundry Creditors 55,000
To Furniture 19.000 By Bills payable 7,500
To Stock 70,000 By Ltd. Company 4,00,000
To Sundry Debtors 75,000
To Profit on Realisation:
A's Capital A/c 35,750
B's Capital A/c 35,750
4,82,500 4,82,500


1988 A B A B
Rs. Rs. Rs. Rs.
To Drawings 20,500 20,500 By Balance b/d 1,38,000 1,52,000
To Equity Shares By Net Profit for
in ... Ltd. Co. 2,00,000 2,00,000 the period 41,000 41,000
To Cash 8,250 By Realisation A/c
(Profit) 35,750 35,750
By Cash 5,750
2,20,500 2,28,500 2,20,500 2,28,500
QUESTION 47. Following is the balance sheet of Ram & Shyam.
Balance Sheet

Ram's Capital 40,000 Fixed assets 1,00,000
Shyam's Capital 60,000 1,00,000 Current assets 80,000
Profit & Loss 40,000
1,80,000 1,80,000
A limited company took over the business of partnership firm
1. Fixed assets were valued at Rs. 1,20,000 only. 50% of creditors were taken over.
2. Rest of the creditors were taken over by Ram and Shyam equally.
3. Purchase consideration was settled by issue of equity shares.
Required:
1. Close books of old firm.
2. Open books of new company.
3. Prepare B/S of new company. Assuming same set of books is followed.
By Shares
To Fixed Assets 1,00,000 Sundry Creditors 40,000
To Current Assets 80,000 By Ltd Co.-PC 1,80,000
To Ram 10,000
To Shyam 10,000
To Profit 20,000
2,20,000 2,20,000
Partners’ Capital Account
Ram Shyam Ram Shyam

ToEs of Ltd. Co. 80,000 1,00,000 By Balance b/d 40,000 60,000
By Profit & Loss 20,000 20,000
By R/Profit 10,000 10,000
By realisation 10,000 10,000
80,000 1,00,000 80,000 1,00,000
To Real New Company
1,80,000 By Es of Ltd. Co 1,80,000
1,80,000 1,80,000
Opening of Books
Business Purchase Dr. 1,80,000

To liquidator of old co.
Fixed Assets Dr. 1,20,000
Current Assets Dr. 80,000
To Current Liability creditor 20,000
To Business purchase 1,80,000

Liquidators of old entity Dr. 1,80,000
To ESC 1,80,000
Balance Sheet of New Company
ESC 1,80,000 FA 1,20,000

Creditors 20,000 Current Assets 80,000
2,00,000 2,00,000
QUESTION 48.(Sale to a Company) A and B were carrying on business sharing profits and losses equally. The firm's Balance Sheet as
at 31.12.2009 was:

Bank overdraft 35,000 Machinery 1,50,000
Capital A/cs: Debtors 70,000
A 1,40,000 Joint Life Policy 9,000
B 1,30,000 2,70,000 Leasehold 34,000
Premises
Profit & Loss A/c 26,000
Drawings Accounts:
A 10,000
B 6,000
16,000
3,65,000 3,65,000
The business was carried on till 30.6.2010. The partners withdrew in equal amounts half the amount of profits made during the
period of six months after charging depreciation at 10% p.a. on machinery and after writing off 5% on leasehold premises. In the
half year, sundry creditors were reduced by Rs. 10,000 and bank overdraft by Rs. 15,000. On 30.6.2010, stock was valued at Rs.
75,000 and Debtors at Rs. 60,000; the Joint Life Policy had been surrendered for Rs. 9,000 before 30.6.2010 and other items
remained the same as at 31.12.2009.
On 30.6.2010, the firm sold the business to a Limited Company. The value of goodwill was fixed at Rs. 1,00,000 and the rest of the
assets were valued on the basis of the Balance Sheet as at 30.6.2010. The company paid the purchase consideration in Equity
Shares of Rs. 10 each. You are required to prepare:
a) Balance Sheet of the firm as at 30.6.2010;

b) The Realisation Account;
c) Partners' Capital Accounts showing the final settlement between them. (RTP Nov-11)
Answer:
(a) Balance Sheet as on 30.6.2010

Capital Accounts: Machinery 1,50,000
A's balance as on 1.1.2010 1,17,000 Less: Depreciation @ 10% p.a. (7,500) 1,42,500
Add: Profit for 6 months 11,800 Leasehold premises 34,000
Less: Written-off @ 5% (1,700) 32,300
Less: Drawings for 6 1,28,800 1,22,900 Stock 75,000
months (5,900) Sundry Debtors 60,000
B's balance as on
1.1.2010
Add: Profit for 6 months

1,11,000
11,800
Less: Drawings for 6 months 1,16,900
1,22,800
(5,900)
3,09,800 3,09,800

(b) Realisation Account
To Machinery A/c 1,42,500 By Sundry Creditors A/c 50,000
To Leasehold Premises A/c 32,300 By Bank Overdraft A/c 20,000
To Stock A/c 75,000 By Limited Company A/c 3,39,800
(W.N.2)
To Sundry Debtors A/c 60,000
To A's Capital A/c 50,000
To B's Capital A/c
50,000
4,09,800 4,09,800
(c) Partners' Capital Accounts
Date Particulars A B Date Particulars A B

Rs. Rs. Rs. Rs.
1.1.10 To Profit & 1.1.10 By Balance b/d 1,40,000 1,30,000
Loss A/c 13,000 13,000
To Drawings A/c 10,000 6,000
29.6.10 To Balance c/d 1,17,000 1,11,000
1,40,000 1,30,000 1,40,000 1,30,000
30.6.10 To Drawings A/c 5,900 5,900 30.6.10 By Balance b/d 1,17,000 1,11,000
To Shares in Limited 30.6.10 By Profit & Loss
Company A/c 1,72,900 1,66,900 Appropriation A/c 11,800 11,800
By Realisation A/c 50,000 50,000
1,78,800 1,72,800 1,78,800 1,72,800
Working Notes:1. Ascertainment of profit for the 6 months ended 30thJune, 2010
Closing Assets: Rs. Rs.

Stock 75,000
Machinery less depreciation 1,42,500
Leasehold premises less written off 32,300 3,09,800
Less: Closing liabilities:

Sundry Creditors 50,000 (70,000)
2,39,800
Closing Net Assets
Less: Opening combined capital:
A – Rs. (1,40,000- 13,000- 10,000) 1,17,000 (2,28,000
B – Rs. (l,30,000-13,000-6,000) 1,11,000
Profit before adjustment of drawings 11,800
Add: Combined drawings during the 6 months (equal to profit)
11,800
Profit for 6 months 23,600
2. Ascertainment of purchase consideration:

Closing net assets (as above) Rs. 2,39,800 + Goodwill Rs. 1,00,000 = Rs. 3,39,800.
Question 49. X, Y and Z share profits and losses in the ratio of 5:3:2. Their firm was dissolved due to misconduct 'of Y and their
balance sheet on that date was as under:

Capital Accounts: Land and Building 2,00,000
X 3,00,000 Plants 2,00,000
Y 2,00,000 Sundry Debtors 50,000
Z 1,00,000 6,00,000 Stock 1,50,000
Current Accounts: Bills receivable: 50,000
X 50,000 Cash 1,00,000
Y 30,000 80,000 Current Account:
Sundry Creditors 40,000 Z 50,000
8,00,000 8,00,000
The whole business of the firm was sold to Omega Limited, on that day on the following terms:
(i) Omega Limited will issue the following securities in consideration for transfer of business: 10,000 equity shares @ Rs.
15 each, 15,000 preference shares @ Rs 15 each; and20,000 debentures @ Rs. 14.725.
(ii) The agreed value of assets and liabilities of partnership firm are as follows:
Land & Building – 3,00,000, Plants – 1,50,000, Sundry Debtors – Rs. 47,500, Stock- 1,40,000, Bills Receivable –50,000,
Sundry Creditors –38,000 and Bills Payable – 80,000.
It is mutually decided that preference shares and debentures will be distributed in profit sharing ratio and cash
brought in by the partner (if any) will be shared equally by the remaining partners before distribution of equity
shares. Equity shares are distributed on residual basis at the end.
Prepare the necessary accounts, to close the books of the firm. (CA- RTP May 12)
Answer:
To Land & Building 2,00,000 By Sundry Creditors 40,000

To Plant 2,00,000 By Bills Payable 80,000
To Sundry Debtors 50,000 By Omega Limited 6,69,500
(W.N.1)
To Stock 1,50,000
To Bill Receivable 50,000
To Cash 1,00,000
Capital A/c:
X 19,750
Y 11,850
Z 7,900 39,500
7,89,500 7,89,500
Omega Limited
To Realisation A/c 6,69,500 By Equity Shares in Omega Ltd. A/c 1,50,000

By Preference Shares in Omega Ltd. A/c 2,25,000
By Debenture in Omega Ltd. 2,94,500
6,69,500 6,69,500
Equity Shares in Omega Ltd. A/c
To Omega Limited 1,50,000 By X’s Capital in Omega Ltd. A/c 87,000

By Y’s Capital A/c 63,000
1,50,000 1,50,000
Preference Shares in Omega Ltd. A/c
To Omega Limited 2,25,000 By X’s Capital A/c 1,12,500

By Z’s Capital A/c 45,000
2,25,000 2,25,000
Debenture in Omega Ltd. A/c
To Omega Limited 2,94,500 By X’s Capital A/c 1,47,250

By Z’s Capital A/c 58,900
2,94,500 2,94,500

Cash A/c
To Z’s Capital A/c 46,000 By X’s Capital A/c 23,000

46,000 46,000
Partners' Current Accounts
X Y Z X Y Z
To Balance b/d 50,000 By Balance b/d 50,000 30,000

To X's Capital A/c 69,750 By Realisation A/c 19,750 11,850 7,900
To Y's Capital A/c 41,850 By Z's Capital A/c 42,100
69,750 41,850 50,000 69,750 41,850 50,000
Partners' Capital Accounts
X Y Z X Y Z
To Z's Current A/c - - 42,100 By Balance b/d 3,00,000 2,00,000 1,00,000
To Preference Shares 1,12,500 67,500 45,000 By X's 69,750
in Omega Ltd. A/c Current A/c
To Debentures A/c 1,47,250 88,350 58,900 By Y's 41,850
Current A/c
To Cash A/c 23,000 23,000 - By Cash A/c 46,000
(bal.fig.)
To Equity 87,000 63,000 -
Shares A/c
3,69,750 2,41,580 1,46,000 3,69,750 2,41,580 1,46,000
Working Notes: 1.Calculation of Purchase consideration Net Payment Method
Rs.
Equity Shares = 10,000 @Rs. 15 1,50,000
Preference Shares = 15,000 @Rs. 15 2,25,000
Debentures = 20,000 @ Rs. 14.725 2,94,500
6,69,500
1. As whole business of the firm was sold to Omega Limited, cash balance of the firm Rs. 1,00,000 is also transferred to
realisation account. Cash brought in by Z equal to Dr. balance appearing in his account, after distribution of preference
shares and debentures in profit sharing ratio would be shared by X and Y equally. The balance amount payable to X and Y
would be settled by transfer of equity shares in Omega Company.
2. X, Y and Z were in partnership sharing profits and losses in the ratio 3:2:1, No interest was to be allowed on current or
capital accounts of the partners but their loan accounts were to carry interest of 10% p.a.
Question 50. Ajay Enterprises, a Partnership firm in which A, B and C are three partners sharing profits and losses in the
ratio of 4:3:3: the balance sheet of the firm as on 31st December 2011 as as below:
A’s capital 15,000 Factory Building 24,160
B’s capital 7,500 Plant & Machinery 16,275
C’s capital 15,000 Debtors 5,400
B’s Loan 4,500 Stock 12,390
Sundry creditors 16,500 Cash at Bank 275
58,500 58,500
On balance sheet date all the three partners have decided to dissolve their partnership. Since the realisation of assets was
protracted, decided to distribute amounts as and when feasible and for this purpose they appoint C who was to get as his
remunerations 1% of the value of the assets realised other than cash at bank and 10% of the amounts distributed to the
partners. Assets were realised piecemeal as under:

First instalment Rs 18,650

Second instalment Rs 17,320
Third instalment Rs 10,000
Last instalment Rs 7,000
Dissolutions expenses were provided for estimated Amounts of Rs 3,000
the creditors were settled finally for Rs 15,900
Prepare a statement showing distribution of cash amongst the partners by ‘Higher Relative Capital Method.’
Question 51. Daksh Associates is a reputed firm. On accounts of certain misunderstanding between the partners, it was
decided to dissolve the firm as on 31st December 2011. Their Balance Sheet as on 31st December 2011 was follows:
Capitals: Land and Building 7,00,000
Daksh 3,00,000 Other Fixed Assets 3,00,000
Yash 2,00,000 Stock in Trade 2,00,000
Siddhart (Minor) 1,00,000 6,00,000 Debtors 4,00,000
Bills Receivable 1,50,000
Trade Loans 3,00,000 Goodwill 30,000
Bank Overdraft 3,00,000 Cash 20,000
Other Loans 2,00,000
Creditors 2,00,000
Siddhart’s Loan 2,00,000
18,00,000 18,00,000
It was decided that Mr. Daksh will be in- charge of Realisation. He will set apart Rs 10,000 towards expenses. He will be paid
a remuneration of 5 percent on the amounts distributed to the partners towards their contribution other than loans. Assets
realised are as under:
Rs
1-1-2012 Debtors 3,50,000
15-1-2012 Fixed Assets 4,00,000
1-2-2012 Debtors 50,000
15-2-2012 Bills Receivable 1,40,000
1-3-2012 Fixed Assets 50,000
15-3-2012 Land and Building 8,00,000
Prepare a statement showing how the money received on various will be distribute assuming:
(a) The actual expenses of realisation amounted to Rs 20,005.
(b) The firm is solvent.
(c) The profit-sharing ratio was a under
Profits Loss
Daksh 2 1
Yash 2 1
Siddhart 1 Nil
(d) The final dissolution is made on 31st March, 2012
Question 52. On 31st March 2002 Sri Raman acquires a payment of Rs 80,000 the business of M/s Gupta and Singh taking over at
book value the following assets liabilities.
Debtors 35,000
Furniture 3,000
Stock 46,000
Creditors 10,000
There was no change between 1st Jan, 2002 and 31st March,2002 in the book value of the assets and liabilities not taken over. The
same set of the books has been continued after the acquisition and no entries of the acquisition have been passed except for the
payment of Rs 80,000 made by Sri Raman. From the following balance sheet and trial Prepare Business Purchase Account, Profit
and Loss Account for the year ended 31st December, 2012 and Balance sheet at that date.

Balance Sheet as at December 2011
Labilities Rs Assets Rs
Capital Account Furniture 3,000
Sri Gupta 30,000 Investments Insurance 5,000
Sri Singh 20,000 50,000 policy 2,000
Bank loan 18,000 Stock 40,000
Creditors 12,000 Debtors 30,000
80,000 80,000
On 31st December 2002 the trial balance is:
Rs Rs
Stock 40,000
Furniture 3,000
Investment 5,000
Insurance policy 2,000
Business Purchase Account 80,000
Bank loan 18,000
Capital:
Gupta 30,000
Singh 20,000
Raman 30,000
Bank 3,000
Debtors 48,000
Creditors 15,000
Purchase 3,20,000
Expenses 12,000
Sales 4,00,000
5,13,000 5,13,000
Closing Stock Rs. 50,000
Question 53. The following is the balance sheet of Messer A and B as on 31st March 2015:
A’s Capital 40,000 Land and Buildings 50,000
B’s Capital 50,000 90,000 Stock 30,000
A’s Loan 10,000 Debtors 20,000
General Reserve 10,000 Investment
Labilities 20,000 6% Debentures in X Ltd. 20,000
Cash 10,000
1,30,000 1,30,000
It was agreed that Mr. C is to be admitted for a fifth share in the future profits from 1 st April 2005. He is required to contribute cash
towards goodwill and Rs. 10,000 towards capital. The following further information is furnished:
(i) The partners A and B shared the profits in the ratio 3:2.
(ii) Mr. A was receiving a salary of Rs. 500 p.m. from the very inception of the firm in addition to share of profit.
(iii) The future profit ratio between A, B and C will be 3:1:1. A will not get any salary after the admission of Mr. C.
(iv) (a) The goodwill of the firm should be determined on the basis of 2 years’ purchase of average profits from business
of the last 5 years. The particular of the profits are as under:
Rs
Year ended 3-3-11 Profit 20,000
Year ended 3-3-12 Loss 10,000

The above profits and losses are after charging the salary of Mr. A The profits of the year ended 31-3-2011 included on
extraneous profit of 30,000 and the loss of the year ended 31st March 2012 on account of loss by strike to the extent 20,000.
(b) It was agreed that the value of the goodwill of the firm should appear the books of the firm.
(v) The trading profits of the year ended 31st March 2016 was Rs. 40,000 before deprecation.
(vi) The partner had drawn each Rs. 1,000 p.m. as drawings.
(vii) The value of the other assets and liabilities as on 31st March 2016 were as under:
Building (before depreciation) 60,000

Stock 40,000
Debtors Nil
Investment 20,0000
Liabilities Nil
(viii) Provide depreciation at 5% on land and buildings on the closing balance and interest at 6% on A’s loan.
(ix) They applied for conversion of the firm into a Private Limited Company i.e. ABC Pvt. Ltd. Certificate received on 1-4-2016. They
decided to convert capital A/cs of the partners into share capital in the ratio of 3: 1: 1: on the basis total capital as on 31-3-2016. If
necessary, partners have to subscribe to fresh capital or withdraw.
Question 54. Hari, Lal and Jay have been in partnership for a number of years sharing profits/ losses in the ratio of 2:2:1 as
wholesale stationers trading under the name ‘Hari Brothers’. They decide to convert their partnership into a limited company (with
effect from 1st January, 2012) to be known as Hari Ltd. Immediately prior in this conversion the balance sheet of partnership at as
31st December 2011 was as follows:
Balance Sheet as on 31st December 20X1

Liabilities Rs Rs Assets Rs
Capital account Fixed assets
Hari 70,000 (at written down value)
Lal 30,000 Land & Buildings 50,000
Jay 20,000 1,20,000 Plant & Machinery 30,000
Current account Motor vehicle 20,000
Hari 7,000 Current Assets: Inventories
Lal 5,000 Debtors 60,000
Jay 3,000 15,000 Axis Bank account 25,000
Current liabilities 5,000
Creditors 25,000
Dena Bank Account 20,000 45,000
Long-term liabilities
Loan Hari 3,000
Loan Gopi Ltd. 7,000 10,000
1,90,000 1,90,000
The terms of conversion are that Hari Ltd. Is to take over the assets and liabilities of Hari Brothers as follows:
Valuation for takeover
Land and Building 96,000
Plant and Machinery 28,000
Motor vehicle 15,000
Inventories 60,000
Debtors 24,000
Creditors 25,000
Goodwill 10,000
The closing balance in Axis Bank account is to be transferred to Dana Bank account before all the other dissolution entries are
affected in the partnership ledgers.
Lal took over one of the motor vehicles at an agreed amount of Rs. 2,000. All other Labilities are paid from the Dena Bank account.
The purchase consideration is discharged by an issue at par of Rs. 60,000 10% Debentures (fully paid) to the partners in their capital
account proportions as shown in the above balance sheet plus equity shares in Hari Ltd. of Rs. 1 each (fully Paid to make up the
balance due to each of partner).
You are required to
(i) Prepare(a) Realization Account (b) Partners’ Capital Account (c) Bank Account of Axis Bank and Dana Bank in the
books of Hari Brothers;

(ii) ‘Business purchase account’ and ‘Hari Brothers’ account in the Hari Ltd. ‘s books
Question 55. A and B were carrying on business sharing profits equally. The firm’s Balance Sheet as at 31.12.2011 was:
Labilities Rs Assets Rs
Bank overdraft 35,000 Machinery 1,50,000
Capital A/cs Debtors 70,000
A 1,40,000 Joint Life Policy 9,000
B 1,30,000 2,70,000 Leasehold Premises 34,000
Profit and Loss A/c 26,000
Drawings Accounts:
A 10,000
B 6,000 16,000
3,65,000 3,65,000
The business was carried on till 30.6.2012. The partners withdraw in equal amounts half the amount of profit made during the
period of six months after charging depreciation at 10% p.a. on Machinery and after writing off 5% on leasehold premises. In the
half year, sundry creditors were reduced by Rs. 10,000 and bank overdraft by Rs. 15,000.
On 30.6.2012 stock was valued at Rs. 75,000 and debtors at Rs. 60,000 the Joint Life Policy had
Been Surrendered for Rs. 9,000 before 30.6.2012 and other items remained the same as at 31.12.2011.
On 30.6.2012 the firm sold the business to a Limited Company. The value of goodwill was fixed at Rs. 1,00,000 and the rest of the
assets were valued on the basis of the balance sheet as at 30.6.2012. The Company paid purchase consideration in Equity shares of
Rs. 10 each. You are required to prepare (a) Balance sheet of the firm as at 30.6.2012; (b) The Realization
Account; (C) Partner’s Capital Accounts Showings final settlement between them.
Question 56: A, B and C were in partnership sharing profits and losses 3:2:1. There was no provision in the agreement for interest
on capitals or drawings. A died on 31.12.2010 and on that date, the partners’ balance were as under:
Capital Account : A – Rs. 60,000; B- Rs. 40,000; C – Rs. 20,000
Current Account : A – Rs. 29,000; B- Rs. 20,000; C – Rs. 5,000 (Dr.).
By the partnership agreement, the sum due to A’s estate was required to be paid within a period of 3 years, and minimum
instalment of Rs. 20,000 each were to be paid, the first such instalment falling due immediately after death and the
subsequent instalments at half-yearly intervals. Interest @ 5% p.a. was to be credited half-yearly.
In ascertaining his share, goodwill (not recorded in the books) was to be valued at Rs. 60,000 and the assets, excluding the
Joint Endowment Policy (mentioned below), were valued at Rs. 36,000 in excess of the book values.
No Goodwill Account was raised and no alteration was made to the book values of fixed assets. The Joint Assurance Policy
shown in the books at Rs. 20,000 matured on 1.2.2011, 30.6.2011 and 31.12.2011. B and C continued trading on the same
terms as previously and the net profit for the year to 31.12.2011 (before charging the interest due to A’s estate) amounted to
Rs. 32,000. During that period, the partners drawings were: B – Rs. 15,000; and C – Rs. 8,000.
On 1.1.2012, the partnership was dissolved and an offer to purchase the business as a going concern for Rs. 1,40,000 was
accepted on that days. A cheque for that sum was received on 30.6.2012.
The balance due to A’s estate, including interest, was paid on 30.6.2012 and on that day, B and C received
the sums due to them. You are required to write-up the Partners’ Capital and Current Accounts from 1.1.2011 to 30.6.2012.
Show also the account of the executors of A.

CHAPTER 12. BRANCH ACCOUNTING
DEPENDENT BRANCH (DEBTORS SYSTEM)
Question 1. Prepare branch Account under debtor system with following information.
Balance as on 1 Jan 2015
Building = 2,00,000
Cash = 40,000
Debtors = 30,000
Stock = 35,000
Furniture = 1,00,000
Goods sent to Branch during the year = 3,80,000
Expenses paid by Branch = 28,000
Expenses paid by H.O = 22,000
Bad debts = 10,000
Cash sales = 2,20,000
Credit sales = 8,00,000
Collection from debtors = 6,30,000
Balances as on 31st December,2015
Stock = 25,000
Charge depreciation @ 10% on furniture.
Question:2 Opening balance of Cash = Nil

Cash sales = 40,000
Expenses paid by H.O = 20,000
Question:3 Opening balance of cash = 15,000

Cash sales = 80,000
Expenses Paid by Branch = 22,000
Expenses paid by H.O. = 8,000
Question:4 Opening balance of Cash = 10,000

Remittance by Branch to H.O = 2,30,000

Cash Sales = 1,40,000
Cash sent by H.O to Branch= 15,000
Expenses incurred by Branch= 22,000

Expenses incurred by Branch= 45,000
Cash sent by H.O to Branch = 12,000
Remittances by Branch = 6,70,000
Question:7 Prepare branch account under debtor system.

Debtors(opening) = 40,000
Stock(opening) = 25,000
Goods sent to Branch = 7,00,000
Credit sales = 5,80,000

Goods returned to HO = 35,000
Discount allowed = 80,000
Bad debts = 2,000
Collection from debtors = Rs. 3,30,000
Stock lost by fire = Rs. 8,000
Normal loss of stock due to spoilage= 4,000
Expenses paid by HO = 10,000
Goods are sold at a profit of 40% on sales.
Question:8 The COC Pvt. Ltd. invoices goods to their various branches at cost and the branches sell on credit as well as for
cash. From the following details relating to the Bombay branch, prepare the necessary accounts in the Head Office books.
Debtors, 1st January, 2011 26,200

Debtors, 31st December, 2011 31,100
Cash Balance, 1st January, 2011 300
Stock, 1st January, 2011 15,000
Stock, 31st December, 2011 13,900
Goods received from Head Office 50,800
Cash received from Head Office 1,500
Goods returned to Head Office 700
Cash sales 33,500
Credit Sales 60,000
Allowances to Customers 320
Returns from Customers 580
Discount allowed to Customers 2,400
Bad Debts 600
Remittance to Head Office 74,900
Rent and Rates 1,800
Wages and Salaries 6,000
General Trade Charges 1,300
Normal loss of goods due to wastage 1,200
Abnormal loss of goods due to pilferage 3,000
Ans.: Profit 29,300 (ICWA-INTER 16 MARKS)
Question:9 Opening Balances at Branch as on 1 Jan 2015

Cash = 30,000
Debtors = 50,000
Stock = 20,000
Machine = 1,00,000
Creditors = 15,000
O/s rent = 5,000
Prepaid salary = 10,000
During the year:
Goods sent to Branch = Rs. 6,50,000
Cash sales = Rs. 2,00,000
Credit sales = Rs.9,00,000
Collection from debtors = Rs. 7,80,000
Credit purchase of goods = Rs. 60,000
Expenses Paid by H.O:
Rent paid @ 5,000 p.m = 65,000
Salary (including Rs. 8,000 for next year) =70,000
Office expenses = 12,000
Insurance paid for the year ending on 31st March 16Rs. 12,000
Payment to creditors by H.O = 58,000
Petty expenses paid by Branch = Rs. 16,000
Closing balance of Stock = Rs. 75,000
Charge depreciation @ 10 % on Machine . Prepare Branch Account.
Question:10. IOCM with its Head Office at Delhi has a branch at Bombay. The Branch receives all goods from Head Office who
also remits cash for all expenses. Sales are made by the Branch on credit as well as for cash. Total Sales by the Branch for the
year ended 31st March, 2012 amounted to Rs.5,60,000 out of which 20% is cash sales. The following further information is
also relevant.

1-4-2011 31-3-2012
Stock-in-Trade 25,000 36,000
Debtors 60,000 48,000
Furniture 8,000 ?
Petty Cash 120 180
Expenses actually incurred by the Branch during the year were:

Salaries Rs. 36,000
Rent Rs. 9,000 (up to 31stDecember 2011)
Petty expenses Rs. 5,600
Sale of furniture on 1st October 2011 (Book value of furniture on the date of sale Rs.950) amounted to Rs.900. All sales are
made by the Branch at cost plus 25% Depreciation on furniture is 10% p.a.
Prepare Mumbai Branch Account in the books of IOCM(Head Office) for the year ending on 31 sl March 2012.
[Ans. Cash received from Debtors = Rs.4,60,000; Goods sent to Branch = Rs. 4,59,000; Profit = Rs.57,600]
( ICWA-INTER, CA-INTER-16 MARKS) ( BAS DIL KHUSH HO GAYA)
When goods are sent at Invoice Price
Question:11Hindustan Industries, Bombay has a branch in Cochin to which goods are invoiced at cost plus 25%. The Branch sells
both for cash and on credit. Branch expenses are paid direct from Head Office and the Branch has to remit all cash received into the
Head office Bank Account at Cochin.
From the following details relating to the calendar year 2012, prepare the accounts in the Head Office Ledger and ascertain the
Branch Profit. Branch does not maintain any books of account, but sends weekly returns to Head Office:
Goods received from Head Office at invoice price 6,00,000

Returns to Head Office at invoice price 12,000
Stock at Cochin as on 1st Jan. 2012 60,000
Sales in the year - Cash 2,00,000
-Credit 3,60,000
Sundry Debtors at Cochin as on 1stJan., 2012 72,000
Cash received from Debtors 3,20,000
Discount allowed to Debtors 6,000
Bad Debts in the year 4,000
Sales returns at Cochin Branch 8,000
Rent, Rates, Taxes at Branch 18,000
Salaries, Wages, Bonus at Branch 60,000
Stock at Branch on 31st December 2012 at invoice Price 1,20,000
[Ans. Branch P/L surplus-24,000; Balance of Branch Debtors A/c 94,000. (Study material of ICAI)
Question:12. Gola Cloth Emporium has a head office in Bombay and many retail branches which are supplied goods from head
office at 25% profit on cost price. Accounts are kept at head office from where all expenses (except petty expenses) are paid. Such
petty expenses are paid by the branches which are allowed to maintain petty cash balance of Rs. 1500 on imprest system. From the
following balances as shown by the books, prepare branch account:
Balances as on 1 January 2011:

Petty cash at Branch 1,500
Stock in hand at Branch at sale price 32,000
Sundry Debtors at Branch 8,700
Sundry Creditors at Branch 2,500
Furniture and fixtures at Branch 7,500
Prepaid Rent 600
Transactions for the year ended 31 December 2011 were as follows:

Goods sent to Branch (less returns) 1,15,000
Cash sales at Branch 95,000
Credit Sales at Branch 65,000
Allowances to Debtors 1,200

Cash received from customers 55,000
Bad Debts to be written off 350
Cash purchases by the Branch (on permission from head office) 15,000
Cash paid to creditors 10,000
Creditors at the end 3,500
Payments made by Head Office :

Rent for one year (paid on July 1, 2011) 2,400
Salaries (paid in advance Rs.500) 2,500
Insurance paid for the year ending 31 March 2012 1,800
Payments made by the Branch:
Petty expenses 1,200
Balances on December 3 1 , 2 0 1 1
Stock at cost 40,000
Provide Depreciation on furniture at 20% p.a.
[Ans.: Profit = Rs.47,000] (CA- INTER 16 MARKS) ( BAS MAJA AA GAYA)
Question:13. X Limited invoices goods to its branch at cost plus 20%. The branch sells goods for cash as well as on credit. The
branch meets its expenses out of cash collected from its debtors and cash sales and remits the balance of cash to head office after
withholding Rs. 10,000 necessary for meeting immediate requirements of cash. On 31st March, 2011 the assets at the branch were
as follows:
Rs. (,000)
Cash in Hand 10
Trade Debtors 384
Stock (at invoice price) 1,080
Furniture and fittings 500
During the accounting year ended 31st March, 2012 the invoice price of goods dispatched by the head office to the branch
amounted to Rs.1crore 32 lakh. Out of the goods received by it, the branch sent back to head office goods invoiced at Rs.72,000.
Other transactions at the branch during the year were as follows:
Rs. ('000)
Cash Sales 9,700
Credit Sales 3,140
Cash collected by Branch from Debtors 2,842
Cash Discount allowed to Debtors 58
Returns by Customers 102
Bad Debts written off 37
Expenses paid by Branch 842
On 1st January, 2012, the branch purchased new furniture for Rs.1 lakh for which payment was made by head office through a
cheque. On 31st March, 2012 branch expenses amounting to Rs. 6,000 were outstanding and cash in hand was again Rs. 10,000.
Furniture is subject to depreciation @ 16% per annum on diminishing balances method. Prepare Branch Account in the books of
Head office for the year ended 31st March, 2012. [CA-MAY 2001—16 MARKS], ICWA-INTER 2004-16 MARKS)
Question:14 .Poonam Ltd., Mumbai has a branch in Delhi to which goods were sent at selling price, which is fixed at 25% above
cost. The branch makes both credit and cash sales. Branch expenses are met from branch cash, balance money remitted to H.O. The
branch does not maintain double entry books of account and necessary accounts relating to branch are maintained in H.O.
Opening Balances (as on 1-4-2011) Rs.

Stock at Branch at its cost 75,000
Petty cash Balance 1,200
Office Furniture 12,000
Branch Debtors 32,000
Outstanding Salary 1,280
Following further details are given for the year ended 31st March, 2012:
Cost of Goods sent to Branch 1,80,000

Cheques sent by H.O. to Branch:

Salaries (including Rs. 600 o/s paid) 10,280
Other Office Expenses 4,600
For petty Cash 3,500 18,380
Sales made by the Branch 2,51,800
(including credit sales Rs. 1,40,000)
Theft of Stock (at invoice price) 1,700
Other Abnormal loss of Stock (at IP) 3,500

Loss in weight at IP (Normal Loss) 1,000
Cash collected from Debtors 1,23,700
Discount allowed 1,250
Bad Debts written off 4,000
Petty Expenses paid 3,850
Office furniture purchased by branch Manager 4,500
Provide Depreciation @ 10% p.a. on furniture. You are required to prepare (a) Memorandum Debtors A/c. (b) Memorandum Stock
A/c. and (c) Branch A/c. [Ans.: Closing Debtors = Rs.43,050; Closing Stock = Rs.42,000
Question:15 (Goods in Transit and Closing Stock with Sales at Different G.P. Margins)A Head Office in Calcutta has a branch in
Delhi to which goods are invoiced by the Head Office at cost. All cash received by the branch is daily remitted to Head Office. From
the following particulars, Show how the Branch Account will appear in the H.O. books.
Stock with the Branch (1-1 -2000) 60,000
Debtors (1-1-2000) 16,500
Petty Cash (1-1 -2000) 2,000
Office Furniture (1-1-2000) 10,800
Goods sent by H.O. to Branch 1,30,000
Goods received by Branch up to 31 -12-2000 1,15,000
Cheque sent to Branch:
Salaries 5,000
Rent 2,000
Other Expenses 1,500
for Petty Cash 1,000 9,500
Sales (including Rs.72,000 on cash basis) 1,77,000
Cash received from Debtors 95,000
Petty Expenses paid by Branch Manager 1,800
Depreciate furniture by 10% p.a.
Closing Stock could not be ascertained, but it is known that the branch usually sells at cost plus 20% on cash basis and at cost plus
25% to credit customers. Prepare Branch Account to ascertain the profit in the books of Head office. (ICWA INTER 16 MARKS)
[Ans.: Profit = Rs. 20120, Closing Debtors = Rs. 25,000, Petty Cash = Rs. 1,200]
Question:- 16.( CA-IPCC- May 2011) XYZ Company is having its Branch at Kolkata. Goods are invoiced to the branch at 20% profit on
sale. Branch has been instructed to send all cash daily to head office. All expenses are paid by head office except petty expenses
which are met by the Branch Manager. From the following particulars prepare branch account in the books of Head Office.
Stock on 1st April 2010 30,000 Discount allowed to debtors 160

(Invoice price)
Sundry Debtors on 1stApril, 2010 18,000 Expenses paid by head office :
Cash in hand as on 1st April, 2010 800 Rent 1,800
Salary 3,200
Office furniture on 1st April, 2010 3,000 Stationery & Printing 800
Goods invoiced from the Petty exp. Paid by the branch 600
head office (invoice price) 1,60,000 Depreciation to be
Goods return to Head office 2,000 provided on branch
Goods return by debtors 960 furniture at 10% p.a.
Cash received from debtors 60,000
Cash Sales 1,00,000 Stock on 31st March,
Credit sales 60,000 2011 (at invoice price) 28,000

Answer: Kolkata Branch Account
Particulars Amt. (Rs.) Particulars Amt. (Rs.)

To Balance b/d By Stock reserve (opening) 6,000
Stock 30,000 By Remittances:
Debtors 18,000 Cash Sales 1,00,000
Cash in hand 800 Cash from Debtors 60,000 1,60,000
Furniture 3,000 By Goods sent to branch (loading) 32,000
To Goods sent to branch 1,60,000 By Goods returned by
To Goods returned by 400 Branch (Return to H.O.) 2,000
branch (loading) By Balance c/d
Stock 28,000
To Bank (expenses Debtors 16,880
Paid by H.O.) Cash (800 - 600) 200
Rent 1,800 Furniture (3,000 - 300) 2,700
Salary 3,200
Stationary &
Printing 800 5,800
To Stock reserve (closing) 5,600
General Profit & Loss A/c 24,180
247780 247780
Working Note Debtors Account
To Balance b/d 18,000 By Cash account 60,000

To Sales account (credit) 60,000 By Sales return account 960
By Discount allowed 160
account
78,000 78,000
Stock and debtor System
Question 17. H.O. sends goods to its branch at cost + 25%. From the following information prepare necessary accounts under stock
and debtor system.
Opening balance at Branch
Furniture 50,000
Stock at invoice price 40,000
Debtors 60,000
Goods sent to Branch at invoice price 2,00,000
Cash sales 60,000
Cash collected from debtors 1,35,000
Bad debts 2,000
Expenses paid by Branch 4,000
Expenses paid by HO 3,000
Charge deprecation @ 10% on furniture
Question:18 (Concepts of abnormal loss) Prepare Branch stock Account, Branch adjustment account and Branch profit & loss
account from following information H.O sends goods to its Branch at 25% profit on cost
Opening stock at Branch (I.P) 2,00,000
Sales (Cash basis) 4,80,000
Goods Lost by fire(I.P) 12,000
Branch expenses 6,500
Goods sent to branch 5,00,000

Question:19 (Normal Loss) Assume in previous Question goods were lost due to spoilage (normal Loss). Prepare necessary
accounts.
Question:20 Delhi head office supplied goods to its branch at Kanpur at invoice price which is cost plus 50%. Branch strictly sells at
invoice price only. All cash received by the branch is remitted to Delhi and all branch expenses are paid by the head office. From the
following particulars relating to Kanpur branch for the year 2016, prepare, Branch Stock Account, Branch Debtors account, Branch
Expenses Account and Branch Adjustment Account in the books of the head office so as to find out the gross profit and net profit
made by the branch:
Stock with Branch on 1.1.2016 (at invoice price) 60,000

Branch Debtors on 1.1.2016 12,000
Petty cash balance 1.1.2016 100
Goods received from Head Office (at invoice price) 1,86,000
Goods returned to Head Office 13,000
Credit Sales less Returns 86,000
Discount allowed to Debtors 2,400
Expenses (cash paid by Head Office)
Rent 2,400
Salaries 24,000
Petty Cash 1,000 27,400
Cash Sales 1,04,000
Stock with Branch on 31.12.2016 54,000
(at invoice price)
Petty cash balance on 31.12.2016 320
[Ans. Surplus -Rs. 11,000; Gross Profit = Rs.63.334; Net Profit = 41,087].
Question:21(Local Purchases by Branch)Aakash established a retail business in Delhi several years ago and has since opened
branch shops at Mumbai, Calcutta and chennai. All the purchasing and administration is done at the Head Office. Branches are also
allowed to purchase locally in special circumstances. Branches sell both for cash and credit terms, but all invoices for credit sales are
sent from Delhi and payments from credit customers received there. The branches are expected to achieve a profit of 50% on cost
price. The following information relates to the Mumbai branch for the first six months of 2016:
Rs.
Opening stock of goods at branch (Cost to H.O.) 28,000
Opening Debtors 9,000
Goods received by Branch at selling price 1,80,000
Credit Sales 60,000
Cash sales 1,18,000
Transfer from other branches to Mumbai
Branch at selling price 12,000
Transfer to other Branches from Mumbai at selling price 21,000
Goods returned to H.O. at selling price 6,000
Cash from Debtors received at H.O. 53,000
. Bad debts written off 2,000
Goods returned by credit customers to Branch 2,400
Goods returned by credit customers to H.O. 1,200
Goods purchased by Bombay Branch
from local suppliers (cost) 15,000
Expenses at the Branch 7,500
Closing stock at Branch:
From H.O. at selling price 45,000
From local purchases 3,000
(i) Goods amounting to Rs.6,000 at cost to H.O. were in transit.
(ii) Branch had on 1 January,2016 furniture and other equipment at a book value of Rs. 7,500. Depreciation at 10% p.a. is to be
provided on this item.
(iii) Goods purchased locally were sold at 25% profit on sales price.
Prepare : (i) Branch Stock Account; (ii) Branch Debtors Account and; (iii) Mumbai Branch
Account.(iv) branch adjustment account [Ans. Profit = Rs. 45,325].

Question:22 (Return by Customers Direct to H.O. at List Price) Kali Baba of Karol Bagh, Delhi invoices goods to its Mumbai Branch at
20% less than the list price which is cost plus 100 percent with instructions that cash sales were to be made at invoice price and
credit sales at list price. From the following particulars available from Mumbai Branch, prepare Branch Stock A/c, Branch Debtors
A/c. and Branch Account to reveal the profit for the year ending on 31st December 2011.
Stock on 1st January 2011 at invoice Price 18,000

Debtors on (1-1-2011) 10,000
Personal Computer at Branch 50,000
Goods received from H.O. at Invoice Price 1,80,000
Cash Sales 82,000
Credit Sales 1,20,000
Goods in transit on 31st Dec 2011 10,000
Cash sent to Branch for expenses 32,000
Actual expenses at Branch 30,000
Stock at the end at Invoice Price 16,000
Bad Debts written off 400
Goods returned by customers direct to
Head Office at list price 1,500
Debtors at the end 8,100
Depreciate Computers by 20% p.a.
[Ans.: Shortage = Rs. 4,000; Cash Received from Debtors = Rs. 1,20,000;Profit at the Branch = Rs.47,100].
Question:23(Where Branch Sells at Price Higher Than Invoice Price)Smart Trading Ltd. with its head office at Mumbai, invoiced
goods to its branch at Noida city at 20% less than the List Price which is cost plus 100% with general instructions that cash sales
were to be made at invoice price and credit sales at list price. From the following particulars, prepare Ledger Accounts under stock
and Debtor system:
Opening Stock (at invoice price) 12,000 Allowances to customer 1,800

Opening Debtors 10,000 Exp. Paid by H.O.
Goods received from H.O. 1,60,000 Salaries 21,000
Sales: Misc. 17,000 38,000
Cash 44,800 Closing Debtors ?
Credit 1,21,375 1,66,175 Closing Stock (at IP) 28,700
Cash received from customers 91,700 Remittances to H.O. 1,36,500
Bad Debts reported 9,000
[Ans.: Gross Profit = Rs. 77,487; N. Profit = Rs. 27,812].
Question:24(Abnormal Loss of Stock)Bombay Traders Ltd. sends goods to its Madras Branch at cost plus 25%. The following
particulars are available in respect of the Branch for the year ended 31 st March 2016:
Opening Stock at Branch (at cost to Branch) 80,000

Goods sent to Branch at invoice price 12,00,000
Loss-in-transit at invoice price 15,000
Pilferage at invoice price 6,000
Sales 12,19,000
Expenses 60,000
Closing stock at Branch (at cost to Branch) 40,000
Recovered from insurance Co. against Loss-in-transit 10,000
Show ledger accounts in the head office books for
a) Branch Stock Account
b) Goods Sent to Branch Account
c) Branch Adjustment Account
d) Branch Profit & Loss Account.
[CA Nov. 1988,ICWA-INTER 2010]

Final Account Methods

Question:25 (Goods Sent by Head Office at Cost) Sonika Electronics Limited with its Head Office in Kanpur operates a retail branch
at Delhi. All purchases are made by the head office. Goods are supplied to branch at cost only. All the branch expenses are paid by
the Head Office directly with the exception of petty expenses which are paid by branch manager out of petty cash maintained for
the purpose. You are given the following particulars relating to Delhi branch for the year ended 31 st March 2001:
Balances as on 1st April'2000 Goods returned by Branch 3,500

Stock at Branch 15,900 Cash sent to Branch for expenses:
Branch Debtors 16,900 Salary 11,900
Petty Cash 110 Petty Cash 2,600
Total Sales at Branch 73,800 Rent 3,900
(including Rs. 20,200 for Petty Cash (as on 31.3.2001) 85
Cash Sales) Stock (as on 31.3.2001) 18,900
Goods Sent to Branch 45,200
during the year
Prepare a Branch Trading and Profit and Loss Account and Delhi Branch Account in the books of Head Office.
[Ans.: Gross Profit = 35,100; Net Profit = Rs. 16,675].
Question:26(Normal/Abnormal Loss & Trade Discount). A Delhi merchant has a branch at Mumbai to which he charges the goods
at cost plus 25%. From the following particulars, determine profit under final Account system:-
Opening Stock (at IP) 75,000 Cartage and freight 18,000
Goods Sent to B.O. 2,30,000 (IP) Rent & Taxes 8,000
Goods returned by B.O. 11,250 (IP) Insurance 1,200
Cash Sales 98,500 Salaries Paid 19,000
Credit Sales 1,95,000 Salaries owing 300
[Trade Discount allowed Rs.3,000] Bad Debts 2,000
Normal Loss of Stock 1,000 (at IP) Depreciation 3,500
Shortage (Abnormal) 5,000 (at IP) Advertisement 8,250
Closing Stock at IP 35,625
[Ans.: Gross Profit = Rs. 73,000; Net Profit = 26,750].
Question:27(Miscellaneous Income Retained by Branch) A Delhi merchant has a branch at Madras to which he charges the goods
at cost plus 25%. The Madras Branch keeps its own sales ledger and transmits all cash received from the head office every day. All
expenses are paid from the Head Office. The transactions for the branch were as follows:
Stock 1.1.2006 20,000

Debtors 1.1.2006 200
Petty cash 200
Cash sales 5,200
Goods sent to branch 35,000
Collections from ledger accounts 38,000
Goods returned to head office 500
Bad debts 400
Allowances to customers 350
Returns inwards 750
Cheques sent to branch:
Rent 1,000
Wages and salaries 2,000
Stock (31.12.2006) 25,000
Debtors 3,500
Petty cash (including Miscellaneous
income Rs.50 not remitted on 31.12.2006) 150
Prepare the Branch Trading and Profit and Loss Account for the year ending December 31, 2006 and Branch Account in the books of
Head Office. Also verify the answer under Stock &Debtor System.
[Ans.: Gross Profit = Rs. 21,650; N. Profit = 19.850; Branch A/c. Balance =Rs.23,650].

Question:28(Provision for Discount for Prompt Payment) M/s. Bright & Co., with its head office in Madras, invoiced goods to its
branch at Bombay, at 20% less than the catalogue price which is cost plus 50%, with instructions that cash sales were to be made at
invoice price and credit sales at catalogue price. Discount on credit sale at 15% on prompt payment will be allowed. From the
following particulars available from the branch,Prepare the branch trading and profit and loss account for the year ended 31 st
March, 2006 in the head office books, so as to show the actual profit or loss of the branch for the year 2005-06:
Stock 1-4-2005 12,000

Goods received from head office (invoice price) 1,32,000
Debtors on 1-4-2005 10,000
Sales (cash) 46,000
Sales (credit) 1,00,000
Cash realized from debtors 85,635
Expenses at the branch 6,000
Remittance to head office 1,20,000
Debtors on 31 -3-2006 11,000
Cash in hand on 31-3-2006 5,635
Stock on 31-3-2006 (invoice price) 15,000
It was reported that a part of stock at the branch was lost by fire during the year whose value is to be ascertained; and provision
should be made for discount to be allowed to debtors as on 31st March,2006,on the basis of the year's trend of prompt payment.
[C.A. (Inter) Nov. 1992 MODIFIED]
[Ans.:Cost of stock lost by fire Rs 2,500; Provision for discount on debtors Rs. 1485: Gross Profit Rs. 41,000; Net Profit Rs.17,650].
Question:29. X Ltd. Bombay, started on 1st January, 2011 has two branches in Kanpur and Lucknow. All goods sold at the Branches
are received from the head office invoiced at cost plus 25 percent. All expenses relating to Branches are paid by the Head Office.
Each Branch has its own Sales Ledger and sends weekly statements. All cash collections are remitted daily to Head Office by the
Branches. The following particulars relating to the year ended 31st December 2011 have been extracted from the weekly
statements sent by the branches:
Kanpur Lucknow
Credit Sales 1,25,200 1,10,000
Cash Sales 78,600 85,200
Sales Returns 2,300 1,200
Sundry Debtors 34,500 23,600
Rent and Rates 3,200 4,500
Bad Debts 6,000 --
Salaries 16,000 18,000
General Expenses 2,600 1,500
Goods received from H.O. 1,50,000 1,25,000
Advertisement 7,500 5,200
Stock on 31st December, 2011 45,000 35,000
You are required to prepare the Branch Accounts as they would appear in the books of the Head Office, showing the Profit and
Loss for the period and the Trading and Profit and Loss Account separately for each Branch. ( ICWA-INTER 12 MARKS)
WHOLE SALE BRANCH
Question:30. A head Office send goods to its branch at 20% less than the list price. Goods are sold to customers at cost plus 100%.
From the following particulars ascertain the profit made at the Head office and the branch on wholesale basis:
Head Office (Rs.) Branch (Rs.)
Purchases 20,00,000
Goods sent to Branch (invoice price) 8,00,000
Sales 17,00,000 8,00,000

Question:31. A Head Office sends goods to its branch at 20% less than list price i.e. catalogue price. Goods are sold to customers at
cost plus 100%. From the following particulars, ascertain the profit made at the head office and the branch on the wholesale basis
for the year ended 31st December, 2002:
HEAD OFFICE (Rs.) BRANCH (Rs.)

Opening Stock at its cost 1,69,500 40,000
Purchases 5,10,000
Goods sent to Branch (at Invoice Price) 4,80,000
Sales (at list price) 3,40,800 5,97,500
Expenses 21,000 4,500
Assume that the head office sells goods to customers at list price.
[Ans. G. P. = Rs. 3,50,400 (H.O.), Rs.l,19,500 (B.O.) Net Profit = Rs. 3,28,650 (H.O.), Rs. I,15,000 (B.O.)].
Question:32 IOCM Ltd with their Head office at Calcutta, invoiced goods to their Mumbai Branch at invoice price. The invoice price
is 20% less than the list price, which is cost plus 100% with instruction that sales are made at list price. From the following
particulars ascertain the profit earned by the Head Office and Branch:
Calcutta H.O. Mumbai Branch

Opening Stock 40,000 32,000
Purchases 2,00,000
Goods sent to Branch (cost to H.O.) 62,500
Goods received from H.O. (invoice price) - 96,000
Sales (List price) 1,70,000 80,000
Trade Expenses 14,000 8,000
Stock at Head office are valued at cost price but those of Branch are valued at invoice price.
[Ans.:Net Profit = H.O. = Rs.95,000 and Branch = Rs.8,000].
Question:33 Bata Limited with its head office at Delhi has a branch at Punjab. The company supplied goods to its branch at selling
price less 20%. The company as well as branch sells goods to customers at a profit of 100% on cost. The company also sells goods to
their approved stockiest at the same price at which they are selling to their branch at Punjab. From the following particulars,
prepare Trading Account of the head office and of the branch for the second year of their business and show the provisions for
unrealized profits on stock at the branch supplied by the head office.
Head Office Branch

Opening Stock 82,000 4,000
Purchases during the year 3,10,000 -
Goods Sent to the Branch 48,000
Goods received from the H.O. - 48,000
Goods Sold to approved stockiest 35,000 -
Goods Sold to Customers. 4,20,000 42,000
[Ans.: H.O. - G.P. Rs.2,41,125; N. P. Rs. 2,35,725; Branch G. P. Rs. 8,400].
Question:34. New Textiles Limited operates a number of retail shops to which goods are invoiced at wholesale price which is cost
plus 20%. Shops sell the goods at the list price which is wholesale price plus 10%. From the following particulars ascertain the profit
or loss for 2002 at Shop No. 143:(Study Material)
Stock at shop on January 1, 2002 15,000

Goods invoiced to shop during 2002 1,40,000
Sale at the shop during the year 1,54,770
Goods destroyed by accident (retail value) 660
Expenses at the shop 7,200

Solution:
Cost Price = 100 Invoice Price = 120 Sales Price = 132
Shop Trading Account
To Opening stock 15,000 By Sales 1,54,770
To Goods received from H.O. 1,40,000 By Loss 600
To Gross profit 14,070 By Closing Stock 13,700
1,69,070 1,69,070
Shop P&L Account

To Expenses 7,200 By Gross Profit 14,070
To Loss by fire 600
To Net profit 6,270
14,070 14,070
Question:35. Ganga Ltd. having head office at Mumbai has a branch at Nagpur. The head office does wholesale trade only at cost
plus 80%. The goods are sent to branch at the wholesale price viz., cost plus 80%. The branch at Nagpur is wholly engaged in retail
trade and the goods are sold at cost to H.O. plus 100%.Following details are furnished for the year ended 31stMarch, 2009:
Head Office Branch

Opening stock (as on 1.4.2008) 2,25,000 —
Purchases 25,50,000 —
Goods sent to branch (Cost to H.O. plus 80%) 9,54,000 —
Sales 27,81,000 9,50,000
Office expenses 90,000 8,500
Selling expenses 72,000 6,300
Staff salary 65,000 12,000
You are required to prepare Trading and Profit and Loss Account of the head office and branch for the year ended 31 stMarch, 2009.
Solution:
Trading and Profit and Loss A/c
Head office Branch Head office Branch

Rs. Rs. Rs. Rs.
To Opening stock 2,25,000 — By Sales 27,81,000 9,50,000
To Purchases 25,50,000 — By Goods sent to —
To Goods received branch 9,54,000
from head office — 9,54,000 By Closing stock
To Gross profit c/d 16,60,000 95,000 (W.N.I & 2) 7,00,000 99,000
44,35,000 10,49,000 44,35,000 10,49,000
To Office expenses 90,000 8,500 By Gross profit b/d 16,60,000 95,000
To Selling expenses 72,000 6,300
To Staff salaries 65,000 12,000
To Branch Stock Reserve (W.N.3) 44,000 -
To Net Profit 13,89,000 68,200
16,60,000 95,000 16,60,000 95,000
Working Notes:
Calculation of closing stock of head office: Rs.
Opening Stock of head office 2,25,000
Goods purchased by head office 25,50,000
27,75,000
Less: Cost of goods sold [37,35,000* x 100/180] 20,75,000
7,00,000
Calculation of closing stock of branch: Rs.
Goods received from head office [At invoice value] 9,54,000
Less: Invoice value of goods sold [9,50,000 x 180/200] 8,55,000
99,000

Calculation of unrealized profit in branch stock:

Branch stock Rs. 99,000
Profit included 80% of Cost
Hence, unrealized profit would be = Rs. 99,000 x 80/180 = Rs. 44,000
MISC.QUESTIONS
Question:36. Sellwell Lid. has two branches in Cochin and Bangalore. During the year ended 31 March, 1984, goods have been
invoiced to Cochin Branch at 20% above cost and to the Bangalore Branch at 25% above cost. The branches do not maintain
complete books of accounts but the following figures available for the year ended 31 March, 1984:
Cochin Bangalore
Opening Stock at Invoice Price 10,000 10,000
Goods sent to Branch at Cost 50,000 40,000
Amount remitted by Branch 80,000 80,000
Amount remitted from H.O. 15,000 15,000
Goods returned by Branch at Invoice Price 3,000 _
Cash as on 1.4.1983 2,000 1,000
Cash as on 31.3.1984 1,000 500
Goods retuned by Customers at Branch at Selling Price 5,000 4,000
Expenses at Branch in cash 9,000 3,000
All sales at the branches are for cash. During the year, Cochin Branch purchased fixed assets worth Rs. 4,000 and this amount is
included in the figure of branch expenses. Cochin Branch transferred to the Bangalore Branch stock costing Rs.5,000 during the
year. The Bangalore Branch remitted Rs.2,000 to the Cochin Branch also during the year. There was a closing stock of Rs.24,000 at
invoice price at the Cochin Branch. There was no closing stock at the Bangalore Branch. Prepare Branch Stock Accounts, Branch
Stock Adjustment Accounts, Goods sent to Branch Accounts, Branch Cash Accounts and Branch Profit and Loss Accounts in the
Head Office books ignoring depreciation.[Ans.: G. Profit = Rs. 11834 (Cochin) Rs. 13,900 (Bangalore) Net Profit = Rs.35,167
(Cochin), Rs. 13,500 (Bangalore)]
Question:37(Closing Stock to be Ascertained) From the following particulars, prepare Branch A/c showing the profit or loss of the
Branch:
Opening Stock at Branch 82,000

Opening furniture at Branch 13,000
Goods sent to Branch 1,50,000
Sales (Cash) 2,37,500
Expenses:
Rent 5,480
Salaries 9,500
Other Misc. Expenses 3,500
Closing Stock could not be ascertained, but it is known that the branch usually sells at cost plus 25%. The Branch manager is
entitled to a commission of 5 percent on the profit of the Branch after charging such commission. Depreciate furniture @ 10%
p.a. Ascertain closing stock at branch, commission due to manager and profit earned by the branch.
[Ans. Closing Stock = Rs.42,000; Manager's Commission — 1,320; N. P. (after Commission) -26,400].
Question:38 (Determination of G. P. Margin) A business has three branches at Coimbatore, Trivandrum and Bangalore. The Head
Office at Madras purchases goods and sends them to branches, to be sold at a uniform percentage of profit on cost. The following
particulars are made available to you to enable you to prepare a combined Trading Account for the year ended 31stMarch, 1992.
Madras Coimbatore Trivandrum Bangalore

Stock on 1st April, 1991 54,000 16,000 12,500 10,000
Purchases in the year 2,74,000 -
Sales - 1,80,000 1,20,000 1,00,000
Stock on 31st March, 1992 28,000 6,000 5,000 2,500
Branch Accounts on 1stApril, 1991:
Coimbatore 15,000
Trivandrum 32,000
Bangalore 4,000
Remittances from branches 3,20,000 1,50,000 1,00,000 70,000

Madras Office invoices goods to the branches at fixed sales prices but maintains branch accounts in its ledgers at cost price. Show
Branch Accounts in Madras Head Office Books. [C. A. (Inter) May 1992]
Question:39 IOCM who carried on a retail business opened a branch X on January 1st 2007 where all sales were on credit basis. All
goods required by the branch were supplied from the Head Office and were invoiced to the branch at 10% above cost. The
following were the transactions:
Jan. 07 Feb. 07 Mar. 07

Goods sent to Branch (Purchase Price) 40,000 50,000 60,000
Sales as shown by the branch
(Monthly report) 38,000 42,000 55,000
Cash received from Debtors
and remitted to H.O. 20,000 51,000 35,000
Returns to H.O. (Invoice price at Branch) 1,200 600 2,400
The Stock of goods held by the branch on March 31, 2007 amounted to Rs.53,400 at invoice price to the Branch. Record these
transactions in the Head Office books, showing balances as on 31st March 2007 and the branch gross profit for the three months
ended on that day. All working should form part of your answers.[ C.A.(Inter) May 1987][Ans. Profit to General P/L = Rs.37,363]
Question:40 Rahul Limited operates a number of retail outlets to which goods are invoiced at wholesale price which is cost plus
25%. These outlets sell the goods at retail price which is wholesale price plus 20%. Following is the information regarding one of the
outlets for the year ended 31.3.97:
Stock at the outlet (1-4-1996) 30,000
Goods invoiced to the outlet during the year 3,24,000
Gross Profit made by the branch 60,000
Goods lost by fire ?
Expenses of the outlet for the year 20,000
Stock at the outlet (31 -3-1997) 36,000
You are required to prepare the following account in the books of Rahul Limited for the year ended 31.3.97:
(a) Outlet Stock Account

(b) Outlet Profit & Loss Account
(c) Stock Reserve Account [C.A. (Inter) May 1997(10 marks)
Answer. Outlet Stock Account
To Balance b/d 30,000 By Sales 3,60,000

To Good sent to outlet 3,24,000 By Goods Lost by fire 18,000
To Gross Profit c/d 60,000 By Balance c/d 36,000
4,14,000 4,14,000
Outlet Profit & Loss Account
To Expenses 20,000 By Gross Profit c/d 60,000

To Good lost by fire 18,000
To Profit Transferred 22,000
60,000 60,000

Stock Reserve Account

To H.O.P&L A/c Transfer 6,000 By Balance b/d 6,000
To Balance c/d 7,200 By H.O. P&L A/c 7,200
(Stock Rs. Required)
13,200 13,200
Working Notes: Rs.
1. Whole sale Price: 100+25=125

Retail Price 125+20%=150
Gross Profit at the outlet wholesale Price – Retail Price (150 + 125) =25
Retail Sales Value = 60,000 X 150/25 = Rs. 3,60,000
2. Goods lost by fire:

Opening Stock + Goods Sent + Gross Price – Sales – Closing Stock
30,000 + 3,24,000 + 60,000 – 3,60,000 – 36,000 = Rs. 18,000
3. Stock Reserve:
Opening Stock = 30,000 X 25/125 = Rs. 6,000
Closing Stock = 36,000 X 25/125 = Rs. 7,200
Question:41 (Where Accounts are Given)From the following information, prepare a Memorandum trading and profit & loss
account of branches and also show the branches account as it would appear in the head office books at the end of the year
Branches Cash A/c
Jan. 1 To Balance b/d 7,500 Dec. 31 By Petty Cash 3,000

Dec.31 To Receipts from Debtors 37,500 By Bank 62,000
To Cash Sales 25,000 By Balance 5,000
70,000 70,000
Branches' Debtors Account
Jan. 1 To Balance b/d 3,000 Dec.31 By Cash 37,500

Dec. To Sales 45,000 By Discount Allowed 1,000
By Bad Debt 8,000
By Balance c/d 1500
48,000 48,000
Branch Account
Jan. 1 To Balance b/d Jan. 1 By Balance b/d

Cash 7,500 outstanding expenses 1000
Debtors 3,000
Furniture 7,500 Dec. 31By Bank 62,000
Stock 10,000 28,000 By Balance c/d 20,500
During To Goods Transferred 45,000
2000 To Furniture Purchased 2,500
To Sundry Expenses 8,000
83,500 83,500
Closing Stock at branches was Rs. 4,000 and expenses outstanding were Rs.900. Depreciation at 10% of the book value
has to be provided on furniture. (C.A. Inter, CMA-Inter) [Ans.: Gross Profit = Rs. 19,000; Net loss = ?].
Question:42 (Memorandum Column Method) A company with its Head Office at Calcutta has a Branch at New Delhi. Goods are
invoiced to the branch at cost plus 33 1/3 % which is the selling price. The following information is given in respect of the branch for
the year ended 31st March, 1998:

Goods sent to branch (invoice value) 4,80,000

Stock at Branch (1-4-1997) at selling price) 24,000
Cash Sales 1,80,000
Returns from Customers 6,000
Branch expenses paid for cash 53,500
Branch Debtor's balance (1-4-97) 30,000
Discounts allowed 1,000
Bad debts 1,500
Stock at Branch (31.3.1998) at selling price 48,000
Branch Debtor's balance (31 -3-1998) 36,500
Collections from debtors 2,70,000
Branch Debtor's cheques returned dishonoured 5,000
You are required to prepare the Branch Stock Account by Memorandum Column method to ascertain shortage/surplus and also ascertain the
Net Profit made by the Branch. [Ans.: Gross Profit = Rs.1,13,500; Net Profit = Rs. 56,000]
Answer: BRANCH STOCK A/C

Selling Cost Price Memo (selling Cost Price
Price) Price)
Rs. Rs. Rs. Rs.
To Balance b/d 24,000 18,000 By Branch Bank 1,80,000 1,80,000
To Goods sent to branches 4,80,000 3,60,000 By Branch Debtors 2.80,000 2,80,000
To Branch Debtors (return) 6,000 6,000 By stock discrepancy
- shortage 2,000 1,500
To Branch Profit & Loss A/c 1,13,500 By Balance c/d 48,000 36,000
5,10,000 4,97,500 5,10,000 4,97,500
Branch Debtors A/c

To Balance b/d 30,000 By Return from Customers 6,000
To Bank-Cheques Dishonoured 5,000 By Discounts 1,000
To Credit Sales 2,80,000 By Bad debts 1,500
By Cash Received 2.70,000
3,15,000 3,15,000
Branch Profit & Loss A/c
To Branch debtors A/c By Branch stock A/c 1,13,500
- Discount 1,000 -Gross Profit
- Bad debtors 1,500 2,500
To Branch Bank-expenses 53,500
To Branch Stock –Shortage 1,500
To Net Profit transferred to
General Profit & Loss A/c 56,000
1,13,500 1,13,500
Question 43. Following is the information of the Jammu branch of Best Ltd., New Delhi for the year ending 31st March, 2010 from
the following:
(1) Goods are invoiced to the branch at cost plus 20%.

(2) The sale price is cost plus 50%.
(3) Other information’s:
Stock as on 01.04.2009 2,20,000
Goods sent during the year 11,00,000
Sales during the year 12,00,000
Expenses incurred at the branch 45,000
Ascertain
(i) The profit earned by the branch during the year
(ii) Branch stock reserve in respect of unrealized profit.

Answer : Calculation of profit earned by the branch

Trading Account
To Opening stock 2,20,000 By Sales 12,00,000
To Goods received by 11,00,000 By Closing stock 3,60,000
Head office (Refer W.N.)
To Expenses 45,000
15,60,000 15,60,000
(ii) Stock reserve in respect of unrealized profit = Rs. 3,60,000 x (20/120) = Rs. 60,000
Working Note:
Cost Price 100
Invoice Price 120
Sale Price 150
Calculation of closing stock at invoice price
Opening stock at invoice price 2,20,000
Goods received during the year at invoice price 11,00,000
13,20,000
Less : Cost of goods sold at invoice price (9,60,000) [12,00,000 x (120/150)]
Closing stock 3,60,000
Note : It is assumed that all figures given in the questions is at invoice price
Question 44: Arnold of Delhi, trades in Ghee and Oil. It has a branch at Lucknow. He dispatches 25 tins of Oil @ Rs, 1,000 per tin
and 15 tins of Ghee @ Rs. 1,500 per tin on 1st of every month. The branch incurs some expenditure which is met out of its
collections; this is in additions to expenditure directly paid by Head Office. Following are the other details:
Delhi Lucknow
Rs. Rs.
Purchase Ghee 14,75,000 -
Oil 29,32,000 -
Direct expenses 3,83,275 -
Expenses paid by H.O. - 14,250
Sales Ghee 18,46,350 3,42,750
Oil 27,41,250 3,15,730
Collection during the year (including Cash Sales) - 6,47,330
Remittance by Branch to Head Office
- 6,13,250
(Delhi)
Balance as on: 1-1-2011 31-12-2011
Stock : Ghee 1,50,000 3,12,500
Oil 3,50,000 4,17,250
Debtors 7,32,750 -
Cash in hand 70,520 55,250
Furniture & Fittings 21,500 19,350
Plant/ Machinery 3,07,250 7,73,500
(Lucknow)
Balance as on: 1-1-2011 31-12-2011
Stock : Ghee 17,000 13,250
Oil 27,000 44,750
Debtors 75,750 ?
Furniture & Fittings 6,250 5,625
Plant/ Machinery - -
a. Addition to Plant/Machinery on 1-1-2011 Rs. 6,02,750.
b. Rate of Depreciation: Furniture/Fittings @ 10% and Plant /Machinery @ 15% (already adjusted in the above figures).

c. The Branch Manager is entitled to 10% commission after charging such commission whereas, the General Manager is entitled to
10% commission on overall company profits after charging such commission. General Manager is also entitled to a salary of Rs.
2,000 p.m. General expenses incurred by H.O. Rs. 24,000.
Prepare Branch Account in the head office books and also prepare the Arnold’s Trading and Profit and Loss A/c (excluding branch
transactions).
INDEPENDENT BRANCH
Question: 1 The head office of a business and its branch keep their own books and each prepares its own profit and loss Account.
The following are the balances appearing in the two sets of book as on 31st December.1994 after ascertainment of profit and after
making all adjustments except those referred to below:
Head office Branch

Dr Cr Dr Cr
Capital 1,00,000
Fixed assets 36,000 16,000
Stock 34,200 10,740
Debtors and creditors 7,820 3,960 4,840 1,920
Cash 10,740 1,420
Profit and loss account 14,660 3,060
Branch office account 29,860
Head office account 28,020
1,18,620 1,18,620 33,000 33,000

st
Set out the balance sheet of the business as on 31 December,1994 and the journal entries necessary [in both sets of books] to
record the adjustments dealing with the following:
(a) on 31st December,1994 the branch had sent a cheque of for Rs.1,000 to the head office ,not received by head-office nor credited
to Branch Account till 3rd January,1995.
(b) Goods valued at Rs.840 had been forwarded by the head office to the branch and invoiced on 30 th December 1994 ,but were not
received by the branch nor dealt with in branch’s books till 11th January ,1995.
Question: 2 Sunil Enterprise operates a branch as well as a head office .the following Trial balance has been extracted from the
books of the concern as on 31st march, 2012;
HEAD OFFICE BRACH OFFICE
Dr Cr Dr Cr
Capital account __ 4,71,000 __ __

Drawings 84,000 __ __ __
Plant at cost 2,40,000 __ 1,20,000 __
Accumulated depreciation on plant __ 1,20,000 __ 60,000
Goods to branch/from head office __ 7,92,000 7,20,000 __
Head office current account __ __ __ 1,56,000
Branch current account 2,58,000 __ __ __
Branch stock provision(1-4-2011) __ 6,000 __ __
Operating expenses 30,000 __ 15,000 __
Purchases 22,92,000 __ __ __
Rent and rates 45,000 __ 18,000 __
Sales __ 21,00,000 __ 9,00,000
Stocks (1-4-2011) 1,80,000 __ 36,000 __
Debtors 90,000 __ 75,000 __
Creditor __ 1,35,000 __ __
Salaries and wages 3,60,000 __ 1,20,000 __
Cash and bank 45,000 __ 12,000 __
36,24,000 36,24,000 11,16,000 11,16,000

(a) All goods are purchased by the head office. The goods required by the branch are invoiced by head office to the branch at cost
plus 20%.On 31st march, 2012,the head office held stocks which had cost it Rs.2,40,000 On the same date the branch held stocks
which had been invoiced to it at Rs.54,000.
(b) Fixed assets are to be depreciated at the rate 50% per annum based on the reducing balance method .There had been no
purchase or sale of fixed assets during the year.
(c) Goods of Rs.72,000 invoiced by the head office to the branch were in transit on 31st march,2012.
(d) At 31st march,2012,cash Rs.30,000 was in transit from the branch to the head office .
(e) The following expenses were outstanding on 31st march,2012;
Head office branch office

Rent 1,000 2,000
You are required to prepare. In columnar form, for (1) the head office , (2) the branch ,and (3) the business as a whole, the Trading
and Profit & Loss Accounts for the year ended 31st march , 2012.Also, prepare a combined Balance Sheet as on that date.
(ICWA-INTER-20 MARKS)
Question:3 The following trial balance is extracted from the books of Nagpur branch of XYZ Ltd as on 31.3. 1995:
Debits Credits
Stock—opening at invoice price 25,000
Branch debtors and creditors 10,000 3,000
Cash in hand 500
Goods received from H.O. 80,000
Branch expenses 9,000
Branch sales 1,80,000
Current account with head office 58,500
1,83,000 1,83,000
As on that date, closing stocks with branch at invoice price were valued at Rs. 30,000. There was an amount of Rs. 18,500 remitted
by the branch on 31st March which had not been received by the head office on that date. The head office had sent goods, costing
Rs. 20,000, to the branch on 29thMarch. These had not been received by the branch till the closing date.
The head office enters in its books all goods sent to the branch at cost. The branch enters these, in its books, at invoice price but
sells them at an even higher one. At the end of each year, the difference is adjusted by debiting the branch and crediting the profit
and loss account in the books of head office. The proportionate difference between cost and invoice price was the same at all
relevant times.
The credit balance as on 31stMarch 1995, of the branch account in the head office books, was Rs. 60,000 before making any of the
above adjustments (though the above-mentioned dispatch of goods of Rs. 20,000, on 29th March had, of course, been duly debited
to the branch account). Prepare branch profit and loss account and head office profit and loss account (relevant portions only) for
the year ended 31st March, 1995. [C.A. (Inter)
Answer: NAGPUR BRANCH ACCOUNT

Rs. Rs.
To Profit and loss account 40,000 By Balance b/d 60,000
(balancing figure) By Cash in transit 18,500
To Balance c/d 58,500 By Goods in transit 20,000*
(as per branch books)
98,500 98,000
The balancing figure in the above account represents the loading on goods invoiced to branch during the year. This is
because while the H.O. makes entry for goods sent to the branch at cost, the branch makes the entry at invoice price and.
therefore, the balancing difference in the branch account represents loading:

MEMORANDUM BRANCH PROFIT AND LOSS ACCOUNT

Rs. Rs.
To Opening stock 25,000 By Branch sales 1,80,000
To Goods received from To Closing stock 30,000
H.O. 80,000
To Branch expenses 9,000
To Net profit 96,000
2,10,000 2,10,000
Head Office PROFIT AND LOSS ACCOUNT(Relevant portion only)
Rs. Rs.
To Stock reserve @ 50% By Branch account—profit 96,000
—closing stock 15,000* By Loading goods sent to
To Net profit c/d 1,33,500 branch account By Stock reserve @ 40.000
50%
—opening stock 12,500*
1,48,500 1,48,500
The loading on invoice price is 50% and is calculated as follows:

Invoice price of goods sent to branch 80,000
Loading thereon—(see branch account) 40,000
Loading as a % of invoice price 40,000/80,000 x 100 = 50%
Question:4 Anil and Sunil are partners of a business having head office in Delhi and branch at Calcutta. Anil looks after the Delhi
office and Sunil looks after the Calcutta branch. Anil is entitled to 40% of the profits made at Delhi while Sunil is entitled to 30% of
the profits at Calcutta. The balance profits/losses are shared equally. The following trial balances as on 31st December, 2000 are
furnished to you.
Delhi Calcutta
Dr. Cr. Dr. Cr.
Opening stock at cost 30,000 — 40,000 —
Purchases and returns 1,80,000 10,000 2,75,000 15,000
Goods sent to:
Calcutta — 50,000 — —
Delhi — — — 70,000
Goods received from:
Calcutta 65,000 — — —
Delhi — — 48,000 —
Sales and returns 15,000 3,15,000 20,000 3,70,000
Expenses 28,000 — 39,000 —
Customer accounts 64,000 4,000 71,000 3,000
Suppliers accounts 2,000 32,000 1,000 51,000
Bank account 70,000 — — 6,000
Fixed assets opening written
down value 50,000 — 80,000 —
Calcutta branch account — 5,000 — —
Delhi head office account — — 17,000 —
Capital and drawing accounts:
Anil 30,000 83,000 4,000 35,000
Sunil 5,000 40,000 25,000 70,000
5,39,000 5,39,000 6,20,000 6,20,000
You are informed that:
(a) On 30th December, 2000 Delhi head office remitted Rs. 5.000 by bank draft to Calcutta branch. The envelope was received
by the branch on 2nd January, 2001.

(b) Stock at cost on 31st December, 2000 was worth:
(i) Rs, 46,000 at Delhi and (ii) Rs. 54,000 at Calcutta.
(c) Depreciation is to be provided at 10%.
(d) 10% of the cash expenses relating to the head office are to be treated as overheads incurred on behalf of the branch. You are
asked by the partners to prepare:
(i) Trading and Profit and Loss Account for the year ended 31 December,2000 for Delhi office and Calcutta branch in columnar form,
(ii) Consolidated Balance Sheet of the firm as on 31st December, 2000, and
(iii) Branch and Head office Accounts in respective books. [C.A. Inter]
Answer: TRADING, PROFIT AND LOSS ACCOUNT
Delhi Calcutta Total Delhi H,O, Calcutt Total

H,O, Branch a
To Opening stock, at Rs, Rs, Rs, Rs, Branch
Rs, Rs,
Cost 30,00 40,000 70,000 By Sales less returns 3,00,000 3,50,000 6,50,000
To Purchases less 1,70,00
0 2,60,000 4,30,000 By Goods sent to
To Goods received
returns 0 Calcutta 48,000 — —
Calcutta
from 65,00 — — By Goods sent to
To Goods received 0 Delhi — 65,000 —
Delhi
from — 48,000 — By Closing stock, at
To Gross profit c/d 1,31,00 1,26,000 2,57,000 Cost 46,000 54,000 1,00,000
0 By Goods in transit 2,000 5,000 7,000
3,96,00 4,74,000 7,57,000 3,96,000 4,74,00 7,57,000

0
To Expenses 0 28,00 39,000 67,000 By Gross profit b/d 1,31,000 1,26,000 2,57,000
To Delhi H,O, (share 0 By Calcutta branch
of expenses) — 2,800 — (expenses
To Depreciation of able 10% of
recover- 2,800 — —
fixed assets 5,00 8,000 13,000 28,000)
To Net profit c/d 1,00,80
0 76,200 1,77,000
1,26,000
0
2,57,000 1,33,800 1,26,000 2,57,000
To Share of 'Branch' 1,33,80 By Net Profit b/d 1,00,800 76,200 1,77,000
profit to partners: 0
Anil—40%
of 1,00,800 40,320 — 40,320
Sunil—30%
of 76,200 — 22,860 22,860
To Balance of profit-
shared equally 30,24 26,670 56,910
Anil 30,2
0 26,670 56,910
Sunil 40
97,230 76,200 1,77,000 1,00,800 76,200 1,77,000
Question:5 Give Journal Entries to rectify or adjust the following in the books of both the Head Office and the Branch:
(i) Goods costing Rs. 8,000 purchased by Branch, but payment made by Head office. The Head Office had
debited the amount to its own purchases account.
(ii) Branch paid Rs. 15,000 as salary to a visiting Head Office official. The Branch had debited the amount to Salaries account.
(iii) Depreciation Rs.25,000 in respect of Branch assets whose accounts are kept in Head Office books
(iv) Expenses Rs. 35,000 to be charged to the Branch for work done on its behalf by the Head Office.
(v) Goods sent by the Head Office to its Branch Rs.20,000, not yet received by the Branch.
Question:6 A Delhi firm has two branches - one at Bombay and another at Calcutta. The branches keep complete set of books. On
31st March, 1999 Bombay and Calcutta Branches Accounts in Delhi books showed a debit balance of Rs.95,000 and Rs.40,000
respectively before taking the following information into account:

(1) Goods valued at Rs.8,000 were transferred from Bombay to Calcutta under instruction from Head Office.
(2) Bombay Branch collected Rs. 3500 from a local customer at the Head office.
(3) Calcutta Branch paid Rs.5000 for certain goods purchased by Head office in Calcutta.
(4) Rs. 12,500 remitted by Bombay Branch to Delhi on 29th March 1999, received in Delhi on 3rd April 1999.
(5) Calcutta Branch received on behalf of the Head office Rs. 3200 as dividend from a company located at Calcutta.
(6) For the year 1998-99 Bombay Branch showed a net loss of Rs.9000 and Calcutta branch showed a net profit of Rs. 15,850.
Pass journal entries to record the above transactions in the books of the Head Office(CA-IPCC 10 MARKS)
Question:7 Following are the Trial Balances of Ravindra Ltd. and its Delhi Branch as on December 31, 1989: -
HO Branch HO Branch
Stock on 1 January, 1988 45,000 16,400 Creditors 20,300 5,400
Purchases 1,10,000 25,600 Goods sent to Branch 14,400 —
Wages 80,800 13,100 Sales 3,30,200 69,900
Manufacturing Expenses 35,400 6,800 Head Office Account — 28,000
Machinery: Capital in Shares of
Rs. 10 each 2,00,000 —
H.O. 1,00,000 — Discount earned 1,100 300
Branch 50,000 — Purchase Returns 2,500 600
Furniture:
H.O. 5,000 —
Branch 2,000 —
Rent 6,000 3,400
Salaries 32,000 11,000
Debtors 38,000 8,000
General Expenses 18,000 4,000
Goods Received from H.O — 14,400
Cash in Hand & Bank 10,300 1,500
Branch Account 36,000 —
5,68,500 1,04,200 5,68,500 1,04,200
Closing stock at head office was Rs.38,700 and at Delhi, Rs. 28,700. Depreciation is to be allowed at 10% on machinery and at
15% on furniture. Rent still payable in respect of 1989 is Rs. 300 (for Branch). Rs 8000 sent by branch but not received by H.O. till
the end of year. Prepare the Trading and Profit and Loss Account in columnar form, and the consolidated Balance Sheet. Also show
the Branch Account.
Question:8 Sri Sundaram commenced business on 1st1 April, 1992 with head office at Madras and a branch at Nagpur. Purchases
were made exclusively by the head office where the goods were processed before sale. There was no loss or wastage in processing.
Only the processed goods received from head office were handled by the branch and these were charged thereto at processed cost
plus 10%. All sales, whether by head office or by the branch, were at a uniform gross profit of 25% on cost. Following is the Trial
Balance of Sri Sundaram as on 31st March, 1993:

Head Office
Dr. Cr.
Capital 62,000
Drawings 11,000
Purchases 3,93,900
Cost of Processing 10,100
Sales 2,56,000
Administrative Expenses 27,800
Selling Expenses 10,000
Debtors 61,920
Creditors 1,20,280
Branch Current Account 77,960
Bank Balance 30,400
6,23,080 6,23,080
Branch
Dr. Cr.
Sales 1,64,000
Goods received from Head Office 1,76,000
Administrative Expenses 3,000
Selling Expenses 1,240
Debtors 22,720
Creditors 2,160
H.O. Current Account 52,300
Bank Balance 15,500
2,18,460 2,18,460
The following further information are also available:
(i) Goods sent by H.O to the branch in March, 93 at Rs.8,800 were not received by the branch until April,93.
(ii) A remittance of Rs. 16,860 from the branch to head office was not received until April, 1993.
(iii) Stock taking at the branch disclosed a shortage of goods of Rs. 4,000 (at selling value).
(iv) Cost of unprocessed goods at head office on 31stMarch, 1993 was Rs. 20,000.
Prepare trading and Profit & Loss Account in Columnar form and Balance sheet of the business as a whole as on 31stMarch, 1993.
[CA. (Inter) Nov. 1993, ICWA-INTER- 8 TIMES]

Hint: Stock of Head Office = 11,200, Stock of Branch = 28,160, Stock Reserve on closing stock = 28,160 X 10/ 110 = 2,560
Goods in transit = 8,800 X 10/100 = 800 = 33600
[Ans. G.Profit = 68,000 (H.O.), 19,680 (B.O.), Net Profit = 26,840 (H.O) 11,920 (B.O), Total of Balance Sheet = Rs. 2,12,200]
Question:9 Head Office passes adjustment entry at the end of each month to adjust the position arising out of inter-branch
transactions during the month. From the following inter-branch transactions in January, 2002, make the entry in the books of Head
Office:
(a) Mumbai Branch
(1) Received Goods: Rs. 6,000 from Calcutta Branch, Rs. 4,000 from Patna Branch.
(2) Sent Goods to: Rs. 10,000 to Patna Rs.8,000 to Calcutta.
(3) Received B/R: Rs. 6,000 from Patna.
(4) Sent Acceptance: Rs. 4,000 to Calcutta, Rs. 2,000 toPatna.
(b) Chennai Branch (Apart from the above)
(5) Received Goods; Rs. 10,600 from Calcutta, Rs. 4,000 fromMumbai.
(6) Cash Sent: Rs. 2,000 to Calcutta, Rs. 6,000 to Mumbai.
(c) Calcutta Branch (Apart from the above)
(7) Sent Goods to Patna: Rs. 6,000

(8) Issued B/P: Rs. 4,000 to Patna, Rs. 4,000 cash to Patna. (15 marks) (1996-May )
Question:10 Show adjustment journal entry in the books of Head Office at the end of April, 2003 for incorporation of inter-branch
transactions assuming that only Head Office maintains different branch accounts in its books.
A) Delhi Branch
1. Received goods from Mumbai - Rs. 35,000 and Rs. 15,000 from Kolkata.
2. Sent goods to Chennai - Rs. 25,000, Kolkata - Rs. 20,000.
3. Bill Receivable received - Rs. 20,000 from Chennai.
4. Acceptances sent to - Mumbai - Rs. 25,000, Kolkata - Rs. 10,000.
B) Mumbai Branch (apart from the above):
5. Received goods from Kolkata - Rs. 15,000, Delhi – RS. 20,000.
6. Cash sent to Delhi - Rs. 15,000, Kolkata - Rs. 7,000.
C) Chennai Branch (apart from the above):
7. Received goods from Kolkata — Rs. 30,000.
8. Acceptances and Cash sent to Kolkata - Rs. 20,000 and Rs. 10,000, respectively.
D) Kolkata Branch (apart from the above):
9. Sent goods to Chennai - Rs. 35,000.
10. Paid cash to Chennai - Rs. 15,000.
Acceptances sent to Chennai - Rs. 15,000.
All working should form part of the answer. (May 2003) 8 mark
Answer: Journal Entry In the books of H. O.
30th Mumbai Branch Account Dr. 3,000

April, Chennai Branch Account Dr. 70,000
2003 To Delhi Branch Account 15,000
To Kolkata Branch Account 58,000
(Being adjustment entry passed by H. O. in respect of inter branch transaction for the
month of April, 2003)

Question:11 On 31 March, 2000 Kanpur Branch submits the following Trial Balance to its Head Office at Lucknow:
Debit Balances Rs. in lacs

Furniture and Equipment 18
Depreciation on Furniture 2
Salaries 25
Rent 10
Advertising 6
Telephone, Postage and Stationery 3
Sundry Office Expenses 1
Stock on 1st April, 1999 60
Goods Received from Head Office 288
Debtors 20
Cash at bank and in hand 8
Carriage Inwards 7
448
Credit Balances
Outstanding Expenses 3
Goods Returned to Head Office 5
Sales 360
Head Office 80
448
Additional Information: Stock on 31st March, 2000 was valued at Rs. 62 lacs on 29th March, 2000 the Head Office dispatched goods
costing Rs. 10 lacs to its branch. Branch did not receive these goods before 1 st April, 2000. Hence the figure of goods received from Head
Office does not include these goods. Also the head office has charged the branch Rs. 1 lac for centralized services for which the
branch has not passed the entry. You are required to:
(i) Pass Journal Entries in the books of the Branch to make the necessary adjustments.
(ii) Prepare Final Accounts of the Branch including Balance Sheet, and
(iii) Pass Journal Entries in the books of the Head Office to incorporate the whole of the Branch (CA-16 marks)
Answer (i) Journal Entries in the Books of KANPUR BRANCH (Rs. in lacs.)
Particulars Dr. Cr.

Goods in transit A/c Dr. 10
To Head office A/c 10
(Goods dispatched by head office but not received by branch before 1st April 2000)
Expenses A/c Dr.
1
To Head office A/c 1
(Amount charged by head office for centralised services)
(ii) Trading and Profit & Loss Account of the Branch for the year ended 31st March, 2000
Particulars Rs. in lacs Particulars Rs. in lacs

To Opening Stock 60 By Sales 360
To Goods received from By Closing stock 62
Head office 288
Less: Returns 5 283
7
To Carriage Inwards
To Gross profit c/d 72
422 422
To Salaries 25 By Gross Profit b/d 72
To Depreciation on furniture 2

To Rent 10
To Advertising 6 .
To Telephone, Postage & Stationery 3
To Sundry office expenses 1
To Head office expenses 1
To Net profit Transferred to H.O. A/c 24
72 72
Balance Sheet as on 31st March, 2000
Liabilities Rs. In Lacs Assets Rs. In Lacs

Head office 80 Furniture & equipment 20
Add: Goods in transit 10 Less: Dep.2 18
Head office expenses 1 Stock in Hand 62
Net Profit 24 115 Goods in transit 10
Outstanding expenses 3 Debtors 20
8
Cash at Bank and in Hand
118 118
Question: 12 Give Journal Entries in the books of Branch A to rectify or adjust the following.:
(i) Head Office expenses Rs. 3,500 allocated to the Branch, but not recorded in the Branch Books,
(ii) Depreciation of branch assets, whose accounts are kept by the Head Office not provided for Rs. 1,500.
(iii) Branch paid Rs. 2,000 as salary to a H.O. Inspector, but the amount paid has been debated by the Branch to Salaries
account.
(iv) H.O. collected Rs. 10,000 directly from a customer on behalf of the Branch, but no intimation to this effect has been
received by the Branch.
(v) A remittance of Rs. 15,000 sent by the Branch has not yet been received by theHead Office,
(vi) Branch A incurred advertisement expenses of Rs. 3,000 on behalf of Branch B.
Answer: In the Books of Branch A
Date Particulars Dr. (Rs.) CR. (Rs.)

Expenses account Dr. 3,500
To Head office account 3,500
(Being the allocated expenditure by the head office recorded in branch books)
Depreciation account 1,500
To Head office account 1,500
(Being the depreciation provided)
To Salaries account 2,000
(Being the rectification of salary paid on behalf of H.O.)
To Debtors account 10,000
(Being the adjustment of collection from branch debtors)
No entry is passed for the said transaction in the books of Brach ____ ____
Head Office account 3,000
To Cash account 3,000
(Being the expenditure on account of Branch B, recorded in books)
Question: 13. Alpha& Co., having head office in Mumbai has a branch in Nagpur. The branch at Nagpur is an independent branch
maintaining separate books of account. On 31.3.2011, it was found that the goods dispatched by head office for ` 2,00,000 was
received by the branch only to the extent of ` 1,50,000. The balance goods are in transit. What is the accounting entry to be passed
by the branch for recording the goods in transit, in its books? (CA-May, 2007)

Answer: Nagpur branch must include the inventory in its books as goods in transit.
The following journal entry must be made by the branch:

Goods in transit A/c Dr. 50,000
To Head office A/c 50,000
[Being Goods sent by Head office is still in transit on the closing date]
Question 14.M/s Shah & Co. commenced business on 1.4.2004 with Head Office at Mumbai and a Branch at Chennai. Purchases
were made exclusively by the Head Office, where the goods were processed before sale. There was no loss or wastage in
processing. Only the processed goods received from Head Office were handled by the Branch. The goods were sent to branch at
processed cost plus 10%.. All sales, whether by Head Office or by the Branch, were at uniform gross profit of 25% on their
respective cost. Following is the Trial Balance as on 31.3.2005.
Head Office Branch

Dr. Cr. Dr. Cr.
Capital 3,10,000
Drawings 55,000
Purchases 19,69,500
Cost of processing 50,500
Sales 12,80,000 8,20,000
Administrative expenses 1,39,000 15,000
Selling expenses 50,000 6,200
Debtors 3,09,600 1,13,600
Branch Current account 3,89,800
Creditors 6,01,400 10,800
Bank Balance 1,52,000 77,500
Head Office Current account 2,61,500
Goods received from H.O. 8,80,000
31,15,400 31,15,400 10,92,300 10,92,300
Following further information is provided:
(i) Goods sent by Head Office to the Branch in March, 2005 of Rs. 44,000 were not received by the Branch till 2.4.2005.
(ii) A remittance of Rs. 84,300 sent by the Branch to Head Office was also similarly not received upto 31.3.2005.
(iii) Stock taking at the Branch disclosed a shortage of Rs. 20,000 (at selling price to the branch).
(iv) Cost of unprocessed goods at Head Office on 31.3.2005 was Rs. 1,00,000.
Prepare Trading and Profit and Loss account in columnar form and Balance Sheet of the business as a whole as at 31.3.2005
Answer: Trading and Profit and Loss Account
Particulars H.O. Branch Total Particulars H.O. Branch Total

To Purchases 19,69,500 - 19,69,500 By Sales 12,80,000 8,20,000 21,00,000
To Cost of 50,500 - 50,500 By Goods sent to 9,24,000 - -

processing Branch
- 16,000 14,545
To Goods received By Stock shortage
- 8,80,000 - 44,000
from H.O. By Goods in transit
3,40,000 1,64,000 5,02,545
To Gross profit c/d By Closing stock:
56,000 2,08,000 2,64,000
Processed goods
1,00,000
Unprocessed goods
23,60,000 10,44,000 25,22,545 23,60,000 10,44,000 25,22,545

To Admn. 1,39,000 15,000 1,54,000 By Gross profit b/d 3,40,000 1,64,000 5,02,545
Expenses
50,000 6,200 56,200
To Selling
Expenses - 16,000 14,545
To Stock shortage 22,909 - 22,909
To Stock reserve 1,28,091 1,26,800 2,54,891
To Net profit 3,40,000 1,64,000 5,02,545 3,40,000 1,64,000 5,02,545
Balance Sheet as at 31st March, 2005

Capital 3,10,000 Debtors
Add: Net profit 2,54,891 H.O. 3,09,600
5,64,891 Branch 1,13,600
Less: Drawings 55,000 5,09,891 Closing stock:
Creditors: Processed goods
H.O. 6,01,400 H.O. 56,000
Branch 10,800 6,12,200 Branch 2,08,000
2,64,000
Less: Stock reserve 18,909 2,45,091
Unprocessed 1,00,000
goods Bank Balance
H.O. 1,52,000
Branch 77,500
Goods in transit 44,000 40,000
Less: Stock reserve 4,000
Cash in transit 84,300
11,22,091 11,22,091
Working Notes: 1. Calculation of closing stock: Stock at Head Office:
Cost of goods processed ` (19,69,500 + 50,500 – 1,00,000) 19,20,000

Less: Cost of goods sent to Branch
9,24,000 ×100/110 8,40,000
Cost of goods sold 12,80,000 ×100/125 10,24,000 18,64,000
Stock of processed goods with H.O. 56,000
Stock at Branch:
Goods received from H.O. (at invoice price) 8,80,000

Less: Invoice value of goods sold
8,20,000 ×100/125 6,56,000
Invoice value of stock shortage 20,000x100/125 16,000 6,72,000
Stock at Branch at invoice price 2,08,000
Less: Stock Reserve 2,08,000 x10/110 18,909
Stock of processed goods with Branch (at cost) 1,89,091
2. Stock Reserve:
Unrealized profit on Branch stock (2,08,000x10/110) 18,909

Unrealized profit on goods in transit (44,000x10/110 4,000
22,909
Question:-15. Global Limited has a branch which closes its books of account every year on 31st March. This is an independent
branch which maintains comprehensive books of account for recording their transactions. You are required to show journal entries
in the books of branch on 31stMarch, 2011 to rectify or adjust the following:
(i) Head Office allocates Rs. 1,35,000 to the branch as head office expenses, which have not yet been recorded by
branch.

(ii) Depreciation of branch fixed assets, whose accounts are kept by head office in its books, not yet recorded in the
branch books, Rs. 1,15,000.
(iii) Branch paid Rs. 1,40,000 as salary to an official from head office on visit to branch and debited the amount to its
Salaries Account,
(iv) Head Office collected Rs. 1,30,000 directly from a branch customer on behalf of the branch, but no intimation was
received earlier by the branch. Now the branch learns about it.
(v) It is learnt that a remittance of Rs. 1,50,000 sent by the branch has not been Received by head office till date.
Question:16.The following is the Trial Balance of Malabar Hills Branch as at 30thJune, 2002:
H.O. Account 32,400

Stock on July 1,2001 60,000
Purchases 1,78,000
Goods received from H.O. 90,000
Sales 3,80,000
Goods supplied to H.O. 60,000
Salaries 15,000
Debtors 37,000
Creditors 18,500
Rent 9,600
Furniture 14,000
4,58,500 4,58,500
Additional Information
a) Stock on hand was valued at Rs. 27,000
b) The Branch account in the Head Office Books on 30thJune, 2002 stood at Rs. 4,600 (Debit Balance).
c) On 28thJune, 2002, the Head Office forwarded goods to the value of Rs. 25,000 to the branch where they were received on
3rdJuly, 2002.
d) A cash remittance of Rs. 12,000 by branch on 24thJune was received by H.O. on July 1. Required
1. Journal entries necessary to incorporate the above trial balance.
2. The result of trading at Branch.
3. Malabar Hills Branch Account in the H.O. Books. (ICAI Study Material)
Solution: Step 1: Reconcile Books of Branch
(i) Goods in Transit A/c Dr. 25,000

To Head Office a/c 25,000
(Being goods in transit recorded)
Books of Head Office
(ii) Cash in - Transit A/c Dr. 12,000
To Branch 12,000
(Being Cash in Transit Recognised)
Step 2: Book of Branch Trading & Profit & Loss A/C

To Purchase 1,78,000 By goods Supplied to HO 60,000
To Goods recd HO 90,000 By Closing Stock 27,000
To Gross Profit 1,39,000
4,67,000 4,67,000
To Salaries 15,000 By Gross Profit 1,39,000
To Rent 9,600
To office Expenses 4,700
1,39,000 1,39,000

Branch Balance Sheet
To Creditors 18,500 By Debtors 37,000

By Cash 17,800
To Profit & Loss A/c 1,09,700 By Furniture 14,000
By Stock 27,000
By Goods in Transit 25,000
H.O A/c 7,400
1,28,200 1,28,200
Step 3: Book of HO - Incorporation Journal
Debtors Dr. 37,000

Cash Dr. 17,800
Furniture Dr. 14,000
Stock Dr. 27,000
Goods in Transit Dr. 25,000
To Branch A/c 1,20,800
(Being Sundry Asset incorporated)
Branch A/c Dr. 18,500
To Creditor 18,500
(Being Liability incorporated)
Branch Dr. 109700
To profit and loss account 1,09,700
(Being profit incorporated)
Question:17. KP Ltd. manufactures a range of goods which it sells to wholesale customers only from its head office. In addition, the
H.O. transfers goods to a newly opened branch at factory cost plus 15%. The branch then sells these goods to the general public on
only cash basis. The selling price to wholesale customers is designed to give a factory profit which amounts to 30% of the sales
value. The selling price to the general public is designed to give a gross margin (i.e., selling price less cost of goods from H.O.) of
30%of the sales value. The company operates from rented premises and leases all other types of fixed assets. The rent and hire
charges for these are included in the overhead costs shown in the trial balances. From the information given below, you are
required to prepare for the year ended 31stDec, 2002 in columnar form a Profit & Loss account for (i) H.O. (ii) the branch (iii) the
entire business and a Balance Sheet as on 31st Dec, 2002 for the entire business.
H.O. Branch
Raw materials purchased 35,000

Direct wages 1,08,500
Factory overheads 39,000
Stock on 1-1-2002
Raw materials 1,800
Finished goods 13,000 9,200
Debtors 37,000
Cash 22,000 1,000
Administrative Salaries 13,900 4,000
Salesmen's Salaries 22,500 6,200
Other administrative &
Selling overheads 12,500 2,300
lnter-unit accounts 5,000 2,000
Capital 50,000
Provision for Unrealized
Profit in stock 1,200
Sales 2,00,000 65,200
Goods sent to Branch 46,000
Goods Received from H.O. 44,500
3,10,200 3,10,200 67,200 67,200

Notes:
(1) On 28thDec, 2002 the branch remitted Rs. 1,500 to the H.O. and this has not yet been recorded in the H.O. books. Also on
the same date, the H.O. dispatched goods to the branch invoiced at Rs. 1,500 and these too have not yet been entered
into the branch books. It is the company's policy to adjust items in transit in the books of the recipient.
(2) The stock of raw materials held at the H.O. on 31st Dec, 2002 was valued at Rs. 2,300.
(3) You are advised that:
a) There were no stock losses incurred at the H.O. or at the branch.
b) It is the company's practice to value finished goods stock at the H.O. at factory cost.
c) There was no opening or closing stock of work-in-progress.
(4) Branch employees are entitled to a bonus of Rs. 156 under a bilateral agreement.
(Study Material)
Solution: Trading & Profit & Loss A/C
H.O. Branch Total H.O. Branch Total

To Raw Materials 1,800 1,800 By Sales 65,200 2,00,000 2,65,200
To Opening Stock 9,200 13,000 22,200 By Closing Stock 8,060 15,000 23,060
To Goods reed form By Goods send
Head Office 44,500 to purchaser 46,000
By Closing
To Raw Material 35,000 35,000 Stock-Raw
Purchase material
By Gross Total 23,000 23,000
To Direct Wages 1,08,500 1,08,500 1,500
To Factory overhead 39,000 39,000

To Gross profit 19,560 66,000 85,560
1,19,260 2,38,000 3,57,260 1,19,260 2,38,000 3,57,260
By Gross Profit 19,560 66,000 85,560

By provision
unrealised profit
1,200 1,200
To Adm. Salaries 4,000 13,900 17,900
To Sales man's Comm.
To Adm. & Selling of HS 6,200 22,500 28,700
To Bonus to
employees 2,300 12,500 14,800
To Net Profit
156 156
6,904 18,300 25,204
19,560 67,200 86,760 19,560 67,200 86,760
Consolidated Balance Sheet
Capital 50,000 Debtors 37,000

Creditor 13,000 Cash 22,000
Profit & Loss 1.8,300 (+) Branch 1,000 23,000
(+)Branch 6,904
(-) Opening Profit 1,247 23,957 Cash-in-transit 1,500
Provision for unrealised Profit 12,347 Stock:
Bonus payable 156 Finished Goods - HO Finished 15,000
Goods - Branch 8,060
Raw Material - HO 2,300
Goods-in-transit 1,500
88,360 88,360

W.NOTES
Cash-in-transit Dr. 1,500

To Branch 1,500
(Being of Head Office)
Goods-in-transit Dr. 15,00
To Head Office 1,500
(Being branch)
Branch Balance Sheet
To Head Office 2000 By Cash 1,000

(+)Goods-in-transit 1,500 3,500 By Goods-in-transit 1,500
To Profit & Loss 6,904 By Stock 8,060
To Bonus payable 156
10,560 10,560
Head Office Stock Account
To Balance- Raw Materials 1,800 By Sales(30% 2,00,000) 1,40,000

- Finished Goods 13,000 By Goods sent to Branch 40,000
To Raw material 35,000 By Closing Stock-Raw material 2,300
To Direct wages 1,08,500 - Finished Goods 15,000
To Factory overhead 39,000
1,97,300 1,97,300
Question:18.M/s Surplus commenced business on 1.04.2009 with the head office at Ahmedabad and branch at Surat. All goods
were purchased by head office and normally packed immediately, but on 31.3.2010, goods costing Rs. 5,000 remained unpacked.
Only the packed goods were sent to the branch which was charged at selling price less 10%. The following information is furnished
to you as on 31stMarch 2010, from the Head Office and Branch Office books:
Particulars H.O. (Rs.) Branch (Rs.)

Capital Account 40,000
Drawings by Proprietor 10,000
Purchases 4,00,000
Packing materials bought 6,000
Sales 3,20,000 1,00,000
Dispatch of goods to Branch 1,13,400
Selling expenses 16,000 800
Clerk's salary, wages, etc. 20,000 3,000
Sundry Debtors 28,000 4,200
Sundry Creditors 26,600 5,000
Head Office Current A/c 12,000
Branch Office Current A/c 19,000
Bank Balances 2,000
Goods received from Head Office 1,08,000
Information
a) Sales by head office were on uniform gross profit, after charging packing materials, of 20% at the fixed selling price.
b) Sales at Branch were at fixed selling price.
c) Goods invoiced and dispatched by head office to branch in March 2010 for Rs. 5,400 were received in the Branch only on
10thApril.
d) Stock of packing materials at head office as on 31stMarch 2010 was valued at Rs. 1,000.
e) Remittance of Rs. 1,600 from the branch to the Head Office was in transit on 31.3.2010.
f) Rs. 2,000 worth of stock at selling price was damaged at the branch. For valuing stock, this was reduced by Rs. 1,090
below the invoice cost to the branch. It was decided that the Head office and branch would share equally the loss
occasioned by this and also the deficit in stock, ascertained on actual stock taking at the Branch of goods at selling price of
Rs. 500.
Prepare Trading and Profit and Loss Account of Surat and Ahmedabad Office and also a Balance Sheet as at 31.3.2010 of the
business. (RTP-Nov-10)

Particulars H.O. Branch Particulars H.O. Branch

(Rs.) (Rs.) (Rs.) (Rs.)
To Purchases 4,00,000 By Sales 3,20,000 1,00,000
To Packing material 5,000 By Goods sent to Branch A/c 1,13,400
consumed (6,000-1,000) (in transit Rs. 5,400)
To Goods from H.O. 1,08,000 By Stock damaged and 1,540
shortage
To Gross Profit c/d 76,600 10,000 By Closing Stock (includes 48,200 16,460
[Working Notes (i) & (ii)] unpacked goods of Rs. 5,000)
(Bal.fig.)
4,81,600 1,18,000 4,81,600 1,18,000
To Salaries and Wages 20,000 3,000 By Gross Profit b/d 76,600 10,000
To Selling Expenses 16,000 800
To Stock Reserve 2,350
(Unrealised Profit)
To Stock damaged and 770 770
shortage
To Net Profit t/f to 37,480 5,430
Capital A/c
76,600 10,000 76,600 10,000
Balance Sheet as at 31stMarch, 2010

Capital 40,000 Stock-in-trade:
Add: Net Profit 42,910 H.O.: Packed 43,200
82,910 Unpacked 5,000
Less: Drawings 10,000 72,910 Packing Material 1,000 49,200
Sundry Creditors: Branch: In hand 16,460
H.O. 26,600 In transit 5,400
Branch 5,000 31,600 21,860
Less: Unrealised Profit 2,350 19,510
Sundry Debtors: H.O. 28,000 32,200
Branch 4,200 2,000
Cash at Bank 1,600
Cash-in-transit
1,04.510 1,04.510
Working Notes:
Gross Profit made by Head Office (20% of Sales of Rs. 3,20,000) 64,000
10/90 of Goods sent to Branch [(Rs. 1,08,000 + Rs. 5,400) x 1/9] 12,600
(Since Invoice Price is 90% of normal selling price) 76,600
The Gross Profit made by branch is 10% of sales (10% of Rs. 1,00,000) 10,000
The amount to be written off at invoice value at branch is:
Amount written off on damaged goods 1,090
Invoice price of deficit in stock (Rs. 500 x 90/100) 450 1,540
Value of damaged goods included in Closing Stock
Selling Price of Goods Damaged
Invoice Price of Goods Damaged (Rs. 2,000 x 90/100) 2,000
Amount already written off 1,800
Amount still included in Closing Stock (B - C) 1,090
Calculation of Stock Reserve Required 710
Stock (as per Trading Account) 16,460
Less: Value of damaged goods included 710
Value of undamaged in hand (A-B) 15,750
Add: Goods-in-transit 5,400
Value to Total Goods (C + D) 21,150
Stock Reserve required (Rs. 21,150x 10/90) 2,350

Question:19.Goods sent to a branch were charged by the head office at cost plus 10 percent. Head Office makes a uniform gross
profit of 33-1/3% on selling price. The Branch sells goods at a uniform gross profit of 25% on selling price. The following transactions
have taken place during the year ended on 31stMarch 2010.
a) Head Office purchases amounted to Rs. 15,02,350, purchases returns were Rs. 1,00,000 and discount allowed by suppliers
amounted to Rs. 30,090.
b) Sales by Head Office amounted to Rs. 10,80,000. Goods sent to branch were Rs. 5,44,500 (at invoice price), discount
allowed to customers amounted to Rs.9,180.
c) Goods sent to Branch for Rs. 66,000 in March, were not received at the Branch until April.
d) Branch purchased goods locally for Rs. 1,87,500, discount allowed by suppliers amounted toRs. 4,875.
e) Overhead expenses of Head Office were Rs. 2,80,260, and of Branch Rs. 80,475.
f) Sales by the Branch amounted to Rs. 7,20,000, discount allowed to customers amounted to Rs. 5,640 and cost of goods
lost-in-transit was Rs. 8,010.
g) Branch Stock as on 31st March, included stock invoiced by Head Office at Rs. 1,15,500.Prepare columnar Trading and Profit
and Loss Account of Head Office and the Branch for the year ending 31st March 2010.
(RTP May 11)
Particulars H.O. Branch Total Particulars H.O. Branch Total

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
To Purchases less 14,02,350 1,87,500 15,89,850 By Sales 10,80,000 7,20,000 18,00,000
returns
To Goods from H.O, 4,78,500 - By Goods sent to 4,78,500 - -
less in transit Branch
To Gross Profit 4,03,500 1,80,000 5,83,500 By Goods lost in - 8,010 8,010
c/d (W.N .4) transit
By Closing
Stock
(W.N.1&2) 2,47,350 1,17,990 3,65,340
18,05,850 8,46,000 21,73,350 18,05,850 8,46,000 21,73,350
To Expenses 2,80,260 80,475 3,60,735 By Gross profit 4,03,500 1,80,000 5,83,500
To Discount 9,180 5,640 14,820 By Discount 30,090 4,875 34,965
Allowed allowed
To Goods lost in - 8,010 8,010
transit
To Stock Reserve 10,500 - 10,500
(W.N.3)
To Net Profit 1,33,650 90,750 2,24,400
4,33,590 1,84,875 6,18,465 4,33,590 1,84,875 6,18,465
Working Notes:
Closing stock at head office

Purchases less returns 14,02,350
Less:(a) Cost of Sales.(Rs. 10,80,000 x 2/3) 7,20,000
(b) Cost of goods sent to Branch
(Rs. 4,78,500 x 100/110) 4,35,000 11,55,000
Closing stock at Branch
Branch local purchases 1,87,500
Add: Goods received from head office 4,75,500
6,66,000
Less:(a) Cost of Branch Sales (Rs. 7,20,000 x 3/4)
(V) Goods lost-in-transit 8,010 5,48,010
Stock Reserve at Branch [Rs. 1,15,500x10/110] 10,500
Gross profit of Head Office (10,80,000 x 33.333%) 3,60,000
Add: Loading on goods sent to branch [4,78,500x10/110] 43,500
4,03,500

CHAPTER 13. DEPARTMENTAL ACCOUNTING
Question:1 From the following figures prepare accounts to disclose total profit and the profit of the two departments.
X and Y :
Rs. Rs.
Opening Stock : X 15,200 Sales : X 1,00,000
Y 10,800 Y 80,000
Purchase : X 75,100 Purchase Returns : X 1,100
Y 69,800 Y 800
Carriage inwards 2,860 1,430
Salaries : X 9,000 Discount Received
Y 8,500
General (Salaries) 11,600
Rent and Rates 6,000
Advertising 8,100
Insurance 1,000
Discount Allowed 1,800
Accountancy charges 500
The following Further information is supplied:
(a) Goods transferred from department X to Y were Rs. 5,000. This has not been recorded.
(b) General salaries are to be allocated equally.
(c) Allocate carriage inward and discount received on suitable basis.
(d) The area occupied is in the ratio of 3: 2.
(e) Insurance premium is for a comprehensive policy, allocation being inconvenient.
(f) The closing Stocks of the two departments were: X, Rs. 17,800 and Y, Rs. 15,600.
(g) Allocate Advertising, General Expenses and Discount Allowed in the ratio of Sales.
( BAHUT HI AASAN QUESTION)
Question:2 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 & Loss Account for the year ended 31-3-1994 and
also ascertain the Net Profit to be transferred to Balance Sheet.
Particulars Department P Rs, Department Q Rs,
Opening stock 1,00,000 Nil
Purchases 23,00,000 2,00,000
Goods from Department P ----------- 7,00,000
Wages 1,00,000 1,60,000
Traveling expenses 10,000 1,40,000
Closing stock at cost to the Dept. 5,00,000 1,80,000
Sales 23,00,000 15,00,000
Printing and stationary 20,000 16,000
The following expenses incurred for both the departments were not apportioned between the departments:
(a) Salaries Rs. 2,70,000
(b) Advertisement expenses Rs. 90,000
(c) General expenses Rs. 8,00,000
(d) Depreciation @25% on the machinery value of Rs 48,000. Advertisement expenses are to be apportioned in the turnover ratio,
salaries in 2:1 ratio and depreciation in 1:3 ratio between departments P and Q. General expenses are to be apportioned in 3:1
ratio. (TYPICAL QUESTION BUT ………..) (CA-1994 May, 20 Marks)
Question:3 From the following balance extracted from the books of Lux cozi , Prepare Departmental Trading Account and
General Profit & Loss Account for the year ended 3 1 s t October, 2001 and a Balance Sheet as on that date after adjusting the
unrealized departmental profits if any:-

Dr, ( Rs,) Cr, { Rs,)

Capital 3,00,000
Land & Building 1,25,000
Furniture 25,000
Opening stock Dept, A 30,000
Dept, B 40,000
Purchases Dept, A 10,00,000
Dept, B 15,00,000
Sales Dept, A 20,00,000
Dept, B 32,00,00
General Expenses 14,00,000
Drawings 2,80,000
Cash & Bank 10,00,000
Total 56,00,000 56,00,000
1. Closing stock of Dept A Rs. 1,30,000 including goods from dept B Rs. 40,000 at cost to Dept A and Dept B Rs. 2,60,000
including goods from Dept A Rs. 90,000 at cost to Dept B.
2. Sale of Dept A include transfer of goods to Dept B of the value of Rs. 2,00,000 and sales of Dept B include transfer of
goods to Dept A of the value of Rs. 3,00,000 both at market price to transferor Depts.
3. Opening stock of Dept A and Dept B, includes goods of the value of Rs. 10,000 and Rs. 15,000 taken from Dept B and
Dept A respectively at cost to transferee Dept.
4. Depreciate Land & building by 5% and furniture by 10% p.a.(ICWA-INTER, CA- PE 2- 16 marks)
Question:4 A Company manufacturing electronic components operates with Departments. Transfers are made between the
departments of both purchased goods and manufactured finished goods. Goods purchased are transferred at cost and
manufacturing goods are transferred only at selling price as is the case with open market. Transactions for the year ended 30th
June, 2017 are given below:
Particulars Dept. X Rs. Dept. Y Rs.
Opening stock 20,000 15,000
Sales 1,90,000 1,35,000
Wages 12,500 7,500
Purchases 1,00,000 80,000
Closing stock:
Purchased goods 2,000 5,000
Manufactured goods 7,000 8,000
The following were the transfers
From Dept. X to Dept. Y :- purchased goods Rs. 6,000 and Finished goods Rs. 20,000 and
from Dept. Y to Dept. X :- Purchased goods Rs. 5,000 and finished goods Rs. 35,000. Stocks were valued at cost to the Dept.
concerned. Only in closing stock of manufactured goods in the Dept, transferred finished goods are 20%. Draw out Departmental
Trading Account and the General P/L Account for the year ended 30th June. 2017.
Question:5 Calculate stock Reserve. A,B,C are three departments:

Content Ratio Profit Ratio Closing stock
A Nil ¼ of sales 15,000
B 2/10 1/5 of cost 22,000
C 5/15 not available 40,000
Assume A sales to B and B sales to C. (Ans: Stock reserve 3878)

Question:6 Calculate stock Reserve. A,B,C,D are four departments:
Content Ratio Profit Ratio Closing stock
A Nil 1/10 of cost 40,000
B 7/15 ¼ of cost 50,000
C 8/20 1/6 on sales 70,000
D 6/24 1/10 of sales 80,000
Assume A sales to B, B sales to C and C Sales to D. ( KUCHH ACHCHHA SA FEEL HO RAHA HAI, PATA NAHI KYON )
Question:7 FGH Ltd. has three departments I.J.K. The following information is provided for the year ended 31.3.2004:
I J K
Rs. Rs. Rs.
Opening stock 5,000 8,000 19,000
Opening reserve for unrealized profit …… 2,000 3,000
Material 16,000 20,000 ……
Direct Labour 9,000 10,000 ……
Closing stock 5,000 20,000 5,000
Sales ……. ……. 80,000
Area occupied (Sq.mtr.) 2,500 1,500 1000
No. of employees 30 20 10
Stock of each department are at cost to the department concerned. Stock of dept. I are transferred to Dept. J at cost plus 20% and
stock of J are transferred to K at a gross profit of 20% on sales. Other common expenses are Salaries and Staff Welfare Rs.18,000
,Rent Rs. 6,000. Prepare Departmental Trading, profit and Loss Account for the year ending 31.3.2004. (CA-IPCC, CMA-INTER)
Question:8 A firm had two departments, cloth and readymade clothes. The clothes were made by the firm it sells out of cloth
supplied by the cloth department at its usual selling price. From the following figures prepare departmental Trading and Profit &
Loss accounts for the year ended 31st March, 2017:-
Cloth Department Readymade clothes
Rs. Rs.
Opening stock on 1st April, 2016 3,00,000 50,000
Purchases 20,00,000 15,000
Sales 22,00,000 4,50,000
Transfer to Readymade Clothes Department 3,00,000
Expenses—Manufacturing 60,000
Selling 20,000 6,000
Stock on 31st march, 2017 2,00,000 60,000
The stocks in the readymade clothes department may be considered as consisting of 75% cloth and 25% other expenses. The cloth
Department earned gross profit at the rate of 15% in 2015-16. General expenses of the business as a whole came to Rs. 1,10,000.
(CA- Inter- 12 marks)

Question:9 Complex Ltd. has three departments A, B and C the following information is provided;-
Particulars A B C
Rs. Rs. Rs.
Opening stock 3,000 4,000 6,000
Consumption of Direct Materials 8,000 12,000
Wages 5,000 10,000
Closing Stock 4,000 14,000 8,000
Sales 34,000
Stocks of each department are valued at cost to the department concerned. Stocks of A department are transferred to B at a
margin of 50% above departmental cost. Stocks of B department are transferred to C department at a margin of 10% above
departmental cost. Other expenses were:
Salaries Rs. 2,000 , Printing & Stationary Rs. 1,000

Rent Rs. 6,000 Interest paid Rs. 4,000
Depreciation Rs. 3,000
Allocate expenses in the ratio of departmental gross profit. Opening figures of unrealized profit on departmental stocks were :
Department B:1,000, Department C: 2,000. Prepare Departmental Trading and Profit & Loss a/c. (CMA- Inter 16 marks)
Question:10 X Ltd. has two departments A and B. Form the following particulars prepare the consolidated Trading Account and
Departmental Trading Account for the year ending 31st December, 2002
A B
Rs. Rs.
Opening Stock (at cost) 20,000 12,000
Purchases 92,000 68,000
Sales 1,40,000 1,12,000
Wages 12,000 8,000
Carriage 2,000 2,000
Closing Stock:
(i) Purchased Goods 4,500 6,000
(ii) Finished Goods 24,000 14,000
Purchased goods transferred:
By B to A 10,000
By A to B 8,000
Finished goods transferred:
By A to B 35,000
By B to A 40,000
Return of finished goods:

By A to B 10,000
By B to A 7,000
You are informed that purchased goods have been transferred mutually at their respective departmental purchase cost and
finished goods at a profit of 25% over dept. cost and that 20% of the finished stock (closing) at each department represented
finished goods received from the other department. (CA-INTER 16 MARKS)
Question:11 Telerad & Co. has two departments A and B. From the following particulars, Prepare Departmental Trading
Account and Consolidated Trading Account for the year ending on 31st March, 2002
Department A (Rs.) Department B (Rs.)
Opening stock (at cost) 1,00,000 60,000
Purchase 4,60,000 3,40,000
Carriage inward. 10,000 10,000
Wages 60,000 40,000
sales (excluding inter-transfer) 7,00,000 5,60,000
Purchased goods transferred;
By B to A 50,000
By A to B 40,000

Finished goods transferred:
By B to A 1,75,000
By A to B 2,00,000
Return of finished goods:
By B to A 50,000
By A to B 35,000
Closing Stock:
Finished goods 1,20,000 70,000
Purchased goods have been transferred at their respective departmental purchase cost and finished goods at departmental market
price. 20% of finished stock (closing) at each department represented finished goods received from the other department.
(CA –Inter 1993-may)15 Marks
Ans.: Departmental trading account
Particulars Deptt. A Deptt. B Particulars Dept. A Dept. B
To opening stock 1,00,000 60,000 By Sales 7,00,000 5,60,000
To purchases 4,60,000 3,40,000 By inter-Deptt. Transfer
To Inter-Deptt. Transfer: Purchased goods 40,000 50,000
Purchases goods 50,000 40,000 Finished goods 2,00,000 1 75,000
Finished goods 1,75,000 2,00,000 Less: Stock Reserve 50,000 35,000
Less: Returns 35,000 50,000 1,50,000 1,40,000
1,40,000 1,50,000 By Closing Stock
To Carriage inward 10,000 10,000 Finished Goods 1,20,000 70,000
To Wages 60,000 40,000
To Gross Profit 2,12,500 2,10,000
10,32,000 8,50,000 10,32,000 8,50,000
Question:12 In the month of January, 1990 the following purchases were made by a business house having three departments:
Department A 1,000 units
Department B 2,000 units at a total cost of Rs. 1,00,000.
Department C 2,400 units
Stock on 1st January were:
Department A 120 units

Department B 80 units
Department C 152 units
The sales for the month were:

Department A 1,020 units at Rs. 20.00 each
Department B 1,920 units at Rs. 22.50 each
Department C 2,496 units at Rs. 25.00 each
The rate of Gross Profit is the same in each case. Prepare Departmental Trading Accounts.

Question:13 Becket & Co Purchased goods for its three departments as follows:
Department: X 4,000 Units
Department: Y 9,000 Units Total Cost Rs.
Department: Z 4,000 Units 1,10,000
Sales of three departments were as follows:
Department: X 3,600,Units @ Rs. 7.50 per unit

Department: Y 9,800 Units @ Rs. 9.00 per unit
Department: Z 3,650 Units @ Rs. 13.50 per unit
Opening Stock as on 01-01-2002 was as follows:
Department: X 200 Units

Department: Y 1,400 Units
Department: Z 150 Units
Assuming that the gross profit ratio is uniform in all the three departments, prepare trading A/c for the year ended 31 st December
2002. (CMA- INTER , IPCC Group 2)
Ans. Gross Profit -X 9000 ,Y 29,400, Z 16,425, GP Ratio 33.33% as Sale
Question 14. A Ltd. has a factory which has two manufacturing departments X and Y. Part of the output of X Department is
transferred to Y Department for further processing and the balance is directly transferred to the Selling Department. Inter-
departmental stock transfers are made as follows:
X Department to Y Department of 33 1/3 % over-departmental cost.

X Department to Selling Department of 50% over-departmental cost.
Y Department to Selling Department of 25% over-departmental cost.
The following information is given for the year ending 31st March, 1986:
Particulars Department X Department Y Selling Department
MT Rs. MT Rs. MT Rs.

Opening Stock 60 60,000 20 40,000 50 1,45,000
Raw Material Consumption 90 1,00,000 20 20,000 - -
Labour Charges - 50,000 - 80,000 -
Sales - - - - 5,00,000
Closing Stocks 30 - 50 - 60 -
Out of the total production in X Department, 30 MT were transfer to the Selling Department. Apart from these stocks which were
transferred during the year the balance output of X Department were for transfer to Y Department. The per tonne material and
labour consumption in X Department on production to be transferred directly to the Selling Department is 300 per cent of the
labour and material consumption on production meant for Y Department. (i) Prepare Departmental Profit and Loss Account, and
(ii) General Profit and Loss Account ignoring material wastages. [CA Inter Nov., 1976 & Nov., 1981, adapted]
RECTIFICATION OF ERROR
QUESTION 15. Department X sells goods to Department Y at a profit of 25% on cost and to Department Z at 10% profit on cost.
Department Y sells goods to X and Z at a profit of 15% and 20% on sales, respectively. Department Z charges 20% and 25% profit on
cost to Department X and Y respectively.
Department Managers are entitled to 10% commission on net profit subject to unrealized profit on Departmental sales being
eliminated. Departmental profits after charging Managers' commission, but before adjustment of unrealized profit are as under:
Department X Rs. 36,000

Department Y Rs. 27,000
Department Z Rs. 18,000

Stock lying at different departments at the end of the year are as under:
Dept. X Rs. Dept. Y Rs. Dept. Z Rs.
Transfer from department X ......... 15,000 11,000

Transfer from department Y 14,000 …….. 12,000
Transfer from department Z 6,000 5,000 ……..
Find out correct profits after charging managers’ commission. (PE2, Nov 2001- 8 marks, (CMA Inter, IPCC Group 2))
QUESTION 16. Booming Limited has three departments. They are Alpha, Beta and Gamma. The profit of these departments are Rs.
30,000, Rs 40,000,and Rs. 17,400 respectively, (Before charging manager’s commission and unrealized profit on stock transfers).
Department Alpha transfers its goods @ 20% profit on cost to other departments while Beta transfers its goods @ 10% profit on
cost. Department Gamma transfers its goods at cost to other departments. However, respective Deptt.’s original goods are only
transferred. On scrutiny of records you find,
(i) Purchases made for Alpha Deptt. Rs. 10,000 has been debited in Beta Dept. Account.
(ii) Goods sent on ‘sale or return basis’ by Beta Deptt. @ 120% ,have been recorded as regular Sale at Rs. 8,400
(iii) General expenses amounting to Rs. 2,100 have been excessively charged in Gamma Dept. instead of Beta Deptt.
(iv) The following transfers were made:
Deptt. Alpha To Beta 24,000 12,000 still in closing stock
To Gamma 3,600
Deptt. Beta To Gamma 11,000 4,400 still in closing stock
Deptt. Gamma To Alpha 7,700 3,000 still in closing stock
(v) Commission payable to the Manager @ 10% on correct overall Company profit after charging such commission. Find correct
Net profit of the Company and the commission payable to the General Manager.
Solution:
Alpha Beta Gamma
Profit 30,000 40,000 17,400
Rectification of Purchase (10,000) 10,000 —
Sale on Return
Sales — (8,400) —
Stock — 7,000 —
(8,400x100/120)
Expenses — (2,100) 2,100
Profits 20,000 46,500 19,500
Calculation of Stock Reserve
Stock of Ratio 12,000 x 1/6 = 2,000
Stock of Gamma 4,400 x 1/11 = 4,00
Stock of Alpha 3,000 x 0 0
2,400
Calculation of Co. Profit
Alpha 20,000
Beta 46,500
Gamma 19,500
(-) Closing Stock Reserve 86,000

2,400
Correct Profit
Commission (83,600 x 10/110) 83,600
Profit after Commission 7,600
76,000

Question:- 17 Department R sells goods to Department S at a profit of 25% on cost and Department T at 10% profit on cost.
Department S sells goods to R and T at a profit of 15% and 20% on sales respectively. Department T charges 20% and 25% profit on
cost to Department R and S respectively. Department Managers are entitled to 10% commission on net profit subject to unrealised
profit on departmental sales being eliminated. Departmental profits after charging Manager's commission, but before adjustment
of unrealised profit are as under
Department R 54,000
Department S 40,500
Department T 27,000
Stock lying at different departments at the end of the year are as under:
Dept. R Dept. S Dept. T
Transfer from Department R ----- 22,500 16,500
Transfer from Department S 21,000 ---- 18,000
Transfer from Department T 9,000 7,500 -----
Find out the correct departmental profits after charging Manager's commission
Answer:- R S T
Profit 54,000 40,500 27,000

Add: Managerial commission (1/9) 6,000 4,500 3.000
60,000 45,000 30,000
Less: Unrealised profit on stock (Refer W.N.) 6,000 6.750 3,000
54,000 38,250 27,000
Less: Managers' commission @ 10% 5,400 3,825 2,700
48,600 34,425 24,300
Working Notes:: Value of unrealized profit
Transfer by department R to
S department (22,500 x25/125) = 4,500
T department (16,500 x10/110) = 1,500
6,000
Transfer by department S to
R department (21,000 x 15/100) = 3,150
T department (18,000 x 20/100) = 3,600
6,750
Transfer by department T to
R department (9,000 x 20/120) = 1,500

S department (7,500 x 25/125) = 1,500
3,000
Question:- 18 Brahma Limited has three departments and submits the following information for the year ending on 31st
March, 2011.
Particulars A B C Total (Rs.)

Purchases (units) 5,000 10,000 15,000
Purchases (Amount) 8,40,000
Sales (units) 5,200 9,800 15,300
Selling price (Rs. per unit) 40 45 50
Closing Stock (Units) 400 600 700
You are required to prepare departmental trading account of Brahma Limited assuming that the rate of profit on sales is uniform in
each case. ( CA-IPCC Exam)

Answer: Departmental Trading Account for the year ended 31st March.2011
Particulars A Rs. B Rs. C Rs. Particulars A Rs. B Rs. C Rs.

To Opening Stock 14,400 10,800 30,000 By Sales 2,08,000 4,41,000 7,65,000
(W.N. 4) By Closing stock 9,600 16,200 21,000
To Purchases 1,20,000 2,70,000 4,50,000 (W.N.4)
(W.N. 2)
To Gross profit 83,200 1,76,400 3,06,000
2,17,600 4,57,200 7,86,000 2,17,600 4,57,200 7,86,000

Working Notes: 1. Profit Margin Ratio
Department A (5,000 units x Rs. 40) 2,00,000

Department B (10,000 units x Rs. 45) 4,50,000
Department C (15,000 units x Rs. 50) 7,50.060
Total selling price of purchased units 14,00,000
Less: Purchases (8,40,000)
Gross profit 5,60.000
Profit Margin ratio = Gross Profit/ Selling price X 100 = 5, 60,000/14, 00,000 x 100 = 40%
Statement showing department-wise per unit cost and purchase cost

Particulars A B C
Selling price per unit (Rs.) 40 45 50
Less: Profit margin @ 40% (Rs.) (16) (18) (20)
Purchase price per unit (Rs.)

No. of units purchased 24 27 30
Purchases (purchase cost per unit x units 5,000 10,000 15,000
purchased) 1,20,000 2,70,000 4,50,000
(1) Statement showing calculation of department-wise Opening Stock (in units)
Particulars A B C
Sales (Units) 5200 9800 15300
Add: Closing Stock (Units) 400 600 700
5,600 10,400 16,000
Less: Purchases (Units) (5,000) (10,000) (15,000)
Opening Stock (Units) 600 400 1000
(2) Statement showing department-wise cost of Opening and Closing Stock
Particulars A B C
Cost of Opening Stock (Rs.) 600X24 400 X 27 1,000x30
14,400 10,800 30,000
Cost of Closing Stock (Rs.) 400X24 600X27 700x30
9,600 16,200 21,000
QUESTION 19. You are given the following particulars of a business having three departments:
Purchase Opening Stock Closing Stock

Deptt. A 1,500 units 200 units 100 units
Deptt. B 1,000 units 300 units 160 units
Deptt. C 2,000 units 150 units 200 units
1) Purchases were made at a total cost of Rs. 1,84,000.

2) The percentage of gross profit on turnover is the same in each case.
3) Purchases and sales prices are constant for the last few years.
4) Selling price per unit Deptt. A Rs. 40
Deptt. B Rs. 50
Deptt. C Rs. 60

You are required to prepare Departmental Trading Accounts.
Hints:- Computation of Sale proceeds of each Deptt.:
Opening stock + Purchases - Closing stock) x Selling Price
A 200+1,500-100 or 1,600 units @Rs. 40 = 64,000
B 300+1,000-160 or 1,140 units @Rs. 50 = 57,000
C 150 + 2,000-200 or 1,950 units @Rs. 60 = 1,17,000
2,38,000
QUESTION 21. Gram Udyog, a retail store, has two department. ‘Khadi and Silks’ for each of which stock account and
memorandum ‘mark up’ account are kept. All the goods supplied to each department are debited to the stock account at cost plus
‘mark up’, which together make-up the seller price of the goods and in the account, the sale Proceeds of the goods are credited.
The amount of ‘mark-up’ is credited to the Departmental Mark up Account. If the selling price of any goods is reduced below its
normal selling prices, the reduction ‘market down’ is adjusted both in the Stock Account and the Departmental Mark-up Account.
The rate of mark-up for khadi department is 33-1/3% of the cost and for Silks Department it is 50% of the cost. The following
figures have been taken from the books for the year ended Department 31,2002:
Khadi D Rs. Silk D Rs.
Stock as on January 1st at cost 10,500 18,600
Purchases 75,900 93,400
Sales 95,600 1,25,000
(1) The stock of Khadi on January 1,2002 included goods the selling price of which has been market down by Rs. 1,260, These
goods were sold during the year at the reduced prices.
(2) Certain stock of the value of Rs. 6,900 purchased for the khadi Department were later in the year transferred to the Silks
department and sold for Rs. 10,350. As a result, though cost of the goods is included in the Khadi department the sales
proceeds have been credited to the Silks Department.
(3) During the year 2002 to promote sales the goods were marked down as following:
Cost Rs. Marked down
Khadi 5,600 360
Silk 10,000 2,000
All the goods marked down, were sold except Silk of the value of Rs. 5,000 marked down by Rs. 1,000.
(4) At the time of stock-taking on December 31,2002 it was discovered that Khadi cloth of the cost of Rs. 390 was missing and
it was decided that the amount be written off.
You are required to prepare for both the departments for the year 2002.
(a) The Memorandum Stock Account; and

(b) The Memorandum Mark up Account,
Ans: Stock Account Silk 51,350 Khadi 8,260

Stock Reserve Silk 16,450 Khadi 2,065
Profit Silk 41,000 Khadi 22,685
Hint: Stock Reserve Silk (51,350 +1,000) x 1/3 -1000 = 16,450

Khadi 8260 x ¼ = 2,065

QUESTION 22. Fairways Limited is a retail organization with several departments. Goods supplied to each department are debited
to a memorandum, departmental stock account at cost plus a fixed percentage (mark-up) to give the normal selling price. The mark
up is credited to a memorandum departmental 'Mark-up account"; any reduction in selling prices (markdown) require adjustment
in the stock account and in mark-up account. The mark up for Department A for the last three years has been 40% of cost. Figures
relevant to Department A for the year ended 30thJune, 2012 were as follows:
Stock 1st July, 2011, at cost 80,000

Purchase, at cost 1,80,000
Sales 3,20,000
It is further ascertained that:

Goods purchased in the period were marked down by Rs. 1,400 from a cost of Rs. 16,000. Marked-down stock costing Rs. 4,000
remained unsold on 30th June, 2012.
Stock shortages at the year end, which had cost Rs. 1,200, were to be written off.
Stock at 1st July, 2011 included goods costing Rs. 8,200 which had been sold during the year and had been marked down in the
selling price by Rs. 740. The remaining stock had been sold during the year.
The departmental closing stock is to be valued at cost subject to adjustments for mark-up and mark-down.
(i) Departmental Trading Account for ‘A’ Department for the year ended June, 2012 in Head Office books;
(ii) A Memorandum Stock Account for the year;
(iii) A Memorandum Mark-up Account for the year.
Solution: Trading Account (Department A)

To Purchase 1,80,000 By Shortage 1,200
To Gross Profit c/d 90,150 By Closing Stock
(Working Note 3) 28,950
3,50,150 3,50,150
Memorandum Stock Account for the department
July 1 To Balance b/d By Stock shortage A/c

Cost 80,000 P & L A/c 1,200
Mark-up 32,000 Mark-up A/c 480 1,680
1,12,000 By Mark-up A/c 1,400
Less: Mark down 740 1,11,260 By Debtors A/c (Sales)
Purchase: Ex. Opening Stock 1,11,260

Cost 1,80,000 Current Purchase 2,08,740 3,20,000
Mark-up 72,000 2,52,000 2012
June30 By Balance c/d (W. N.-l) 40,180
Memorandum Mark-up accounts
To Memo-stock A/c July 1 By Balance b/d (32,000 - 740) 31,260

re-shortage 480 By Stock A/c 72,000
To mark down 1,400 1,880
To Gross profit
transferred to
P&LA/c 90,150
2012
June 30 To Balance c/d 11,230
1,03,260 1,03,260

CHAPTER 14. ROYALTY ACCOUNT
Question 1.The Consett Colliery took a lease of a mine from Big Company for a period of 30 years from 1st January, 1995 upon the
terms of a royalty of 50 paise per tonne upon the output with a minimum rent of Rs. 10,000 in the first year and then increasing
every year by Rs. 1,000, till it reaches Rs. 13,000 when it becomes fixed for all the coming years. The Consett Colliery Company was
granted the right of recouping short working of any year in the subsequent 3 years and not afterwards. The following was the
production of the first 5 years:
1995 3,000 tonnes
1996 18,000 tonnes
1997 24,000 tonnes
1998 30,000 tonnes
1999 32,000 tonnes
Show journal entries in the books of Consett Colliery Company when —there is no minimum rent account.
Question:2 Hindustan Steel Ltd. obtained a lease from Gondwana Coal Ltd. for a coal mine on 1st January 1994 on the following
terms and conditions :
Royalty at Re. 1 per tonne raised.

(1)
Minimum rent Rs. 12,000 p.a.
(2)
Recoupment of short working on each year during three years following subject to a maximum of Rs. 2,500 p.a.
(3)
In the event of the strike, the minimum rent would be taken pro rata on the basis of actualworking days, but in the event of
(4)
lock-out, the lessee would enjoy a concession in respect ofminimum rent for 50% of the period of lock-out.
Besides the above, Hindustan Steel Ltd. have been granted a cash subsidy equal to 25% of the unrecoupable short workings by
the Central Government upto the first 5 years of the lease.
(5) Working up to first 6 years is as follows;
1994 Actual Royalty Rs. 7,000

1998 Actual Royalty Rs. 10,800 (Strike 73 days)
1999 Actual Royalty Rs. 9,700 (Lock-out for 4 months)
Show the ledger accounts in the books of Hindustan Steel Ltd. (Adapted from CA.)
Question :3 Maniram Singh, who had patented a circular TV antenna, granted Sky Enterprise a licence for ten years to
manufacture and sell the product on the following terms :
1. Sky Enterprise was to pay Maniram Singh a royalty of Rs. 10 for each antenna sold.
2. The minimum royalty for each of the first three years covered by the licence was to be Rs. 50,000. After these years royalties
were to be payable on the actual numbers of antennas sold.
3. If royalties on antenna sold amounted to less than Rs. 50,000, Sky Enterprise was entitled to deduct the deficiencies from
royalties in excess of the sum payable in respect of each of the first three years of the agreement.
The numbers of antennas sold in the first four years were as follows:
Year ended 31st March 1994 4,300
1995 4,900
1996 5,450
1997 5,250

You are required to prepare the following ledger accounts recording the above transactions in respect of royalties in the
books of Sky Enterprise:
(a) Royalties account;

(b) Short-workings account; and
(c) The account of Maniram Singh. [ I.CW.A. Stage in, Dec. 1997]
Answer:COMPUTATION OF ROYALTY PAYABLE MINIMUM RENT & SHORTWORKINGS
Year No. of Royalty Minimum Short- Short-

Item payable Rent Working working
recoverable
Rs. Rs. Rs. Rs.
31.3.1994 4,300 43,000 50,000 7,000
31.3.1995 4,900 49,000 50,000 1,000
31.3.1996 5,450 54,500 50,000 4,500
31.3.1997 5,250 52,500 50,000
8,000 4,500
Dr. (a) ROYALTIES ACCOUNT Cr

31.3.94 To M. Singh A/c 43,000 31.3.94 By Manf. A/c 43,00

Dr. (b) SHORTWORKING ACCOUNT Cr.

31.3.94 To M. Singh A/c 7,000 31.3.94 By Balance c/d 7,000
1.4.94 To Balance b/d 7,000 31.3.95 By Balance c/d 8,000
31.3.95 To M. Singh A/c 1,000
8,000 8,000
1.4.95 To Balance b/d 8,000 31.3.86 By M. Singh A/c 4,500
. By P&LA/c 3,500
8,000 8,000
Dr. (c) MANIRAM SINGH'S ACCOUNT Cr
Dare Particulars Rs. Date Particulars Rs.

31.3.94 To bank A/c 50,000 31.3.94 By Royalties A/c 43,000
31.3.95 50,000 By Shortworking A/c 7,000

50,000
50,000
To Bank A/c 49,000
31.3.96 50,0004,50 31.3.95 By Royalties A/c 50,000
1,000
0
50,00054,5 By Shortworking A/c 54,000
00 52,500 54,500
To Shortworking A/c 52,500
52,500
To Bank A/c 31.6.96 By RoyaltiesA/c
52,500
31.3.97

To Bank A/c 31.3.97 By Royalties A/c
Question 4. The following information has been obtained from the books of a lessee relating to the years 1994-95 to 1997-98:
Payment to landlord (after deduction of tax © 20%)
1994-95 Rs. 12,000
1995-96 Rs. 12,000
1996-97 Rs. 12,000
1997-98 Rs. 19,200
Short workingsrecovered :
1995-96 Rs. 2,500
1996-97 Rs. 1,000
Short working written off
1998-99 Rs. 500
Short working balance brought forward on April 1,1994 Rs. 800 (which arose in 1992-93). According to the terms of agreement
short working is recoverable within the next two years following the year in which short working arises.
You are required to prepare the royalty account and the landlord's account for the four year ended March 31,1998.
[I.C.W.A. (Inter), June 1993]
Question5. A fire occurred in the office premises of lessee in the evening of March 31, 1999 destroying most of the books and
records. The following information is, however, available from the documents saved:
Short workingsrecovered :
1996-97 : Rs. 2,000 (towards short working which arose in 1993-94)
1997-98 : Rs. 4,000 (including Rs. 1,000 for short working in 1994-95)
1998-99 : Rs. 1,000
Short workingslapsed :
1995-96 : Rs. 1,500
1996-97 : Rs. 1,800
1998-99 : Rs. 1.000
A sum of Rs. 25,000 was paid to the Landlord in 1995-96. The agreement of royalty contains clause of Minimum rent payable
for a fixed amount and recoupment of short working within 3 year following the year in which short working arises.
Information as regards payments to Landlord subsequent to the year 1995-96 is not readily available.
You are required to prepare the royalty account and short working account for the four yearsended 31st March 1999. [I.C.W.A
(Inter)]

CHAPTER 15. SELF BALANCING OF LEDGERS
In a big business organization the numbers of accounts are quite large. Therefore, instead of maintaining all the accounts in
one ledger, these are maintained in different ledgers. These accounts are maintained by Self-Balancing System
SELF-BALANCING SYSTEM:- Self -Balancing Ledger System is a system of ledger- keeping which classifies ledger as per nature of
transactions, i.e. sales ledger, bought ledger, general ledger, and also makes them to balance independently.
Since in the Sales Ledger or in the Bought Ledgers double entry is not complete, a separate trial balance cannot be
prepared. If these ledgers are maintained in such a way as to offer separate trial balances, the systemwould be known as 'Self-
balancing'.
 In such a case, a 'General Ledger Adjustment Account' is prepared in each of the subsidiary ledger i.e. in Sales
ledger and in Bought Ledger.
 In the General Ledger, Bought Ledger Adjustment Account (i.e. Total Creditors Account) and Sales Ledger
Adjustment Account (i.e. Total Debtors Account) are maintained which give summary of the sales ledger and
bought ledger..
Under this system a group of transactions are recorded in one ledger. In a trading organisation following ledgers are
maintained:
(A) Sales Ledger or Debtors Ledger: In this ledger personal account of trade-debtors are maintained. These accounts will
contain entries regarding Credit Sale, Sales Return, Cash received, Bad Debts, Discount allowed etc. Debtor’s accounts other
than trade debtors are maintained in General Ledger.
B) Purchase Ledger or Creditors Ledger: In this ledger personal accounts of trade creditors are maintained. In a business
organisation when goods are purchased on credit, personal accounts of suppliers of material or goods are required to be maintained.
These accounts contain credit purchase, purchase return, cash paid, discount received. Such personal accounts are maintained in
creditor’s ledger. Personal accounts of creditors other than trade creditors such as creditors for loan, creditors for expenses etc. am
maintain in the General ledger.
(C) General Ledger:-- This ledger contains all accounts other than personal accounts of trade debtors and trade
Creditors which are maintained in debtors ledger and creditors ledger respectively. General Ledger contains real
accounts, nominal accounts and non-trading personal accounts.
Each time an entry is made in the Bought and Sales Ledger, Self-balancing the contra effect of the entries is in Bought Ledger or
Sales Ledger Adjustment A/c set up in the general ledger.
Advantage of Self-Balancing System:

1) Easy location of errors:—If there is any error in any particulars ledger, account related to that ledger only will be
checked therefore, it is easier to locate the error.
2) Division of work:—Under this method various accounts are maintained in three different ledgers, therefore,
accounting work can be divided among various employees.
3) Information of debtors and creditors balances:—Debtors Ledger Adjustment Account and Creditors Ledger
Adjustment Account in General Ledger contain details of transaction related to Debtors and Creditors
respectively. Therefore, balances of these accounts are equal to the total of Debtors and Creditors. This is very useful
information for the management.
4) Internal Control:—Under this method, with the help of Adjustment Accounts maintained in different Ledgers, internal
accounting control can be maintained. Therefore, chances of mistakes and fraud are reduced.
5) Fixation of responsibility:—Under this system various ledgers are maintained by different employees.
Therefore, in case of mistake or fraud responsibility can be easily fixed.
6) Early Preparation of Final Accounts:—From the trial balance drawn from General Ledger final accounts can be easily
drawn.

Some Important Items.
(i) Recovery of bad debts: If bad debts previously written off are recovered, this will not affect Adjustment Accounts for recovery
of bad debts , following journal entry is made
CashA/c Dr.
To bad Debts recovered A/c
Cash Accounts and Bad debts recovered account both will appear in General Ledger. Therefore, Adjustment Accounts will not
be affected.
(ii) B/R discounted with Bank:- This will also not affect Adjustment Accounts, because debit and credit aspects of this transaction
will appear in General Ledger.
(iii) Endorsement of B/R to creditor:—Following journal entry is made for this transaction,
Creditor Dr.
To Bills Receivable Account
Bought / Creditors Ledger Adjustment A/c (in General ledger) Dr.

To General Ledger Adjustment A/c (inBoughtledger)
(iv) Dishonour of Endorsed B/R : Following entry is madefor abovetransaction.
Debtors A/c Dr.

To Creditors A/c
Above entry will affect both personal ledgers (Debtors and Creditors Ledger). Therefore, all the four Adjustment Accounts
will be affected. Following entries will be made in Adjustment Accounts:——
SalesLedgerAdjustmentAc (in generalLedger) Dr.

To General Ledger Adjustment A/c (in Sales Ledger)
General Ledger Adjustment A/c (in Bought / Creditors Ledger) Dr.

To Bought /Creditors Ledger Adjustment A/c
(v) Provision for Bad and doubtful debts:- This will not affect Adjustment Accounts, In case balance of sundry debtors has
been given at net amount after deducting provision for bad and doubtful debts, amount of debtors should be shown at
gross value in Adjustment Accounts.
SUB-DIVISION OF SALES LEDGER AND PURCHASE LEDGER

If number of Debtors and creditors is large, more than one Sales Ledger and Purchase Ledger may be maintained. This sub-
division of Ledger can be made on the following basis.
(i) On the Basis of Alphabets:-- For example, account of customers whose names start with the alphabets A to K may be
maintained in one Ledger, from L to R in the second Ledger and from S to Z in the third Ledger.If more that one Sales Ledger
is maintained, separate adjustment accounts will also be maintained in the General Ledger.
(ii) On the Basis of Area:— Considering the number of customers and creditors ledger can be divided on the basis of area, state,
Big state, small State e.t.c.
RECTIFICATION OF ERRORS
(i) Self-balancing system:- Under self-balancing system to rectify the error normal entry of rectification will be made.
Then it will be seen whether adjustment accounts are affected. If error has affected adjustment account also,
these will also be rectified. If due to any error only personal account is affected, there will be no effect on
adjustment accounts.
PRACTICAL PROBLEMS

Question:1 Give Journal entries (under self balancing) of following information.

Debtors Credit Sales Cash Received Discount allowed B/R Drawn
P 30,000 14,000 1,000 6,000
Q 24,000 18,000 600 2,000
R 12,000 10,000 200 ---
S 15,000 14,600 400 ----
Total 81,000 56,600 2,200 8,000
Question:2 Give Journal Entries and ledger accounts under self-balancing system regarding following information.
Creditors Credit Purchases Cash Paid Discount Recvd. B/P Accepted
Shekhar 16,000 12,000 600 2,000

Suman 15,000 14,000 300 1,100
Sonal 18,000 13,000 --- 4,000
Sanjay 10,000 7,000 ---- ----
Total 59,000 46,000 900 7,100
Question:3 From the following details, write up the General Ledger Adjustment accounts and the Bought and Sold Ledger
Adjustment accounts as on 31st January, 2019:-
Debtors (1st January, 2019) Dr. 1,74,250
Do Do Cr. 3,200
Creditors Do Cr. 2,74,080
Do Do Dr. 2,040
Credit Purchases 2,52,000
Credit Sales 2,82,090
Sales Returns 2,080
Purchase Returns 7,140
Cash paid to Creditors 1,27,000
Bills received from debtors 93,000
Bills dishonoured 32,000
Bills accepted for creditors 74,000
Discount allowed to debtors . 2,150
Discount allowed to debtors but later on disallowed 1,000
Discount allowed by creditors 10,200
Cash paid to debtors 250
Transfers from Debtors Ledger to Creditors Ledger. 12,420
Cash Purchases 1,43,200
Cash Sales 2,74,000
Bad debts written off (after deducting bad debts recovered Rs. 2000) 2,150
Question:4 A firm keeps its sold and bought ledgers on self-balancing system. From the following particulars prepare the control
accounts in the sold and bought ledgers:
Trade debtors on 1st April 2019 62,000
Trade creditors on 1st April 2019 25,000
Credit purchases 1,03,000
Cash Received from trade debtors 78,000
Returns inward 3,000
Acceptance given 40,000
Returns outward 2,500
Acceptances from trade debtors dishonoured 5,000
Discount allowed to trade debtors 1,000
Bad debts written off 2,000
Bad debts written off in the previous year now recovered 5,000
Trade creditors on 31st March 2020 10,500
Trade debtors on 31s March 2020 1,17,000

Answer: In the Sales Ledger General Ledger Adjustment Account

Rs. Rs.
Mar. 31 To Sold Ledger Adjust. Account in Apr. 1 By Balance b/d 62,000
General Ledger as under: Mar.31 By Sold Ledger
Cash received Returns 78,000 Adjust. A/c:
inward 3,000 Credit Sales 1,34,000
Discount allowed to trade debtors 1,000 Acceptance from
Bad debts 2,000 debtors dishonored 5,000
Mar.31 To Balance c/d 1,17,000
2,01,000 2,01,000
In Bought Ledger
General Ledger Adjustment Account

Rs. Rs.
Apr. 1 2019 Balance b/d 25,000 Mar.31 ByBought LedgerAdjustment
Mar.31 To Bought Ledger A/c in General Ledger as
Adjustment A/c in under:
General Ledger as Acceptance Returns 40,000
under: Outwards 2500
Credit Purchases 1,03,000 Cash (Balancing figure) 75,000
1,28,000 1,28,000
Apr. 1 To Balance b/d 10,500
NOTE: in GLAA( in creditors ledger) balancing figure is cash paid to creditors during the period, because it is missing in
question.
Question:5. From the following information, prepare sales ledger adjustment account and purchases ledger adjustment account in
the general ledger:
Rs.
Debit balances in purchases ledger on 1.4.2019 10,000
Credit balances in purchases ledger on 1.4.2019 96,000
Debit balances in sales ledger on 1.4.2019 1,41,880
Credit balances in sales ledger on 1.4.2019 2,240
The following were the relevant transactions during the year ended 31 March, 2020.
st
Credit purchases 5,40,000

Purchases returns 15,000
Sales returns 10,000
Cash paid to suppliers 4,80,000
Bills accepted in favour of suppliers 30,000
Transfers from sales ledger to purchases ledger 20,800
Discount received 7,200
Bills receivable received 40,000
Cash paid to customers 1,840
Bills receivable dishonoured 6,000
On 31st March, 2020 debit balances in purchases ledger totaled Rs. 5,400

Question:6. The under mentioned particulars have been extracted from the books of D.D. Boot House. You are required to prepare
the Sales Ledger Adjustment Account as on 31st March, 2020:-
Debtors on 1st March, 2019 55,842

Transactions during the month were:
Sales (including cash sales Rs. 10,000) 1,08,602
Discount allowed to Debtors 480
Acceptance received from Debtors 7,120
Returns from Debtors 5,430
Bills Receivable dishonoured 1,120
Bad Debts written off 3,890
Sundry Charges debited to customers 378
Transfers to Bought Ledger 100
Provision for doubtful debts 2,500
Answer: Books of D.D. Boot House In General Ledger

Sales Ledger Adjustment Account
2019 Rs. 2019 Rs.
Mar. 1 To Balance b/d 55,842 Mar- 31 ToGeneralLedgerAdjustment
Mar. 31 To General Ledger A/c in sales ledgers as under:
Adjustment Account in sales Cash 88,753
ledgers as under:- Discount 480
Sales 98,602 Bills receivable 7,120
Bills receivable dishonoured 1,120 Sales returns 5,430
Sundry Charges 378 Bad Debts 3,890
Transfers 100
1,55,942 1,55,942
2020
Apr. 1 To Balance b/d 50,169

Question:7. (MAST QUESTION) From the following particulars, prepare the General adjustment account for March 2020:-
(i) Purchased goods from X, Rs. 20,000.

(ii) Paid Rs. 16,000 after adjusting the initial advance in full given to X.
(iii) Paid Rs.10,000 to R towards purchases made in Feb. in full settlement of the amount due,Rs. 10,500.
(iv) Paid advance to Y, Rs.30,000.
(v) Purchased from A, Rs. 40,000.
(vi) Goods returned to A, Rs.5,000; settled the balances at a discount of 2%.
(vii) Purchased from Y Rs.25,000; advance adjusted to the extent of 50% of the purchase,
(viii) Received back advance given to P on 20th February,2020, Rs.4,000 after adjustment of purchase, Rs. 16,000.
(ix) Goods returned to Q, Rs. 7,500; the purchase was made in February, 2004.
(x) Purchased goods from B, Rs.20,000.
Question: 8. From the following transactions you are required to prepare Purchase Ledger Adjustment Account and Sales
Ledger adjustment Account in the General Ledger.
April 1 Total Debtors 30,000
April 1 Total Creditors 33,000
April 30 Credit Sales 20,000
April 30 Credit Purchases 10,000
April 30 Paid to Creditors 17,740
April 30 Discount Received 460
April 30 Bills Accepted 4,000
April 30 Cash received from Debtors 19,750
April 30 Discount allowed to them 250
April 30 Bills Received 8,000
April 30 Purchase Returns 1,050
April 30 Sales Returns 1,290
April 30 Allowances given to Debtors 270
April 30 Allowance Received 170
April 30 Bad Debts 190
April 30 Bills Receivable dishonoured 530
Answer: Purchase Ledger Adjustment Account

April-30 To General Ledger Adj. A/c: Apr -1 By Balance b/f 33,000
Paid to Creditors 17,740 Apr-31 By General Ledger Adj. A/c
Discount Received 460 Credit Purchase 10,000
Bills Payable 4,000
Purchase Returns 1,050
Allowances 170
To Balance c/d 19,580
Total 43,000 Total 43,000
Sales Ledger Adjustment Account

April-1 To Balance b/f 30,000 Apr-30 By General Ledger A/c:
April 30 To General Ledger Adj. A/c: Cash Received 19,750
Credit Sales 20,000 Discount Allowed 250
B/R dishonoured 530 Bills Receivable 8,000
Sales Returns 1,290
Allowances 270
Bad debts 190
Total 50,530 Total 50,530

Question: 9 Prepare (1) the Creditors Ledger Adjustment Account (ii) the Debtors Ledger Adjustment Account as
would appear in the General Ledger of M/s Antule Traders for the year ended 31st October, from the following
information:
Opening Balances:
Creditors Ledger Dr. 2,610
" " Cr. 35,820
Debtors Ledger " Cr. 720
" Dr. 43,860
Transactions during the year:
Purchases 1,98,540
Purchases Returns 7,680
Sales 2,62,470
Sales Returns 3,510
Cash Received From Debtors 2,28,630
Discount allowed
8,460
Cash Paid to the Creditors
1,75,290
Discount received
4,980
Cash refunded to the debtors
520
Bills payable received
12,360
Bills payable issued
6,750
Bills Receivable dishonoured
Closing Balances 750
Creditors ledger
Debtors ledge Dr. 2,310
Cr. 1,360
Answer: In General Ledger

Creditors Ledger Adjustment A/c
Nov. 1 To Balance b/d 2,610 Nov. 1 By Balance b/d 35.820
Oct. 31 To General Ledger Adj. A/c: Oct. 31 By General Ledger Adj. A/c:
Purchase Returns 7,680 Purchases 1,98.540
Cash paid 1,75,290 By Balance c/d 2,310
Discount received 4,980
Bills payable 6,750
To Balance c/d 39,360
2,36,670 2,36,670
Nov. 1 To Balance b/d 2,310 Nov. 1 By Balance b/d 39,360
Debtor's Ledger Adjustment A/c

Nov. 1 To Balance b/d 43,860 Nov. 1 By Balance b/d 720
Oct. 31 To Balance b/d Oct. 31 By General Ledger Adj.A/c:
To General Ledger Adj. A/c: Sales Returns 3,510
Sales 2,62,470 Cash received 2,28,630
Cash refunded 520 Discount allowed 8,460
Bills receivable dishonoured To 750 Bills receivable 12,360
Balance b/d 1,360 ByBalance b/d 55,280
3,08,960 3,08,960
Nov. 1 To Balance b/d 55,280 Nov. 1 By Balance b/d 1,360
Question: 10 The following details were extracted from the books of K.D. & Co. for the period ended 31st March:
1st April (opening) Debtors balances:
Debit 38,520
Credit 260
Creditors balance:
Credit 24,300
Debit 160

Cash paid to creditors in full settlement of Rs. 15,760 15,200
Cash received from Debtors in settlement of claims of Rs. 26,500 25,800
Purchases (including cash purchases Rs. 4,000) 21,600
Bad debts written off 100
Sales returns 180
Purchase returns 360
Interest charged to debtors 30
Cheques dishonoured (received from debtors) 1,400
Bills payable accepted 1,600
Bills payable dishonoured 400
Interest on bills payable 20
Sales (including cash sales Rs. 16,000) 42,000
Transfers 800
Bills receivables issued 5,600
Bills receivable endorsed 1,400
Endorsed B/R dishonoured 200
Bills receivable discounted 400
Discounted B/R dishonoured 140
31 March (Closing):
Debtors (Credit Balance) 540
Creditors (Debit Balance) 180
Your are required to prepare Sold Ledger adjustment account and purchase ledger adjustment account in the General Ledger and
General Ledger Adjustment account in the sold Ledger and Bought Ledger.
Rectification of errors under Self balancing system:
Question: 11 The following errors were discovered in the books of National Gas Co. who maintain its books on the
self balancing system: -
a.) A bill of exchange from M/s Shah & Co. for Rs. 1,600 was debited to Allowances Account on dishonour.
b.) Cash received, Rs. 350, from Shah & co., a customer, was posted to the debit of Shah & Shah as Rs.530 in the Creditors
Ledger.
c.) A return of goods, Rs.340, from Mohan & Co., was entered in the Returns Outwards Book. Give journal entries to rectify
the above noted errors.
Answer:
Journal of National Gas Co.
Dr. (Rs.) Cr. (Rs.)
(a) M/s Shah & Co. Dr. 1,600
To Allowances Account 1,600
(For the dishonoured bill debited to Allowances A/c instead of to Shah & Co.)
Sales LedgerAdjustment Account(In General Ledger) Dr. 1,600
To General Ledger Adjustment Account (In Sales Ledger) 1,600
(Correction of the entry in total or control accounts relating to Shah & Co.)
(b) Credit Shah & Co. (In Sold Ledger) 350
CreditShah&Shah(In BoughtLedger) 530
(Cash received from Shah & Co., a customer wrongly posted to the debit of Shah &
Shah, a creditor; error now corrected*.)
(c) Returns Inward Account Dr. 340

Returns Outward Account Dr. 340
ToMohan &Co.(InSalesLedger) To 340
Mohan & Co. (In Bought Ledger) 340
(Correction of the entry by which returns from Mohan & Co. were wrongly

treated as returns to them. Presumably from Returns Outwards Book Mohan & Co
were debited in the Bought Ledger.)
340
General Ledger Adjustment Account (In Bought Ledger) — Dr.
340
To Bought Ledger Adjustment Account (In General Ledger) (Correction
resulting from the above relating to the Bought Ledger.) General
340
Ledger Adjustment Account (In Sold Ledger)—— -Dr. To
SoldLedger Adjustment Account(In General Ledger) 340
(Correction resulting from the above relating to the Sold Ledger.)
*The Control Accounts must have been correctly posted
Question:12. Pass necessary journal entries to rectify the following errors Under self balancing system
(i) Goods purchased from Ramu for Rs. 20,000 entered in purchase book as Rs. 24,000
(ii) Goods purchased from Ajay for Rs. 5,400 entered correctly in purchase book but posted to Ajay's Account as Rs.
4,500
(iii) Goods purchased from Radha Mohan for Rs. 7,500 entered in sales book
(iv) A sales of Rs. 4,200 To Mr. Lalan entered correctly in sales book but posted to Jitender's account as Rs.
2,400
(v) Bad debts Rs. 6,400 were written off in sales ledger, but were not adjusted in general ledger.
(vi) The total of discount received column in the cash book for the month of August, amounting to Rs. 8,500
was not posted.
(vii) A cheque of Rs. 15,000 received from MR. Manoj posted to the account of Mr. Saroj
(viii) Total of sales book overcast by Rs. 2,000
(ix) Sales return of Rs.3,000 by Mr. Amit entered in purchase book as Rs.30,000.
(x) Sales of Furniture (Fixed Assets) amounting to Rs. 20,000 to Mahendra entered in sales book.
Question: 13.Ujju Enterprise furnishes you the following information for the period october to December, 2009. You are
requested to draw up Debtors Ledger Adjustment Account in the General Ledger:
(i) Total sales amounted to Rs.2,20,000 including sale of old motor car for Rs. 10,000 (book value Rs. 5,000). Total
credit sales were 80% higher than the cash sales,
(ii) Cash collection from debtors amounted to 60% of the aggregate of the opening debtors amounting to Rs. 40,000
and credit sales for the period. Debtors were allowed discount of Rs. 10,000.
(iii) Bills receivables drawn during the period totaled Rs. 20,000 of which one bill of Rs. 5,000 was dishonored for non-
payment as the party became insolvent; his estate realized 50 paise in a rupee.
(iv) A further sum of Rs. 3,000 was written off as bad debts, Rs. 7,000 was realized against bad debts written off in earlier
years and provision of Rs. 6,000 was made for doubtful debts.
Question 14: On 1st October, 2019, the debit balances of debtors account is Rs. 77,500 in the books of M/s Zee Limited. Transactions
during the 6 months ended on 31st March, 2020 whereas follows:
Rs.
Total sales (including cash sales Rs. 14,000) 84,000
Payment received from debtors in cash 38,000
Bills receivable received 26,000
Discount allowed to customers for prompt payment 1,000
Goods rejected and returned back by the customer 2,550
Bad debts recovered (written off in 2009) 900
Interest debited for delay in payment 1,250
Out of the bills received, bills of Rs. 8,500 were dishonoured on due dates and noting charges paid Rs. 250. Bills of Rs. 5,000 were
endorsed to the suppliers.
You are required to prepare a Debtors Account for the period ending 31stMarch, 2020 in the General Ledger of M/s Zee Ltd.

Answer: Total Debtors account in the General Ledger of M/s Zee Ltd.
1.10.19 To Balance c/d 77,500 1.10.19 By General Ledger
1.10.19 To General Ledger Adj. A/c to Adjustment A/c
to Sales (84,000-14,000) 70,000 31.3.20 Cash collected 38,000
31.3.20 Billsreceivable(Billdishonored) 8,500 31.3.20 Bills Receivable A/c 26,000
Bank (Notingcharges) 250 Discount allowed 1,000
Interest 1,250 Sales return 2,550
1,57,500 1,57,500
Working note:
1. Bad debts of the year 2008-09 recovered in2019-20 will not appear in the ‘Total Debtors account, ifwill be
credited to profit and loss account.
2. Bills receivables of Rs. 5,000 endorsed to the supplier will not be shown in the ‘Total debtors account because at the
time of endorsement supplier’s account will be debited and bills receivable account will be credited.
Question 15. What is the difference between the Sectional and Self –balancing system?
Answer:
1. Under Sectional balancing system only one trial balance is prepared in General Ledger while under self
balancing system, separate trial balance is prepared in each ledger.
2. Under sectional balancing system,Total Debtors account and Total Creditors account are memorandum
accounts and not the part of double entry system but under self balancing system adjustment accounts are the parts of
double entry system.
3. Under sectional balancing system,arithmetical accuracy of Sales Ledger and Bought Ledger can be checkedby
preparing trial balance of each ledger.
4. Under sectional balancing system, total debtors account and Total Creditors account are opened in General Ledger
while under Self Balancing System, adjustment accounts are opened in General Ledger, Sales Ledger and bought
ledger. CA Inter, 2009-May, (4marks)
Question 16. What are the advantages of Self-balancing Ledger system? CA Inter, 2007-Nov, (4marks)
Answer: Advantages of Self-Balancing System:
1. A number of book keepers can work on different ledgers.

2. Arithmetic accuracy of each of each ledger can be proved independently.
3. Interim accounts can be prepared without personal ledger to be balance.
4. The total amount due from debtors and total amount payable to suppliers and creditors is readily available.
5. Each ledger is of a suitable size.
6. A complete trial balance can be prepared without balancing subsidiary ledgers, thus facilitating the
quick assessment.
7. Since error can be localized, delay in detection is minimised, thereby saving labour and time of the book
keepers

Question 17. From the following prepare General Ledger Adjustment account in Debtors Ledger and Debtors Ledger
adjustment in General Ledger:
Balance as on 1.4.2008
Debit balances in Debtors Ledger 2,46,200
Credit balances in Debtors Ledger 3,400
Transactions during the month of April, 2008

Sales return 21,700
Bills receivable received from debtors 51,200
Bills receivable dishonoured 3,500
Bills payable given to suppliers 27,000
Credit balance in Debtors ledger on 30.4.2008 Rs 5,200 CA Inter, 2008-May, (8 marks)
Answer: In Debtors Ledger-- General Ledger Adjustment A/c
Date Particulars Amounts Date Particulars Amounts

1.04.08 To Balance b/d 3,400 1.04.08 By Balance b/d 2,46,200
1.04.08 To Debtors Ledger To By Debtors Ledger
To Adjustment A/c: 30.04.08 Adjustment A/c:
30.04.08 Sales Return 21,700 Credit Sales 9,74,900
Cash Received 8,62,100 B/R dishonoured 3,500
B/R Received 51,200 30.04.08 By Balance c/d
To Balance c/d (given) 5,200
(balancing figure) 2,52,200
12,29,800 12,29,800
In General Ledger--- Debtors Ledger Adjustment A/c

1.4.08 To Balance b/d To 2,46,200 1.04.08 By Balance b/d By 3,400
1.04.08 General ledger 1.04.08 General ledger
To 30.04.08 adjustment A/c: To adjustment A/c:
Sales 9,74,900 30.4.08 Sales return 21,700
B/R dishonoured 3,500 Cash received 8,62,100
30.04.08 Discount allowed 39,200
To Balance c/d 5,200 B/R received 51,200
30.04.08 ByBalancec/d(Bal.fig.) 2,52,200

12,29,800 12,29,800
Question 19. A business concern maintains self – balancing ledgers. On the basis of following information, Prepare General
Ledger Adjustment Account in Debtors for the month of April ,2012:
Debit balances in Debtors in Debtors Ledger on 01-04-2012 3,58,200

Credit balances in Debtors Ledger on 01-04-2012 9,400
Transactions during the month of April,2012 are:

Total Sales (including Cash Sales, Rs. 1,00,000) 20,95,400

Sales Returns 33,100

Cash received from credit customers 17,25,700
Bills Receivable received from customers 95,000
Bills Receivable dishonored 7,500
Cash paid to customers for returns 6,000
Transfers to Creditors Ledger 16,000
Credit balances in Debtors in Debtors Ledger on 30-04-2012 9,800
CA Inter, 2012-Nov, (5 marks)
Answer: General Ledger Adjustment Account in Debtors Ledger

1.4.2012 To balance b/d 9,400 1.4.2012 By Balance b/d By 3,58,200
1.4.2012 To Debtors ledger adj. A/c: 1.4.2012 debtors ledger
To 30.4.2012 Cash received Sales To Adjustment A/c:
Returns 17,25,700 30.4.2012 Credit sales 19,95,400
Bills receivable received 33,100 Cash paid for returns 6,000
Transfer to creditors ledger 95,000 Bills receivable
ToBalancec/d(bal.fig.) Dishonoured 7,500
30.4.2012 16,000 By Balanced c/d 9,800
4,97,700
23,76,700 23,76,700
Question 20. M/s. Big System Ltd. maintains self-balancing ledgers preparing control accounts at the end of each calendar
month. On 3.1. 2013 the accountant of the company located the following errors in the books of account:
1. An amount of Rs. 8,700 received from customer Mehra was credited to Mehta, another customer.
2. The sales book for December, 2012 was undercast by Rs. 1,000
3. Goods invoiced at Rs. 15,600 were returned to supplier, M/s Megta Ltd., But no entry was made in the books for
this return made on 28th December, 2012.
Pass the necessary Journal Entries to rectify the above mentioned errors. CA Inter, 2013-May, (5 marks)
Answer:
Date Particulars Dr.(Rs.) Cr.(Rs.)
1. Mehta(In Sales/Debtors Ledger) Dr. 8,700
To Mehra(In Sales/Debtors Ledger) 8,700
(Being amount received from Mehta was wrongly credited to Mehta,
now rectified)
(a) Suspense Account (In Sales/Debtors Ledger) Dr. 1,000

2. To Sales Account (InGeneralLedger) 1,000
(b) Sales/debtors Ledger Adjustment Account Dr. 1,000
To General Ledger Adjustment Account(In 1,000
Sales/Debtors Ledger)
(Being rectification of the error due to under casting of the Sales
book)
15,600
(a) M/s Mega Ltd. A/c(In creditors/Bought ledger) Dr.
To Purchase Returns A/c (In General Ledger)
3. (b) Creditors/Bought LedgerAdjustment A/c Dr. 15,600
ToGeneralLedgerAdjustment A/c (in
Creditors/Bought Ledger) 15,600
(Being goods returned to supplier not recorded earlier, now recorded) 15,600

Question 21. From the following particulars, prepare the creditors’ ledger adjustment account as would appear in the General
Ledger of M/r. Sathesh for the month of March 2014.
Date Particulars
1 Purchase from Mr. Akash Rs. 7,500
3 Paid Rs 3,000 after adjusting the initial advance in full to Mr. Akash
10 Paid Rs 2,500 to Mr. Dev towards the purchases made in February in full
12 Paid advance to Mr. Giridhar Rs. 6,000
14 Purchase goods from Mr. Akash Rs 6,200
20 Returned goods worth Rs. 1,000 to Mr. Akash
24 Settled the balance due to Mr. Akash at a discount of 5%
26 Goods purchased from Mr. Giridhar against the advance paid already
29 Purchased from Mr. Nathan Rs.3,500
30 GoodsreturnedtoMr.PremRs.1,200.Thegoodswere originallypurchasedforcashinthe
month of February 2014.
CA Inter, 2014-Nov, (4marks)
Answer: Creditors Ledger Adjustment Account in the General Ledger

2014 To Balance 4,500 2014 By Balance b/d(Due to 2,500
March1 b/d(AdvancetoAkash) March 1 Mr. Dev)
March To General Ledger March 31 By General Ledger
31 Adjustment A/c (In Adjustment A/c(in
Bought Ledger) Bought Ledger)
Bank(WN2) 16,440 Purchases(WN 1) 23,200
Returns(Akash) 1,000
Discount(5% of 5,200) 260
March To Balance c/d(Due to 3,500
31 Nathan)
25,700 25,700
Note: The above answer is given on the basis that Mr. Prem will pay in cash as the sale was on cash basis and was not recorded
in Creditors Ledger Adjustment Account earlier.
Working Notes:
1) Purchases:
01.03.2013 Akash 7,500
14.03.2013 Akash 6,200
26.03.2013 Giridhar 6,000
29.03.2013 Nathan 3,500
23,200
2) Payments:
03.03.2013 Akash 3,000
10.03.2013 Dev. 2,500
12.03.2013 Giridhar 6,000
24,03,2013 Akash(95% of 5,200) 4,940
16,440
Dhyan se dekho, samjho and yaad karo

Self Balancing Ledger

 Self balancing ledger is a system, which makes the location and detection of error easy and simple, so that
rectification is possible immediately.
 It is a system of ledger keeping by the big organization.
 It classifies the ledger keeping by the big organization.
 It classifies the ledger as per the nature of transaction, namely, sales ledger, purchase
ledger, general ledger etc. and make them to balance independently.
 In order to make each ledger self balancing, one extra ledger is opened which is called general ledger
adjustment account in each of sales ledger or purchase ledger.
 Debtor ledger or sales ledger is maintain for recording of credit sales, cash collection, discount, bad debt
etc. in debtor’s ledger or sales ledger.
 The general ledger adjustment account in the sales ledger gives a summary of all such transactions in
reversemanner.
 In the same way purchases ledger, general ledger adjustment account gives a summary of all transactions of the
purchase ledger in the reverse manner.
 In addition to this two other adjustments are:-
1. Bought ledger adjustment account, and,
2. Sales ledger adjustment account are maintained in the general ledger to complete the double entry and
such adjustment accounts are known as control A/c.
So, that appropriateness and correction of all individual balances will be verified by extracting their balance and matching
them with the balances of the control accounts.
Question 22. Prepare the General ledger adjustment account in creditor’s ledger for the year ending 31st March, 2015 from the
following information:
Sundry creditors as on 01.01.2014 Rs. 2,30,000.
Total purchases amounted to Rs. 8,25,000 including purchase of trade investment for Rs. 45,000 (face value Rs.50,000).
The total cash purchases were 60% more than thecredit purchases.
Cash paid to creditors and credit purchases for the period. Creditors allowed a cash discount of Rs. 8,000.
A Cheque paid to creditors Rs. 7,000 was dishonored. Goods returned to suppliers Rs. 11,000. Bills receivables amounting to
Rs. 30,000 endorsed in favour of a creditor in the months of February, 2015. (CA Inter, 2015)
Answer: In the books of Creditor’s Ledger General LedgerA/c

To Balances b/d 2,30,000 By Cash paid 2,65,000
To Credit Purchases 3,00,000 By Cash discount 8,000
To Cheque dishonoured 7,000 By Goods returned 11,000
By Trading to debtors 30,000
5,37,000 5,37,000
Working Note: Calculation of credit purchases and Cash paid to creditors
If credit purchases are 100% then cash purchase will be 62% higher i.e. 100%+60% = 160%
Therefore credit purchases and cash purchase are in ratio of 100:160 = 5:8.
Hence credit purchases is 5/13 of ( 8,25,000 – 45,000) = Rs. 3,00,000
Cash paid to creditor is 50% of ( 2,30,000 + 3,00,000) = Rs. 2,65,000

CHAPTER 16. Hire-Purchase and Instalment Purchase Systems

Question.1 (When cash price, rate of interest and instruction of payment are given) Ram purchased a machine on hire
purchase basis. The cash price was Rs. 2,40,000 payable Rs. 40000 as down and balance in 4 equal instalments together
with interest @ 10% p.a. Calculate Installment.
Question.2(when rate of interest, total cash price and installments are given) Maheer purchases a car on hire-purchase
system. The total cash price of the car is Rs, 15,980, payable Rs 4000 down and three installments of Rs. 6,000. Rs. 5,000
and Rs. 2000 payable at the end of first, second and third year respectively. Interest is charged at 5% p.a. You are
required to calculate interest paid by the buyer to the seller each year.
Question.3 A Ltd. purchased machinery from B Ltd. on hire purchase basis on the following terms: Cash Price- Rs. 7,92,500 , Cash
down payment- 20% ,Balance to be discharged in 4 annual instalment of Rs.2,00,000 each (inclusive of interest @ 10%) to be paid at the end of
each year. Compute the payment of interest to be made each year.
Question.4 Cash price of assets purchased on hire-purchase system Rs - 37,500. Down payment Rs. 5,000, Annual
instalment: 5 of Rs. 7,500 each. Rate of interest: 5% Calculation interest included in each instalment.
Question.5. (when total cash price and instalments are given but rate of interest is not given) A cycle, cash price of which is
Rs. 180 is sold on hire-purchase system for Rs. 200 payable in four quarterly instalments of Rs. 50 each. The first payment is
made at the end of the first quarter. Show how interest is calculated.
Question.6. Calculate interest:
Cash price 1,00,000

Rate of interest ?
Down payment 20,000
First installment 40,000
Second installment 30,000
Third installment 30,000
Answer: Interest 10,526; 6,316; 3,158.
Question.7 (when only installments are given but cash price and rate of interest are not given) Mr. A purchased a personal
computer on Jan. 1. 1996 on hire-purchase paying Rs.15,000 cashdown and balance in four annual installments of Rs. 14,000.
Rs.13, 000.Rs. 12.000 and Rs.11,000.Each installment comprising equal amount of cash price, at the end of each accounting
period. You are required to calculate total cash price, and amount of interest in each installment.
Question.8. Company purchased a machinery on the following agreement basis. It was agreed to pay Rs 55,000 as first
installment, Rs 50,000 as second installment, Rs 45,000 as third installment and Rs 40,000 as fourth installment along with a
down payment of Rs 10,000. Find cash price, hire purchase price and total interest. Assuming cash price portion is equal in each
installments.
Question.9.(when rate of interest and instalments are given but total cash price is not given).
Cash Price ?
Down payment 10,000
First installment 14,000
Second installment 23,000
Third installment 11,000
Rate of interest 10%
Ans: Cash Price Rs 50,000
Question.10.(when rate of interest and instalments are given but total cash price is not given) X purchased a radiogram on
hire-purchase system. As per terms he is required to pay Rs. 800 down, Rs. 400 at the end of first year Rs. 300 at the end of
second year, and Rs. 700 at end of third year. Interest is charged at 5% p.a. You are required to calculate total cash price of
radiogram and interest paid with each instalment.
Question.11. A acquired on 1st January, 2003 a machine under a Hire-Purchase agreement which provides for 5 half yearly
instalments of Rs. 6,000 each, the first instalment being due on 1st July, 2003. Assuming that the applicable rate of interest is 10
per cent per annum, calculate the cash value of the machine. All working should form part of the answer. (May 2003) 8 marks

Question 12.( ANNUITY METHOD) On 1stjan 2010, X purchase a plant from Y on hire purchase system. The hire purchase rate
was settled at Rs 60,000, payable as to Rs 15,000 on 1.1.2010 and 15,000 at the end of 3 successive year. Interest @5% p.a. the
asset was to be depreciated in the books of purchaser at 10% p.a. on reducing balance method. Given the present value of an
annuity of Re 1 p.a. @ 5% interest is Rs 2.7232. Ascertain the cash price.
Question13. On 1st January. 2013, Globe Press purchased a printing machine on hire-purchase system from Modern
Machinery Co. The payment was to be made as Rs. 30,000 down and the balance in three equal installments of Rs.
20,000 each payable on 31st December. The vendor company charged interest @ 8% p.a. Globe Press provided
depreciation @ 10% p.a. on the diminishing balances and paid all the instalments. It closes its books on 31st December
every year. The cash down value of machine was Rs. 81,543. Show the (a) Modern Machinery Co.'s Account and (b)
Printing Machine Account in the books of Globe Press for 3 years. (I.C.W.A. (Inter)
Question14 (Full Repossession) A Machinery is sold on Hire Purchase. The terms of payment is four annual instalments of Rs.
6,000 at the end of each year commencing from the date of agreement. Interest is charged @ 20% and is included in the annual
payment of Rs. 6,000.
Show Machinery Account and hire Vendor Account in the books of the purchase who defaulted in the payment of the third
yearly payment where upon the vendor re-possessed the machinery. The purchaser provides depreciation on the machinery @
10% p.a. All working should form part of your answer. [ANSWER: Cash price - Rs. 15,533, loss on repossession = 324]
Question15. (Full Prepossession) AB Ltd. Purchased from CD Ltd. a machine costing Rs. 1,20,000 on hire purchase system.
Payment was to be made Rs.30,000 down and the remainder in three equal installments together with interest at 5%. AB Ltd.
writes off depreciation @ 20% on the diminishing balance method. It paid the installments at the end of the first year but could
not pay the next.
Give the necessary ledger accounts in the books parties for two years if the hire vendor took possession of the machine. The
hire vendor spent Rs. 5,800 on getting the trucks thoroughly overhauled and sold them for Rs. 70,000.
[Answer.: Loss on default: Rs. 13,800; Profit on sale of goods repossessed Rs. 1,200.]
Question.16 (partial repossession) P purchased 4 cars at Rs. 14,000 each on hire-purchase system. The hire-purchase price for
all the four cars was Rs. 60,000, to be paid Rs. 15,000 down and three instalments of Rs. 15,000 each at the end of each year.
Interest is charged at 5% p.a. Buyer depreciates cars at 10% p.a. on straight line method.
After having paid down payment and first instalment, buyer could not pay second instalment and seller took possession of 3
cars at an agreed value to be calculated after depreciating cars at 20% p.a. on written down value method. One car was left
with the buyer.
Seller, after spending Rs. 1,200 on repairs, sold away all the three cars to X for Rs. 35,000. Open ledger accounts in the books of
both the parties.(CA-IPCC, CMA INTER)(Really pyara question)
Question 17. (partial repossession) X purchased seven trucks on hire-purchase on 1 -7-98. The cash price of each truck was
Rs. 50,000. He was to pay 20% of the cash price at the time of delivery and the balance in five half-yearly instalments starting
from 31-12-98 with interest @ 5% per annum.
On X’s failure to pay the installment due on 30.6.99 it was agreed that X would return 3 trucks to the vendor and the
remaining 4 would be retained by him. The vendor agreed to allow him a credit for the amount paid against these 3 trucks less
25%. Show the relevant account in the books of X assuming that his books are closed in June every year and depreciation @
20% is charged on trucks.CA (Inter 16 Marks)
Question 18. (Partial repossession)Bombay Roadways Ltd. purchased three trucks costing Rs. 1,00,000 each from Hindustan
Auto Ltd. on 1st January, 1998 on the hire-purchase system. The terms were:—
Payment on delivery Rs. 25,000 for each truck and balance of the principal amount by 3 equal installments plus interest at 15%
per annum to be paid at the end of each year. Bombay Roadways Ltd. writes off 25% depreciation each year on the diminishing
balance method.
Bombay Roadways Ltd. paid the instalments due on 31st December, 1998 and 31st December, 1999 but could not pay the final
instilment. Hindustan Auto Ltd. re-possessed two trucks adjusting values against the amount due. The re-possession was done
on 31st Dec. 2000 on the basis of 40% depreciation on the diminishing balance method. You are required to:—

write up the ledger accounts in the books of Bombay Roadways Ltd. showing the above transactions up to 31-12-2000, and
Show the disclosure of the balances arising from the above in the Balance Sheet of Bombay Roadways Ltd. as on 31st
December, 2000. (C.A. Inter 16 Marks)
Question 19. X Transport Ltd. Purchased form-Delhi Motors three tempos costing Rs. 50,000 each on the hire purchase system
on 1. 1. 1987. Payment was to be made Rs. 30,000 down and the remainder in three equal annual installments payable at the
end of every year together with interest @ 9% X Transport Ltd. write off depreciations @ 20% on diminishing balance. It paid,
the instalment due at the end of first year i.e., 31.12.1987 but could not pay the next on 31. 12. 1988. Delhi Motors agreed to
leave one tempo with the purchaser on 1.1.1989 adjusting the value of the other two tempos against the amount due on 01.
01.1989. The tempos repossessed were valued on the basis of 30 % depreciation annually. Show the necessary accounts in the
books of X Transport Ltd. for the years 1987, 1988 and 1989.[ Ans: Value of tempos taken away at the end of 2nd year Rs. 49,000. Loss
on Repossession = Rs. 15,000]
Question: 20(Partial Repossession) On 1July 2006, X Ltd. bought from Y Ltd. a plant whose cash price was Rs. 74,340; payment
to be made by four bi-annual instalments of Rs. 20,000 each. The first one being due on 31 December, 2006. Interest had been
taken into account at 6% p.a. A clause in the agreement gave the vendors the right to seize the plant if the purchaser defaulted
on any installment.
X Ltd. paid the first installment but failed to pay the next. It was agreed that X Ltd. Should retain the plant of which the original
cash price was Rs. 32,000 and bear the loss on the remainder (which was sold on 13 July 2007 for Rs. 40,248), Y Ltd. waiving the
interest accruing after 30 June 2007 included in the installments under the original agreement. Another agreement was entered
into for the liquidation of the balance.
Show the plant account, vendor's account and plant surrendered account in the books of X Ltd. from 1 July2006 to 30 June 2007
taking depreciation at 5% p.a. half yearly on reducing balance assuming that X Ltd. makes up its accounts half yearly to 30 June
and 31 December. (YE QUESTION SIRF MAIN SOLVE KAR SAKTA HU. AUR KISI KI AUKAT NAHI)
Question 20: On 1 October, 2006, five trucks were purchased by Kavita on the hire purchase system. The cash price of each
truck was Rs. 5,50,000. The payment was to be made as follows:
(i) 10% of cash price at the time of delivery.

(ii) 25% of cash price at the end of each one of the subsequent four half years.
The payment due on 30 September 2007 could not be made; hence trucks were seized by the hire vendor. However after
negotiations, Kavita was allowed to retain three trucks on the condition that the value of the other two trucks would be
adjusted against the amount due, the trucks being valued at cost minus 25 per cent depreciation and Kavita would pay the
balance in five half years installments together with interest at 10% annum. Both the parities close their books on 31 March
every year. Kavita charges 15% depreciation on trucks on the original cost. Unfortunately on 5 April, 2008, a fire destroyed all
the three trucks in the possession of Kavita. The insurance company admitted the full claim on the basis of the balance in Trucks
Account on 31 March, 2008. Kavita settled the account with the hire vendor on 30 April, 2008 on receiving the payment from
the insurance company. The hire vendor waived the interest accrued after 31 March, 2008. Prepare (i) Trucks Accounts and (ii)
Kavita Account upto the final settlement date.
(EK AJEEB SI SHAKTI AA CHUKI HAI MERE ANDER. MAI BAHUT HI SHAKTISHALI FEEL KR RAHA HU)
INTEREST SUSPENSE METHOD
Question.21. A ltd has hire purchase business and the installments are collected over three year period. It decides to allocate the
interest as follows: 1st year 50%, 2nd year 30%: 3rd year 20%
The hire purchase sales for the first four years were as under:
1st year –Rs 10,000 of which Rs 2000 is interest
2nd year – Rs 20,000 of which Rs 4,000 is interest
3rd year – Rs 30,000 of which Rs 6,000 is for interest
4th year- Rs 60,000 of which Rs 10,000 is for interest
Show interest suspense account and profit and loss accounts for the relevant years
Question.22 A Company sells goods on hire-purchase on the basis of 25% down, the balance, with 20% interest thereon, being
payable in 8 quarterly instalments on 31st March, 30th June. 30th September and 31st Dec. each year. The first instalment is
payable at the end of each quarter in which the sale is made. The company transfers 50%,30% and 20% of the interest to the
profit and loss account in the first, second and third year respectively.

Balance on 1st January, 1996: Rs.

Hire-Purchase debtors 75,375
Hire-purchase interest suspense 9,900
Hire-purchase sales (exclusive of interest), which have evenly occurred over each of the calendar years, are:
1994 80,000
1995 1,00,000
1996 76,000
All dues were promptly paid in each year. Make out for the year 1996 H.P. Debtors account
and H.P. Interest suspense account and prove the opening and closing balances of the latter
account. [C.A. (Final)]
ADVANCE QUESTIONS ON COMPUTATION OF INSTALLMENTS
Question.23 Cash price ?

Rate of interest 12% p.a.
Interest is charged Quarterly
Down payment on 1.01.07 50,000
Date and amount of Installments
1.7.07 = 30,000
31.12.07 = 50,000
31.12.08 = 40,000
30.6.09 = 60,000
Question.24 Cash price ?
Rate of interest 12% p.a. for 2007
13% p.a. for 2008
14% p.a. for 2009
15% p.a. for 2010
Asset was purchased on 1 May 2007

Date Amt. of Installment
31 Oct 07 40,000
31 Mar 08 30,000
31 Mar 09 45,000
30 June 10 30,000
Question.25 date of purchase = 1st Jan 2007

Cash price of asset = ?
Rate of interest
2007 = 12% p.a.
2008 = 14% p.a
2009 = 16% p.a.
Down payment = 60,000
Ist Installment after 10 months = Rs 75,000
IInd Installment at the end of 2nd quarter of 2008 = Rs 85,000
IIIrd Installment at the end of 3rd quarter of 2008 = Rs 68,000
IVth Installment at the end of 6 months of 2009 =Rs 74,000
Vth Installment at the end of 2009. = Rs 72,000
In 2007, interest is charged monthly.

In 2008, interest is charged quarterly.
In 2009, interest is charged half early.
Question.26. Calculate Cash Price where rate of interest is 12% p.a. charged quarterly and down payment is Rs 10,000
Date Amount Nature

1.01.2003 10,000 Down
1.04.2003 15,000 1stInstal
1.10.2003 20,000 2ndInstal
1.04.2004 20,000 3rdInstal
1.07.2005 30,000 4thInstal
Rate of interest is increasing by 2% every Year with effect from 1.1.2004

CHAPTER 17. ACCOUNTING STANDARDS
DISCLOSURE OF ACCOUNTING POLICIES (AS-1)

MEANING:-- Accounting policies refer to specific accounting principles and the method of applying those principles adopted by
the enterprise in preparation and presentation of the financial statements.
Examples Methods of Depreciation, Valuation of inventories, Valuation of Investment ,Treatment of Retirement Benefits
,Valuation of Fixed Assets ,Treatment of Contingent Liabilities etc
NEED FOR DISCLOSURE OF ACCOUNTING POLICIES

There are many areas, where more than one method can be followed for accounting. Which methods have been followed in
preparation of Balance Sheet, profit and loss account is disclosed as accounting policies. Hence accounting policies contains the
information about the method adopted for the preparation of financial statement. Statements of accounting policies are part of
financial statement.
For proper and better understanding of financial statement, it is required that all significant accounting policies followed in
preparation of financial statement should be disclosed. Because assets and liabilities in balance sheet and profit and loss
account are significantly affected by accounting policies followed.
All significant accounting policies should be disclosed at one place because it would be helpful to the reader of financial
statement.
SELECTION OF ACCOUNTING POLICIES

Major points which are considered for the purpose of selection and application of accounting policies
 Prudence - Generally maker of financial statement has to face uncertainties at the time of preparation of financial statement.
These uncertainties may be regarding collectability of receivables, number of Warranty claims that may occur. Prudence
means making of estimates, which is required under conditions of uncertainty.
 Substance over form - It means that transaction should be accounted for in accordance with actual happening and economic
reality of the transactions not by its legal form. Like in hire purchase if the assets are purchased on hire purchase by the hire
purchaser the assets are shown in the books of hire purchaser in spite of the fact that the hire purchaser is not the legal
owner of the assets purchased. Under the hire purchase the purchaser, becomes the owner only on the payment of last
Installment. Therefore the legal form of the transaction is ignored and the transaction is accounted as per its substance.
 Materiality- Financial Statement should disclose all the items and facts which are sufficient enough to influence the decisions
of reader or/user of financial statement.
CHANGES IN ACCOUNTING POLICIES

A change in accounting policies should be made in the following conditions:
 Adoption of different accounting policies is required by statute or
 for compliance with an Accounting Standard ,or
 It is considered that change would result in more appropriate presentation of financial statement.
(I) Fundamental Accounting Assumptions :It is generally assumed that financial statements are prepared on the basis of
fundamental accounting assumptions. Fundamental Accounting assumptions are:
 Going Concern- It means that enterprise had intention for continuing the operation in foreseeable future. Foreseeable
means coming one or two years.
In other words, neither there is intention of discontinuance of business, nor necessity of liquidation of organization or
discontinuance of major operations of the business.
 Consistency - It means that same accounting policies are followed from one period to another.
 Accrual- It means that financial statement is prepared on mercantile system only.
Other accounting assumption like business entity, money measurement, matching are not accounting assumptions as per
this accounting standard.
Assumption regarding fundamental accounting assumptions :If nothing has been written about the fundamental accounting
assumption in financial statements, it is assumed that fundamental accounting assumptions have been followed in preparation
of financial statements.
If any fundamental accounting assumption has not been followed, then this fact must be disclosed in financial statements.
(II) Notes to Accounts
Notes to accounts are the explanation of the management about the items in the financial statements (Profit & Loss Account
and Balance Sheet). The management gives explanation and information about the items of profit and loss account and balance
sheet and any other items, by way of notes to accounts.
QUESTION:1 Describe briefly the term "Accounting policies".[CA Final, May 1992 (2 Marks)
QUESTION: 2 Write a short note on discloser of accounting policy.

[CA PE-II Level May 2003,' Nov 2002 (4 Marks)] [CA Inter Nov 1999, May 1999 (4 Marks)]

QUESTION: 3Mention six areas in which different accounting policies are followed by Companies.
(PCC, May - 2008; Marks 4)
Answer: Major Areas in which different accounting policies may be adopted by different enterprises includes:
• Methods of depreciation, depletion and amortisation, e.g., WDV method, SLM method
• Treatment of expenditure during construction, e.g., capitalization, written off, deferment
• Conversion or translation of foreign currency items, e.g. average rate, TT buying rate
• Valuation of inventories, e.g. FIFO, weighted average method
• Treatment of goodwill, e.g., capitalization method, super profit method
• Valuation of investments, e.g. lower of cost and fair value
• Treatment of retirement benefits, e.g., Pay-as-you-go
• Recognition of profit on long-term contracts, e.g proportionate completion method
• Valuation of fixed assets, e.g., historical cost, revalued amount
• Treatment of contingent liabilities, e.g., provision, discloser, no treatment
AS-2: (REVISED) VALUATION OF INVENTORIES

AS 2 is mandatory in nature for all entities. According to AS-2 'inventories' are assets
(a) held for sale in the ordinary course of business
(b) In the process of production for such sale(WIP); or
(c) raw material consumed in the production process including loose tools and spare parts.
Exclusion from AS-2

a. Under construction building
b. Stock of securities( shares, debentures, bonds)
c. Natural resources
d. Live stock
e. Service provider
f. Machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be
irregular. Such machinery spares are accounted in accordance with accounting standard AS-10 Accounting for
PROPERTY, PLANT AND EQUIPMENT.
VALUATION OF INVENTORIES OF FINISHED GOODS/WIP

According to AS-2 inventories should be valued at the lower of cost and net realisable value.
QUESTION:1 The company deals in three products, A, Band C, which are neither similar nor interchangeable. At the time of
closing of its account for the -year 2002-03. The Historical Cost and net realisable value of the items of closing stock are
determined as follows:
Items Historical Cost Net Realisable Value
(Rs. in lakhs) (Rs. in lakhs)
A 40 28
B 32 32
C 16 24
What will be the value of Closing Stock? [May 2004, 4 marks]
Question 2. X ltd has stock of 100 kg of shampoo. Standard cost per kg Rs 40. Calculate cost of stock.
Question 3. Y ltd has stock of 500 pkd of shampoo. Retail price/pkdRs 90. G.P. Rate 20%. Calculate cost of stock.
Question 4. Rashika ltd produces Pepsi. In the month of April, it produces 1,00,000pkd of Pepsi. Following expenses were
incurred during the month of April:
Direct material of = 8,00,000
Direct labour = 2,00,000
Indirect material( e.g. bottle) = 1,00,000 ( variable factory overhead)
Fixed production overhead = 2,50,000
Transport cost to stores = 50,000
Assume normal production capacity = 1,20,000 pkd.
Calculate cost per unit.
Question5. The cost structure per kilogram of finished product is given below:
Material cost Rs. 100 per kg
Direct labour cost Rs. 20 per kg
Direct variable production overhead Rs. 10 per kg

Fixed production charges for the year on normal capacity of 1,00,000 kgs is Rs. 10 per kg. 2,000 kgs of finished goods are in
stock at the year end. How do you value the quantity in stock as per AS-2.
Question:6 In a production process normal waste is 5% of input. 5,000 MT of input were put in process resulting in a wastage of
300 MT. Cost per MT of input is Rs. 1,000. The entire quantity of waste is in stock at the year end. How will you value the
inventory in accordance with the requirements of AS-2?
Question: 7
Receipts
3rd January 500 units @ Rs. 10 per unit
6th January 300 units @ Rs. 10.50 per unit
Issues
8th January 600 units
Calculate Value of issue
Question: 8 The Aroma Flour Mills Ltd. does not maintain a perpetual inventory of wheat which it buys and issues to the mills.
The physical inventory taken on 28th February, 2000 shows the following quantity of wheat on hand.
10 tonnes @ Rs. 420 per tonne.
The purchases during March were as under:
10-3-2000 100 tonnes @ Rs. 425 per tonne.
A physical inventory taken on 31stMarch, 2000 shows a stock of 15 tonnes of wheat in hand. Compute the inventory value on
31st March, 2000 by FIFO method.
Question: 9 Below given the accounting data of Raghu running retail business in paints for ending 31st December,2012.
At cost At retail
Beginning inventory 20,000 30,000
Paints purchased 1,00,000 1,70,000
Paints available for sales 1,20,000 2,00,000
Net sales for the year 1,60,000
Ending inventory retail 40,000
You are required to estimate the cost of inventory as on 31st December, 2000 using retail method.
Question: 10. A Ltd. uses a single raw material and converts that into a finished product, During the current period the cost of
production and sale prices are as shown below :
Raw material 3 units at Rs. 8 each = Rs. 24.00
Costs of conversion = Rs. 26.00
Manufacturing cost = Rs. 50.00
Selling price = Rs. 75.00
On the balance sheet date there is a steep fall in the price of the product to Rs. 45 because of competition and a steep fall in the
material prices. Currently materials can be purchased at Rs. 4 per unit. On the balance sheet date there are 1,00,000 units of
raw material in stock purchased at a cost of Rs. 8 per unit. You are required to value inventory as on the balance sheet date.
Question: 11. Raw material purchased at Rs. 100 per kilo. Price of raw material is on the decline. The finished goods in which
the raw material is incorporated is expected to be sold at below cost. 10.000 kilograms of raw material is in stock at the year
end. Replacement cost of the material is Rs. 80 per kilogram. How will you value the inventory having regard to AS-2?
QUESTION:12 Inventories of a car manufacturing company include the value of items, required for the manufacturing of
a model-which was removed from the production line five years back, at cost price. As a company auditor how would you
react on the above situations?[CA Inter, Nov 2002 (4 Marks)]
Answer: Inventory valuation: AS-2 on "Valuation of Inventories" provides that the cost of inventories may not be
recoverable if those inventories are damaged, have become wholly or partially obsolete, or if their selling prices have declined.
Accordingly, the auditor should examine whether appropriate allowance has been made for the defective, damaged,
obsolete and slow-moving inventories in determining the net realizable value.
In this case, items required for the manufacture of a model, which has been withdrawn from the production line five years
ago, are included in the stock at cost price resulting in overstatement of inventory and profit. As it appears from the facts
given that the net realizable value of these items is likely to much lower than the cost necessary to write down the inventory
to "net realizable value" if the items of inventories become wholly or partially obsolete. Under the circumstance, the
auditor should qualify the report appropriately.
QUESTION:13. The auditor of a company has a difference of opinion with its chief accountant on the Following
matters concerning inventories. What would be v our advice to the auditor?

(a) It has been policy of the company to value the inventories of finished goods (textiles) at selling price since the
items have a ready market. However, the auditor objects to th is valuation on the basis that it amount to recognizing
unrealized profit.
(b) The company incurs Rs. 20,00,000 as fixed production overheads even-year. It normally produces 1,00,000 units in a year.
In 2000-01, however, it produces only 40,000 units. Fixed production overheads per unit for the year 2000-01 have been
determined by the chief accountant as Rs. 50 (Rs.20,00,000 / 40,000).
(c) What would be your answer in case (b) above if the actual production during the year were 1,25,000 units?
(d) The company deals in five products — A, B, C, D and E. At the time of closing of its accounts for the year, the historical cost
and the net realizable value of the items of closing stock are determined as below:
Items Historical Net realizable value
(Rs. in million) (Rs. in million)
A 20 14
B 16 16
C 8' 12
D 16 25
E 12 8
Total 72 75
The chief accountant values the closing stock in the draft financial statements at Rs. 72 million. The auditor, however, does not
concur with this valuation.
Answer:
(a) The auditor's stand is correct. AS-2 on "Valuation of Inventories' issued by the 'Institute of Chartered Accountants of
India', requires that inventories should be valued at the lower of cost and net realizable value. Valuation of Inventories at selling
price is not in accordance with AS-2.
(b) AS-2 on 'Valuation of inventories' requires that fixed production overheads should generally be allocated on
the basis of normal capacity of production facilities. Accordingly in the instant case, the allocation should be on the basis of
1,00,000 units; i.e. fixed production overheads allocated to each unit of production should be Rs. 20 and not Rs. 50.
(c) AS-2 on 'Valuation of inventories' requires that fixed production overheads should generally be allocated on the
basis of normal capacity of production facilities. However in case the actual production during a period is abnormally
high, the standard requires such allocation to be made on the basis of actual production. Accordingly in the instant case
the allocation should be on the basis of 1,25,000 units, i.e. fixed production overheads allocated to each unit of
production should be on the basis of 1,25,000 units, i.e. fixed production overheads allocated to each unit of
production should be Rs. 16.
(d) As the 5 products are neither similar nor interchangeable, the valuation of inventory of each product should be on
the basis of the lower of its cost and net realisable value as follows:
Items Balance Sheet valuation

(Rs. in million)
X 14
Y 16
Z 8
Total 38
QUESTION: 14. An enterprise has in its stock 10000 bags of cement purchased at a cost of Rs. 180 per bag. The terms of trade
are that the cement is delivered at the buyer's door and the cost of delivery of Rs. 10 per bag is paid by the seller. The selling
price of cement is Rs. 187 per bag. Find out the value of closing stock ?
Answer:Rs. 17,70,000
QUESTION:15. Normal Production 1,00,000 Units

Fixed Production overheads Rs. 5,00,000
Actual Production
Case I 1,00,000
Case II 80,000
Case lll 1,25,000
Discuss how the fixed production overheads will be allocated to inventory. (Answer:Rs. 5, Rs. 5, Rs. 4.)
QUESTION : 16. A has purchased 10000 TV's at the cost of Rs. 8,000/- each. On Balance Sheet date there were 2000 TV's in
stock. Of these 500 were earmarked against a sales contract at a price of Rs. 9,000/ each. The general price of this brand has
dropped to Rs. 7,500/-. Sales contract is committed by both parties. You are required to value stock.
Answer .Rs. 152,50,000/-
QUESTION:17 A Ltd. uses a single raw material that converts that info finish product. During the current period the cost of
production and sales are as follow :
Raw material 3 units at Rs.8 each Rs. 24.00
Cost of conversion Rs. 26.00
Selling Price Rs. 75.00

On the balance sheet date there is a steep fall in the price of product to Rs. 45/-because of competition and a steep fall in
material price. Currently materials can be purchased at Rs. 4 per unit. On the balance sheet date there are 1,00,000 units of raw
material in stock purchased on 31.3.2004 at cost of Rs. 5 per unit. You are required to value inventory as on the balance date.
QUESTION: 18 State with reference to accounting standard, how you will value the inventories in the following cases:
1. Raw material was purchased at Rs. 100 per kilo. Price of raw material is on the decline. The finished goods in which the raw
material is incorporated is expected to be sold at below cost. 10,000 kgs. of raw material is on stock at the year end.
Replacement cost is Rs. 80 per kg.
2. In a production process, normal waste is 5% of input, 5,000 MT of input were put in process resulting in a wastage of 300
MT. Cost MT of input is Rs. 1,000. The entire quantity of waste is on stock at the year end. Suggest accounting treatment of
abnormal Loss.
3. Per Kg. of finished goods consisted of:

Material Cost Rs. 100 per kg.
Direct labour cost Rs. 20 per kg.
Direct variable production overhead Rs. 10 per Kg.
Fixed production charges for the year on normal capacity of one lakh kgs. Is Rs. 10 lakhs. 2,000 Kgs. of finished goods are on
stock at the year end.CA Final November, 2000 (12 Marks)
QUESTION: 19 C Ltd., a Pharmaceutical Company, while valuing its finished stock at the year end wants to include interest on
Bank Overdraft as an element of cost, for the reason that overdraft has been taken specifically for the purpose of financing
current assets like inventory and for meeting day to day working expenses. [May 2005, Audit 5 marks]
Answer: As per Accounting Standard 2 "Valuation of Inventories", cost of inventories comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present location and condition. However, it makes clear
that interest and other borrowing costs are usually not included in the cost of inventories because generally such costs are not
related in bringing the inventories to their present location and condition. Therefore, the proposal of C Ltd. to include interest
on bank overdraft as an element of cost is not acceptable because it does not form part of cost of production.
Question: 20 .Sonar Bhandar deals in old colour TVs. It has 4 TVs the particulars of which are given below :
You are asked to compute the value of stock to be included, in Balance Sheet for the year ended 31 stMarch 2009:
TVs Onida Philips EC Sony Total

Rs. Rs. Rs. Rs. Rs.
Cost Price 10,000 20,000 35,000 50,000 1,15,000
(Expenses incurred to bring 3,000 2,000 5,000 10,000
into godown)
Net Realisable Value 18,000 30,000 36,000 55,000 1,39,000
Q.21 Value of opening stock = Rs. 70,000

Purchases = Rs. 3,40,000
Manufacturing expense = Rs. 20,000
Gross Profit Margin = 25% on cost.
Selling expense = Rs. 10,000
Sales (Net) = Rs. 5,00,000
Calculate (i) Closing stock

(ii) Cost of goods available for sale
(iii) Cost of goods sold.
(iv) Net profit.
Q.22 Purchases = Rs. 3,00,000

Manufacturing expenses = Rs. 40,000
Sales = 33 1/3 % above cost
Opening Stock = Rs. 40,000
Sales (Net) = 4,50,000
Sales return = Rs. 20,000
Calculate closing stock and gross sales.

Q.23 From the following information, ascertain the value of stock as on 31st March 2012.
Rs.
Value of stock on 1st April 2011 70,000
Purchase during the period from 1st April, 2011 to 31s March 2012 3,46,000
Manufacturing expenses during the above period 70,000
Sales during the same period 5,22,000
At the time of valuing stock on 31st March 2011, a sum of Rs. 6000 was written off on a particular item which was originally
purchased for Rs. 20,000 and was sold for Rs. 16,000. Except for the above transaction, the Gross Profit earned during the year
was 25% on cost.
Solution: Statement of Valuating of Stock as on 31st March, 2012

Rs.
Valuation of stock on 1st April, 2011 70,000
Add: Purchased during the period from 1.4.2011 to 31.3.2012 3,46,000
Add: Manufacturing expenses during the above period 70,000
Less: Cost of sales during the period 4,86,000

Sale 5,22,000
Less: Gross Profit 1,03,200 4,18,800
Value of Stock as on 31.3.2012 67,200
Working Notes:
Calculation of Gross Profit: Rs.
Gross Profit on normal sales 1, 01,200
20/100 x (5,22,000 – 16,000)
Gross Profit on the particular (abnormal) item
16000 – (20,000 – 6,000) 2,000
1,03,200
Q 24. Opening stock( 1st April 2012) = 400 kg@ Rs 24

On 12 April – 500 kg purchased @ Rs22
On 28April company issued 1000 kg to the factory.
Calculate value of closing stock and cost of issue under periodic system by
(i) FIFO Method
(ii) LIFO method
(iii) Weighted average method
(iv) Average method
Q.25. 1, April, 2012 Opening stock = 100 Kg @ Rs. 20
Date Purchases Issue Rate

4 April 200 Kg Rs. 21
7 April 300 Kg Rs. 18
10 April --- 150 Kg ---
12 April 100 Kg --- Rs.22
15 April --- 250 Kg ---
18 April 400kg --- Rs. 20
20 April 100Kg --- Rs. 15
22 April Goods returned to suppliers from the lot purchased on 20th April
25 April --- 400 Kg ---
28 April Shortage of 50 Kg
30 April 150 Kg --- 17
Calculate (i) Value of Closing stock
(ii) Cost of goods available for sale
(iii) Cost of goods sold
(iv)Profit earned if total sales is Rs. 2,00,000
Under: (a) FIFO
(b) LIFO
(C) Weighted Average method
Following perpetual and periodic system of recording .

Q.26 (DELETED FROM SYLLABUS)
Q.27 M/s P & Q purchase shirts @ Rs. 200 per piece. The average freight is Rs.10 and insurance in transit is 1%. Octroi duty
is 5 %. On the average, the firm earns a rebate of 4% on its purchase. Godown and storekeeping charges amount to 10 % of the
purchase price per annum. In 1999-2000, the firm purchased 10,000 shirts of which 1,500 remained in stock at the end of the
year. Of the latter, 100 were such as were out of fashion and were expected to be sold @ Rs.150 per shirt. Ascertain the value
of closing stock.
Q.28 M/s X, Y and Z are in retail business, following information are obtained from their records for the year ended
31.3.2012:
Goods received from suppliers (Subject to trade dis. & taxes) 15,75.500
Trade discount 3% and GST 11 %
Packaging and transportation charges 87,500

Sales during the year 22.45,400
Sales price of closing inventories 2,35,000
Find out the historical cost of inventories using adjusted selling price method.
Inventory system:-There are two inventory systems, viz. Periodic Inventory System and Perpetual Inventory
System.
(i) Periodic Inventory System:
Periodic Inventory System is a method of ascertaining inventory by taking an actual physical count (or measure or
weight) of all the inventory items on hand at a particular date on which information about inventory is required. Under
this system, all purchases and purchase returns of inventories arc recorded. But issues of materials are not recorded on
regular basis. Therefore the inventories used during the year is calculated by adding opening stock to purchases and
deducting closing stock of inventories.
Cost of goods Sold = Opening Inventory + Purchases – Closing Inventory
(i) Perpetual Inventory System:

Perpetual Inventory System is a method of recording inventory balances after each receipt and issue. Under this
system all purchases of material, issue Jo production, return to suppliers, and balance of materials are recorded in
store ledger. Under this system store ledger shows complete movement of materials.In order to ensure accuracy of
perpetual inventory records, physical stocks should be checked and compared with recorded balances. The discrepancies,
if any, should be investigated and adjusted in the accounts properly. The closing inventory is calculated as residual figure
(which includes lost goods also.) as follows:-
Distinction between periodic Inventory System and Perpetual Inventory System (most imp)
Periodic Inventory System Perpetual Inventory System
 Inventory is ascertained by taking anactual  Inventor is ascertained on the basis ofrecords.

physical count.  Inventory is calculated as a residual figure
 Inventory is directly calculated by applying asfollows:
the method of valuation.Cost of goods sold = Op. Inventory + Purchases - Cost of goods sold.
Op. Inventory + Purchases- Closing Stock.
 Cost of goods sold includes cost of lostgoods
(if any).
 It requires, closing down of work forstock-  The cost of closing inventory includes costof lost
taking. goods (if any)
 It does not facilitate the continuous stock  It does not require closing down of work
checking. forstock- taking.
 It is a simple and Inexpensive.  It facilitates the continuous stock checking
 The method of valuation (e.g. FIFO /
Weighted Average) is applied only once at the
end of the accounting period to ascertain the  It is elaborate and expensive.
cost of closing inventory.  The method of valuation (e.g. FIFO / Weighted
Average) is applied on continuous basis during
the accounting period to ascertain the cost of
goods sold.

AS-7: CONSTRUCTION CONTRACTS

Question 1. Mr A obtained one contract for Rs 10,00,000 on 1.1.12. he incurred following expense
During 2012 cost incurred = Rs 3,00,000
Future cost to be incurred Rs 4,00,000
During 2013 cost incurred =Rs 5,00,000( cumulative)

Future cost to be incurred =Rs 2,50,000
During 2014 cost incurred Rs 8,00,000( cumulative)

Future cost = nill
Contract completed
Calculate profit for each year.
Question 2. Calculate profit earned during each year.
Year 1 year 2 year 3

Contract cost incurred 5,00,000 8,00,000 12,00,000
Future cost to be incurred 4,00,000 3,00,000 nill
Initial contract revenue 12,00,000

Variation +1,00,000
Claim + 20,000
Escalation 30,000
Incentives 50,000
Question 3. Contract revenue = 100 lacs

Cost incurred = 92 lacs
Future estimated cost = 23 lacs
Expected loss = 15 lacs
Calculate amount transferred to profit and loss A/c and provision required.
Question 4. Raghu Constructions undertake to construct a bridge for the Government of Andhra Pradesh. The construction
commenced during the financial year ending 31.3.2012 andlikely to be completed by the end of next financial year. The contact
is for a fixed price of Rs. 12 crores with an escalation clause. The costs to complete the whole contract are estimated at Rs, 93
crores of rupees. You are given the following information for the year ended 31.3.2012.
Costs incurred up to 31.3.2012 Rs. 4 crores
Costs estimated to complete the contract Rs. 6 crores
Escalation in costs by 5% and accordingly the contract price is increased by 5%. You are required to ascertain the state of
completion and state the revenue and profit to be recognised for the year.
Answer:
Costs incurred to date Rs. 4 crores
Estimated costs to complete the contract Rs. 6 crores
Total costs to complete the contract Rs. 10 crores
Rs.4crores
Rs.4 crores Percentage of completion x 100 = 40%
Rs.10crores
Agreed contract price Rs. 12 crores
Add: 5% escalation 12 x 0.5 Rs. 06 crores
Total revenue Rs. 12.06 crores
Revenue recognised for the accounting period Rs. 12.06 crores x .4 = 4.824 crores
Costs incurred during the period = 4.00 crores
Profit to be recognised = 0.824 crores
Question:5 Define construction contract and its types as per Accounting Standard-7?
Answer: Meaning of construction contract: Construction contract is a contractspecifically negotiated for the
construction of an asset, e.g., bridge, building, dam, pipeline, road, ship or tunnel or a combination of assets that are closely
interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use, e.g.,
construction of refineries and other complex pieces of plant or equipment. Construction contracts include:

• Contracts for the rendering of services which are directly related to the construction of the asset, e.g., contract
for services of project managers and
architects; and
• Contracts for destruction or restoration of assets, and restoration of the
environment following the demolition of assets
Types of Construction Contract: Basically, AS-7 identifies two types ofcontracts:
Fixed price contract is a construction contract in which the contractor agreesto a fixed contract price, or a fixed rate
per unit of output, which in some casesis subject to cost escalation clauses.
Cost-plus contract is a construction contract in which the contractor is reimbursed for allowable or otherwise
defined costs, plus percentage of thesecosts or a fixed fee.
Some construction contracts may contain characteristics of a fixed price contract and a cost plus contract both, e.g., cost plus
contract with an agreed maximum price.
Question: 6 Define the term 'Contract Revenue’ and ‘Contract Costs, as contemplated in accounting standard-7?
Question: 7 What are the discloser requirements contained in Accounting Standard-7?
Question: 8 A company took a construction contract for Rs.100 lakhs in January, 2006. It was found that 80% of the contract
was completed at a cost of Rs.92 lakhs cm the closing date i.e. on 31.3.2007. The company estimates further expenditure of
Rs.23 lakhs for completing the contract. The expected loss would be Rs.15 lakhs. Can the company reorganise the loss in the
financial statements prepared for the year ended 31.3.2007?( PCC May 2007; Marks 2)
AS—9:REVENUE RECOGNITION
PRACTICAL PROBLEMS
Question:1 As a result of a recently announced price revision, granted by the Government of India with effect from 1st July
1992, the company stands to receive Rs. 5,20,000 from its customers in respect of sales made in 1992-93.[CA Final, Nov. 1993 ;2
Marks)]
Answer:The price revision was effected during the current accounting period, 1992-93. As a result the company stands to
receive Rs. 5,20,000 from its customers in respect of sales made during 1992-93. If the company is able to assess the ultimate
collection with reasonable certainty, then additional revenue arising out of the said price revision may be recognised in 1992-93
vide AS-9.
Question:2 X Limited has recognized Rs. 10 lakhs on accrual basis income from dividend on units of mutual funds of the face
value of Rs. 50 lakhs held by it as at the end of the financial year 31st March, 2003. The dividends on mutual funds were declared
at the rate of 20% on 15th June, 2003. The dividend was proposed on 10th April, 2003 by the declaring company. Whether the
treatment is as per the relevant Accounting Standard? You are asked to answer with reference to provisions of Accounting
Standard.[Nov. 2003, 4 marks]
Answer:Accounting Standard 9 on Revenue Recognition state that dividends from investments in shares are not
recognised in the statement of profit and loss until a right to receive payment is established. In the given case, the dividend is
proposed on 10th April, 2003, while it is declared on 15th June, 2003. Hence, the right to receive payment is established on 15th
June, 2003. As per the above mentioned paragraph, income from dividend on units of mutual funds should be recognized by X
Ltd. in the financial year ended 31st March, 2004.The recognition of Rs.10 lakhs on accrual basis in the financial year 2002-2003
is not as per AS — 9 'Revenue Recognition'.
Question 3. Arjun ltd sold farm equipment through its dealer. One of condition at the time of sale is payment of
consideration in 14 days and in the event of delay, interest is payable @ 15% p.a. for the period of delay. Company has not
realised any interest from dealer in past. However for the year ending on 31-3-15 it wants to recognise interest on balance
due from dealer Rs 9,00,000. Comment on recognition of interest as per AS 9.
( CMA Inter 3 marks )
Question 4. A ltd entered into a contract with B ltd to dispatch goods valuing Rs 25000 every month for 4 months upon
receipt of entire payment of Rs 1,00,000 in advance. A ltd started dispatching the goods. In the 3rd month, due to natural
calamity B ltd requested A ltd not to dispatch goods untill further notice. A ltd is holding remaining goods for Rs 50,000. A

ltd accounted Rs 50,000 as sale and treated remaining Rs 50,000 as advance received against sale. Comment on treatment
as per AS 9. (CMA Final 2 marks )
Question 5. M/s Moon Lts sold goods worth Rs 6,50,000 to Star ltd. Star ltd demanded trade discount of Rs 53000. Sale
was affected by Rs 5,97,000 and goods were dispatched. On receipt of goods, Star Ltd found goods worth Rs 67,000
defective. Star ltd returned such goods to Moon Ltd. The accountant of Moon Ltd made entry of sale by net Rs 5,30,000.
Does AS 9 allow it? Comment. ( CMA Inter 3 marks )
Question 6. Sarita publisher publishes monthly magazines on 15th of every month. It sales advertising space in the
magazine to advertiser on the term of 80% sale value payable in advance and balance 20% after release of publication. sale
of space for the month of march 2014 was made in February. Magazine was published on scheduled date. It received Rs
2,40,000 on 10th March and remaining Rs 60,000 in month of April for the march issue. Comment as per AS 9 when
revenue will be recognised.
Question 7.AB Ltd. seeks your advice about the treatment of the following in the final statement of accounts for the year
ended 31st March 2017:
“As a result of a recent announced price revision, granted by the Government of India with effect from 1st July, 2014, the
company stands to receive ₹6 lakhs from its customers in respect of sales made in 2016-17”
Solution: The company is preparing the financial statements for the year ended 31.3.17. Due to price revision granted by
the Government of India, the company has to receive an additional sales revenue of ₹6 lakhs in respect of sales made
during the year 2016-17.
As per AS-9, where uncertainty exists in collection of revenue, its recognition is postponed to the extent of uncertainty
involved and it should be recognized as revenue only when it is reasonably certain about its collection.
In view of the above statement, if there is no uncertainty exists as to the collect ability of₹ 6 lakhs, it should be recognized
as revenue in the financial statements for the year ended 31.3.17.
Question 8. Advise D Ltd. About the treatment of the following in the final statement of accounts for the year ended 31st
March, 2017.
A claim lodged with the Railways in March, 2015 for loss of goods of ₹5 lakhs had been passed for payment in March, 2017
for ₹4 lakhs. No entry was passed in the books of the company, when the claim was lodged.
Solution: The financial statements of the company are prepared for the year ended 31.3.17.
There was a loss of goods of ₹5 lakhs in 2014-15 and the claim was lodged in March 2015 with the Railway authorities. No
entry was passed in the books of the company when the claim was lodged and the said treatment was correct in view of
AS-9, which states that if uncertainty exists as to collectability, the revenue recognition should be postponed.
Since, the claim is passed for payment of ₹4 lakhs in March, 2017, it should be recognized as revenue in the financial
statements prepared for the year ended 31.3.17.
As per AS-5 Revised, the claim amount received will not be treated as extraordinary item. AS-5 Revised further states that
when items of income and expense within profit or loss from ordinary activities are of such size, nature, or incidence that
their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such
items should be disclosed separately. Accordingly, the nature and amount of this item should be disclosed separately.
Question 9. A private limited company manufacturing fancy terry towels had valued its closing stock of inventories of
finished goods at the realisable value, inclusive of profit and the export cash incentives. Firm contracts had been received
and goods were packed for export, but the ownership in these goods had not been transferred to the foreign buyer.
Comment on the valuation of the stocks by the company.
Solution: Accounting Standard 2 “Valuation of Inventories” states that inventories should be valued at lower of historical
cost and net realisable value. AS 9 on “Revenue Recognition” states, “at certain stages in specific industries, such as when
agricultural crops have been harvested or mineral ores have been extracted, performance may be substantially complete
prior to the execution of the transaction generating revenue. In such cases, when sale is assured under forward contract or

a government guarantee or when market exists and there is a negligible risk of failure to sell, the goods invoiced are often
valued at Net-realisable value.”
Terry Towels do not fall in the category of agricultural crops or mineral ores. Accordingly, taking into account the facts
stated, the closing stock of finished goods (Fancy terry towel) should have been valued at lower of cost and net-realisable
value and not at net realisable value. Further, export incentives are recorded only in the year the export sale takes place.
Therefore, the policy adopted by the company for valuing its closing stock of inventories of finished goods is not correct.
AS 10- PROPERTY, PLANT AND EQUIPMENT --- FOLLOW ONLY CLASS NOTES

CHAPTER 18. FUNDAMENTAL OF ACCOUNTING THEORY

Class 1. MEANING AND SCOPE OF ACCOUNTING
Every individual performs some economic activity. Such activities are performed through Transactions and Events.
Transactions: - it means a business activity which involves exchange of money or money’s worth between parties. It is
performance of an act or an agreement.
Events: - Event means happening due to any transactions. In other words result of any transaction. It can be measured in
terms of money and changes in financial position.
Example:- Raising money through various sources are transaction and profit or loss at the end of year is an events.
Definition of Accounting: - It’s an art of recording, classifying and summarizing transactions and events in
monetary term. It is also called Language of Business. It also analyses and interprets the financial transaction and
events.
As per American Institute of Certified Public Accountants ( year 1961), “ accounting is the art of recording, classifying
and summarising in a significant manner and in terms of money, transactions and events which are, in art at least, of a
financial character and interpreting the result thereof”.
As per American Accounting Association (year 1966), “the process of identifying, measuring and communicating
economic information to permit informed judgements and decisions by the users of accounting”.
Objectives of Accounting are as follows:-

(1) Systematic recording of transaction: - i.e. Book-Keeping.
(2) Ascertainment of results of above recorded transaction i.e profit or loss account is prepared.
(3) Ascertainment of financial position of business: - Balance Sheet is prepared.
(4) Assisting the management for decision making, exercising control, budgeting and forecasting.
(5) Providing information to the users for rational decision making:-

(6) To know solvency positions.
FUNCTIONS OF ACCOUNTING ARE AS FOLLOWS:-
1. Measurement:- It measures past performance of business and shows its current financial position.
2. Forecasting:- It helps in forecasting future performance and financial position using past data.
3. Decision-making:- It helps users to take rational decision.
4. Comparison and Evaluation:- It helps in comparing and evaluating financial results of different intervals.
5. Control:- Accounting identifies weakness of system and provides feedback for control.
6. Meeting legal requirements( government regulation and taxation):-
Accounting provides necessary information to government to exercise control and collecting tax.
Accounting records are accepted as evidence by the court of law.
Book-keeping :- As defined by carter, ‘book keeping is a science and art of correctly recording in books of accounts
all those business transactions that result in transfer of money or money’s worth’.
It is a process of recording transaction and events of financial data related to business operation in order of its
occurrence. It is basic function of accounting. In it proper books of account are prepared. Book keeping is a
mechanical task which involves:
 Collection of basic financial information.


 Identification of transactions and events with financial character( economic transaction)

  Measurement of economic transactions in terms of money .
  Recording financial effects of economic transactions in order of its occurrence.

  Classifying effect of economic transactions i.e recordings in ledger .
 Preparing organized statement known as trial balance.
Objective of book-keeping :-
(1) Complete Recording of transaction:- It records all transaction in systematic manner

(2) Ascertainment of financial effect on business:- It shows combined effect of transaction made during
accounting year.
Distinction between Accounting and Book-keeping:
Book-keeping Accounting
It is process of recording transaction or events 1. It is process of summarizing recorded transaction
2. It is a base for accounting 2. It is considered as language of business
3. Financial statements do not form part of 3. Financial statement are prepared on the
this process. basis of book-keeping records
4. Managerial decisions are not taken on the 4. Management takes decision on the basis of
basis of these records these records.
5. There is no sub-filed of book-keeping 5. It has several sub-filed like financial
Accounting, cost accounting, management
accounting etc.
6. Financial position cannot be known 6. Financial position are ascertained on the
through book-keeping basis of accounting records.
ACCOUNTING CYCLE:- When complete sequence of accounting procedure is done which happens frequently and
repeated in same directions during an accounting period, the same is called an accounting cycle. Steps/phases in
accounting cycle are as follows:
i. recording of transactions.
ii. journal
iii. ledger
iv. trial balance
v. adjustment entries
vi. adjusted trial balance
vii. closing entries
viii. financial statements
ix. analysis and interpretation.
Sub-field of Accounting are as follows:
1. Financial Accounting:- financial accounting is that branch of accounting which records financial
transactions and events, summarises and interprets them and communicates the results to the users. It

ascertains results (profit or loss) during an accounting period and financial position at the end. It is also
called stewardship accounting.
2. Cost Accounting:- It ascertain the cost of products manufactured or services rendered and helps the
management in fixing prices of product and exercising control over cost. It is also called control
accounting.
3. Management Accounting:- it is concerned with generating accounting information relating to funds, cost,
profits etc. as it enables the management in planning and decision making. It is also called decision
accounting.
Basis of accounting:-
1. Accrual basis of accounting: Accrual basis of accounting is a method of recording transactions by which
revenue, cost, assets and liabilities are reflected in the accounts for the period in which they accrue. The basis
includes consideration relating to deferrals, allocations, depreciation and amortisation. It is also called mercantile
basis of accounting.
2. Cash basis of accounting: cash basis of accounting is a method of recording transactions by which revenue, cost,
assets and liabilities are reflected in the accounts for the period in which actual receipts or actual payments
are made.
3. Hybrid or mixed basis: under the hybrid system of accounting, incomes are recognised as in cash basis of
accounting and expenses are recorded on accrual basis.
Procedural Aspects of Accounting:-On the basis of above definition, procedure of accounting is divided into two parts:
1) Generating financial information.
2) Using the financial information.
(I) Generating financial information:
(i) Recording: - It is basic function of accounting. All transaction or events are evidenced by some documents
like Purchase Bill, Bank Pass Book, Sale Bill, Salary Slip etc. Recording is done in a book called Journal.
(ii) Classifying: - It is systematic analysis of recorded data. In this stage transaction or events of one nature are
put at one place so as to make more useful or informatics for uses. Book containing classified
information is called Ledger.
(iii) Summarizing: - It is preparation and presentation of classified data to internal as well as external users of
financial statement. This process leads to preparation of Trial Balance, Profit and loss Account, Balance
sheet.
(iv) Analysis and interpretation: financial data is analysed and interpreted so that the users of financial data can
make a meaningful judgement of the financial performance(profit) and financial position of the business.
Analysis helps in planning for future in better way. It is done through many tools like ratio analysis etc.
(v) Communicating: - It is transmission of summarized, analyzed and interpreted information to users so that they
can take rational decision. It is done through accounting reports like P & L A/c, Balance Sheet etc.
II Using the financial information

Users not only include proprietor or owner but also include investor, employees, lender, suppliers, government,
customer and public at large. Accounting data is more useful if it stresses more on economic substance rather
than technical form. Information is useless and meaningless unless it is relevant and material.

Users of financial statement
Internal External
- Directors - Investor
- Partners - Lenders
- Managers - Suppliers
- Employees - Govt. Agencies
- Customers
Users of Accounting Information:- There are two categories:-
(1) Internal Management and owner

(2) External uses or outsiders.
Following are various uses:-
(1) Investors: They provide capital to business. They need information to assess whether to buy, hold or sell their
investment.
(2) Employees:- Growth of employee directly related to growth of organization. So they require much
information.
(3) Lenders:- They are interested to know capability of business to repay principal and interest.
(4) Supplier and creditors :- They want to know ability of firm to pay their dues. It is generally done by
credit policy of concern.
(5) Customer;- Customers are also interested to know stability and functioning of business.
(6) Government and their agencies :- They are also interested due to various reasons like for allocation of
scarce resources among competing enterprises, tax rate, and collection.
(7) Public:- They are interested in functioning of business since they contribute substantially too many ways.
(8) Management as a whole is also interested in the accounts for various managerial decisions .
Note : they all above are collectively called stake-holders.
Relationship of Accounting with other discipline:
(1) Accounting and Economics:- Economics tells how scarce resources are utilized effectively. For that it is
required to analysis the data of resources. Accounting provides major data base for same purpose.
(2) Accounting and statistics :- In accounts all individual transactions or events are important but in statistics
behaviour (i.e. trend analysis, degree of variation over a period). So here statistics methods help accounting to
collect data in systematic manner. Statistic techniques like time series, cross-sectional comparison etc. are used
for better presentation of accounting data.
(3) Accounting and Mathematics:- Mathematics helps accounting in numbers of ways like calculation of interest,
annuity to find out installments etc.
(4) Accounting and law:-- Business enterprises require complying so many laws and making its accounting to comply
their requirement. Partnership firms require to comply partnership act 1932, A company require to comply requirement
of company act 2013, and so many other laws like labour laws, MRTP Act, Contract Act, Negotiable Instrument Act, The
sale of good Act. Thus transaction and events of accounting are guided by law.

(5) Accounting and Management.:-- Accounting helps management in decision making process. Accounting data are
used by management as basic source documents. Large portion of accounting informations are prepared for management
decision making.
Limitation of Accounting:-- Generally it is assumed that account shows true and fair view of financial statement of
an enterprise. But it has following limitation
1) Accounts cannot reflect loyalty and skill of personnel which are most valuable these days.
2) Accounts never tell future of an enterprise. It only records past events that have occurred. E.g - Balance sheet
is prepared at the last moment of last day of accounting year. It never estimates what will happen in future.
3) Accounting mostly ignores changes in money factor like inflation.
4) In some occasions accounting principles conflict with each other.
5) Some accounting estimates require personal judgment like provisions for doubtful debts, method of
depreciation adopted, writing of intangible assets etc.
6) Financial statements consider only thing which are in monetary term. Those which are not in monetary term are
not considered by financial statement like human resources.
7) Different Accounting policies for treatment of same item increase the probability of manipulation.
Role of accountant in the society:-- There are few professions in the world having high esteem in public eyes,
Accounting profession is one of them.
- It helps business to see its financial position and plan for the future.
- It serves for welfare of society in numbers of ways by having education, training and experience
- Accountants help not only in the matter of taxation, costing, management accounting, financial layout but also
for financial planning and policies, budgetary policies even economics principle.
- Activities of accounting are not limited.
Area of service:-- Some of services are as follows:-
(1) Maintenance of books of accounts:
- Record transactions in systematic manner.

- Help ascertaining profit and loss and financial position.
- Help in planning, decision-making, controlling function.
(2) Statutory Audit:

- Every company requires to audit their accounts by an external auditor.
- Accountant helps auditor to audit the accounts.
(3) Internal Audit:
- Internal auditor examines the accounting system and ensures management that accounts have
been properly maintained.
- It improves operational efficiency of business.
(4) Taxation:
- An accountant can handle taxation matter of business as well as of individual and can represent
himself on their behalf to taxation authorities and settle tax liabilities.
- It can also reduce tax liability by proper planning.

(5) Management Accounting and consultancy services:
- Management accountant is mainly responsible for internal reporting to management. It provides

services for planning controlling current operation, decision-making and special matter and making
long term plans.

- Accountant also provides consultancy service in area of management information system,

expenditure control, new investment, working capital management, corporate planning etc.
(6) Financial advise:-- Financial advise in following area:-
- Investment, Insurance, Business expansion, Investigation etc,
- To ascertain financial position
- To make or buy decision
- To ascertain reason of profit fallen
- To increase efficiency
- For valuation of business.
- Pension scheme.
Other services
1) Secretarial work
2) Share Registration work
3) Company formation
4) liquidation of company.
5) Arbitrations
6) Cost Accounting.
Class 2. ACCOUNTING CONCEPTS, PRINCIPLES AND CONVENTIONS
INTRODUCTION:-- a widely accepted set of rules, conventions, standards and procedures for reporting financial
information, as established by the Financial Accounting Standards Board(FASB) are called Generally Accepted
Accounting Principles (GAAP).
They are common set of accounting principles, standards and procedures that companies/entities use to
compile their financial statements.
GAAP is to be followed by companies so that investors have optimum level of consistency in the financial statements
they use when analysing companies for investment purposes. GAAP cover such aspects like revenue recognition,
balance sheet items classification and their valuation, treatment and presentation.
Suppose we give to prepare our accounts from five different Accountants. After some time all accountants come with
their accounts by showing different profit, since all of them followed different accounting policies. In that case it will not
serve the purpose of accounting. So it is necessary that there should be some principle, so that all accounts prepared by
any number of accountant will show same amount of profit. So to avoid confusion and to ensure uniformity, GAAP
(Generally Accepted Accounting Principles ) are framed.
ACCOUNTING CONCEPTS, PRINCIPLES AND CONVENTIONS:
Accounting information is published in the form of financial statements. The three basic financial
statements are:
i. Profit and loss account

ii. Balance sheet
iii. Cash flow statement
As these statements are meant to be used by different stakeholders, it is necessary that the information contained
therein is based on definite principles, concrete concepts and well accepted convention.
ACCOUNTING CONCEPTS:-- These are basic assumptions and conditions on the basis of which financial
statements are prepared. Certain concepts are perceived, assumed and accepted in accounting to provide unifying
structure and internal logic to accounting process. The concept means idea or notion, which has universal application.
Financial statements are interpreted in the light of the concept, which govern accounting methods. concepts are those
basic assumptions and conditions, which form the basis upon which the accountancy has been laid. Accounting
concepts are only results of broad consensus. These accounting concepts lay down the foundation on the basis of
which the accounting principles are formulated.

ACCOUNTING PRINCIPLES:-- These are body of doctrines commonly associated with the theory and procedures
of accounting serving as an explanation of current practices . They act as guide for selection of accounting
procedures or conventions where alternative exists. Accounting principle must satisfy following conditions:-
1) They should be based on Real Assumptions.

2) They must be Simple, Understandable and Explanatory.
3) They must be followed consistently.
4) They should Reflect Future Predictions.
5) They should be Informational for users.
ACCOUNTING CONVENTIONS:- These emerge out of Accounting Practices, commonly known as accounting
principles adopted by various organizations over a period of time. These conventions are derived by usages and
practices. It improves Quality of Accounting Information.
A. BASIC ASSUMPTION CONCEPTS/PRINCIPLES/CONVENTIONS:
I. Separate Entity Concept or Entity Concept or business entity concept Business Entity Concept considered
business enterprises as a separate Entity & having separate identity distinct from its owner. Therefore business
transactions are recorded in the books of accounts from business point of view and not from the owner. Therefore
amount invested by owner into the business is also treated as liability (internal) for business.
II. Going Concern Concept :-- According to this concept, it is assumed that enterprise will continue its operation for
indefinite period of time. It is assumed that an enterprise neither has intention nor the need to liquidate or wind up and
curtail its scale of operation. It is because of this concept a distinction is made between assets and expense, fixed
and current assets / liabilities.
III. Money Measurement Concept : -- According to this concept, only those transactions which can be expressed in
money should be recorded in the books of accounts . Transactions and events, that cannot be expressed in money are not
recorded in books of accounts, even if they are very useful or affect the result of business.
IV. Periodicity Concept/Accounting period concept:-- According to this concept, the life of an enterprise is broken into
smaller periods so that its performance can be measured at regular interval. Generally one year period is taken up for
performance measurement and appraisal of financial position. So life of the enterprise is divided into smaller
periods(usually one year) which is termed as ‘accounting period.’ At the end of accounting period, we prepare financial
statements.
V. Accrual Concept:-- Accrual means recognition of revenue and expenses as they are earned or incurred and not when
cash or money is received or paid. Revenue means gross inflow of cash, receivables and other consideration arises in
the ordinary course of business activities from sale of goods, rendering services and using other enterprises resources
yielding interest, royalties and dividends. Expenses are cost relating to revenue earned for a particular period.
B. Following are basic accounting Principles/concept/Convention-
i. Revenue realisation concept:- this concept speaks about recording of only those transactions which are actually
realised. For example, sale will be taken into account only when cash is received or legal ownership is transferred.
ii. Matching concept : For ascertaining profit and loss for a particular period, expenses should be matched with
revenue of that period. In financial statement, it is necessary to match revenue of the period with the expenses of that
period to determine correct profit or loss.
iii. Full disclosure concept : as per this concept, all significant information must be disclosed. Accounting data
should properly be clarified, summarised, aggregated and explained for the purpose of presenting the financial
statements which are useful for the users of accounting information.
iv. Duality concept: according to this concept every transaction has two aspects i.e. the benefit receiving aspect and
benefit giving aspect. These two aspects are to be recorded in the books of accounts.
v. Verifiable objective evidence concept: under this concept, accounting data must be verifiable. It means
documentary evidence of transactions must be made which are capable of verification by an independent respect.
vi. Historical cost concept : According to this concept, value of asset is determined on the basis of historical cost or
acquisition cost or price paid for acquisition of asset.
vii. Balance sheet equation concept : it means every debit must have a corresponding credit and vice- versa. So
we can write the above in the following forms – Expenses + losses + assets = revenues + gains + liabilities.
And if expenses/losses and income/gains are set off, the equation takes the following form:
Assets = equity ( capital)+ external liabilities

C. Following are Modifying accounting Principles/Convention concept-
i. Materiality concept : the materiality could be related to information, amount, procedure and nature. According to
American Accounting Association, “an item should be regarded as material if there is reason to believe that
knowledge of it would influence the decision of an informed investor. Thus whether an amount is material or not, will
depend on its amount, nature, size of business and level of person taking decision.
- It is an exception of full disclosure principal. As per this principle the items effecting significantly on the
business of enterprises should be only disclosed separately in the financial statements.
ii. Consistency concept : this concept says that the accounting practices should not change or must remain
unchanged over a period of several years. The accounting policies are followed consistently from one period to
another to achieve comparability of financial statements from one period to another period. The concept of
consistency is applied where different methods of accounting are equally acceptable.
For e.g. A company may adopt any depreciation method, straight line method, WDV method etc, similarly there are
many methods for valuation of stocks in hand. But the company should follow the principal of consistency over years.
An enterprise should change its accounting policy in any of the following circumstances only.
a. Bringing books of accounts in accordance with the issued accounting standards,

b. To compliance with provision of law.
c. When it is felt that new method will reflect more true and fair picture in the financial statement .
iii. Conservatism/ prudence concept :-
 It states that accountant should not anticipatepossible income but should provide for all possible losses.
 Where there are many alternative method to value an asset, an accountant should choose method which shows lesser
value.
iv. Timeliness concept: under this principle, every transaction must be recorded in proper time. Normally , when the
transaction is made, the same must be recorded in the proper books of accounts.
V. industry practice concept: as there are different types of industries, each industry has its own characteristics and
features. The entity should follow such accounting practices which are prevailing in that industry. For example, electricity
companies, insurance companies, banking companies maintain their accounts in a specific manner.
Fundamental Accounting assumptions(FAA) : There are three fundamental accounting assumptions:
1. Going Concern
2. Consistency
3. Accrual
When nothing is written about the fundamental accounting assumptions in the financial statements then it is
assumed that these accounting assumptions have been followed in preparation of financial statements. It should
be specifically disclosed if any of these assumption is not followed.
Financial statements: The aim of accounting is to keep records systematically to ascertain financial performance and
financial position of enterprises and communicate the relevant financial information to management and public at large.
All enterprises prepare financial statements like balance sheet, profit and loss account, cash flow statement by
following various concepts, principles and conventions etc, to know financial position.
Qualitative Characteristics of financial statements :-
1. Understandability: The information in the financial statements must be easily understandable.

2. Relevance: Information must be relevant for decision making need of users. -they must be able to evaluate past,
present and future events.
3. Reliability: - Information must be reliable to be useful for the need of users. it should be free from errors and bias .
user can depend upon it and can take their decisions.
4. Comparability;- User must be able to compare financial statement of different period to know financial
position, performance and cash flows.

5. Materiality :-- Relevance of information is affected by its materiality.
6. Faithful Representation:-Information must be presented faithfully. The transaction and events to be reliable for
user.
7. Substance over form :- the transactions and other events in financial statement should be accounted and presented
in accordance with their substance and economic reality and not merely their legal form. For example, assets taken
on lease are shown as an asset in balance sheet, even firm is not a legal owner.
8. Neutrality :--Information contained in financial statement must be that , it is free from bias.
9. Prudence:-Prudence means degree of caution in exercise of judgments requires to estimate condition of uncertainty
so that assets and income are not overstated and liabilities and expenses are not understated.
10. Full, Fair and adequate Disclosure :-The disclosure should be full and final to assess financial position of
enterprises. Principle of full disclosure implies nothing should be omitted.
- Principle of fair disclosure implies all transaction recorded in financial statement present true and fair view
result of business.
- Adequate disclosure implies that information influencing the decision of users should be disclosed in details and
should make sense.
11. Completeness :- Information in financial statement must be complete. An omission may cause false or
misleading and unreliable information.
MULTIPLE CHOICE QUESTIONS: PRACTICE SESSION 1:
1. According to the Money Measurement, currency transactions & events are recorded in books of accounts
(a) In the ruling currency of the country in which transaction takes place.
(b) In the ruling currency of the country in which books of accounts are prepared.
(c) In the currency set by ministry of finance.
(d) In the currency set by government.
2. The determination of expenses for an accounting period is based on the concept of…
(a) Objectivity (b) Materiality (c) Matching (d) Periodicity
3. Decrease in the amount of creditors results in

(a) Increase in cash
(b) Decrease in cash
(c) Increase in assets
(d) No change in assets
4. Ram purchased a car Rs.10,000 paid Rs. 3000 as cash and balance amount will be paid in three equal
installments/ Due to this………
(a) Total assets increase by Rs.10,000
(b) Total liabilities increase by Rs 3000
(c) Assets will increase by Rs.7000 with corresponding increase in liability by Rs.7000
(d) Both (b) and (c)
5. Accounting does not record non-financial transactions because of

(a) Entity concept
(b) Accrual Concept
(c) Cost Concept
(d) Money Measurement Concept.
6. Provision for bad debt is made as per the
(a) Entity concept (b) Conservatism Concept
(c) Cost Concept (d) Going Concern Concept
7. Fixed Assets and Current Assets are categorized as per concept of
(a) Separate Entity (b) Going Concern (c) Consistency (d) Time Period

8. Omission of paise and showing the round figures in financial statements is based on
(a) Conservatism Concept (b) Consistency concept
(c) Materiality Concept (d) Realization Concept
9. Income tax of the sole trader paid is

(a) Debited to P&L Account
(b) Debited to Trading Account

(c) Debited to his Capital Account
(d) None
10. Payment of salary is recorded by
(a) Dr. Salary, Cr. Cash Account
(b) Dr. Cash Account, Cr. Salary Account
(c) Dr. Employee Account, Cr. Cash Account
(d)Dr. Employee Account, Cr. Salary Account
11. Purchase of furniture for cash would

(a) Increase fixed assets & reduce current assets
(b) Reduce fixed assets & increase current assets
(c) Increase total assets
(d) Both (a) & (b)
12. Narration are given at the end of
(a) Final accounts
(b) Trial Balance Each Ledger Account
(c) Each ledger accounts
(d) Each journal entry
13. Which of the following is an example of Personal Account?
(a) Machinery
(b) Rent
(c) Cash
(d) Creditor
14. P & L Account is prepared for period of one year by following
(a) Consistency Concept
(b) Conservatism concept
(c) Accounting Period Concept
(d) Cost Concept
15. Current Liabilities means
(a) Liabilities which are payable within 12 months
(b) Liabilities which are payable immediately
(c) Liabilities which payable after one accounting year
(d) Liabilities which are readable within 3 months
16. Valuing inventory at market value though cost is lower for such inventory violates the concept of
(a) Money measurement
(b) Conservatism
(c) Cost
(d) Periodicity
17. A company deals in electronic goods (AC, Fridge, TV, etc) purchases two TV sets and install in its
showroom. The expenses will be recorded in
(a) Drawing A/c

(b) Purchase A/c
(c) Fixed Assets A/c
(d) P & L A/c
18. If an individual asset is increased, there will be a corresponding
(a) Increase of another asset or increase of capital
(b) Increase of drawings and liability
(c) Decrease of another asset or increase of liability
(d) Increase of specific liability or decrease of capital

19. Which of the following statements is not true?

(a) Depreciation is a nominal account
(b) The balances of Nominal accounts are transferred to trading account/ Profit & Loss a/c
(c) Rent a/c is a personal account but outstanding rent account is a nominal account
(d) In ledger, accounts are opened separately
20. Mr. Y purchased goods for Rs.9,00,000 and sold 4/5th of the goods for Rs.10,80,000 and met expenses amounting
to Rs.2,00,000 during the year, 2019. He counted net profit as Rs. 1,20,000. Which of the accounting concepts was
followed by him?
(a) Entity
(b) Matching
(c) Periodicity
(d) Conservatism
21. …….. business activity which involves exchange of money or money’s worth between parties.
a. transaction b. event c. expense d. liability.
22. Accounting is an art of…,…,….transactions and events in monetary term.

a. recording, classifying and summarizing.
b. recording, summarizing and classifying
c. classifying, summarizing and recording.
d. recording and classifying
23. …….. is also called Language of Business.
a. book keeping b. balance sheet
c. accounting d. cash flow statement
24. Accounting is the art of recording, classifying and summarising in a significant manner and in terms of
money, transactions and events which are, in art at least, of a financial character and interpreting the
result thereof”. This definition is given by…..
a. GAAP b. Accounting standard board
c. CBSE Board d. American Institute of Certified Public Accountants
25. Objectives of Accounting are

a. Systematic recording of transaction
b. Ascertainment of results of above recorded transaction.
c. Ascertainment of financial position of business .
d. All of the above
26. FUNCTION OF ACCOUNTING ARE-

a . Measurement
b. Forecasting
c. Decision-making
d. All of the above
27. As defined by ………… “book keeping is a science and art of correctly recording in books of accounts all those
business transactions that result in transfer of money or money’s worth’.
a. ICAI b. ICMAI c. Carter d. COC Ltd
28. Following are features of book keeping except….

a. It is process of recording transaction or events
b. It is a base for accounting
c. Financial statements do not form part of this process.
d. Managerial decisions are taken on the basis of these records.
29. When complete sequence of accounting procedure is done which happens frequently and repeated in
same directions during an accounting period, It is called
a. accounting cycle . b. book keeping
c. accounting. d. financial statements.

30. Following are Sub-fields of Accounting except…
a. financial accounting b. cost accounting
c. management accounting d. book keeping
31. Following are basis of accounting except:-
a. Accrual basis of accounting b. cash basis of accounting
c. hybrid basis of accounting d. financial accounting
32. Recording ( primary recording) is done in a book called -------.
a. Journal b. ledger c. trial balance d. trading account
33. Book containing classified information is called…...
a. Journal b. ledger c. trial balance d. trading account
34. external user of financial statement are…….
a. Directors b. Partners c. Managers d. Investor
35. a widely accepted set of rules, conventions, standards and procedures for reporting financial
information are called
a. accounting b. book keeping c. Generally Accepted Accounting Principles (GAAP) d. all of the above
36. following are considered as basic financial statements except:
a. profit and loss account b. balance sheet

c. cash flow statement
d. fund flow statement

37. The ………. means idea or notion, which has universal application.
a. concepts b. principles.
c. conventions. d. imaginations.
38…………….. emerge out of Accounting Practices, commonly known as accounting principles adopted by
various organizations over a period of time.
a. accounting concepts b. accounting principles.
c. accounting conventions. d. imaginations.
39. A change in accounting policy is justified
(a) To comply with accounting standard.

(b). To ensure more appropriate presentation of the financial statement of the enterprise.
(c). To comply with law.
(d). All of the above.
40. Accounting policy for inventories of Xeta Enterprises states that inventories are valued at the
lower of cost determined on weighted average basis or net realizable value. Which accounting
principle in followed in adopting the above policy?
a. Materiality. b.Prudence/conservatism.
c. Substance over form. c. All of the above.
41. Accounting policies refer to specific accounting…..
a. Principles.
b. Methods of applying those principles.
c. Both (a) and (b).

d. None of the above
42. Which financial statement represents the accounting equation, assets = Liabilities + Owner's equity:
(a) Income Statement (b) Statement of Cash flows (c) Balance Sheet (d) None of the above
43. Which account is the odd one out?
(a)Office furniture & Equipment. (b) Freehold land and Buildings.
(c) Stock of materials. (d) Plant and Machinery.
44. Indicate the alternative which you consider to be correct: In Double Entry System of Book-keeping
every business transaction affects:
(a) At least two accounts. (b) Two sides of the same account.
(c) The same account on two different dates, (d) All of the above
45. Business transactions are recorded in the books of accounts from business point of view and not from the
owner because of ……
a. accounting period concept b. separate entity concept
c. accrual concept d. money measurement concept
46. According to ……. concept, it is assumed that enterprise will continue its operation for indefinite period
of time.
a. accounting period concept b . separate entity concept c. accrual concept d. going concern concept

47. According to ….. concept, only those transactions which can be expressed in money should be recorded in
the books of accounts.
48. According to ….. concept, the life of an enterprise is broken into smaller periods so that its performance can
be measured at regular interval.
49. …………. means recognition of revenue and expenses as they are earned or incurred and not when cash or
money is received or paid.
50. For ascertaining profit and loss for a particular period, expenses should be matched with revenue of that
period.
a. matching concept b. full disclosure concept
c. dual aspect/duality concept d. historical concept
51. As per …….. concept, all significant information must be disclosed.
a. matching concept b. full disclosure concept c. dual aspect/duality concept d. historical concept
52. According to ------- concept every transaction has two aspects.

a. matching concept b. full disclosure concept c. duality concept d. historical concept
53. Under ------- concept, accounting data must be verifiable.

c. Verifiable evidence concept: d. historical concept
54. According to ---- concept, value of asset is determined on the basis of price paid for acquisition of asset.
c. Verifiable evidence concept: d. historical concept
55. as per ------ concept, an item should be regarded as important if there is reason to believe that
knowledge of it would influence the decision of an informed investor.
a. consistency concept b. materiality concept
c. Verifiable evidence concept: d. full disclosure concept
56. ------ is an exception of full disclosure principal.

a. consistency concept b. materiality concept
c. Verifiable evidence concept: d. full disclosure concept
57.------- concept says that the accounting practices should not change or must remain unchanged over a
period of several years.
a. consistency concept b. prudence concept
c. timeliness concept: d. industry practices concept

58. -------- states that accountant should not anticipate income but should provide for all possible losses.
a. consistency concept b. prudence/conservatism concept
59. as per ------ where there are many alternative value of asset, an accountant should choose method which
shows lesser value.
a. consistency concept b. prudence concept
60. Under ----- principle, every transaction must be recorded in proper time.
a. consistency principle b. prudence principle
c. timeliness principle d. industry practices principle
61. as per ---- principle, the entity should follow such accounting practices which are prevailing in that
industry
a. consistency principle b. prudence principle
c. timeliness principle d. industry practices principle
Answer:-
1.(b) 2.(c) 3.(b) 4.(c) 5.(d) 6.(b) 7.(b) 8.(c) 9.(c) 10.(a)
11.(a) 12.(d) 13.(d) 14.(c) 15.(a) 16.(b) 17.(c) 18.(c) 19.(c) 20.(b)
21.(a) 22.(a) 23.(c) 24.(d) 25.(d) 26.(d) 27.(c) 28(d) 29(a) 30.(d)
31.(d) 32.(a) 33(b) 34.(d) 35.(c) 36.(d) 37.(a) 38.(c) 39.(d) 40.(b)
41.(c) 42.(c) 43.(c) 44.(a) 45.(b) 46.(d) 47.(d) 48.(a) 49.(c) 50.(a) 51.(b)
52.(C) 53.(C) 54.(d) 55.(b) 56.(b) 57.(a) 58.(b) 59.(b) 60.(c) 61.(d)

Multiple choice question - Practice session 2
1. Which of the following is not a subfield of accounting?
(a) Management accounting.

(b)Cost accounting,
(c) Financial accounting.
(d) Book-keeping,
2. Purposes of an accounting system include all the following except
a. Interpret and record the effects of business transaction.

b. Classify the effects of transactions to facilitate the preparation of reports.
c. Summarize and communicate information to decision makers.
d. Dictate the specific types of business enterprise transactions that the enterprises may engage in.
3. Financial accounting information is characterized by all of the following except
a. It is historical in nature.
b. It is factual.
c. It results from inexact and inappropriate measures.
d. It is enhanced by management's explanation,
4. Book-keeping is mainly concerned with
a. Recording of financial data.

b. Designing the systems in recording, classifying and summarizing the recorded data.
c. Interpreting the data for internal and external users.
d. None of the above.
5. All of the following are functions of Accounting except
(a) Decision making. (b) Measurement.

(c) Forecasting. (d) Ledger posting,
6 Financial statements are part of
(a) Accounting. (b) Book-Keeping.
(c) All of the above. (d) None of the above,

7. DELETED
8. Users of accounting information include:
(a) Creditors.
(b) Lenders.
(c) Customers. .
(d) All of the above
9. Financial statements only consider

a. Only Assets expressed in monetary terms.
b. Only Liabilities expressed in monetary terms.
c. Assets expressed in non-monetary terms.
d. Assets and liabilities expressed in monetary term.
10. On January 1, 2021, Sohan paid rent of Rs. 5,000. This can be classified as
(a) An event. (b) A transaction.
(c) A transaction as well as an event.

(d) Neither a transaction nor an event,
11. On 31-3-21 after sale of goods worth Rs. 2,000, he is left with the closing stock of Rs. 10,000. This is-----

(a) An event.
(b) A transaction. (c) Atransaction as well as an event. (d) Neither
Answer : 1.d, 2.d, 3.c, 4.a, 5.d, 6.a, 8.d, 9.d, 10.b, 11.a.

MULTIPLE CHOICE QUESTION- PRACTICE SESSION 3

Pick up the correct answer from the given choices:
1. All the following items are classified as fundamental accounting assumptions except
(a) Consistency, (b) Business entity, (c) Going concern. (d) Accrual.
2. deleted
3. Kanika Enterprises follows the written down value method of depreciating machinery year after year due to:
(a) Comparability, (b) Convenience, (c) Consistency, (d) All of the above.
4. A purchased a car for Rs.5,00,000, making a down payment of Rs.1,00,000 and signing a Rs.4,00,000 bill payable due in
60 days. As a result of this transaction
a. Total assets increased by Rs.5,00,000.

b. Total liabilities increased by Rs.4,00,000.
c. Total assets increased by Rs.4,00,000.
d. Total assets increased by Rs.4,00,000 with corresponding increase in liabilities by Rs.4,00,000.
5. Mohan purchased goods for Rs. 15,00,000 and sold 4/5th of the goods amounting Rs.18,00,000 and met expenses
amounting Rs.2,50,000 during the year, 2019. He counted net profit as Rs.3,50,000. Which of the accounting concept was
followed by him?
(a) Entity. (b) Periodicity. (c) Matching. (d) Conservatism.
6. A businessman purchased goods for Rs.25,00,000 and sold 80% of such goods during the accounting year ended 31
March, 2021. The market value of the remaining goods was Rs.4,00,000. He valued the closing stock at cost. He violated
the concept of
(a) Money measurement. (b) Conservatism/ prudence. (c) Cost. (d) Periodicity.
7. Capital brought in by the proprietor is an example of

a. Increase in asset and increase in liability.
b. Increase in liability and decrease in asset.
c. Increase in asset and decrease in liability.
d. Increase in one asset and decrease in another asset.
8. Assets are held in the business for the purpose of
(a) Resale. (b) Conversion into cash. (c) Earning revenue. (d) None of the above,
9. Revenue from sale of products, is generally realized in the period in which

(a) Cash is collected. (b) Sale is made. (c) Products are manufactured. (d) None of the above,
10. The concept of conservatism when applied to the balance sheet results in
(a) Understatement of assets.(b) Overstatement of assets.(c) Overstatement of capital. (d) Understatement of capital
11. Decrease in the amount of creditors, generally results in
(a) Increase in cash. (b) Decrease in cash. (c) Increase in assets. (d) No change in assets,
12. The determination of expenses for an accounting period is based on the principle of
(a) Objectivity. (b) Materiality. (c) Matching. (d) Periodicity
13. The 'going concern concept, is the underlying basis for
a. Stating fixed assets at their realizable values.

b. Disclosing the market value of securities.
c. Distinction between assets and expense.
d. None of the above.
14. Economic life of an enterprise is split into the periodic interval as per
(a) Periodicity. (b) Matching. (c) Going concern. (d) Accrual.

15. If an individual asset is increased, there will be a corresponding

a. Increase of another asset or increase of capital.
b. Decrease of another asset or increase of liability.
c. Decrease of specific liability or decrease of capital.
d. Increase of drawings and liability,
16. Purchase of machinery for cash
(a) Decreases total assets. (b) Increases total assets,
(c) Retains total assets unchanged, (d) Decreases total liabilities.
17. Consider the following data pertaining to Alpha Ltd. --
Cost of machinery purchased on 1st April, 2020 10,00,000
Installation charges 1,00,000
Market value as on 31 March, 2021 12,00,000
While finalizing the annual accounts, if the company values the machinery at Rs. 12,00,000. Which of the following concepts
is violated by the Alpha Ltd.?
(a) Cost (b) Matching. (c) Realization. (d) Periodicity.
18. A proprietor, Mr. A has reported a profit of Rs. 1,25,000 at the end of the financial year after taking into
consideration the following amount:
(I) The cost of an asset of Rs. 25,000 has been taken as en expense.
(II) Mr. A is anticipating a profit of Rs. 10,000 on the future sale of a car shown as an asset in his books.
(III) Salary of Rs. 7,000 payable in the financial year has not been taken into account.
(IV)
Mr. A purchased an asset for Rs.75,000 but its fair value on the date of purchase was Rs. 85,000. Mr. A
recorded the value of asset in his books by Rs. 85,000.
On the basis of the above facts answer the following questions from the given choices:
(i). What is the correct amount of profit to be reported in the books?
(a) Rs. 1,25,000, (b) Rs.1,35,000, (c) Rs. 1,50,000, (d) Rs. 1,33,000,
(ii) Which measurement base should be followed in the statement (IV)?
(a) Historical cost, (b) Current cost (c) Replacement cost (d) Present value
(iii) Which concept should be followed in the statement (II)?
(a) Conservatism, (b) Materiality, (c) Historical cost, (d) Accrual,
(iv) Which concept should be followed in the statement (iii)?
(a) Materiality, (b) Historical cost, (c) Current cost, (d) Accrual.
ANSWERS
1. (b) 2. (deleted) 3.(c) 4. (d) 5.(c) 6.(b) 7.(a) 8. (c) 9. (b) 10.(a) 11.(b) 12.(c) 13.(c)
14.(a) 15.(b) 16.(c) 17.(a) 18. (i)-(d), (ii)- (a), (iii)-(a), (iv) (d)

CLASS 3. Accounting Standards, IFRS and IND-AS

Introduction:- Accounting as a language of business tells financial result or position of enterprises to shareholders or owner by
means of financial statement. If accounting process or system is not proper, than there are chances that financial statement
could be misleading and not showing fair view. So in order to make accounting or financial statement transparent, consistent,
comparable, adequate and reliable, there is requirement to make accounting standardize to make accounting principle and
policies. Accounting standard provide framework and standard accounting policies so that financial statement of different
enterprises become comparable.
Meaning of accounting standard: The accounting standards are set of guidelines i.e. Generally Accepted Accounting
Principles, that are followed for preparation and presentation of financial statements. They are accounting rules and
procedures relating to measurement, recognition, treatment, presentation and disclosures of accounting transactions in
the financial statements issued by the council of the institute of chartered Accountant of india.
OBJECTIVE:-
1. Main objective of accounting standards are harmonizing accounting policies and practice followed by different enterprises
so that comparison of different enterprises can be done easily.
2. It reduce accounting alternative for preparing financial statement to maintain harmonization.

3. promote better understanding of financial statements.
4. enhances reliability of financial statements.
5. understand significant accounting policies adopted and applied.
Benefits:- There are following benefits

-It reduces variation between different enterprises for accounting treatment used to prepare financial statement.
-Standards discloses all information even which are not required by law.
-It helps in comparison of financial statement of companies situated in different parts of countries or world.
Limitation:-
-When there are alternative of many accounting treatment, choice of best alternative generally become difficult.
-Standards are rigid not flexible for applying accounting treatment.
-Standards cannot override statute. It has to follow requirement of statute.
Overview of Accounting Standard in India:
-ICAI constitute Accounting Standard Board ( ASB ) on 21st April 1977.
-Main Function of ASB to formulate Accounting Standards.
-ASB issued so far 32 Accounting Standard but AS-8 (Accounting for Research and development ) and AS-6(depreciation)
have been withdrawn so there are 30 Accounting Standards.
INTERNATIONAL FINANCIAL REPORTING STANDARDS(IFRS):-- Globalisation integrates the national economies into
the international economies through trade, foreign direct investments, capital flow etc. in this age of globalization and
technology, enterprises are carrying on businesses worldwide. We also understand that accounting is the language of
business. Thus business enterprises around the world should not speak different languages while sharing financial
informations. Therefore there is need for single set of accounting standards that can unify the accounting practices
worldwide. It is difficult to understand and compare worldwide financial informations without a common set of
accounting and financial reporting standards. The use of single set of high quality accounting standards would facilitate
investment and other economic decisions across borders, increase market efficiency and reduce cost of capital. Thus
international accounting standards (IAS) were developed, which are being withdrawn and superseded by International
Financial Reporting Standards(IFRS).IFRS are a set of accounting standards developed by the international
Accounting standards board(IASB)
ASSUMPTIONS IN IFRS:-
1. Accrual Assumption
2. Going concern assumption
3. Measuring unit assumption: measuring unit for valuation of capital is the current purchasing power. It
means asset should be reflected at current(fair) price.
4. Constant purchasing power assumption:- it means value of capital be adjusted to inflation in the economy at the
end of financial year.

APPLICATION OF IFRS IN INDIA :- India had two options, i.e. either to accept IFRS as they are or converge the Indian
accounting standards in line with IFRS. It decided to converge its existing accounting standards with IFRS. The
converged accounting standards titled Ind -AS have been issued and notified. It should be noted that the existing Indian
accounting standards shall not cease to be applicable standards. They will continue to apply on entities that are not
required to migrate to IND-AS.
ACCOUNTING POLICIES:-
Meaning
 Accounting Policies means specific accounting principles and method of applying those principles
in the preparation and presentations of financial statement.
 The choice of specific accounting policy in different circumstances requires judgment by management.
 ICAI trying to reduce number of accounting policies through Guidance Notes and Accounting standard
in combined efforts with government and other regulatory agencies. ICAI already achieved some
progress in this respect.
Areas within different accounting polices are frequently encountered are as follows:
 Method of depreciation, depletion and Amortization

 Valuation of Inventories
 Treatment of goodwill
 Valuation of Investment
 Valuation of fixed assets etc.
Selection of Accounting Policies
Choice of accounting policy is important decision which affects the performance of financial position of

business.
 Selection of inappropriate accounting polices may lead to understatement or overstatement of
performance and financial positions.
 There is no universal formula for selecting accounting policies.
 Three major characteristics which should be considered for selection and application of accounting
 polices
 Prudence
 Substance over form
  Materiality
 Financial statement should be prepared on the basis of such accounting policies

 Accounting policies adopted in the preparation of financial statement should be disclosed at one place .

Change in Accounting policies:- Change in Accounting policies should be made in following conditions
a) When it is required by law.

b) Change result more appropriate presentation of financial statement.
c) Changes require to comply with accounting standard. So it is necessary to reflect change in financial
statement.

Accounting as a Measurement Discipline:- Valuation Principle, Accounting Estimates
Meaning of Measurement:-- Measurement is important aspect of accounting. Transaction and Events are measured in term
of money.
There are three basic elements of measurement :-
1. Identification of Objects and Events to be measured.
2. Selection of Standard or scale to be used.
3. Evaluation of dimension of measurement standard or scale. in accounting we take money as a unit of measurement


VALUATION PRINCIPLES There are four measurement base or valuation principles
1. Historical Cost
2. Current Cost
3. Realizable Value
4. Present Value
1. Historical Cost :- It means acquisition price or purchase price. For example, Rs.7,00,000/- paid to purchase the machine, here
historical cost of machine is Rs.7,00,000/-.Under this principle, assets are valued at an amount paid or fair market value at the
time of acquisition.
Accordingly Liabilities are recorded at the amount of the proceeds received in exchange for the obligation. liability is recorded
at the amount of proceeds received in exchange for an obligation.
2. Current Cost :- Assets are recorded at the amount of cash or cash equivalents that would have to be paid if the same or an
equivalent asset has been acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents
that would be required to be settle the obligation currently.
3. Realizable (settlement) value :- Under this principle, Assets are recorded or valued at amount which can be obtained if
assets are sold in open market.
Liabilities are carried at their settlement values; i.e. the discounted amounts of cash or cash equivalents expressed to be paid to
satisfy the liabilities in the normal course of business.
4. Present Value :- Under this principle, Assets are recorded at present discounted value of future net cash inflows that is
expected to generate in the normal course of business.
Liabilities are recorded at present discounted value of future net cash outflows which are expected to be paid to settle
liabilities in normal course of business.
Measurement and valuation :- Value relates to benefit to be derived from objects, abilities or idea. According to
economist, value is the utility (i.e. satisfaction) of economic resources to the person using it. According to accountant, value of
objects, abilities or ideas is always measured in term of money.
Accounting Estimates:- Transaction is measured at the amount which is paid for or by applying valuation principle. But there
are some assets and liabilities which are not occurred or cannot be measured by applying valuation principle like depreciation,
provision for doubtful debts. But these assets or liabilities are necessary to record in books of accounts but for recording these
items we need some value and for withdrawing such value we make reasonable estimates based on existing situation and past
experience.
Thus management makes various estimates and assumption of assets, liabilities, income and expenses as on the date of
preparation of financial statement like depreciation, amortization of expenses, provisions of employee benefits etc. Process of
estimation involves judgments based on information available.
-Estimate requires revision if changes occur regarding circumstances on which the estimate was based.
Change in estimates means difference arises between certain parameters estimated earlier and re-estimated during the
current period or actual results achieved during current period.

CLASS 4. CAPITAL AND REVENUE TRANSACTIONS

There are 2 types of transaction:
i. Capital transaction:- transactions having long term effect are known as capital transaction.
ii. Revenue transaction:- transactions having short term effect are known as revenue transactions.
It is necessary to make a distinction between Revenue and Capital expenditure and income to determine the correct
income of the business. To calculate net profit of the business, only revenue income and expenditure will be taken
into consideration, however business may incur some expenditure of capital nature.
The following facts will not be taken into consideration to decide, whether an expenditure incurred or
income earned is capital or Revenue in nature: —
(a) Source of payment
(b)Nature for recipient
(c) Manner of payment
 Classification of Expenditure :  Classification of Income  Classification of Receipt
1) Capital Expenditure 1) Capital Income 1) Capital Receipt
2) Revenue Expenditure 2) Revenue Income 2) Revenue Receipt
3) Deferred Revenue Expenditure
CONSIDERATION IN DETERMINING CAPITAL AND REVENUE EXPENDITURES:
(a) 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.
(b) Recurring nature of expenditure: if the frequency of an expenditure is quite often in an accounting year then it
is said to be revenue expenditure. For example, payment of salary, wages etc. but if the frequency is non-recurring,
then it is called capital expenditure. For example, purchase of assets.
(c) Purpose of expenses: expenses incurred for repair of machinery in normal course of maintenance is called
revenue expenditure. On the other hand, expenditure incurred for major repair of the asset so as to increase its
productive capacity is capital in nature.
(d) Effect on revenue generating capacity of the business: the expenses which help to generate
income/revenue in the current period are revenue in nature. On the other hand expenditure helps to generate
revenue over more than one accounting period are called capital expenditure.
(e) Materiality of amount involved : relative proportion of amount involved is another important consideration in
distinction between revenue and capital expenditure. For example, purchase of calculator is treated as revenue
expenditure, even though we derive benefit during more than one year.
Capital Expenditure: Capital expenditure is that expenditure which result in the purchase, alteration or
improvement of fixed assets. Such expenditures result in an increase in the earning capacity of a business. Such
expenditure is incurred with a view to bringing in improvements in productivity or earning capacity for getting
long-term advantages for the business. It is not incurred for day -to-day working of the business. The following
types of expenditure are treated as – 'Capital Expenditure’.
i) Acquisition of an asset.
ii) Delivery of fixed assets.

iii) Installation of fixed assets

iv) Legal cost of buying assets/property.
v) Demolition costs
vi) Architect fees
vii) Improvement of fixed assets
viii) Extension of an asset:
ix) Putting the new assets into working condition
x) Acquisition of a right to carry on business
xi. Cost of overhauling second hand machines.
xii. Development expenditure
Other examples are --- money paid for goodwill since it will attract the old firm's customer and thus result in
higher sales and profit. Money spent to reduce the working expenses, for example conversion of hand driven
machinery to power driven machinery and expenditure which enable a firm to produce a large quantity of goods.
It is important to note that all amounts spent up to the point an assets is ready for use should be treated as
capital expenditure. The examples are - Fees paid to lawyer for drawing up the purchase deed of land, overhaul
expenses of second hand machinery etc. Interest paid on loans raised to acquire a fixed asset is particularly
noteworthy. Such interest can be capitalized; i.e. added to the cost of the assets but only for the period before the
assets is ready for use.
It is not necessary that capital expenditure always generate profit. Even if there is a loss or asset has not been used,
such expenditure will be treated as capital expenditure.
Revenue Expenditure: Revenue Expenditure is that expenditure which is incurred for maintaining productivity
or earning capacity of a business. An item of expenditure whose benefit express within the year or expenditure
which merely seeks to maintain the business or keep assets in good working condition is revenue expenditure.
Expenses of following nature are treated as revenue expenses:—
(i) Expenses for running the business.

(ii) Expenses incurred to maintain the fixed assets( maintenance expenditure).
(iii) Purchase of material and goods.
(iv) Depreciation.
(v) Administration of the business
(vi) Selling and distribution expenses.
(vii) taxes and legal expenses.
(viii) research expenditure
Such expenditure does not increase the efficiency of the firm, nor does it result in the organization of
something permanent.
Note 1: capitalised expenditure: expenditure connected with the purchase of fixed asset are called
capitalised expenditure e.g wages paid for the installation of machinery.
Note 2. Capital expenditure are shown in the balance sheet but revenue expenditure are shown in the
trading and profit & loss account.
Deferred Revenue Expenditure:-When the benefits of revenue expenditure is available for a period of two,
three or more years, such expenditure is known as deferred revenue expenditure and is written off over a period of a
few years and not wholly in the year in which it is incurred.
Ex: If a new firm advertises very heavily in the beginning of the year to capture a position in tin market, the benefit of
this advertising campaign will last quite a few years. It will be better to write off the expenditure in three or four years
and not only in the first year.
When loss of a specifically heavy and exceptional nature is sustained, it can also be treated as deferred revenue
expenditure. If fire or earthquake destroys a building, the loss may be written off in three or four years. The amount
not yet written off appears in the balance sheet. Only loss arising from circumstances beyond one's control can
be treated as deferred revenue expenditure.
Revenue Receipt:Amount received in the course of normal business transaction is treated as revenue receipt.For
example, sale proceeds of goods are revenue receipt, discount received. Commission received, interest on bank
deposits, annual subscriptions, general donation, entrance fees, sale of old newspaper, locker rent etc.
Capital Receipt :-- Receipts which are not of revenue nature are capital receipts. Following are covered under
capital receipts:

i. Capital contributed by members
ii. Share capital/ capital contribution
iii. Loan raised
iv. Proceeds from sale of fixed assets
v. life membership fees
vi. Legacies
vii. Government grants for specific purpose
viii. Donation for specific purpose
Amount received from the proprietors as capital or loan receipt is treated as capital receipt. Similarly sale proceeds of
permanent or fixed assets are also treated as capital receipt. In order to ascertain the profit made by a business,
only revenue receipt should be taken in to account. Capital receipts have no bearing on the profit made or
loss incurred during a particular year.
Revenue profit/Income: Any income or profit derived by carrying on the business or during the course of
business operations is treated as revenue income. Ex.-- Profit on sale of goods, dividend or interest received,
commission or discount received. Such income is shown in profit and loss A/c.
Capital profit/Income: Capital profit is the profit which is earned on the sale of the fixed assets. For example, profit
on sale of fixed assets over its cost is treated as Capital Income. However any profit upto the cost of the asset is
treated as Revenue Profit.
Revenue loss: the loss suffered by the business in the ordinary course of business is called revenue loss.
Capital loss :- the loss suffered by a company on the sale of fixed assets is called capital loss.
Question:(1) State with reason whether the following are Capital or Revenue Expenditure:
(i) Expenses incurred in connection with obtaining a license for starting the factory were10,000.
(ii) Rs.2,000 spent as lawyer's fee to defend a suit claiming that the firm's factory site belong to the plaintiff the
suit was not successful.
(iii) Rs.12,000 interest had accrued during the year on term loan obtained and utilised for the construction of
factory building and purchase of machineries, however, the production had not commenced till the last date of
the accounting year,
(iv) Cost of making more exits in a cinema hall.

(v) Expenditure on acquisition of Export Rights, when payment is made in instalments.
(vi) Interest on arrears of sales tax.
(vii)Loss due to devaluation of currency on loan taken in foreign currency.
Solution :
(i) Money paid Rs. 10,000 for obtaining a licence to start a factory is a capital expenditure. This is an item of
expenditure incurred to acquire the right to carry on business. The expenses necessary for either
establishing the business, like expenses for obtaining the necessary licence will be capital expenditure. Only
the initial expenditure is capital; renewal fees are revenue.
(ii) Rs.2,000 spent as lawyer's fee in defending the title to the firm's assets is a revenue expenditure. This is an
expenditure incurred for upkeep of a fixed assets. If there is a dispute about the ownership, legal expenses
incurred for defending the title will be a revenue expense.
(iii) Interest accrued Rs. 12,000 on term loan obtained and utilized for the construction of factory building and
purchase of machinery should be treated as capital expenditure since commercial production has not begun till
the last day of accounting year.
(iv) Making more exist in a cinema hall does not increase the capacity of the hall and, therefore, it should be treated
as revenue expenditure.
(v) This is a kind of intangible assets which will help business to earn income for a long period. Whether payment
is made lump sum or in instalments , the nature of expenditure being capital will not change.

(vi) When sales tax is payable in instalments, any interest paid with amount of sales tax is similar to tax for the
business. Further, this expenditure has direct relationship with the income earned during the current year.
Hence, treated as Revenue Expenditure.
(vii)Treatment for such loss will depend on the fact whether loan amount has been used for acquiring a fixed asset or
it was being used as circulating capital or trading asset. If loan was used for acquiring fixed assets, any loss arising
on account of devaluation of currency will be capital loss. But if loan was being used in circulating capital or
trading asset, such loss will be treated as Revenue Loss.
Question 2: State which of the following receipts are of capital nature and which of revenue nature:—
(a) Amount realised from old furniture.

(b) Amount received from a debtor whose account was previously written off as bad.
(c) Amount of loan taken from bank.
(d) Fees received from apprentices.
(e) Amount realised from debtors against their debts.
(f) Amount contributed by the proprietor to augment his capital.
(g) Rs. 10,000 received from sale of machinery which had cost Rs. 6,000.
Answer.
(a) Sale of old furniture only means conversion of one asset into another. Therefore, it is a capital receipt.
(b) This amount is to be treated as a revenue receipt because this amount is not refundable to the customer and the
amount was previously written off as a loss.
(c) The loan taken from a bank is repayable and, therefore they are capital receipt.
(d) Fee received from apprentices are not returnable and, therefore, they are an income of the firm. They are
revenue receipt.
(e) Amount realised from debtors against their debts is revenue receipts.
(f) This item is capital receipt since it increases the firm's liability to the proprietor.
(g) It will be treated as capital receipt as conversion of one asset into another (machinery into cash).
MULTIPLE CHOICE QUESTION- PRACTICE SESSION 1
1. An expenditure is capital in Nature when –
(a) The receiver of the amount is going to treat it for the purchase of fixed assets.
(b) It increase the quantity of fixed assets
(c) It is paid as interests on loans for the business
(d) It is incurred to maintain fixed assets
2. Capital expenditures are recorded in the…..
(a) Balance sheet (b) Profit and loss A/c (c) Trading a/c (d) Manufacturing a/c
3. Which of the following transaction is of capital nature.
(a) Purchases of a truck (b) Repair of old trucks
(c) Cost of repairing of truck (d) All of the above
4. 5,000 incurred for upgradation of computer by installation of 128 MB Ram is
(a) Capital Expenditure (b) Deferred Revenue Expenditure
(c) Revenue Expenditure (d) None of the above
5. Entrance fee of Rs. 20,000 received by a club is a

(a) Capital Receipts (b) Revenue Receipt
(c) Capital Expenditure (d) Revenue Expenditure
6. Life Membership fees received by a club is
(a) Revenue expenditure (b) Capital Expenditure

(c) Deferred Revenue Expenditure (d) Capital Receipt
7. Cost of goods purchased for resale is an example of –
(a) Capital expenditure (c) Deferred Revenue Expenditure
(b) Revenue expenditure (d) None of these
8. Import duty of raw material purchased
(a) Revenue expenditure (b) Capital Expenditure
(c) Deferred Revenue Expenditure (d) None of these
9. Received from Solomon & co., an invoice for Rs. 1500 for repairs to factory walls
(a) Revenue Expenditure (b) Capital Expenditure (c) Deferred Revenue Expenditure (d) None of these
10. Compensation received from government for compulsory acquisition of land
(a) Revenue Expenditure (b) Capital Expenditure
(c) Deferred Revenue Expenditure (d) None of these
11. All Revenue Receipts and Expenditures are shown in: -
(a) Balance Sheet (b) Trading and Profit and Loss A/c
(c) Cash Flow Statement (d) Statement of Affairs
12. A Bad Debt recovered during the year will be
(a) Capital expenditure (b) Revenue expenditure
(c) Capital Receipt (d) Revenue Receipt
13. Insurance claim received on account of machinery damaged completely by fire is
(a) Capital Receipt (b) Revenue Receipt
(c) Capital Expenditures (d) Revenue Expenditure
14. Amount of Rs.5,000 spent as lawyers’ fees to defend a suit claiming that the firm’s factory site belonged to the
plaintiff’s land is
(a) Capital Expenditures (b) Revenue Expenditure
(c) Deferred Revenue Expenditures (d) None
15. Money spent Rs.10,000 as travelling expenses of the directors on trips abroad for purchase of capital assets
(a) Capital expenditures (b) Revenue Expenditures (c) Deferred revenue expenditures (d) None
16. Insurance claim received on furniture destroyed by fire is a ____:

17. Purchase of Machinery is a

18. An expenditure is treated as revenue expenditure when
(a) Its benefit is exhausted within one accounting period

(b) Its benefit extends to more than one accounting period
(c) The amount spent is very large.
(d) When no cash outflow takes place for the same.
19. Cost of computer purchased for office use is a
20. Amount spent for development of factory site is a
Answer:- 1.(b) 2.(a) 3.(a) 4.(a) 5.(b) 6.(d) 7.(b) 8.(a) 9.(a) 10.(d)
11.(b) 12.(d) 13.(a) 14.(b) 15.(a) 16.(a) 17.(c) 18.(a) 19.(c) 20.(c)
MULTIPLE CHOICE QUESTIONS- Practice session 2
1. Classify the following expenditures and receipts as capital or revenue:

(i) Money spent Rs. 10,000 as travelling expenses of the directors on trips abroad for purchase of capital assets:
(a) Capital expenditures
(b) Revenue expenditures
(c) Deferred revenue expenditures
(d) None of the above

(vi) Interest on investments received from UTI.
(a) Capital receipt (b) Revenue receipt (c) Capital profit (d) net profit
(vii) Amount received from IDBI as a medium term loan for augmenting working capital,
(a) Profit (b) Revenue expenditures (c) Capital receipt (d) Revenue receipt
(viii) A bad debt recovered during the year.
(a) profits (b) Revenue expenditures (c) Capital receipt (d) Revenue receipt
2. A second hand car is purchased for Rs. 10,000, the amount of Rs. 1,000 is spent on its repairs, Rs. 500 is
incurred to get the car registered in owner's name and Rs. 1,200 is paid as dealer's commission. The amount
debited to car account will be
(a) Rs. 10,000. (b) Rs. 10,500. (c) Rs. 11,500. (d) Rs. 12,700.
3. If repair cost is Rs. 25,000, whitewash expenses are Rs. 5,000, cost of extension of building is Rs. 2,50,000 and
cost of improvement in electrical wiring system is Rs. 19,000; the amount to be expensed is
(a) Rs. 2,99,000. (b) Rs. 44,000. (c) Rs. 30,000. (d) Rs. 49,000.
4. Rs. 1,200 spent on the repairs of machine.
(a) capital expenditure; (b) revenue expenditure; (c) deferred revenue expenditure (d) None of the above
5. Rs. 2,500 spent on the overhaul of machines purchased second-hand.
(a) capital expenditure; (b) revenue expenditure; (c) deferred revenue expenditure? (d) None of the above
6. White washing expenses.
(a) capital expenditure; (b) revenue expenditure; (c) deferred revenue expenditure? (d) None of the above
7. Paper purchased for use as stationery.
(a) capital expenditure; (b) revenue expenditure; (c) Deferred revenue expenditure (d) None of the above
8. Advertising campaign to launch a new product.

(a). capital expenditure; (b) revenue expenditure; (c) deferred revenue expenditure? (d) None of the above
ANSWER: 1.i-- (a), 1.ii--(b), 1.iii.--(b), 1.iv.--(b), 1.v.--(a), 1.vi.--(b), 1.vii.--(c), 1.viii.--(d)
2. (d), 3. (c), 4. (b) , 5.(a), 6.(b), 7.(b), 8.(c)

CLASS 5. PROVISIONS AND RESERVES
Meaning of provisions:-- Provision is an amount set aside, by charging it to the Profit and Loss Account or Statement of Profit
and Loss (in case of companies), to provide for a known liability the amount of which cannot be determined with accuracy. It is
charged in the Profit and Loss Account on the basis of best estimate. In other words, a provision is a charge against profit for
the purpose of providing for any liability or loss. Provision for Depreciation, Provision for Doubtful. Debts, Provision for Repairs
and Provision for Tax are few examples of provisions. Provision differs from liability to the extent that provision is an estimated
amount while liability is determined amount. For example, providing for wages of 50,000 payable for the month of March is a
liability. Thus, Provision is an estimated amount set aside to meet an uncertain loss or expense in future.
Concept of Provisions:- Accrual Assumption is a fundamental accounting assumption. It means all liabilities, losses and
expenses, whether determined or not, should be accounted in the books of account to determine profit or loss for the
accounting period. Liabilities amounts of which are not determined are recorded in the books of account on best estimate
and should be near to actual liability or expense. The amount so set aside is known as Provision.
Objectives of Provisions:-- The objectives of provision are to account all expenses and losses. Where the amount of liability,
expenses and losses is not ascertained or determined, they are estimated and accounted by making provision. As a result of
provision, correct (or near to correct) profit or loss is ascertained, liabilities and assets are shown at correct values.
Features of Provision:
1. It is an amount set aside out of income or profits. It is retention of profit, made temporarily, for a specific purpose.
2. The purpose, for which a provision is created, is to meet:
(a) an anticipated loss which has occurred but the amount is not ascertained, or
(b) a known depletion or diminution in the value of an asset, or
(c) a liability which has been known to have arisen.

3. The exact amount of anticipated loss or the depletion in the value of the asset, or the liability is not ascertained
or ascertainable, at the time of accounting.
4. It is a charge to Profit and Loss Account.
Importance of Provisions:
1. Provision is an amount set aside out of current earnings considered necessary to provide for all losses that are
expected to arise out of transactions entered into, during the accounting period.
2. Provision is made to retain future operating performance undisturbed by losses arising out of transactions of
prior periods.
3. Provision is made following the Prudence Concept of accounting which holds "provide for all anticipated expenses and
losses but do not provide for anticipated incomes. By making a provision, a part of the profits and corresponding assets
are retained, which otherwise could have been distributed as profits.
4. Any loss or depletion in the value of an asset or any liability as may not have been provided against income or profit
would effectively erode the capital of a business. Creation of Provisions is an attempt to maintain the capital of business
intact.
Thus, Provisions represent (a) maintenance of capital, (b) adjustment of capital as is lost or eroded in the process of
generation of revenue with current revenue and (c) a shield where loss arising out of past transactions does not affect
result of future operations. The above discussion brings out the point that current income or profit cannot be measured
without creating provisions. Provisions are accordingly, considered as a charge against revenue or profits.
RESERVES-- Meaning and Concept
Reserves are the amounts set aside out of profits. It is an appropriation of profits or accumulated profits to strengthen the
financial position of the business. Reserves are not set aside to meet a liability or depreciation in the value of assets but is set
aside to meet known or unknown contingency that may arise in future. Examples are General Reserve, Reserve for Expansion,
Reserve for Equalisation of Dividends, Reserve for Increased Costs of Replacement, etc.
The amount of reserve when invested in outside securities, the reserve is termed as Reserve Fund. But when no specific
investment is made it is not called Reserve Fund but Reserve.
General Reserve, Workmen Compensation Reserve and Investment Fluctuation Reserve being appropriation of profit are not
shown in the Profit and Loss Account.

Importance of Reserves: Reserves are important in a business to strengthen the financial position of the enterprise. The
creation of Reserves enables the enterprise to sail through difficult financial period in the future. The purpose of Reserves
can be:
(i) expansion of business,

(ii) improvement of financial position,
(iii) redemption of liabilities,
(iv) meeting unforeseen contingencies,
(v) making dividends uniform from year to year, and
(vi) meeting legal requirements such as Debentures Redemption Reserve under the Companies Act, 2013 required by
the Income-Tax law.
Types of Reserves: To have a better understanding of the nature and purpose of Reserves, let us classify them into
different types. Reserves are generally classified into: 1. Revenue Reserves 2. Capital Reserves.
1. Revenue Reserves are set aside out of revenue profits which are available for distribution as dividend. Revenue reserves can
be classified into: (i) General Reserve (ii) Specific Reserve.
(i) General Reserve is the amount set aside out of profits not for any specific purpose. It is available for any future
contingency or expansion of business. Such reserve strengthens the financial position of the business. Example is General
Reserve.
(ii) Specific Reserve is that reserve which is set aside for a specific purpose and can be utilised only for that purpose. For
example, Workmen Compensation Reserve is a specific reserve because it is maintained to pay compensation to workmen.
Debentures Redemption Reserve, Capital Redemption Reserve, Investment Fluctuation Reserve, etc., are other examples of
Specific Reserve. It should be kept in mind that both General Reserve and Specific Reserve are set aside as appropriation of
profits.
2. Capital Reserves are set aside out of capital profits and are normally not available for distribution as dividend. In other
words, reserve created out of capital profits and which is not readily available for distribution as dividend among the
shareholders is called Capital Reserve. Examples of capital reserves are:
(i) Profit prior to incorporation,
(ii) Premium on issue of shares or debentures,
(iii) Profit on redemption of debentures,
(iv)Profit on forfeiture of shares,
(v) Profit on sale of fixed assets,

(vi) Capital Redemption Reserve, and
(vii) Profit on revaluation of fixed assets and liabilities.
All capital profits should, therefore, be regarded as Capital Reserves. Capital reserves may or may not involve any receipts of
cash. Having understood the meaning and purposes of Revenue Reserve and Capital Reserve, let us distinguish them.
Difference between Revenue Reserve and Capital Reserve
Basis Revenue Reserve Capital Reserve

1. Source it is created out of business profits. it is created out of capital profits.
2, Usage It can be used for distribution of It can be used for distribution of
dividends without any dividends only if the company
precondition. satisfies certain conditions
prescribed by the Companies Act.
3. Purpose it is created for strengthening the It is created for meeting capital
financial position and meeting the losses or to be used for purposes
unforeseen contingencies or some specified by the Companies Act.
specific-purpose.
Nature of Reserves: Reserve is an appropriation of profit and thus, belongs to the proprietors just as capital does, it being
appropriation of profit. Reserves reduce divisible profits and can be invested in outside securities. Reserves are shown on
the liabilities side of the Balance Sheet.
Reserve Fund: If Reserves are invested in outside securities and such securities are earmarked for a particular purpose
denoted by the reserve, the reserve is known as Reserve Fund. A business will invest the funds outside only if:
(a) ready cash is necessary on a certain date, or

(b) The funds cannot be profitably invested in the business itself.

It should be remembered that a reserve fund and debit balance in profit and Loss Account or Statement of Profit and
Loss (in case of companies) cannot exist together.
In case it shows a debit balance, at any subsequent date, it is adjusted against the Reserve Fund. The reason being that it
would be a contradiction to state on one side of the Balance Sheet, an item showing a deficiency in Profit and Loss Account or
Statement of Profit and Loss (in case of companies) and on the other side, an item representing the surplus set aside out of
profits. Thus, the debit balance in the Profit and Loss Account or Statement of Profit and Loss (in case of companies) (if any)
should be shown as a deduction from the Reserve Fund or General Reserve under the head 'Reserves and Surplus' on the
liabilities side of the Balance Sheet or vice versa.
SECRET RESERVE:-- Secret reserve is a reserve the existence and/or the amount of which is not disclosed in the Balance
Sheet. It is also called Hidden Reserve. It can be said that there is a surplus of assets over liabilities and that the surplus is not
disclosed or shown by the Balance Sheet. Such reserves are created by showing the assets at a lower amount and liabilities at
a higher amount.
Creation of a Secret Reserve:-- Some of the ways in which Secret Reserve can come into existence are:
1. by charging excessive depreciation,
2. by undervaluing stock-in-trade and goodwill,
3. by creating excessive provision for bad debts and other contingencies,
4. by charging capital expenditure to Profit and Loss Account,
5. by showing a contingent liability as a real liability, and
6. by grouping free reserves as creditors.
Advantages of a Secret Reserve:

1. It increases the working capital of the concern and also strengthens its financial position.
2. It enables the directors to tide over unfavourable time. As and when profit reduces, the directors can maintain the
rate of dividend by utilising it.
3. Heavy losses of an exceptional nature can be met without disclosing the fact in the published statements and
without disturbing the normal business profit.
Disadvantages of a Secret Reserve:
1. The Balance Sheet will not disclose true and fair position of the affairs of the business.
2. Value of shares goes down in the market.
3. The shareholders do not get their due share of profit from the business.
Difference between Reserve and Provision
Basis Reserve Provision

1. Nature It is an appropriation of profit. It is a charge against profit.
2, Purpose It is created to strengthen the It is made to meet known liability
financial position and to meet or contingency, if the amount is not
unforeseen liabilities or losses. determined.
3. Effect on Profit It is debited to the Profit and Loss It is debited to the Profit and Loss
Appropriation Account. Hence, Account, Hence, profit is reduced.
profit is not affected.
4. Investment it may be invested outside the It is not invested.
business.
5 Distribution Unutilised part can be distributed It cannot be used for distribution as
as dividend. It reduces divisible profit/ dividend. It reduces net
profits. profits.
6. Compulsion/ Prudence It is created out of profits as a It is made because of accounting
matter of prudence and due to legal principles (Prudence).
requirements.
7. Presentation A reserve is shown on the It is shown either as a liability
liabilities side of Balance Sheet under the head 'Current Liabilities'
under the head 'Reserves and or as deduction from the asset.
Surplus'.

Class 6. Basic Accounting procedures
2A. Theory of Journal entries:
Double Entry System:
 Double Entry system of Book-keeping is accounting technique. It is scientific system of accounting.

 According to it every transaction has two fold aspect-debit and credit and both aspects are to be recorded
 in books of accounting.
 Suppose we purchase furniture of Rs. 5,00,000/-. Here two things are happening-- furniture coming into
business and cash is reducing.
 So in double entry system both the aspect are recognized and recorded.
Advantages of Double Entry system are as follows:-
(i) By using this system accuracy of accounting can be obtained through trial balance.
(2) The profit and loss of business can be determined.
(3) Financial position of business can be known at the end of accounting period by preparing balance sheet.
(4) Accounting records can be kept in details which help in control.
TRADITIONAL CLASSIFICATION OF ACCOUNTS:
a) Personal Accounts:- These accounts relate to natural persons(Ram, Mohan etc.), artificial/
Legal persons( Govt. companies, Clubs, co-operative societies etc and representative persons( capital a/c,
Drawing A/c, Prepaid a/c, outstanding exp A/c.
b) Impersonal Accounts:
i. Real Accounts:- These accounts relate to the tangible or intangible real assets (i.e. accounts of
properties and assets): and
ii. Nominal Accounts:- These accounts relate to incomes, expenses or losses.
RULES( imp):— The following three are the basic rules ( traditional method) for recording the
transaction:—
i. Personal Accounts :- Debit the receiver and credit the giver.
ii. Real Accounts :- Debit what comes in and credits what goes out.
iii. Nominal Accounts :- Debit all exp. (and losses) and credit all incomes & gains.
The left-hand side of an account is called the debit side and the right-hand side of an account is called credit side.
 ACCOUNTING EQUATION BASED CLASSIFICATION:
1. Assets Accounts These accounts relate to tangible or intangible real assets. Eg. Land A/c,
Building A/c, Patents, Goodwill, trademark etc.
2. Liabilities Accounts 
These accounts relate to the financial obligations of an enterprise towards
outsiders. Eg. Trade Creditors, Bills Payable, Bank Overdraft, Loans, Outstanding Exp. etc.
3. Capital Accounts 
These accounts relate to owners of an enterprise. Eg. Capital A/c, Drawings A/c.
4. Revenue Accounts These accounts relate to the amount charged for goods sold or services rendered
or permitting others to use enterprise’s resources yielding interest, royalty or dividend
. Ex. Sales A/c, Discount Received A/c, Dividend Received A/c, Interest Received A/c.

5. Expenses Accounts These accounts relate to the amount incurred or lost in the process of earning
revenue. Ex. Purchase A/c, discount allowed A/c, Royalty paid A/c, Interest
Payable A/c, Loss by Fire A/c etc.

Distinction between Real Account and Nominal Account
Real Account Nominal Account
 These accounts relate to properties of the business.  These accounts relate to expenses, losses,
income and gains.
 These accounts are shown in Balance Sheet. These accounts are shown in profit and loss
account.
 Closing balances of these accounts are carried over to  Closing balance of these accounts are
the next year as opening balances. closed by transfer to profit and loss account.
 These accounts indicate financial position of the  These accounts assist in calculating profit
business. and loss of the business.
 As per double entry rule, property received is debited  As per double entry rule expenses and
and property given is credited. losses are debited and income and gains are
credited.
JOURNAL: A Journal is a book in which transactions are recorded in the order in which they occur i.e. in
Chronological order. A Journal is the primary books of account under which all the transactions are recorded
with complete narration on the basis of three basic rules given for recording the transactions
The process of recording a transaction in a journal is called Journalizing. An entry made in the journal is
called a 'Journal Entry'.
A journal entry is an analysis of all the effects of a single transaction on the various accounts, usually
accompanied by an explanation. For each transaction, this analysis identifies the accounts to be debited or
credited.
Format:
Date Particulars L.F. Amount Amount
(Dr.) (Cr.)
Note:— The 'Ledger Folio column' is filled in at the time of posting into the ledger and not at the
time of journalizing.
Advantages of Journal
 Chronological record:- It records the transactions in the order in which they occur.
 Explanation of transaction:- Each journal entry in the journal carries narration which gives a brief
 explanations of the transaction.
 Recording the both aspects:- Both the aspect (i.e. debit and credit) of a transaction are recorded in the
journal. Since the amounts recorded in both debit amount column and credit amount column must be
equal, the possibility of accounting error is reduced and the detection of errors, if any committed
becomes easy.
Limitation of journal:-When the number of transactions is large, it is practically impossible to

record all the transactions through one journal because of the following reasons. 
i. The system of recording all the transactions in a journal required (a) the writing down of the name
of the account involved as many times as the transaction occur; and (b) an individual posting of each
account debited and credited and hence involves the repetitive journalizing and posting labour.
ii. Such system does not provide the information on prompt basis.

iii. Such a system does not facilitate the installation of an internal check system since, the
journal can be handled by only one person.
iv. The journal becomes bulky and luminous.
To overcome the shortcomings of the use of the journal only as a book of original entry, the journal is
subdivided into special journal.
NARRATION:-- The narration is the explanation of the entry and facilitates quick understanding. The length
of the narration depends on the complexity of the transaction and whether management wants the journal
itself to contain all relevant information. Most often narration are in brief.
Compound Entry:-- When more than two accounts are involved in a transaction and the transaction is
recorded by means single journal entry instead of passing several journal entries, such single journal entry is
termed as 'Compound Journal Entry'. A compound journal entry may also be passed if there are more
transactions of the same nature, taking place on the same date. It may be recorded in the following three
ways:
a) by debiting one account and crediting two or more accounts; or

b) by debiting two or more accounts and crediting one account; or
c) by debiting several accounts and crediting several accounts.
Example:-Paid Rs. 920 to Mr. Gopal in full settlement of his account of Rs. 1,000.
Gopal A/c Dr. 1,000
To Cash A/c 980
To Discount received A/c 20
 OPENING ENTRY:- A journal entry by means of which the balances of various assets, liabilities
and capital appearing in the balance sheet of previous accounting period are brought forward in the
books of current accounting period is known as ‘Opening Entry’.
While passing an opening entry. All those accounts which denote what the business possesses (assets)
are debited and all the accounts showing amounts due by the business (liabilities) are credited.
 If capital is not given, it can be easily found out by deducting liabilities from assets.
Opening entries are the following:
Cash Account - Dr.

Cash at Bank Account - Dr.
Sundry Debtors Account - Dr.
Stock Account - Dr.
To Sundry Creditors Account
To Capital Account
The opening entry is made in the journal. At the end of the trading period, closing entries are made, the object
being to close the books.
2B.THEORY OF LEDGER ACCOUNT AND TRIAL BALANCE
A ledger is a principal book, which contains all accounts to which the transactions recorded in the books of
original entry are transferred. As the ledger is the ultimate destination of all transactions, the ledger is called
the 'Book of Final Entry or secondary record.'
The ledger may be kept in the form of a bound book, a loose-leaf set of pages, or some kind of electronic
storage device such as magnetic tape or floppy diskettes or CDs, but it is always kept current in a
systematic manner.

Utility/uses/benifits of the ledger:
  It provides complete information about all the accounts in one book.
 It enables to ascertain what the main item of revenues is.
 It enables to ascertain what the main items of expenses are.
 It enables to ascertain what the assets are and of what value.
 It enables to ascertain what the liabilities are and of what amounts.
  It facilitates (i.e. make easy) the preparation of Final Accounts.
 DISTINCTION BETWEEN JOURNAL AND LEDGER:

Journal Ledger
 It is a book of primary entry.  It is book of final or secondary entry.
 It is prepared on the basis of source  It is prepared on the basis of Journal.
documents of transactions.
 Recording of transactions in the journal
it first stage.  Recording in the ledger is second stage.
 It is prepared to record all transactions  It is prepared to know the net effect of various
in chronological order. transactions affecting a particulars account.
 It is not balanced.  All ledger accounts (except nominal account)
 Narration is written for each entry are balanced in the ledger.
 The process of recording in journal is  No narration is required.
called ‘Journalizing’  The process of recording in the ledger is called
‘posting’
 Journal directly does not serve as basis
for the preparation of final accounts.  Ledger serves the basis for the preparations of
final accounts.
.POSTING TRANSACTIONS TO THE LEDGER:Posting is the transferring of amounts from the journal to the
appropriate accounts in the ledger.It is to be done daily, weekly, fortnightly or monthly according to the convenience and
requirement of the business.
It is necessary to post all journal entries into various accounts in the ledger because posting helps us to know the net effect
of various transactions during a given period on a particular account.
Cross referencing: the process of using referencing, dat and/or some other identification to relate each posting to the
appropriate journal entry is known as cross-referencing. Transactions from the journal are often posted to several different
accounts, but cross-referencing allows users to find all components of the transactions in the ledger.

Balance of an Account:-After posting into the ledger the next stage is to ascertain the net effect of all transactions
posted to an account.
Balance of an account is the difference between the total of debit and total of credit appearing in an account. It
signifies the net effect of all transactions posted to that account during a given period. It may be debit balance or
credit balance or a nil balance depending upon whether the debit or the credit side total is higher.
IMP-- Normally, personal Accounts and Real Accounts are balanced. Nominal Accounts are not usually
balanced but are closed by transfer to Trading and Profit and Loss A/c.
DEBIT BALANCE:-A debit balance shows that:
i. Money is owing to the firm; or

ii. The firms owns some property (cash , goods, furniture etc.); or
iii. The firm has lost money or has incurred some expenses.
CREDIT BALANCES:A credit balance shows that: —
a) Money is owing to some person ; or

b) The firm has given up so much property ; or
c) The firm has earned an income.
VOUCHER:
(i.) A voucher is documentary evidence in support of transaction;
(ii.) A cash memo showing cash sale;
(iii.) An invoice showing sale of goods on credit;
(iv.) The receipt made out by the payees when cash is paid to him are all example of vouchers.
On the basis of the above, first of all, one writes out -which accounts are to be debited and which accounts are to be
credited. This is done in the journal.
TRIAL BALANCE: Trial Balances are internal report that list each account in the General ledger together with the
balance it that account as of the trial balance date.
All businesses periodically tabulate the debit and credit balances separately in a statement to see whether the total of all
debit balances agrees with the total of credit balances or not. Such a statement is known as the trial balance. A trial balance
may be taken at any time the accounts are up to date.The purpose of the trial balance is two fold:
  to help check on accuracy of posting by proving whether the total debit equal the total credits; and
 To established a convenient summary of balances in all accounts for the preparation of formal financial
 statements.
When the total of the debit balances agrees with the total of credit balances, it is a good proof that, the ledger has been
correctly written up. However, it is not a conclusive proof of accuracy. Many may remain even if a trial balance agrees.
TRIAL BALANCE [As on 31st March -------------- ]
Particular L.F. Amount (Dr.) Amount (Cr.)
 Sequence of Accounting Procedure or the Accounting Cycle:
a) Recording the transactions in the journal.

b) Preparing Ledger accounts on the basis of the journal or posting into the ledger.
c) Taking out the trial balance to prove arithmetical accuracy.
d) Preparing the profit and loss accounts or the income statement for the period concerned; and.
Preparing the Balance Sheet to show the financial position at the end of the period.


CHAPTER- 2C. SUBSIDIARY BOOK AND CASH BOOK

MEANING OF KEY TERMS USED IN THE CHAPTER
1. Special Purpose Books or subsidiary books:- Sub-division of the Journal into various books recording
transactions of similar nature are called subsidiary books.
2. Cash Book - Cash Book is a Special Purpose Subsidiary Book or Journal in which cash receipts and cash payments are
recorded.
3. Kinds of Cash Book:

i. Simple Cash Book : It is a cash book in which only cash transactions are recorded. It has only one column on each side
of the cash book.
ii. Double-column or Two-column Cash Book : It is a cash book which has two columns on each side to record cash
receipts and payments. It may be any two out of cash, bank and discount column.
iii.Triple-column or Three-column Cash Book : It is a cash book which has three columns on each side, one column to
record cash transactions, one for bank transactions and one for cash discount allowed and received.
iv. Petty Cash Book : It is a cash book in which payments of small amounts are recorded.
Important terms:
i. Imprest System of Petty Cash: It is a system whereby an estimate of expenditure is made and the estimated amount
is given to the Petty Cashier. Thereafter, he submits the statement of expenses at the end of the designated period,
which is reimbursed to him to make the petty cash equal to the original petty cash amount.
ii. Cash Discount : Cash discount is the amount of discount received or allowed on cash payments and cash receipts
respectively. Discount received is an income for the, business while discount allowed is an expense.
iii.Cheques in Hand : It means cheques that have been received but have not been deposited into bank.
iv.Contra Entry : It means a transaction involving both cash and bank. Such transactions though recorded in the cash book
are not posted into the ledger. In the folio for ledger letter 'C' is written to indicate that it is a contra entry.
BASIC CONCEPT OF SUBSIDIARY BOOKS:

Business transactions are numerous and it becomes difficult to record all the transactions in one book of prime entry, i.e.,
Journal Book. For example, in a business, most of the transactions may relate to receipt and payment of cash, sale of goods
and their purchase. It is convenient to maintain a separate book for each such class of transactions—one to record cash
transactions, another to record purchase of goods and yet another to record sale of goods. Book of this type is called a
book of original entry or prime entry. Journal entry is not passed for the transactions recorded in such books. They are
posted to the ledger accounts. The system is called the Practical System of Accounting. These books of original or prime
entry are also called a Special Journal or Subsidiary Books.
SUBSIDIARY BOOKS OR SUB-DIVISION OF JOURNAL:- We had discussed earlier that it is practically difficult to
record all the transactions in only one book of prime entry.
For convenience, the Journal is divided into (i) special book and (ii) general (journal proper)
(i) Special books:-- Followings are the different types of special books (Subsidiary Books). These are:
1. Cash Book: To record receipts and payments of cash, including receipts into and payments out of the bank.
2. Purchases Book: To record credit purchases of goods dealt in by the firm. All credit purchases of goods are
recorded in this book.
3. Sales Book: To record the credit sales of goods dealt in by the firm.
4. Purchases Return Book: To record the return of goods previously purchased on credit
5. Sales Return Book: To record the return of credit sales made by customers.
6. Bills receivable book
7. Bills payable book
NOTE:- It may be noted that in all the above cases the word 'Journal' may be used for the word 'book'.
(ii) Journal Proper: To record the transactions which cannot be recorded in any of the books mentioned above. It is
also called journal entry.

Advantages of Subsidiary Books:- The use of subsidiary books has the following advantages:
(i) Division of Work: Since in the place of one Journal, subsidiary books are also maintained, accounting work can be
divided among a number of persons.
(ii) Specialisation and Efficiency: When the same work is handled by a particular person for a considerable time, he
acquires expertise in it and becomes efficient in handling it. Thus, accounting is done more efficiently.
(iii) Saving of Time: Various accounting processes can be undertaken simultaneously because of the use of number of
books. Thus, it leads to saving of time.
(iv) Availability of Information: Since a separate book is maintained for each class of transactions, information
relating to each class is available at one place.
(v) Facility in Checking: In case, the Trial Balance does not agree, locating the error or errors is facilitated by the
existence of separate books. Since the number of transactions is less in each subsidiary book as compared to only one
Journal, it is easy to locate the errors.
(vi) Responsibility: Division of work results in assigning a particular job to a particular person. If an error is
committed in recording, responsibility can be easily fixed.
CASH BOOK:- Cash Book is a book of prime entry in which cash and bank transactions are recorded in a
chronological order, i.e., as they occur. Cash receipts are recorded on the debit side of the Cash Book and cash
payments on the credit side. Cash transactions in a firm are generally numerous, therefore, it is convenient to
maintain separate Cash Book.
Features of Cash Book

1. Only cash and bank transactions are recorded in the Cash Book.
2. Cash and cheque receipts are recorded on the debit side while cash and cheque payments are recorded on the credit
side.
3. It records only one aspect of the transaction, i.e., cash or bank.
4. Cash and bank transactions are recorded in the Cash Book in a chronological order, i.e., in order they take place.
5. It performs the function of both Journal and the Ledger at the same time.
Cash Book—A Subsidiary Book and a Principal Book:- Cash and bank transactions are recorded in
the Cash Book and on the basis of such records, Ledger Accounts are prepared. Therefore, Cash Book is a Subsidiary
Book. At the same time, Cash Book by itself is Cash Account and Bank Account. As a matter of fact, the balances are
entered in the Trial Balance directly. Cash Book, therefore, is a part of the Ledger also. Hence, it is also a Principal Book.
Cash Book is, thus, both a Subsidiary Book and a Principal Book.
Kinds of Cash Books :- There are four types of Cash Books:
(i) Simple Cash Book or Single Column Cash Book-- For recording cash transactions only.
(ii) Double-column or Two-column Cash Book: it has two columns on each side as under:
(a) cash and discount column:
(b) cash and bank columns:
(c) bank and discount columns.
(iii) Triple-column or Three-column Cash Book: In this cash book there are three columns of amount on both sides.
The first for discount, the second for cash and the third for bank transactions. Discount allowed on payment received is
recorded on the debit side, while discount received on payment made is recorded on the credit side.
(iv) petty cash book:-- In addition to the main Cash Book, firms sometimes also maintain a Petty Cash Book.
Followings are main columns in cash book:
(i) Date: Date of transaction is written.
(ii) Particulars: The name of the account under which cash has been received or paid is written.
(iii) Voucher No: The document supporting a transaction is called a Voucher. There are two types of cash vouchers:
(1) Receipt Voucher and (2) Payment Voucher.
(iv)Ledger Folio: In the column for L.F., page number of the Ledger, where the amount is posted, is written.
(v) Amount: The amounts received are written on the Debit side and amounts paid are written on the Credit side.
PETTY CASH BOOK:- Petty Cash Book is the book which is used for the purpose of recording expenses involving
small amounts. Besides petty expenses, receipts from main cash are recorded. Petty Cash Book is maintained by Petty
Cashier and acts as the Petty Cash Account.

In a business a number of small payments, such as for conveyance, stationery, cartage, etc., have to be made. If all these
payments are recorded in the Cash Book, it will become voluminous. Therefore, it is usual for firms to appoint a person as
'Petty Cashier' and to entrust the task of making small payments.
Recording of Petty Cash:- Petty cash given to the Petty Cashier for small payments is recorded on the credit side of the
Cash Book as 'By Petty Cash Account' and is posted to the debit side of the Petty Cash Account in the Ledger.
SYSTEM OF PETTY CASH:- Petty Cash Book may be maintained by ordinary system or by imprest system. In case of Ordinary
System of Petty Cash, Petty Cashier is given appropriate amount of cash and after spending the whole of that amount, he
submits the account to the Head Cashier.
Imprest System of Petty Cash :- Under this system, an estimate is made of amount required for petty expenses for a period
(say for a week, a fortnight or a month). The amount so ascertained is given to the Petty Cashier in the beginning of a period.
The amount paid by him during the period. Thus, he will again have the fixed amount in the beginning of the new period
reimbursed. This amount is called imprest money. This system of paying advance in the beginning and reimbursing the amount
spent from time to time is called imprest system.
Advantages of Imprest System of Petty Cash:
(i) Control over Mistakes: The Petty Cash Book is checked by the cashier at regular intervals so that a
mistake, if committed, is soon rectified.
(ii) Control over Petty Expenses: Petty expenses are kept within the limits of imprest since the petty cashier can
never spend more than the available petty cash.
(iii) Control over Fraud: Under this system defalcation of cash can be minimised since the Petty Cashier is not allowed
to draw cash as and when he desires.
Types of Petty Cash Books:- Following are the two types of Petty Cash Books:
1. Simple Petty Cash Book 2. Analytical Petty Cash Book.
1. Simple Petty Cash Book: A Simple Petty Cash Book is identical with a Cash Book. Any cash which the Petty Cashier receives is
recorded on the left hand side cash column (debit or receipts column) and any cash which he pays out is recorded on the right
hand side (credit or payments column). The date and particulars of every transaction is written in the same date and particulars
column.
2. Analytical Petty Cash Book: An Analytical Petty Cash Book has two sides; left hand side is used for recording receipts
of cash (which will be only from the main cashier) and right hand side, which is used for recording payments. In the Analytical
Petty Cash Book, a separate column is provided for recording a particular item of expenditure, i.e., postage, stationery,
travelling, advertisement, etc. A column is usually provided for 'sundries' to record infrequent payments. When petty
expense is recorded on the right hand side total payment column, same amount is also recorded in the appropriate expense
column. At the end of a particular period, analysis (expenses) column are added and posted to the debit side of the
respective accounts.
In an Analytical Petty Cash Book, petty expenses are classified into different heads of expenses. Each head of expense can be
conveniently transferred to appropriate account head in the ledger. Thus, posting from Petty Cash Book becomes easy.
While maintaining a Petty Cash Book, following points should be noted:
(i) The amount fixed for petty cash should be sufficient for the likely small payments for a relatively short period, say,
for a week, a fortnight or a month.
(ii) Reimbursement should be made only when the Petty Cashier prepares a statement showing total payments
supported by vouchers, i.e., documentary evidence and should be limited to the amount of actual disbursements.
(iii) The vouchers should be filed in order.
(iv) No payment should be made without proper authorisation.
(v) Petty Cashier should be allowed to make payment of expenses up to a specified limit. Beyond which, payment
should be made by the main cashier.
(vi) The Petty Cashier should be allowed to receive only the reimbursement.
Balancing the Petty Cash Book:-A Petty Cash Book is balanced at the end of the month or a specified period.
The columns for payments and expenses are totalled and the total equals the total in the `Total Payment Column'.
Thereafter, the Petty Cash Book is balanced. The method of balancing the Petty Cash Book is the same as that of a
Simple Cash Book.

DIFFERENCE BETWEEN SIMPLE AND ANALYTICAL PETTY CASH BOOK
Simple Petty Cash Book Analytical Petty Cash Book
1. Separate record of each kind of petty expenses is The analysis columns are used for each commonly
not maintained. occurring item of expenses such as stationery, postage
and travelling, etc.
2. It is written in the same manner as Cash Book is The pages are not divided down the centre, major
written. The pages are divided down the centre. space is provided for expense side having separate
columns for expenses incurred regularly.
3. At the end of the period, total expenses under At the end of the period, expenses under different
different heads cannot be determined easily. heads can be determined easily.
Multiple choice questions- practice session 1:

1. Nominal Account represents
(a) Profit & gain (b) Loss/Expenses
(c) None (d) Both (a) and (b)
2. S.B.I Account is a …
(a) Nominal (b) Artificial Personal Account (c) Representative Personal Account (d) None
3. The process of recording business transactions in a book of original entry is known as………..
(a) Journal (b) balance
(c) Posting (d) none
4. Prepaid rent is a
(a) Nominal A/c (b) representative personal account
(c) Tangible Assets A/c (d) none
5. In an asset account if debit > credit side, the balance is known as the
(a) Negative Balance (b) Debit Balance
(c) positive balance (d) credit balance
6. A sale of goods to Ram for cash should be debited to:
(a) Ram (b) Cash
(c) Sales (d) Capital
7. A withdrawal of cash from business by the proprietor should be credited to
(a) Drawing A/c (b) Capital A/c
(c) Cash A/c (d) Purchases A/c
8. Rent Account is

(a) Personal (b) Real
(c) Nominal (d) None
9. Ledger contains various _____________ in it
(a) Transactions (b) Entries
(c) Accounts (d) None
10. The process of transfer of entries from day book to ledgers is called _____________
(a) Simple Posting (b) Journal Posting (c) Transaction (d) Ledger Posting
11. The rent paid to landlord is credited to
(a) Landlord’s A/c (b) Rent A/c (c) Cash A/c (d) None
12. Which financial statement represents the accounting equation Assets = Liabilities + Owner’s equity:
(a) Income Statement (b) Statement of Cash flows
(c) Balance Sheet (d) None
13. The Debts Written off as bad, if recovered subsequently are
(a) Credited to Bad Debts recovered A/c (b) Credited to trade receivables Account
(c) Debited to profit and Loss Account (d) None
14. A trial balance will not balance if _______________
(a) Correct entry is posted twice
(b) The purchase on credit basis is debited to purchases and credited to cash
(c) Rs.500 cash payment to creditors is debited to creditors for Rs.50 and credited to cash as Rs.500
15. A Trial Balance shows
(a) Honesty of Accountants (b) Accuracy of Account
(c) Only Arithmetical Accuracy of Accounts (d) None of these
16. Mr. X purchased goods of Rs.10,000 for cash at 20% trade discount and 5% cash discount. Purchases A/c is to
be debited by ` _______________
(a) 7600 (b) 10,000
(c) 7500 (d) 8000
17. Outstanding salary A/c is a
(a) Personal account (b) Real A/c
(c) Nominal A/c (d) Representative Personal A/c
18. Discount received from Mr. X, a creditor, is credited to
(a) Discount allowed account (b) Creditor account
(c) Debtor account (d) Discount received account

19. Bank account is
(a) Personal A/c (b) Real A/c
(c) Nominal A/c (d) Both Personal and Real A/c
20. Which of the following accounts doesn’t carry a balance for the next year?
(a) Personal A/c (b) Real A/c
(c) Nominal A/c (d) Representative Personal A/c
Answer:- 1.(d) 2.(b) 3.(a) 4.(b) 5.(b) 6.(b) 7.(c) 8.(c) 9.(c) 10.(d)
11.(c) 12.(c) 13.(a) 14.(c) 15.(c) 16.(d) 17.(d) 18.(d) 19.(d) 20.(c)
PRACTICE SESSION 2- MCQ BASED QUESTIONS:
1. Purchases book is used to record
(a) All purchases of goods (b) All credit purchase
(c) All credit purchases of goods (d) All credit purchases of assets other than goods
2. Goods bought from Mr. P the payment for which is due after a month, is entered into
(a) Cash book (b) Purchase book
(c) Sales book (d) Purchase return book
3. The source document or voucher used for recording entries in sales book is
(a) Invoice received (b) Invoice sent out
(c) Credit notes sent out (d) Debit notes received
4. A debit note issued to a creditor for goods returned by us is to be recorded in the
(a) Bills receivable book (b) Purchases book
(c) Journal proper (general journal) (d) Purchases returns book
5. Sales returns book is used to record
(a) Returns of fixed assets sold on credit (b) Returns of goods sold for cash
(c) Returns of goods sold on credit (d) Sale of goods
6. Closing entries are recorded in
(a) Cash book (b) Ledger
(c) Journal proper (d) Balance sheet
7. Cash book is a
(a) Subsidiary book (b) Subsidiary journal and ledger
(c) Ledger account (d) None of these

8. Cash book is a form of
(a) Trail balance (b) Journal entry (c) Ledger (d) All the above
9. The cash book records
(a) All cash receipts (b) All cash payments
(c) All cash receipts and payments (d) All Cash and Credit Transactions
10. Cash book does not record
(a) Credit purchases (b) Credit sales
(c) Outstanding expenses (d) All the above transactions
11. Single column cash book may show –
(a) Only a debit balance (b) Only a credit balance
(c) Either debit or a credit balance (d) Neither debit nor credit balance
12. A cash book with discount and bank column is called
(a) Single column cash book (b) Two column cash book
(c) Three column cash book (d) Petty cash book
13. The total of discounts column on the debit side of the cash book, recording cash discount deducted from customers when
they pay their accounts, is posted to the
(a) Credit of the discount allowed account (b) Debit of the discount received account (c) Credit of the
discount received account (d) Debit of the discount allowed account
14. Trade discount allowed at the time of sale of goods
(a) Is recorded in Sales Book

(c) Is recorded in Journal (b) Is recorded in Cash Book
(d) Is not recorded in Books of Accounts
15. The periodical total of the Sales Return Book is posted to the
(a) Debit of Sales Account (b) Debit of Sales Return Account (c) Credit of
Sales Return Account (d) Debit of Debtors Account
16. In the ledger an account shows credit balance at the end of the year. This balance is shown as_____.
(a) To balance c / d on the debit side. (b) By balance c / d on the credit side.
(c) To balance b / d on the debit side. (d) By balance b / d on the either side.
17. The total of Discount column on the debit side of cash book is transferred to _____
(a) Credit side of Discount allowed A/c (b) Credit side of Discount received A/c
(c) Debit side of Discount allowed A/c (d) Debit side of Discount received A/c

CMA inter 1 Financial accounting CA/CMA Santosh kumar
18. Agreement of Trial balance is not a _____________ proof of accuracy in maintaining accounts.
(a) Exclusive (b) Inclusive (c) Exhaustive (d) Conclusive
19. Capital- Rs.4,00,000 Interest paid- Rs.4,620 Debtors- Rs.30,400 Discount allowed- Rs.1,640 Creditors-
Rs.25,920 Discount received- Rs.2,060 Purchases- Rs.1,85,340 Rent - Rs.29,340 Sales- Rs. 2,33.700
Loan - Rs.24,120 Opening stock – Rs.1,12,000 Sales returns Rs. 54,860
Debit Total of Trial Balance will be
(a) Rs.4,18,000 (b) Rs.4,18,200
(c) Rs.4,20,000 (d) None of these
20. A triple column cash book has
(a) Cash column (b) Bank column
(c) Discount column (d) All of the above
Answer:- 1.(c) 2.(b) 3.(b) 4.(d) 5.(c) 6.(c) 7.(b) 8.(c) 9.(c) 10.(d)
11.(a) 12.(c) 13.(d) 14.(d) 15.(b) 16.(a) 17.(c) 18.(d) 19.(b) 20.(d)

CHAPTER 19. COMPUTERISED ACCOUNTING SYSTEM
DO NOT DISTURB. SELF STUDY CHAPTER. COMPLETE RATTAFICATION
SALIENT FEATURES OF COMPUTERISED ACCOUNTING SYSTEM
Computer information system environment exists when one or more computer(s) of any type or size is (are) involved in the
processing of any information, whether those computers are operated by the entity or by a third party. A computerized
accounting environment will therefore have the following salient features:
1. The processing of information will be by one or more computers.

2. The computers may be operated by the entity or by a third party.
3. The processing of financial information by the computer is done with the help of computer software.
4. Computer software includes any program that performs a desired function or set of functions and the documentation
required to describe and maintain that program.
5. The computer software used for the accounting system may be acquired software or may be developed specifically for
the business.
6. Acquired software may consist of a spread sheet package or may be prepackaged accounting software.
SIGNIFICANCE OF COMPUTERISED ACCOUNTING SYSTEM
1. The speed with which accounts can be maintained is several fold higher.
2. Automatic Correct Balancing of Ledger Accounts
3. Automatic Tallied Trial balances unless some mistake is made while recording the opening balance.
4. Automatic Income Statement
5. Automatic Balance Sheet
Threat to Computerized Accounting System:- The only concerns that has increased today are concerns for controls, security
and integrity of the computer system as more and more information is stored not in the hard print but as soft copies inside the
computer. Issue like unauthorized access to the data either through the local area network or through the internet by hacking
into the company server are becoming potential threat to the computer usage.
CLASSIFICATION AND CODIFICATION OF ACCOUNTS:- Some computerized accounting softwares support a coded accounting
system and some support even a non-coded accounting system. A coded accounting system is more convenient where there
are numerous account heads and the complexity is high. It also to some extent reduces the possibility of the same account
existing in several names due to spelling mistakes or abbreviations used.
A proper codification requires a systematic grouping of accounts. The major groups or heads could be Assets, Liabilities,
Revenue Receipts, Capital Receipts, Revenue Expenditure, Capital Expenditure. The sub-groups or minor heads could be
“Cash”or “Receivables”or “Payables” and so on. The grouping and codification is dependent upon the type of organization and
the extent of sub-division required for reporting on the basis of profitcentersor product lines. There could a classification
based on geographical location as well.
The main unit of classification in accounts should be the major head which should be divided into minor heads, each of which
should have a number of subordinate heads, generally shown as sub-heads. The sub-heads are further divided into detailed
heads. Sometimes major heads may be divided into ‘sub-major heads’ before their further division into minor heads.
The Major heads, Minor heads, Sub-heads and Detailed heads together may constitute a four tier arrangement of the
classification structure of Accounts.

PRE-PACKAGED ACCOUNTING SOFTWARE
1. There are several prepackaged accounting software which are available in the market and are used extensively for small
and medium sized organizations.
2. These softwares are easy to use, relatively inexpensive and readily available.
3. The installation of these softwares are very simple. An installation diskette or CD is provided with the software which can
be used to install the software on a personal computer. A network version of this software is also generally available
which needs to be installed on the server and work can be performed from the various workstations connected to the
server.
4. Along with the software an user’s manual is provided which guides the user on how to use the software.
5. After installation of the software, the user should check the version of the software to ensure that they have been
provided with the latest.
6. The vendor normally provides regular updates to take care of the changes of law as well as add features to the existing
software.
7. These softwares normally have a section which provides for the creation of a company. The name, address, phone
numbers and other details of the company like VAT registration number, PAN and TAN numbers are feeded into the
system. The accounting period has to be set by inserting the first and the last day of the financial year.
The next step in the use of this software could be the creation of accounts. This is done by adding the accounts along with their
codes into the master file files. Each account has to be classified into whether it is an asset or liability or an income or
expenditure to the system. The opening balances are to be entered into the master file files. The company parameters need to
be set at this point of time so that the accounts which are the cash, bank, sundry debtors, sundry creditors, etc. are known to
the system. The customers’ names, addresses and other basic details are also entered in the customer master file. Similarly,
the creditors details are entered into the creditor master file files. Product details are entered through the product
master file files. Here the unit of measurement and the opening stock quantities including the values are provided. The system
of valuation of stock like the FIFO, LIFO, Weighted average, etc. are defined in the product master file files.
ADVANTAGES OF PRE-PACKAGED ACCOUNTING SOFTWARE
1. Easy to Install The CD containing set up file is to be inserted and run to complete the installation
according to instructions as per user’s manuals.
2. Relatively Inexpensive These packages are available at very cheap prices.
3. Easy to Use These packages are mostly menu driven with the help options. Further the user manual
provides most of the solutions to problems that the user may face while using the
software.
4. Simple Backup Procedure Housekeeping section provides a menu for backup. The backup can be taken on CD or
hard disk.
5. Certain Flexibility of Report This allows the user to make the invoice, challan, GRNs look the way they want.
Formats Provided by some of the
Software’s
6. Very Effective for Small and Most of their functional areas are covered by these standardized packages.
Medium size Businesses

DISADVANTAGES OF PRE-PACKAGED ACCOUNTING SOFTWARE
1. Does not cover Peculiarities A standard package may not be able to take care of the complexities of a
of Specific Business specific business.

2. Does not cover all These packages may not cover all functional areas such as production process.
Functional Areas
3. Customization may not These packages may not be customized as per needs of customers.
be Possible
4. Reports Generated All reports required for exercising management control may not be available in a
standard package.
5. Lack of Security Security is generally missing in a pre-packaged accounting package since any person can
view data of all companies with common access password.
6. Bugs in the software Certain bugs may remain in the software which takes long to be rectified by the vendor
and is common in the initial years of the software.
CONSIDERATIONS FOR SELECTION OF PRE-PACKAGED ACCOUNTING SOFTWARE:- The following factors should be considered
while selecting pre-packaged accounting software:
1. Fulfillment of Business The purchaser should ensure whether the available software meets all the business
Requirements requirements.
2. Completeness of Reports: The purchaser should ensure whether the available software can provide all the reports
required by business.
3. Ease of Use The purchaser should ensure whether the available software is easy to operate.
4. Cost The software should not involve very high installation and running cost.
5. Reputation of the vendor It should be ensured whether the vendor has good reputation and good track records
or not.
6. Regular updates It should be ensured whether the vendor is prepared to give updates.
CUSTOMISED ACCOUNTING SOFTWARE
Meaning —A customized accounting software is one which is developed on the basis of specific requirements of the
organization.
A feasibility study is first made before the decision to develop a software is made. The life cycle of a customized accounting
software begins with the organization providing the user requirements. Based on the user’s requirement the system analyst
prepares a requirement specification which is given for approval by the user management. Once the requirement
specification is approved, the designing process begins. Development, testing and implementation are the other
components of the system development life cycle.
ADVANTAGES OF A CUSTOMISED ACCOUNTING PACKAGE
1. The functional areas which are not covered in pre-packaged software getscomputerized.
2. The input screens can be tailor made to match the input documents for ease of data entry.
3. It provides many MIS reports as per the specification of the organization.
4. It facilitates the use of Bar-code scanners as input devices suitable for the specific needs of an individual organization.
5. It can suitably match with the organizational structure of the company.
DISADVANTAGES OF A CUSTOMISED ACCOUNTING PACKAGE
1. Requirement specifications are incomplete or ambiguous resulting in a defective or incomplete system.

2. Bugs may remain in the software because of inadequate testing.
3. Documentation may not complete.

4. Frequent changes made to the system with inadequate change management procedure may result in in system
compromise.
5. Vendor may not be unwilling to give support of the software due to other commitments.
6. Vendor may not be willing to part with the source code or enter into an escrow agreement.
7. Control measures may be inadequate.
8. There may be delay in completion of the software due to problems with the vendor or inadequate project
management.
The choice of customized accounting packages is made on the basis of evaluation of vendor proposals. The proposals are
evaluated as to the suitability, completeness, cost and vendor proposals. Generally preference is given to a vendor won has
a very good track record of deliverables.
SELF EXAMINATION QUESTIONS:
1. List the significances of computerized accounting system.
2. State the matters to be considered for selection of pre-packaged accounting software.
3. Discuss the disadvantages of customized accounting package.

PRACTICE OF MULTIPLE CHOICE QUESTIONS:
CHAPTER 1. JOINT VENTURE ACCOUNTING:
MCQ BASED QUESTIONS- PRACTICE SESSION 1

1. Joint venture account is of the nature of
(a) Personal A/c (b) Nominal A/c (c) Real A/c (d) Suspense account
2. A and B purchased a piece of land for Rs 40,000 and sold it for Rs. 60,000 in 2015. Originally A had
contributed Rs.24,000 and B Rs 16,000. What will be the profit on venture?
(a) Rs 20,000 (b) Rs 16,000 (c) Rs 30,000 (d) Nil
3. A, for joint venture with B, Purchased goods costing Rs 2,00,000. B sold 80% of the goods for Rs. 2,50,000
balance of goods were taken over by B at cost less 25%. Find out profit on venture?
(a) Rs 80,000 (b) Rs 90,000 (c) Rs 50,000 (d) None of these
4. If unsold goods costing Rs. 20,000 is taken over by venturer at Rs 15,000. The Joint venture A/c will be credited
by
(a) Rs 20,000 (b) Rs 15,000 (c) Rs 5,000 (d) Nil
5. Memorandum joint venture account is

(a) Personal account (b) Real account
(c) Nominal account (d) None of the above
6. A purchased goods costing 42,500. B sold goods of 40,000 at 50,000. Balance goods were taken over by A at
same gross profit percentage as in case of sale. The amount of goods taken over will be.
(a) 3,125 (b) 2,500 (c) 3,000 (d) None
7. What is the nature of joint venture with co-venturer account

(a) Nominal account (b) Real account
(c) Personal account (d) None of these
8. ‘M’ and ‘N’ enter into joint venture where ‘M’ supplies goods worth Rs 6,000 and spend Rs 100
on various expenses. ‘N’ sells the entire lot for Rs 7,500 meeting selling expenses amounted to
Rs 200. profit sharing ratio equal. N remits M the amount due. The amount of remittance will be
(a) Rs 6,700
(b) Rs 7,300
(c) Rs 6,400
(d) Rs 6,100
9. A and B purchased a piece of land for Rs 20,000 and sold it for Rs 60,000 in 2015. Originally A had
contributed Rs 12,000 and B Rs 8,000. The profit on venture will be:
(a) Rs 40,000 (b) Rs 20,000 (c) Rs 60,000 (d) Nil
10. A and B enter in to joint venture sharing profit and loss in the ratio 1:1 A purchased goods costing
Rs. 20,000. B sold the goods for Rs. 25,000. A is entitled to get 1% commission on purchase and
B is entitled to get 5% commission on sales. The profit will be
(a) Rs. 3,550
(b) Rs. 3,600
(c) Rs. 3,400
(d) Rs. 3,800

11. Goods costing Rs. 10,000 destroyed by an accident, insurance claim nil
(a) Rs. 10,000 will be credited to joint venture account
(b) No entry will be made in the books of joint venture
(c) Rs. 10,000 will be debited in Joint venture account as loss
(d) Rs. 8,000 will be credited in joint venture account
12. Which of the following statement is true?

(a) There is no difference between joint venture and partnership
(b) Consignment and joint venture is same
(c) There is not separate act for joint venture
(d) In case of joint venture, the number of third party is none only
13. Which of the following accounts are maintained in the joint venture when separate set of books are
maintained
(a) Joint bank A/c (b) Joint venture A/c (c) Co-ventruer A/c (d) All of these
14. If A co-venturer takes away goods under memorandum joint venture method then he will debit these goods in
his books to
(a) Joint venture account (b) Personal account
(c) Purchases account (d) Sales account
15. For opening joint bank account, in case of separate sets of books:
(a) Ventrue a/c will be debited and venturer A/c will be credited
(b) Joint Bank A/c is debited and ventures capital A/c is credited
(c) Joint venture A/c is debited and joint Bank A/c will be credited
(d) Joint Bank A/c will be debited and joint venture A/c will be credited
16. State which of the following statements is true?

(a) Memorandum joint venture account is prepared to find out profit on venture
(b) Memorandum joint venture account is prepared to find out amount due from co-venture
(c) Memorandum joint venture account is prepared when separate sets of books is maintained
(d) In memorandum joint venture account only one venture's transactions are recorded
17. Can a minor be admitted into a joint venture?

(a) Can be admitted
(b) Cannot be admitted
(c) Can be admitted subject to the consent of the co-venturer.
(d) Can be admitted for the benefit of minor
18. In case of purchase of furniture in joint venture through joint bank A/c, while separate set of books is
maintained. Which of the following is the correct entry?
(a) Debit furniture, credit joint bank A/c
(b) Debit furniture, credit joint venture A/c
(c) Debit Joint venture, credit joint bank A/c
(d) Debit Joint venture A/c, Credit furniture A/c
19. ‘A’ and ‘B’ enter into a joint venture business. ‘A’ purchased goods worth Rs. 30,000 and ‘B’ sold for Rs.
40,000. ‘A’ is entitled to 1% commission on purchases and ‘B’ is entitled to 5% commission on sales. The profit-
sharing ratio is 3:2 Profit shared by A & B is….
(a) Rs.4000; 2000
(b) Rs.4620; 3080
(c) Rs.5000; 2500
(d) Rs.4200; 2100

20. A and B entered in a joint venture A supplied goods worth Rs. 60,000 and paid Expenses Rs. 6,000
Y supplied goods worth Rs. 14,000 and paid Expenses Rs.1,000. Y sold the goods for Rs. 1,00,000
and he is entitled to a commission of 5% on sales. Find the profit on Joint Venture.
(a) 14400
(b) 14000
(c) 13000
(d) 13200
Answer:- 1.(b) 2.(a) 3.(a) 4.(b) 5.(c) 6.(a) 7.(c) 8.(a) 9.(a)
10.(a)
11.(b) 12.(c) 13.(d) 14.(c) 15.(b) 16.(a) 17.(c) 18.(c) 19.(b)
20.(b)
MCQ BASED QUESTIONS: PRACTICE SESSION 2

1. M and N enter into a Joint venture where M supplies goods worth Rs 6,000 and spends Rs 100 on various
expenses. N sells the entire lot for Rs 7500 meeting selling expenses amounting to Rs 200. Profit sharing
ratio equal ,N remits to M the amount due. The amount of Profit will be:
(a) Rs. 1,200 (b) Rs. (1200) (c) Rs. 1000 (d) Rs. 1100

(a) Only one venturer bears the risk
(b) Only one venturer can sell the goods
(c) Only one venturer can purchase the goods
(d) In joint venture, provisions of partnership act applies
3. Which of the following statement is true:
(a) In case of separate sets of books method of JV, co-venturer's contribution of goods is debited in Joint Bank A/c
(b) Co-venturer's contribution in cash is debited in Venturer's personal account
(c) Discount on discounting of B/R is debited to Venturer's personal account
(d) Contract money received is credited to Joint Venture Account.
4. For purchase of plant from Joint Bank Account, in case separate sets of books are maintained, the correct journal
entry will be:
(a) Plant A/c will be debited and Joint Bank A/c will be credited
(b) Joint Venture A/c will be debited and Joint Bank A/c will be credited
(c) Plant A/c will be debited and Venturers Capital A/c will be credited
(d) Joint Venture A/c will be debited and Plant A/c will be credited
5. For material supplied from own stock by any of the venturer, the correct journal entry will be: (In case of
separate sets of books)
(a) Joint Venture A/c will be debited and Venturers Capital A/c will be credited
(b) Joint Venture A/c will be debited and Joint Bank A/c will be credited
(c) Joint Venture A/c will be debited and Material A/c will be credited
(d) Joint Bank A/c will be debited and Joint Venture A/c will be credited

6. A and B enter into a joint venture to underwrite the shares of K Ltd. K Ltd make an equity issue of 1,00,000
equity shares of Rs 10 each. 80% of the issue are subscribed by the party. The profit sharing ratio between A
and B is 3:2. The balance shares not subscribed by the public, purchased by A and B in profit sharing ratio.
How many shares to be purchased by A.
(a) 80000 shares (b) 72000 shares (c) 12000 shares (d) 8000 shares
7. A and B enter into a joint venture to underwrite shares of K Ltd. K Ltd make an equity issue of 2,00,000
equity shares. 80% of the shares underwritten by the venturer. 1,60,000 shares are subscribed by the
public. How many shares are to be subscribed by the venturer?
(a) Nil (b) 32000 (c) 36000 (d) None.
8. A and B enter into a joint venture sharing profit and losses in the ratio 2:1. A purchased goods costing Rs
200,000. B sold the goods for Rs 250,000. A is entitled to get 1% commission on purchase and B is entitled
to get 5% commission on sales. The profit on venture will be:
(a) Rs. 35500 (b) Rs. 36000 (c) Rs. 34000 (d) Rs.38000
9. P and Q enter into a Joint Venture sharing profits and losses in the ratio 3:2. P purchased goods costing Rs
2,00,000. Other expenses of P Rs 10,000. Q sold the goods for 1,80,000. Remaining goods were taken over by
Q at Rs 20,000. The amount of final remittance to be paid by Q to P will be:
(a) 215000 (b)20,000 (c) 210000 (d)2,04,000
10. C and D entered into a Joint Venture to construct a bridge. They did not open separate set of books. They
shared profits and losses as 3:2. C contributed Rs 1,50,000 for purchase of materials. D paid wages
amounting to Rs 80,000. Other expenses were paid as: C – 5,000 D – 15,000
C purchased one machine for Rs 20,000. The machine was taken over by C for Rs 10,000. Total contract
value of Rs 3,00,000 was received by D. What will be the profit on venture?
(a) Rs. 30000 (b) Rs. 40000 (c) Rs. 20000 (d) Rs. 15000
11. R and M entered into a joint venture to purchase and sell new year gifts. They agreed to share the profit and
losses equally. R purchased goods worth Rs 1,00,000 and spent Rs 10,000 in sending the goods to M. He also
paid Rs 5,000 for insurance. M spent Rs 10,000 as selling expenses and sold goods for 2,00,000. Remaining
goods were taken over by him at Rs 5,000. What will be the amount to be remitted by M to R as final
settlement?
(a) Rs.1,55,000 (b) Rs.150000 (c) Rs.115000 (d)Rs.80000
12. R and M entered into a joint venture to purchase and sell new year gifts. They agreed to share the profit and
losses equally. R purchased goods worth Rs 100,000 and spent Rs 10000 in sending the goods to M. He also
paid Rs 5000 for insurance. M spent Rs 10000 as selling expenses and sold goods for 200000. Remaining
goods were taken over by him at Rs 5000. Find out profit on venture?
(a) Rs.70000 (b) Rs.75000 . (c) Rs.80000 (d)Rs.85000
*13. A and B enter into a joint venture sharing profit and losses in the ratio 3:2. A will purchase goods and B will
affect the sale. A purchased goods costing Rs 200,000. B sold it for Rs 300000. The venture is terminated
after 3 months. A is entitled to get 10% interest on capital invested irrespective of utilization period.. The
amount of interest received by A will be.
(a) 20000 (b) 10000 (c) 15000 (d)25000
14. A bought goods of the value of Rs 10,000 and consigned them to B to be sold by them on a joint venture,
profits being divided equally. A draws a bill on B for an amount equivalent to 80% of cost on consignment.
The amount of bill will be:
(a) Rs.10,000 (b) Rs 8000 (c)Rs. 6000 (d)Rs. 9000

*15. A bought goods of the value of Rs 10,000 and consigned them to B to be sold by them on a joint venture,
profits being divided equally, A paid Rs 1,000 for freight and insurance. A draws a bill on B for Rs 10,000. A
got it discounted at Rs 9500. B sold the goods for Rs 15000. Commission payable to B, Rs 500. Find out the
profit on venture?
(a) Rs. 3000 (b)Rs. 3500 (c) Rs. 4000 (d)Rs 3200
16. A bought goods of the value of Rs 10,000 and consigned them to B to be sold them on a joint venture, profits
being divided equally, A paid Rs 1,000 for freight and insurance. A draws a bill on B for Rs 10,000. A got it
discounted at Rs 9500. B sold the goods for Rs 15000. Commission payable to B, Rs 500. The amount to be
remitted by B to A will be:
(a) Rs.12500 (b) Rs.3000 (c) Rs.14500 (d)Rs.13500
17. If any stock is taken over by the venturer, if will be treated as an:
(a). Income of the joint venture, hence credited to Joint Venture Account
(b). Expenses of Joint venture, hence debited to Joint Venture Account
(c). To be ignored from Joint Venture Transaction
(d). It will be treated in the personal book of the venturer and not in the books of the joint Venture.
18. Advise which of the statement is true:
(a). The Joint Venture can be formed by a single person only.
(b). A legal deed should be drafted before forming Joint Venture,
(c). The profit to be shared between the venturer in agreed ratio
(d). Joint Venture follows going concern concept.
19. A and B were partners in a joint venture sharing profits and losses in the proportion of 3/ 5th and 2/5th
respectively. A supplies goods to the value of Rs 80,000 and incurs expenses amounting Rs 6,000. B supplies
goods to the value of Rs 14,000 and his expenses amount to Rs 2,000. B sells goods on behalf of the joint
venture and realizes Rs 1,50,000. B entitled to a commission of 5% on sales. B settles his account by bank
draft. Find out A's share of profit on venture?
(a) Rs. 24,300 (b) Rs. 25,000 (c) Rs. 26,000 (d) Rs. 20,300
*20. A and B were partners in a joint venture sharing profits and losses in the proportion of 3/ 5th and 2/5th
draft. How much amount, B will pay to A as final settlement?
(a) Rs. 83,400 (b) Rs. 93,200 (c) Rs. 80,000 (d) Rs. 66,000
21. A and V enter into a joint venture to sell a consignment of biscuits sharing profits and losses equally. A
provides biscuits from stock Rs 10,000. He pays expenses amounting to Rs 1,000. V incurs further expenses
on carriage Rs 1000. He receives cash for sales Rs 15000. He also takes over goods to the value of Rs 2000.
What will be the amount to be remitted by V to A?
(a) Rs. 13500 (b) Rs. 15000 (c) Rs.11000 (d)Rs. 10000
22. A and V enter into a joint venture to sell a consignment of biscuits sharing profits and losses equally. A
provides biscuits from stock Rs 10000. He pays expenses amounting to Rs 1000. V incurs further expenses
on carriage Rs 1000. He receives cash for sales Rs 15000. He also takes over goods to the value of Rs 2000.
Find out profit on venture?
(a) Rs.3000 (b) Rs.5000 (c) Rs.6000 (d)Rs.3500

23. A purchased 1000 kg of rice costing Rs 200 each. Carriage 2000, insurance 3000. 4/5th of the boxes were sold
by B at Rs 250 per boxes. Remaining stock were taken over by B at cost.The amount of stock taken over will
be:
(a) Rs. 40000 (b) Rs.41000 (c) Rs.50000 '(d) Rs.50200
24. Goods costing Rs.10,000 destroyed by an accident, insurance claim nil.
(a) Rs 10000 will be credited to Joint Venture Account.
(b) No Entry will be made in the books of Joint Venture

(c) Rs 10000 will be debited in Joint Venture Account as Loss
(d) Rs 8000 will be credited in Joint Venture Account
25. A and B were partners in a joint venture sharing profits and losses in the proportion of 3/5th and 2/5*
draft. Find out the profit on venture?
(a) Rs. 14400 (b) Rs.14000 (c) Rs.13000 (d)Rs.l3200
26. A purchased goods costing 1,00,000. B sold the goods for Rs 1,50,000. Profit sharing ratio between A and B
equal. If same sets of books is maintained, what will be the final remittance?
(a) B will remit Rs 125000 to A (b) B will remit Rs 150000 to A
(c) A will remit Rs 100000 to B (d) B will remit Rs 25000 to A
*27. A purchased goods costing 200000, B sold 4/5th of the goods for Rs 250000. Balance goods were taken over
by B at cost less 20%. If same sets of books is maintained, find out profit on venture?
(a) Rs. 82000 (b) Rs .90000 (c) Rs. 50000 . (d) none
28. A purchased goods costing Rs 2,00,000; B sold the goods for Rs 2,80,000. Unused material costing Rs 10,000
taken over by A at Rs 8000. A is entitled to get 1% commission on purchase. B is entitled to get 2%
commission on sales. Profit sharing ratio equal. A's share of profit on venture will be:
(a) Rs. 40000 (b) Rs. 40400 (c) Rs. 40600 (d) Rs. 40200
29. A and B enter into joint venture sharing profit and loss equally. A purchased 100 kg of rice @ Rs 20/kg.
Brokerage paid Rs 200, carriage paid Rs 300. B sold 90 kg of rice @ Rs 22/ kg. Balance rice was taken over by
B at cost. The value of rice taken over to be recorded in joint venture will be:
(a) Rs. 200 (b) Rs. 250 (c) Rs. 230 (d) Rs. 220
30. A and B enter into a joint venture sharing profit and losses equally. A purchased 5000 kg of rice @ Rs 50/kg.
B purchased 1000 kg of wheat @ Rs 60/Kg. A sold 1000 kg of wheat @ Rs 70/kg and B sold 5000 kg of rice
@Rs 60/kg. The profit on venture when same sets of books is maintained will be:
(a) Rs. 1,10,000 (b) Rs.1,00,000 (c) Rs.1,20,000 (d)Rs. 60,000
*31. A and B enter into a joint venture sharing profits and losses equally. A purchased 5000 kg of rice @ Rs 50/kg.
B purchased 1000 kg of wheat @ Rs 60/kg. A sold 1000 kg of wheat @ Rs 70/kg and B sold 5000 kg of rice
@ Rs 60/kg. What will be the final remittance?
(a) B will remit Rs 2,10,000 to A

(b) A will remit Rs 2,10,000 to B
(c) A will remit Rs 2,00,000 to B
(d) B will remit Rs 1,80,000 to A

32. A and B enter into a Joint Venture by opening a joint bank account contributing Rs 10,00,000. The profit
sharing ratio between A and B is 3:2. How much amount to be contributed by A?
(a) Rs. 6,00,000 (b) Rs. 4,00,000 (c) Rs. 3,00,000 (d) Rs. 5,00,000
*33 . A, B and C are co-venturer. The relative Profit sharing ratio between A and B is 3:2 and between B and C is also
3:2. Fine out the PSR between A, B and C.
(a) 3:2:2 (b)9:6:4 (c) 4:3:2 (d) 3:2:1
34. A and B entered into a joint venture. They opened a joint bank account by contributing Rs 2,00,000 each.
The expenses incurred on venture is exactly equal to Rs. 2,00,000. Once the work is completed, contract
money received by cheque Rs 4,00,000 and in shares Rs 50,000. The shares are sold for Rs 40,000. What
will be the profit on venture?
(a) Rs. 2,50,000 (b) Rs .2,40,000 (c) 4,40,000 (d) 4,50,000
35. If a venturer draws a bill on his co-venturer and if the drawer discounts the bill with same
sets of books maintained, the discounting charges will be borne by:
(a) The drawer of the bill

(b) The drawee of the bill
(c) The discounting charges will be recorded in memorandum account
(d) The discounting charges will be borne by bank
36. Which of the following statement is not true?
(a) Joint venture is a going concern
(b) Joint venture is terminable in nature
(c) Joint venture does not follow accrual basis of accounting
(d) The co-venturer shares the profit in agreed ratio.
37. A and B were partners in a joint venture sharing profits and losses in the proportion of 4/ 5th and 1/5th
respectively. A supplies goods to the value of Rs 50,000 and incurs expenses amounting to Rs 5400. B
supplies goods to the value of Rs 14,000 and his expense amount to Rs 800. B sells goods on behalf of the
joint venture and realizes Rs 92,000. B is entitled to a commission of 5 per cent on sales. B settles his
account by bank draft. What will be the final remittance?
(a) B will remit Rs. 69,160 to A

(b) A will remit Rs. 69,160 to B
(c) A will remit Rs. 69,000 to B
(d) B will remit Rs. 69,000 to A
38. A and B were partners in a joint venture sharing profits and losses in the proportion of 4/5th and 1/5th
respectively. A supplies goods to the value of Rs 50,000 and incurs expenses amounting to Rs 5400. B
supplies goods to the value of Rs 14000 and his expense amount to Rs 800. B sells goods on behalf of the
joint venture and realizes Rs 92000. B is entitled to a commission of 5% on sales. B settles his account by
bank draft. What will be the profit on venture?
(a) Rs.17200 (b) Rs.17000 (c) Rs.18000 (d)Rs.l8200
39. In a Joint venture A contributes Rs 5,000 and B contributes Rs 10,000. Goods are purchased for Rs 11,200.
Expenses amount to Rs 800. Sales amount to Rs 14000. The remaining goods were taken by B at an agreed
price of Rs 400. A and B share profit and losses in the ratio of 1:2 respectively. As a final settlement, how
much A will receive?
(a) 5800 (b) 6000 (c) 5000 (d) 10800
(a). There is no difference between Jt Venture and Partnership
(b). Consignment and Jt Venture is same

(c). In case of Jt Venture, none of the act is applicable
(d) In case of Jt Venture, the number of related party is one only.
41. A and B enter into a venture sharing profit and losses in the ratio 2:3. Goods purchased by A for Rs 45,000.
Expenses incurred by A Rs 13,500 and by B Rs 5200. B sold the goods for Rs 85,000. Remaining stock taken
over by B at Rs 7200. What will be the final remittance to be made by B to A:
(a) Rs. 69900 (b) Rs. 11400 (c) Rs.17100 (d)Rs.7200
42. If separate sets of books is maintained and suppliers grant discount at the time of making the payment for
purchase of goods, such discount received will be treated as:
(a) Income of Joint Venture, hence credited to Joint Venture A/c

(b) Will be credited to Joint Bank A/c
(c) Will be credited to Co-venturer's Capital A/c
(d) Will be ignored from the books.
43. If unsold goods costing Rs 20000 is taken over by Venturer at Rs 15000, the Joint Venture A/c will be credited
by:
(a) Rs.20000 (b) Rs.15000 (c) Rs. 35,000 (d)nil
44. A and B enter into a venture sharing profits and losses in the ratio 2:3. Goods purchased by A for Rs 45,000.
Expenses incurred by A, Rs 13500 and by B Rs 5200. B sold the goods for Rs 85,000. Remaining stock taken
over by B at Rs 7200. The profit on venture will be:
(a) Rs. 28500 (b) Rs. 21300 (c) Rs. 35700 (d)Rs. 9800
45. State which of the statement is true?

(a) Memorandum Jt Venture Account is prepared to find out profit on venture
(b) Memorandum Jt Venture Account is prepared to find out amount due from co-venturer
(c) Memorandum Jt Venture Account is prepared when separate sets of books is maintained
(d) In Memorandum Jt Venture Account only one venturer's transaction is recorded
46. A and B enter into a joint venture for purchase and sale of Type-writer. A purchased Typewriter costing Rs
1,00,000. Repairing expenses Rs 10,000, printing expenses Rs 10,000. B sold it at 20% margin on selling
price. The sales value will be:
(a) Rs. 125000 (b) Rs. 150000 (c). Rs. 100000 (d) Rs. 140000
(a) When separate set of books is maintained, expenses paid by venturer will be credited to joint bank
account.
(b) When separate set of books is maintained, expenses paid by venturer will be credited to venturer's capital
account.
(c) When separate set of books is maintained, expenses paid by venturer will be credited to Jt. venture
account.
( d) When separate set of books is maintained, expenses paid by venturer will be credited to Outstanding
Expenses Account.
ANSWERS:
1.A, 2.D, 3.D, 4.B, 5.A, 6.C, 7.B, 8.A, 9.D, 10.B, 11.A, 12.C, 13.A, 14.B, 15.A, 16.B, 17.A, 18.C,
19.A, 20.A, 21.A, 22.B, 23.B, 24.B, 25.B, 26.A, 27.A, 28.D, 29.B, 30.D, 31.A, 32.A, 33.B, 34.B,
35.C, 36.A, 37.A, 38.A, 39,A, 40.C, 41.A, 42.D, 43.B, 44.A, 45.A, 46.B, 47.B

CHAPTER 2. BILLS OF EXCHANGE

1. The person other than the original creditor to whom the amount in the bill is made payable to is known as the
____ of the bill.
(a) Holder (b) Payee (c) Drawer (d) Endorser
2. Payment of Bills of exchange is received
(a) By drawer (b) By holder in due course of due date (c) endorsee (d) bank
3. Retirement of bill means:
(a) Making payment before the due date

(b) Cancellation of the bill
(c) Sending the bill for collection
(d) Endorsing the bill in favour of third party.
4. At the time of retirement of a bill, the acceptor debits:
(a) Bills receivable account (b) Bill payable account (c) Discount (d) None of the above
5. The party who is ordered to pay the amount is known as
(a) Payee (b) Drawer (c) Drawee (d) Endorsee
6. In which of these ways a bill of exchange cannot be disposed of
(a) Discounting with bank (b) Retain till maturity (c) Endorsement to creditors (d) Destroyed
7. Bills receivable book is a part of the
(a) Ledger (b) Balance sheet
(c) Journal/Subsidiary (d) Profit and loss account
8. X Sold goods to Y for Rs. 3,00,000. ½ of the amount will be received in cash and the balance through a B/R. For
what amount X should draw a bill Y
(a) 150000 (b) 300000 (c) 100000 (d) 120000
9. A person who endorses a bill is called
(a) Drawer (b) Drawee (c) Bank (d) Endorser
10. At the time of dishonour of an endorsed bill which one of these accounts would be credited by the drawee
(a) Bill payable account

(b) Drawer (c) Bank (d) Bill dishonoured account
11. Date on which the payment of the bill is to be made
(a) Public holiday

(b)Date of grace (c) Due date (d) Date of bill+ 3 days

12. Kuntal draws a bill on shyam for 3,000. Kuntal endorsed it to Ram. Ram endorsed it to Rahim.
The payee of the bill will be:
(a) Kuntal (b) Ram (c) Shyam (d) Rahim
13. If the due date is a public holiday what will be the due date of the bill
(a) Following day (b) Preceding day
(c) The same day only (d) One month later
14. On 1-8-15, X draws a bill on Y for 30 days after sight. The date of acceptance is 8-8-15.
The due date of the bill will be…
(a) 8-9-15
(b) 10-9-15 (c) 11-9-15 (d) 9-9-15
15. If bill drawn on 3rd July 2015 for 40 days payment must be made on
(a) 16th August, 2006

(b) 15th August, 2006 (c) 12th August, 2006 (d) 14th August, 2006

16. A draws a bill on 1/04/19 for 60,000 for 3 months. B accepted it 8/04/19. The bill was discounted on 8/05/19 @ 12%
p.a. The amount of discount will be------ in case bill is after sight.
(a) 1800 (b) 1200 (c) 600 (d) 1300
17. A bill drawn and accepted for mutual help is known as ____ bill:
(a) Accommodation (b) Trade (c) Ordinary (d) Retired
18. ‘Bill at sight’ means the instance at which_______________
a) No time for payment is mentioned in the bill

b) The payment is to be made on demand at any time
c) The payment is made after a particular time
d) Both a & b
19. X draws a bill for Rs. 40,000 on ‘Y’. ‘Y’ accepts it for 2 months. After 1 month ‘Y’ paid the bill amount @ 9%.
Journal entry in the Books of ‘Y’ will be
(a) Bank A/c Dr. 40,000 To Bills payable A/c 40,000
(b) Bank A/c Dr. 40,000 To Bills payable A/c 39,700 To Discount A/c 300
(c) Bills payable A/c Dr. 40,000 To Bank A/c 40,000
(d) Bills payable A/c Dr. 40,000 To Discount A/c 300 To Bank A/c 39700
20. For bills receivable endorsed earlier and then dishonoured, the journal entry in the books of drawer will be
(a) Debtors A/c is debited and Creditors A/c is credited
(b) Debtors A/c is credited and Creditors A/c is debited
(c) Drawer A/c is debited and Creditors A/c is credited

(d) Debtors A/c is debited and Drawer A/c is credited
Answer:- 1.(b) 2.(b) 3.(a) 4.(b) 5.(c) 6.(d) 7.(c) 8.(a) 9.(d) 10.(b)
11.(c) 12.(d) 13.(b) 14.(b) 15.(d) 16.(b) 17.(a) 18.(d) 19.(d) 20.(a)

MCQ QUESTIONS- PRACTICE SESSION 2:
Choose the most appropriate answer from the given options
*1.On 1.1.05 X draws a bill on Y for Rs 20,000 for 3 months. due date of the bill will be :
(a) 1.4.05 (b) 3.4.05 (c) 4.4.05 (d) 4.05.05
*2. On 15.8.05 X draws a bill on Y for 3 months for Rs. 20,000. 18 Nov was a sudden holiday, due date of the bill will be:
(a) 17th Nov (b) 18th Nov (c) 19th Nov (d) 15th Nov
*3. On 16.6.05 X draws a bill on Y for Rs 25,000 for 30 days. 19th July is a public holiday, due date of the bill will be:
(a) 19th July (b) 18th July (c) 17th = July (d) 16th July
*4. X draws a bill on Y for Rs 30,000 on 1.1.05. X accepts the same on 4.1.05. Period of the bill 3 months after date. What
will be the due date of the bill:
(a) 4.4.05 (b) 3.4.05 (c) 7.4.05 (d) 8.4.05
5. X draws a bill on Y. X endorsed the bill to Z. The payee of the bill will be
(a) X (b) Y (c) Z (d) None
6. A bill of 12,000 was discounted by A with the banker for 11,880. At maturity, the bill returned dishonored,
noting charges Rs 20. How much amount will the bank deduct from A's bank balance at the time of such
dishonour?
(a) 12,000 (b) 11,880 (c) 12,020 (d) 11,900
7. X draws a bill on Y for Rs 20,000 on 1.7.05 for 3 months after sight, date of acceptance is 6.7.05. Due date of
the bill will be:
(a) 8.10.05 (b) 9.10.05 (c) 10.10.05 (d) 11.10.05
8. X sold goods to Y for Rs 1,00,000. Y paid cash Rs 30,000. X will grant 2% discount on balance, and Y request X to
draw a bill for balance, the amount of bill will be:
(a) 98,000 (b) 68,000 (c) 68,600 (d) 70,000
9. On 1.4.05 X draws a bill on Y for Rs 50,000 for 3 months. X got the bill discounted 4.4.05 at 12% rate. The
amount of discount on bill will be:
(a) 1500 (b) 1600 (c) 1800 (d) 1450
10. Mr. A draws a bill on Mr. Y for Rs 30,000 on 1.1.06 for 3 months. On 4.2.06. X got the bill discounted at
12% rate. The amount of discount will be:
(a) 900 (b) 600 (c) 300 (d) 650
11. X draws a bill on Y for Rs 20,000 for 3 months on 1.1.05. The bill is discounted with banker at a charge of Rs
100. At maturity the bill return dishonoured. In the books of X, for dishonour, the bank account will be
credited by:
(a) 19,900 (b) 20,000 (c) 20,100 (d) 19,800
*12. On 1.1.05 X draws a bill on Y for Rs 10,000. At maturity Y request X to renew the bill for 2 month at 12% p.a.
interest. Amount of interest will be:
(a) 200 (b) 150 (c) 180 (d) 190
13. On 1.1.05 X draws a bill on Y for Rs 15000 for 3 months. At maturity Y request X to accept Rs 5000 in cash and
for balance to draw a fresh bill for 2 months together with 12% p.a. interest, amount of interest will be:
(a) 200 (b) 300 (c) 240 (d) 380

14. On 1.8.05 X draw a bill on Y "for 30 days after sight". The date of acceptance is 8.8.05. The due date of the bill
will be:
(a) 8.9.05 (b) 10.9.05 (c) 11.9.05 (d) 9.9.05
15. On 1.6.05 X draw a bill on Y for Rs 25,000. At maturity Y request X to accept Rs 5000 in cash and noting charges
incurred Rs 100 and for the balance X draw a bill on Y for 2 months at 12% p.a. Interest amount will be:
(a) 410 (b) 420 (c) 440 (d) 400
16. On 1.1.05 X draw a bill on Y for Rs 50,000. At maturity, the bill returned dishonoured as Y become
insolvent and 40 paise per rupee is recovered from his estate. The amount recovered is:
(a) 20,000 (b) Nil (c) 30,000 (d) 40 paise
17. X draws a bill on Y for Rs 3000. X endorsed to Z. Y will pay the amount of the bill to:
(a) X (b)Z (c) To himself (d) None
18. On 1.1.05 X draw a bill on Y for 3 months for Rs 10,000. On 4.3.05 Y pay the bill to X at 12% discount, the
amount of discount will be:
(a) 100 (b) 200 (c) 300 (d) 50
*19. Ram draws on Aslam a bill for Rs 60,000 on 1.4.01 for 2 months. Aslam accepts the bill and sends it to Ram who
gets it discounted for Rs 58,800. Ram immediately remits Rs 19,600 to Aslam. On due date, Ram being unable to
remit the amount due accepts a bill for Rs 84,000 for 2 months which is discounted by Aslam for Rs 82,200.
Aslam sends Rs 14,800 to Ram out of the same. How much discount will be borne by Ram at the time of 14,800
remittances?
(a) 1200 (b) 1800 (c) 1100 (d) 800
*20. Mr Bobby sold goods worth Rs 25,000 to Mr Bonny. Bonny immediately accepted a bill on 1.11.01, payable after 2
months. Bobby discounted this bill @ 18% p.a. on 15.11.01. On the due date Bonny failed to discharge the bill. Later on
Bonny became insolvent and 50 paise is recovered from Bonny’ s estate. How much amount of bad debt will be
recorded in the books of Bobby?
(a) 12,500 (b) 9,437 (c) 11,687 (d) 13,650
21. The purpose of accommodation of bill is:

(a) To kill relatives
(b) To kill friends
(c) When both parties are in need of funds
(d) At will
22. M sold goods worth of Rs 50,000 to N. On 1.10.05, N immediately accepted a three month bill. On due date N
requested that the bill be renewed for a fresh period of 3 months. N agrees to pay interest @ 18% p.a. in
cash. How much interest to be paid in cash by N?
(a) 2250 (b) 1800 (c) 2000 (d) 1100
23. On 1.1.05 X draws a bill on Y for Rs 30,000. At maturity Y request X to draw a fresh bill for 2 months
together with 12% pa. interest. Noting charges Rs 100. The amount of interest will be:
(a) 600 (b) 602 (c) 500 (d) 550
24. On 18.2.05 A draw a bill on B for Rs 10,000. B accepted the bill on 21.2.05. The bill is drawn for 30 days after
sight. The due date of the bill will be:
(a) 24.3.05 (b) 22.3.05 (c) 26.3.05 (d) 21.3.05
25. X sold goods to Y for Rs 3,00,000. 1/2 of the amount will be received in cash and balance in B/R. For what
amount X should draw the bill on Y.
(a) 1,50,000 (b) 3,00,000 (c) 1,00,000 (d) 1,20,000

26. A draws a bill on B for Rs 50,000 for 3 months. At maturity, the bill returned dishonored, noting charges
Rs 500. 40 paise in a rupee is recovered from B's estate. The amount of deficiency to be recorded on
insolvency in the books of B will be:
(a) Rs.20,200 (b) Rs.30,300 (c) Rs.19,800 (d) Rs.19000
27. A sold goods to B for Rs 20,000. A will grant 5% discount to B. B requested A to draw a bill. The amount of bills
will be:
(a) 20,000 (b) 19000 (c) 19200 (d)Nil
28. Fees paid in cash to Notary Public is charged by:
(a) Drawer (b) drawee (c) Holder of bill of exchange (d) None
29. A draws a bill on B for Rs 50,000. A endorsed it to C in full settlement of Rs 50,500. Noting charges of Rs 200 as the
bill returned dishonoured. A wants to pay the amount to C at 2 % discount. The amount to be paid by A to C will
be:
(a) 49,000 (b) 49,490 (c) 49,686 (d) 50,500
30. A draws a bill on B for Rs 1,00,000. A endorsed the bill to C. The bill return dishonoured. Noting charges Rs
1000. B request A to accept the amount at 2% discount by a single cheque. The cheque amount will be:
(a) 98,000 (b) 98,980 (c) 99,000 (d) 99,980
31. S draws 2 bills of exchange on 1.1.06 for Rs 3,000 and Rs 5,000 respectively. The bill of exchange for Rs 3,000 is
for 2 months, while the bill of exchange for Rs 5,000 is for 3 months. These bills are accepted by K. On 4.3.06 K
requests S to renew the first bill with interest at 18% p.a. for a period of 2 months. S agrees to this proposal. On
20.3.06 K retires the acceptance for Rs 5,000 the interest rebate i.e., discount being Rs 50.
Before the due date of the renewed bill K becomes insolvent and only 60 paise in a rupee can be recovered from
his estate. How much bad debt will be recorded in the books of S:
(a) 1236 (b)1854 (c) 3090 (d) 3000
32. The promissory note should be signed by:
(a) Drawer (b) Drawee

(c) Payee (d) Promiser
33. Kuntal draws a bill on Shyam for Rs 3000. Kuntal endorsed it to Ram. Ram endorsed it to Rahim. The payee of
the bill will be:
(a) Kuntal (b) Ram (c)Shyam (d) Rahim
34. A bill is drawn on 29th Jan' 06 for one month after date; The date of acceptance is 2nd Feb'06. The bill is drawn
on one month after date basis. The due date of the bill will be:
(a) 28th Feb (b) 1st Mar (c) 2nd Mar (d) 3rd Mar
35. Mr. Rex accepted a bill drawn by Mr. Rabin. Mr. Rabin endorsed the bill to Mr Shekar. On the due date, the bill is
dishonoured as Mr Rex became insolvent. To record the dishonor of the bill in the books of Mr. Rabin, which of
the following accounts should be credited?
(a) Mr. Rex's account
(b) Bills Receivable account
(c) Mr Shekar's account

(d) Bills payable account

36. Which of the following statements is true?
(a) A bill cannot be endorsed more than two times

(b) A bill is drawn by purchaser
(c) A bill contains an unconditional promise to pay
(d) Noting charges are borne by the drawee in the event of dishonour of bill.
37. For mutual accommodation of A and B, B accepted a bill drawn on him by A for 2 months Rs 6000.
The said bill is discounted at 12% pa. and remitted l/3rd of the proceeds to B. The amount remitted
by A to B will be:
(a) 2000 (b) 1960 (c) 1920 (d) 1900
38. Lara draws an accommodation bill on Sachin. The proceeds are to be borne between Sachin and Lara in
the ratio of 3:1. The amount of bill Rs 6000, discounting charges Rs 120.Discount borne by Sachin will be:
(a) 90 (b) 120 (c) 100 (d) None
39. A draws a bill on B for Rs 4500 for mutual accommodation in the ratio 2:1. A got it discounted at 4230
and remitted l/3rci of the proceeds to B. At the time of maturity, how much amount .A should remit to
B such that B can pay off the bill?
(a) 3000 (b) 2880 (c) 2920 (d) 3010
*40. Suman drew a bill on Sonu for Rs 4500 for mutual accommodation in the ratio 2:1. Sonu accepted the bill
and returned to Suman. Suman discounted the bill for Rs 4230 and remitted l/3rd proceeds to Sonu. Before
the due date, not having funds to meet the bill, Sonu drew a bill on Suman for Rs 6,300 on the same terms as
to mutual accommodation. The second bill was discounted for Rs 6120. The first bill was honored on the
due date and a net amount of Rs 1080 was remitted to Suman by Sonu. The proportionate discount charge
on both the bills is to be borne by Suman is:
(a) 180
(b) 150 (c) 300 (d) 120

41. Which of the following instrument is not a negotiable instrument:
(a) Bearer cheque (b) Promissory note (c) Bill of exchange (d) Crossed cheque
42. On 1.1.06 Vikas draws a bill of exchange for Rs 10,000 due for payment after 3 months on Ekta. Ekta
accepts to this bill of exchange. On 4.3.06, Ekta retires the bill of exchange at a discount of 12% p.a.
Which of the discount is correct for premature payment in the books of Ekta?
(a) 120 (b) 100 (c)140 (d) 160
43. Neelam sold goods to Dhiman for Rs 4,000 on 1.5.06. On the same day, he drew on Dhiman
a bill for the amount for 3 months, which Dhiman duly accepted. Neelam got the bill
discounted with her bank before the due date, Dhiman became insolvent. Later, her estate could pay
only 40% of the amount due. What will be the amount of deficiency in the books of Dhiman.
(a) 3200 (b) 2200 (c) 2400 (d) 2000
44. deleted
45. Which of the following is correct for presenting bill to notary public:
(a) To pay fees to notary public

(b) For " bill for collection"
(c) If the acceptor can prove that the bill was not properly presented to him for payment, he can escape the
liability, hence for dishonour it is produced.
(d) For drawing a fresh bill
46. A drew a bill on B for Rs 50,000 for 3 months. Proceeds are to be shared equally. A got the bill
discounted at 12% p.a. and remits required proceeds to B. The amount of such remittance will be:
(a) 24250 (b) 25000 (c) 16167 (d) 33,333
47. From the following information, find out who can draws the bill if Mr A sold goods to B:
(a) A will draw a bill on B (b) B will draw a bill on A
(c) None (d) Third party will draw a bill on A
48. When the bill are to be produced to notary public:
(a) At the time of drawing the bill (b) At the time of acceptance of the bill
(c) At the time of dishonour of the bill (d) At the time of "bill for collection"
49. Which of the following statement is false:
(a) B/R is a negotiable instrument (b) B/R must be accepted by drawee.
(c) There can be three parties in respect of bills of exchange - drawer, drawee & payee
(d) Refill of exchange is also valid.
50. Under which circumstances drawer and payee is same person:
(a) When drawer discounted the bill with banker
(b) When drawer endorse the bill to the third party
(c) When drawer held the bill till maturity
(d) When drawee rejects to accept the bill
(a) Noting charge is an expense to be borne by drawer

(b) Noting charge is an expense to be borne by drawee
(c) Noting charge is an expense to be borne by payee
(d) Noting charge is an expense to be borne by bank

(a) Creditors can draw a bill on Debtors

(b) Debtors can draw a bill on Creditors.
(c) Bank will draw a bill on customer at the time of overdraft.
(d) One can draw the bill on another under any circumstances.
53. deleted
54. Gouri sold goods to Gupta on 1.6.06 for Rs 1600. Gupta immediately accepted a three month’s bill. On due
date Gupta requested that the bill be renewed for a fresh period of two months. Gouri agrees provided interest
at 9% was paid immediately in cash. What will be the amount of interest in the books of Gouri?
(a) 20 (b) 25 (c) 24 (d) 28
55. X draws a bill on Y on 1.1.05 for Rs 20,000 for 30 days. What will be the maturity date of the bill:
(a)2.2.05 (b) 3.2.05 (c) 1.2.05 (d) 31.1.05
56. Ram's acceptance to Din for Rs 8,000 renewed at 3 months on the condition that Rs 4,000 be paid in cash
immediately and the remaining amount will carry interest @ 12% p.a. The amount of interest will be:
(a) 120 (b) 80 (c) 90 (d) 160
57. A draws a bill on B for Rs 30,000. A wants to endorse it to C in settlement of Rs 35,000 at 2% discount
with the help of B's acceptance and balance in cash. How much cash A will pay to B?
(a) 4300 (b) 4000 (c) 4100 (d) 5000
58. Ram gets Ghosh's acceptance for Rs 12,000 discounted at 2 months at 12% p.a. The amount of discount will be:
(a) 240 (b) 120 (c) 360 (d) nil
59. If the due date is a public holiday, what will be the due date of the bill:
(a) Following day (b) Preceding day
(c) The same day only (d) One month later
ANSWERS
1.(c) 2.(c) 3(b) 4.(a) 5.(c) 6.(c) 7.(b) 8.(c) 9.(a) 10.(b) 11.(b) 12.(a) 13.(a)
14.(b) 15.(d) 16.(a) 17.(b) 18.(a) 19.(a) 20.(a) 21.(c) 22.(a) 23.(b) 24.(c) 25.(a) 26.(b)
27.(b) 28.(c) 29.(c) 30.(b) 31.(a) 32.(d) 33.(d) 34.(d) 35.(a) 36.(d) 37.(b) 38.(a) 39.(a)
40.(c) 41.(d) 42.(b) 43.(c) 44.(d) 45.(c) 46.(a) 47.(a) 48.(c) 49.(d) 50.(c) 51.(b) 52.(a)
53.(b) 54.(c) 55.(b) 56.(a) 57.(a) 58.(a) 59.(b)

CHAPTER 3. CONSIGNMENT ACCOUNTING

1. Which of these is/are recurring/Selling/indirect expenses?

(a) Transit insurance and freight
(b) Octroi
(c) Loading and unloading
(d) Godown rent and insurance
2. On receipt of goods, the consignee debits which of these accounts
(a) Purchase account
(b) Goods account
(c) Consignors account
(d) None of these
3. X sends out goods to Y, costing Rs.1,50,000. Goods are to be sold at cost plus 33 1/3%. The
Consignor asked consignee to pay an advance for an amount equivalent to 60% of sales value.
The amount of advance will be
(a) Rs.1,20,000
(b) Rs.1,00,000
(c) Rs.1,50,000
(d) None
4. Goods of the invoice value of Rs. 2,40,000 sent out to consignee at 20% profit on cost. The loading
amount will be
(a) Rs. 40,000
(b) Rs. 48,000
(c) Rs. 50,000
(d) None
5. Goods sent on consignment account is of the nature of

(a) Personal account (b) Nominal account
(c) Real account (d) Sales account
6. Out of the given option which cannot be treated as part of cost of purchase for valuing stock on hand
(a) Packing
(b) Octroi
(c) Delivery charges
(d) Freight
7. X sends out 100 bags to Y costing Rs 1000 each. 60 bags were sold at 10% above cost price.
Sale value will be
(a) 66,000 (b) 65,000
(c) 60,000 (d) 65,500
8. The consignment accounting is made on the following basis

(a) Accrual Basis
(b) Realization basis
(c) Cash basis
(d) All of above
9. Which of the following term is true about consignment?

(a) Sale of goods
(b) Hypothecation of goods

(c) Shipment of goods

(d) Mortgage of goods
10. Which of these accounts are not opened in the books of consignor?
(a) Consignment account
(b) Commission account
(c) Goods send on consignment account
(d) Consignees personal account
11. For closing stock held by consignee, which account must be debited in the book of consignor
(a) Consignment stock account (b) Sales account
(c) Consignee account (d) Consignment account
12. X of Kanpur sends out 1000 boxes to Y Delhi costing Rs. 200 each at an invoice price of Rs. 220 each. Goods sent
out on consignment to be credited in general trading will be
(a) Rs. 2,00,000
(b) Rs. 2,40,000
(c) Rs. 40,000
(d) None
13. A proforma invoice is sent by

(a) Consignee to consignor
(b) Consignor to consignee
(c) Debtor to consignee
(d) Debtor to consignor
14. Commission will be shared by
(a) Consignor and consignee
(b) Only consignee
(c) Only consignor
(d) Third party
15. X of Mumbai sends out certain goods at cost +25%. Invoice value of the goods is Rs.2,00,000. 4/5th
of the goods were sold by consignee at Rs.1,76,000. Commission 2% upto invoice value and 10% of
any surplus above invoice. The amount of commission will be.
(a) 4800
(b) 5200
(c) 3200
(d) 1600
16. When Del-credere commission is paid, bad debts will be borne by

(a) Consignee (b) Consignor
(c) Customer (d) None of the above
17. Mr. X consigned goods costing Rs. 3,00,000 to Mr. Y at cost + 33 1/3%. 1/10 of the goods were lost
in transit . Mr. Y sold 3/5th of the remaining goods at 10% above the invoice price. Calculate the
amount of sales:
(a) 2,00,000
(b) 2,37,600
(c) 3,50,000
(d) 4,00,000
18. X sends out goods costing 2,00,000 to Y at 50% above cost price. The goods are sold for 4,00,000.
Commission is payable @ 10% on sales plus 20% of the excess of sales over invoice price.
The amount of commission will be:
(a) 50,667
(b) 50,800
(c) 60,000
(d) 50,600
19. Goods sent on consignment for Rs.50,000. During transit 1/10th of goods were destroyed by fire.
Again 1/9th of goods received by consignee were destroyed by fire in godown. Half of the original
goods were sold for 30,000. Freight & insurance paid by consignor 2,500 and 1500 respectively.
Calculate closing Stock.
(a) 30200 (b) 21,600
(c) 20,000 (d) 16200
20. Consignment account is

(a) Personal account
(b) Real account
(c) Nominal account
(d) Representative personal account
Answer:- 1.(d) 2.(d) 3.(a) 4.(a) 5.(c) 6.(c) 7.(a) 8.(a) 9.(c) 10.(b)
11.(a) 12.(a) 13.(b) 14.(b) 15.(a) 16.(a) 17.(b) 18.(c) 19.(d) 20.(c)
MULTIPLE CHOICE QUESTIONS- PRACTICE SESSION 2

1. State whether following statements are true or false.
(1) The relationship between the consignor and the consignee is that of Principal and Agent.
(2) In consignment the goods are dispatched on the basis that the goods will be sold on behalf of, at the expense of and at
the risk of the consignee.
(3) Account Sales is the statement sent by the consignor to the consignee.
(4) Del credere commission is normally calculated on total sales.
(5) If the consignee is not authorized to get the Del credere commission, then he is liable for all losses on account of non-
recovery of debts.
(6) Del credere commission is allowed to the consignee to bear the loss of account of bad debts.
(7) Consignee has no right in the profits on goods sent on consignment.
(8) In consignment Account, ownership of the goods remains with the consignor. .
[Ans : (1) True (2) False (3) False (4) True (5) False (6)" True (7) True (8) True}
2. Consignment account is of the nature of
(a) Personal account (b) Nominal account
(c) Real account (d) Profit and Loss A/c
3. P of Delhi sends out 100 boxes of toothpaste costing Rs 200 each. Each box consists of 12
packets. 60 boxes were sold by consignee at Rs 20 per packet. Amount of sale value will be:
(a) Rs.14400 (b) Rs.12000 (c) Rs. l3200 (d)Rs. l4200
4. X of Kolkata sends out 2000 boxes to Y of Delhi costing Rs 100 each. Consignor's expenses
Rs 5000. 1/10th of the boxes were lost in consignee's godown and treated as normal loss.1200 boxes were sold by
consignee. The value of consignment stock will be:
(a) Rs. 68333 (b) Rs.61500 (c) Rs.60000 (d)Rs.60250
5. Goods costing Rs 2,00,000 sent out to consignee at Cost + 25%. Invoice value of the goods
will be:
(a) Rs.250,000 (b) Rs.2,40,000 (c) Rs.300,000 (d) None
6. Goods costing Rs 1,80,000 sent out to consignee to show a profit of 20% on Invoice Price.
Invoice price of the goods will be:
(a) Rs.2,16,000 (b) Rs.2,25,000 (c) Rs.2,10,000 (d) None

7. Goods of the Invoice value Rs 2,40,000 sent out to consignee at 20% profit on cost. The loading amount will be:
(a) Rs.40,000 (b) Rs.48,000 (c) Rs.50,000 (d)None
8. X sent out certain goods to Y of Delhi. 1 /10 of the goods were lost in transit. Invoice value of goods lost Rs 12,500.
Invoice value of goods sent out on consignment will be:
(a) Rs.120,000 (b) Rs. 125,000 (c) Rs.140,000 (d)Rs.l00,000
9. Rabin consigned goods for the value of Rs 8,250 to Raj of Kanpur paid freight etc. of Rs 650 and insurance Rs 400.
Drew a bill on Raj at 3 months after date for Rs 3,000 as an advance against consignment, and discounted the bill
for Rs 2960. Received Account Sales from-Raj showing that part of the goods had realized gross Rs 8,350 and that
his expenses and commission amounted to Rs 870. The stock unsold was valued at Rs 2750. Consignee wants to
remit a draft for the amount due. The amount of draft will be:
(a) Rs.2130 (b) Rs.4480 (c) Rs.5130 (d) Rs.5090
10. X of Kolkata sends out goods costing Rs 1,00,000 to Y of Delhi. 3/5th of the goods were sold by consignee for Rs
70,000. Commission 2% on sales plus 20% of gross sales less all commission exceeds cost price. The amount of
Commission will be:
(a).2833 (b) Rs.2900 (c) Rs.3000 (d) Rs.2800
11. X of Kolkata send out 1,000 bag to Y of Delhi costing Rs 200 each. Consignor's expenses Rs
2,000. Y's expenses non-selling Rs 1000, selling Rs 2,000. 100 bags were lost in transit.
Value of lost in transit will be:
(a) Rs.20,200 (b) Rs.20,300 (c) Rs.20,000 (d) Rs.23,000
12. X of Kolkata sends out 1000 bags to Y on Delhi costing Rs 2000 each. 600 bags were sold
at 10% above cost price. Sale value will be:
(a) Rs.13,20,000 (b) Rs. 13,00,000 (c) Rs.12,00,000 (d) 13,50,000
13. Which of the following statement is not true:
a) If del-creder's commission is allowed, bad debt will not be recorded in the books of consignor.
b) if del-creder's commission is allowed, bad debt will be debited in consignment account
c) Del-creder's commission is allowed by consignor to consignee
d) Del-creder's commission is generally relevant for credit sales
14. X of Kolkata sends out 400 bags to Y on Delhi costing Rs 200 each. Consignor expenses Rs
2000. Y expenses non selling Rs 2000, selling 1000. 300 bags were sold by Y. Value of
consignment stock will be:
(a) Rs.20,400 (b) Rs.20,200 (c) Rs.20,000 (d) Rs.21000
15. X of Kolkata sent out 2000 boxes costing 100 each with the instruction that sales are to be made at cost + 45%. X
draws a bill on Y for an amount equivalent to 60% of sales value.The amount of bill will be:
(a) Rs.1,74,000 (b) Rs.2,00,000 (c) Rs.2,90,000 (d) Rs.1,20,000
16. Which of the following statement is wrong:
a) Consignor is the owner of the consignment stock

b) Del-credere commission is allowed by consignor to protect himself for bad debt
c) Proportionate consignor's expenses is added up with consignment stock
d) All proportionate Cconsignor and consignee's expenses will be added up for valuation of consignment stock.
17. X of Kolkata sends out 500 bags to Y costing Rs 400 each at an invoice price of Rs 500
each. Consignor's A/c expenses Rs 4000 consignee's expenses, non-selling Rs 1000, selling
Rs. 2000. 400 bags were sold. The amount of consignment stock at Invoice Price will be:
(a) Rs.50,900 (b)Rs.50/800 (c) Rs.50,000 (d)Rs.51,000

18. X of Kolkata sends out 500 bags to Y costing Rs 400 each at an invoice price of Rs 500
each. Consignor's A/c expenses Rs 4,000 consignee's expenses, non-selling Rs 1000, selling
Rs. 2000. 400 bags were sold. The amount of Stock Reserve will be
(a) Rs.10,000 (b)Nil (c) Rs.20,000 (d) Rs50,400
19. Commission will be shared between:
(a) Consignor & Consignee (b) Only Consignee
(c) Only Consignor (d) Third Party
*20. X of Kolkata sends out certain goods to Y of Mumbai at cost + 25%. 1/2 of the goods
received by Y is sold at 1,76,000 at 10% above IP. Invoice value of goods send out is:
(a) Rs.300,000 (b) Rs.3,20,000 (c) Rs.180,000 (d) Rs.340,000
21. X of Kolkata sends out goods costing 300,000 to Y of Mumbai at cost + 25%. Consignor's
expenses Rs 5000. 1/10th of the goods were lost in transit. Insurance claim received Rs
3000. The net loss on account of abnormal loss is:
(a) Rs.27,500 (b) Rs.25,500 (c) Rs.30.500 (d) Rs.27,000
*22. Rahim of Kolkata sends out 1000 boxes to Ram of Delhi costing Rs 100 each at an IP of Rs
120 each. Goods send out on consignment to be credited in general trading will be:
(a) Rs.100,000 (b) Rs.120,000 (c) Rs.20,000 (d) None
23. In the books of consignor, the profit of consignment will be transferred to:
(a) General Trading A/c (b)General P/L A/c (c) Drawings A/c (d) None of these
*24. Ram of Kolkata sends out 1000 boxes to Y of Delhi, costing Rs 200 each. 1/10th of the
boxes were lost in transit. 2/3rd of the boxes received by consignee are sold at cost + 25%.
The amount of sale value will be:
(a) Rs.1,00,000 (b) Rs.1,50,000 (c) Rs.1,20,000 (d) Rs.1,40,000
25. X of Kolkata sends out goods costing Rs 80,000 to Y of Mumbai so as to show 20% profit on invoice value. 3/5 th of the
goods received by consignee is sold at 5% above invoice price. The amount of sale value will be:
(a) Rs.63,000 (b) Rs.60,000 (c) Rs.50,400 (d)Rs.40,000
*26. X of Kolkata sends out certain goods at cost + 25%. Invoice value of goods sends out Rs
400,000. 4/5th of the goods were sold by consignee at Rs.3,52,000. Commission 2% upto
invoice value and 10% of any surplus above invoice value.The amount of commission will be:
(a) Rs.9,600 (b) Rs.10,400 (c) Rs.6,400 (d)Rs. 3,200
*27. Ram of Kolkata sends out goods costing 100,000 to Y of Mumbai at 20% profit on invoice price. 1/10 th of the goods
were lost in transit. ½ of the balance goods were sold. The amount of stock reserve on consignment stock will be:
(a) Rs.4500 (b) Rs.9000 (c) Rs.11250 (d)None
28. C of Bangalore consigned goods costing Rs 3,000 to his agent at Delhi. Freight and insurance paid by consignor Rs
100. Consignee's expenses Rs 200. 4/5th of the goods were sold for Rs 3,000. Commission 2% on sales. Consignee
wants to settle the balance with the help of a bank draft. The amount of draft will be:
(a) Rs.2740 (b) Rs.2800 (c) Rs.3000 (d) Rs.1800

29 Out of the following at which point the treatment of "Sales" and "Consignment" is same:
(a) Ownership transfer, (b) Money receive, (c) Stock outflow. (d) Risk.
*30. Del-credere commission is allowed for bad debt, consignee will debit the bad debt amount to:
(a) Commission Earned A/c (b) Consignor A/c
(c) Debtors A/c (d) General Trading A/c
*31. A Performa invoice is sent by:
(a) Consignee to Consignor (b) Consignor to Consignee
(c) Debtors to Consignee (d) Debtors to Consignor
32. Which of the following statement is correct:
(a) Consignee will pass a journal entry in his books at the time of receiving goods from consignor.
(b) Consignee will not pass any journal entry in his books at the time of receiving goods from consignor.
(c) The ownership of goods will be transferred to consignee at the time of receiving the goods.
(d) Consignee will treat consignor as creditor at the time of receiving goods.
33. 1000 kg of apples are consigned to a wholesaler, the cost being Rs 3 per kg plus Rs 400 of freight, it is known that a
loss of 15% is unavoidable. The cost per kg will be:
(a) Rs 5 (b) Rs 4 (c) Rs 3.40 (d) Rs 3
*34. A of Mumbai sold goods to B of Delhi, the goods are to be sold at 125% of cost which is invoice price. Commission
10% on sales at IP and 25% of any surplus realized above IP. 10% of the goods sent out on consignment, invoice
value of which is Rs 12,500 were destroyed. 75% of the total consignment is sold by B at Rs 1,00,000. What will be
the amount of commission payable to B?
(a) Rs.10,937.5 (b) Rs. 10,000 (c) Rs.9000 (d)Rs.9700
35. Consignment A/c is prepared in the books of : .
(a) Consignor (b) Consignee (c) Third Party" (d)None
36. Goods sent on consignment Invoice value 2,00,000 at cost + 331/3 %. 1/5th of the goods
were lost in transit. Insurance claim received Rs 10,000. The, amount of abnormal loss to
be transferred to General P/L is:
(a) Rs.30,000 (b) Rs.20,000 (c) Rs35,000 (d)Rs.40,000
37. X of Kolkata sends out 100 boxes to Y of Delhi costing Rs 200 each. Consignor's
expenses Rs 4000. Consignee's expenses non-selling 900, selling 500. 1/10th of the boxes
were lost in transit. 2/3rd of the boxes received by consignee were sold. The amount of
consignment stock, will be:
(a) Rs.-7200 (b) Rs.7500 (c) Rs.7000 (d) Rs.6,000
38. X of Kolkata sends out goods costing 100,000 to Y of Mumbai at cost + 25%. Consignor's expenses Rs
2000. 3/5th of the goods were sold by consignee at 85000. Commission 2% on
sales + 20% of gross sales less all commission exceeds invoice value. Amount of commission
(a) Rs.3083 (b) Rs.3000 (c) Rs.2500 (d)Rs,2000
39. Consignment stock will be recorded-in the balance sheet of consignor on asset side at:
(a) Invoice Value (b) At Invoice value less stock reserve

(c) At lower than cost price (d) At 10% lower than invoice value
40. Which of the following expenses of consignee will be considered as non-selling expenses:
(a) Advertisement (b) Insurance of transit
(c) Selling Expenses (d) None of the above
*41. The consignment accounting is made on the following basis:

(a) Accrual (b) Realization (c) Cash Basis (d)None
42. Goods sent on consignment Rs 7,60,000. Opening consignment stock Rs 48,000. Cash sales Rs 7,00,000. Consignor's
expenses Rs 20,000. Consignee's expenses Rs 12,000. Commission Rs 20,000. Closing consignment stock Rs
3,00,000. The profit on consignment is:
(a) Rs.150,000 (b) Rs.140,000 (c) Rs.92,000 (d) None
*43. X of Kolkata sends out 100 boxes to Y of Delhi costing Rs 100 each. Consignor's expenses
Rs 1000. Consignees expenses selling Rs 500. 3/5th of the goods sold by consignee, ½ of the balance goods were
lost in consignee's godown due to fire. The value of abnormal loss will be:
(a) Rs.3000 (b) Rs.2200 (c) Rs.4000 (d) None
44. X of Kolkata sends out 1000 boxes costing Rs.200 each to Y of Delhi. l/10th of the boxes
were lost in transit. 2/3rd of the remaining boxes sold by consignee at cost + 25%. The sale
value will be:
(a) Rs.1,50,000 (b) Rs.1,40,000 (c) Rs.1,20,000 (d) Rs.1,00,000
45. Which of the following item is not credited to consignment account?
(a) Cash sales made by consignee
(b) Credit sales made by consignee
(c) Consignment Stock
(d) Stock Reserve
46. Goods sent out on consignment Rs 2,00,000. Consignor's expenses 5,000. Consignee's expenses 2000. Cash sales Rs
1,00,000, credit sales Rs 1,10,000. Consignment stock Rs 40,000. Ordinary commission payable to consignee Rs
3,000. Del-credere commission Rs 2000. The amount irrecoverable from customer Rs 2,000. What will be the
profit on consignment?
(a) Rs.38,000 (b) Rs.40,000 (c) Rs.36,000 (d) Rs.43000
47. The commission received from consignor will be transferred to which account?
(a) General Trading (b) General P/L (c) Balance Sheet (d) None of these
48 X of Kolkata sends out 1000 boxes to Y of Delhi costing Rs 20 each. Consignor's expenses 2000. 4/5 th of the boxes
were sold at 25 each. The profit on consignment will be:
(a) Rs.2400 (b) Rs.2000 (c) Rs.3000 (d)Rs.3500
49. If del-credere commission is allowed by consignor to consignee, the bad debt treatment will be (In the books of
Consignor:
(a) Will not be recorded in consignor's books
(b) Bad Debt will be debited in Consignor's A/c
(c) Bad Debt will be charged to General P/L A/c
(d) Bad Debt will be recoverable along with credit sales
50. The owner of the consignment stock is:
(a) Consignor (b) Consignee (c) Debtors (d)None

51. The nature of the consignment account is:
(a) Capital in nature (b) Revenue in nature
(c) Realisation A/c in nature (d) Bank A/c in nature
52. Goods sent out on consignment Rs 2,00,000. Consignor's expenses 5,000. Consignee's expenses 2000. Cash sales Rs
1,00,000, credit sales Rs 1,10,000. Consignment stock Rs 40,000. Commission payable to consignee Rs 3,000. The
amount irrecoverable from customer Rs 2,000. What will be the profit on consignment?
(a) Rs.38,000 (b) Rs.40,000 - (c) Rs.43,000 (d) None
53. Rahim of Kolkata sends out goods of the invoice value Rs 2,00,000 to Ram of Delhi at cost
+ 25%. The amount of loading will be:
(a) Rs.50,000 (b) Rs.40,000 (c) Rs.30,000 (d) Rs.60,000
54. Goods sent to consignment at cost + 331'3 %. The percentage of loading on invoice price
will be:
(a) 25% (b) 331/3 % (c) 20% (d) None
55. The balance of goods sent out on consignment will be transferred to:
(a) General P/L (b)General Trading (c) Balance Sheet (d) Capital A/c
56. X of Kolkata purchased 1000 boxes costing Rs 100 each. 200 boxes were sent out to Y of
Delhi at cost + 25%. 600 boxes were sold at 120 each. The amount of gross profit to be
recorded in general trading will be:
(a) Rs.12,000 (b) Rs.17,000 (c) Rs. (3,000) (d) None
57. In the books of consignor, the profit on consignment will be transferred to:
(a) General Trading A/c (b) General Profit and Loss A/c
(c) Drawings A/c (d) None of the above
58. P of Faridabad sent out goods costing Rs. 45,000 to Y of Delhi at cost + 331/3 %. 1/10th of goods were lost in transit.
2/3rd of the goods are sold at 20% above IP. The amount of sale value will be:
(a) Rs.54,000 (b) Rs.43,200 (c) Rs.60,000 (d)Rs.36,000
59. M of Kolkata sent out goods costing Rs. 45,000 to N of Mumbai at cost + 331/3 %. 1/10th of goods were lost in
transit. 2/3rd of the goods received are sold at 20% above IP. ½ of the sales are on credit. The amount of credit
sales will be:
(a) Rs.21,600 (b) Rs.18,000 (c) Rs.21,000 (d)Rs.22,500
60. A of Ahmedabad sent out certain goods so as to show a profit of 20% on IP. 1/10 th of the goods were lost in transit.
The cost price of goods lost is Rs.20,000. The invoice value of goods sent out is:
(a) Rs.250,000 (b) Rs.2,00,000 (c) Rs.225,000 (d) Rs.2,40,000
61. Ram of Delhi sends out goods costing Rs.2,00,000 to Krishna of Brindaban. Consignor's expenses Rs.5000.
Consignee's expenses in relation to sales Rs 2000. 4/5th of the goods were sold at 20% above cost. The profit on
consignment will be:
(a) Rs.26,000 (b) Rs.32,000 (c) Rs.26,200 (d) Rs.(6,000)

62. Over-ridding commission is a commission payable to consignee by consignor for:
(a) For protecting himself from bad debt
(b) For making sales above specific price
(c) As good friend
(d) As loyalty payment

63. A of Kolkata sends out 500 boxes to B of Delhi costing Rs 200 each. Consignor's expenses Rs 5000. 1/5 th of the boxes
were still in transit. 3/4th of the goods received by consignee were sold. The amount of goods still in transit will
be:
(a) Rs.20,000 (b) Rs.21,000 (c) Rs.21,200 (d) Rs. None
64. Consignment account is
(a) Real account (b) Personal account
(c) Nominal account (d) None of the above
65. In the books of consignor, the loss on consignment business will be charged to:
(a) Consignee A/c (b) General Trading A/c
(c) General P/L A/c (d) Bank A/c
66. Dravid of Delhi sends out goods to Sourav of Kolkata, goods costing Rs 2,00,000 at cost +25%, with the instruction
to sell it at cost + 50%. If 4/5th of the goods are sold at stipulated selling price and commission allowable 2% on
sales. What will be the profit on consignment in the books of consignor?
(a) Rs.86,200 (b) Rs.70,000 (c) Rs. 75,200 (d) Rs. 76,800
67. X of Kolkata sends out goods costing Rs 3,00,000 to Y of Delhi. Goods are to be sold at cost
+ 331/3 %. The consignor asked consignee to pay an advance for an amount equivalent to
60% of sales value. The amount of advance will be:
(a) Rs.2,40,000 (b) Rs.2,00,000 (c) Rs.3,00,000 (d) None
68. If consignor draws a bill on consignee and discounted it with the banker. The discounting charges, if treated as
financing charges, will be debited in:
(a) General P/L (b) Consignment A/c (c) Consignee (d)Debtors
69. X of Kolkata sends out goods costing Rs 3,00,000 to Y of Delhi. Commission agreement -2% on sales + 3% on sales as
del-credere commission. The entire goods are sold by consignee for Rs 4 lacs. However, consignee is able to recover
Rs 3,95,000 from the debtors. The amount of profit to be transferred to P/L as net commission by consignee will
be:
(a) Rs.15,000 (b)Rs.22,000 (c) Rs.21,000 (d)Rs.20,000
70. When goods sent on consignment are sold by the consignee, the account to be debited in the book of
consignor -
(a) Cash account (b) Consignee's personal account
(c) Consignment account {d) Purchases A/c
71. The abnormal loss on consignment is credited to
(a) Consignment account (b) Consignee's personal account

(c) Profit and loss account (d) Abnormal Loss A/c
72. Loss of stock is said to be normal when -
(a) It is because of bad packing (b) It is unavoidable and natural
(c) The stock is destroyed in fire (d) It is loss by theft
ANSWERS:
2.B, 3.A, 4.A, 5.A, 6.B, 7.A, 8.B, 9.B, 10.A, 11.A, 12.A, 13.B, 14.D, 15.A, 16.D, 17.D, 18.A,
19.B, 20.B, 21.A, 22.A, 23.B, 24.B, 25.A, 26.A, 27.C, 28.A, 29.C, 30.A, 31.B, 32.B, 33.B, 34.A,
35.A, 36.A, 37.B, 38.A, 39.B, 40.B, 41.A, 42.B, 43.B, 44.A, 45.D, 46.A, 47.B, 48.A, 49.A, 50.A,
51.B, 52.A, 53.B, 54.A, 55.C, 56.A, 57.B, 58.B, 59.A, 60.A, 61.A, 62.B, 63.B, 64.C, 65.C, 66.C,
67.A, 68.A, 69.A, 70.B, 71.A, 72.B

CHAPTER 4. ACCOUNTING FOR DEPRECIATION

MULTIPLE CHOICE QUESTIONS – PRACTICE SESSION 1
1. Depreciation refers to the process of ________________-
(a) Asset valuation
(b) Allocation of cost of the assets over the period of its life
(c) Verification of assets
(d) Increasing or decreasing the value of asset
2. In case the depreciable assets are revalued, the provision for depreciation is based on
(a) Market value of the assets
(b) Historical cost of assets
(c) Depreciated value of the assets
(d) The revalued amount over the estimate of the remaining useful life of such asset
3. Which of the following is the internal causes for depreciation?

(a) Wear and Tear
(b) Depletion or Exhaustion
(c) Both a & b
4. Which are the methods of depreciation prescribed by the income tax act __
(a) Straight line and annuity method
(b) Sinking fund and double declining method
(c)Equal installment and written down value method
(d) Production hour and sum of year’s digit method
5. Depreciation is not provided for which of the following asset?

(a) Goodwill (b) Land
(c) Inventory of goods (d) Both b & c
6. Obsolescence means decline in the value due to

(a) Physical wear and tear
(b) Efflux of time
(c) Fall in market price
(d) Innovations and inventions
7. The depreciation account is closed at the end of the year by transfer to the
(a) General reserve a/c (b) Profit and loss a/c
(c) Provision for depreciation a/c (d) Fixed asset a/c
8. Which of the following is an external cause for depreciation?

(a) Obsolescence (b) Time element
(c) Abnormal occurrences (d) All of the above
9. Accumulated depreciation is an example of

(a) A liability (b) An expense
(c) An income (d) An unrecorded revenue
NOTE: as per study material of ICMAI, it is a liability. But it is treated as reserve. In case of conflict, we should follow, ICMAI
study material.
10. Purchase price of machine 8,90,000, freight and cartage 7000, installation charges 30,000,
Insurance charges 20,000, residual value is 40,000, estimated useful life 5 years. Calculate
the amount of annual depreciation under straight line method?
(a) 177400
(b) 181400
(c) 197400

(d) 177900
11. Depreciation of a ten-year lease is best done on the method

(a) WDV (b) SLM
(c) Annuity method (d) Both a & b
12. Original cost is 1,50,000 residual value is 10.000, depreciation for 3rd year @ 10% p.a. under
WDV method___
(a) 14,000 (b) 12,150
(c) 11,340 (d) 12,240
13. For charging depreciation, on which of the following assets, the depletion method is adopted?
(a) Plant & Machinery
(b) Land & Building
(c) Goodwill
(d) Wasting assets like mines and quarries
14. The value of an asset after deducting depreciation from the historical cost is known as
(a) Fair value (b) Market value
(c) Net realizable value (d) Book value
15. If the original cost of the machine = 1,00,000, life = 5 years residual value = 2,000. If the depreciation for 4th year as per SLM
is 19,600, then the rate of depreciation p.a. is
(a) 10% (b) 15%
(c) 20% (Approx.) (d) 5%
16. Cost of an asset = Rs 1,00,000 Rate of Depreciation = 10% under WDV method Value of the asses
at the end of 2nd year will be ` ________
(a) 90,000 (b) 81,000
(c) 74,000 (d) 75,000
17. A plant was purchased on 01-04-2015 for 7,00,000. The useful life was estimated to be 5 years and
scrap value as 1,00,000. Calculate the rate of depreciation under Straight line method.
(a) 17.14%
(b) 20%
(c) 15%
(d) 17.5%
18. Which of the following statements is/are false?

I. The terms ‘depreciation’, ‘depletion’ and ‘amortization’ convey the same meaning.
II. Provision for depreciation A/c is debited when provision is created.
III. The purpose of depreciation is to distribute the cost of an asset over its useful life systematically.
(a) Only I) above
(b) Only II) above
(c) Only III) above
(d) All I) II) above
19. A machine was purchased on 01-01-2012 for 3,00,000. Depreciation is charged at 15% p.a. under
SLM method. The machine was sold on 01-07-2015 for 1,60,000. Calculate the profit.
(a) 2,400
(b) 17,500
(c) 1,500
(d) 3,000
20. Calculate deprecation for the 4th year under sum of years digits method. Cost of the asset 1,00,000
Life time 5 years Salvage value 10%.
(a) 6,000
(b) 18,000
(c) 24,000
(d) 12,000
Answer:- 1.(b) 2.(d) 3.(c) 4.(c) 5.(d) 6.(d) 7.(b) 8.(a) 9.(a) 10.(a)
11.(b) 12.(b) 13.(d) 14.(d) 15.(c) 16.(b) 17.(a) 18.(d) 19.(b) 20.(d)

MULTIPLE CHOICE QUESTIONS - PRACTICE SESSION 2:

Pick up the correct answer from the given choices (only one correct answer)
1 Amit Ltd. purchased a machine on 01.01.2012 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value
after 5 years Rs 5,000. On 01.07.2012, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation
is provided @ 10% p.a. under written down value method. Depreciation for the 4 th year = …
(a.) 25,000 (b). 13,000 (c). 10,530 (d). 9,477
2. Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of
year’s digits method will be
(a) Rs.6,000 (b) Rs. 12,000 (c) Rs. 18,000 (d) Rs. 36,000
3. Obsolescence of a depreciable asset may be caused by
I. Technological changes.
II. Improvement in production method.
III. Change in market demand for the product or service output.
IV. Legal or other restrictions.
(a) Only (I) above (b) Both (I) and (II) above
(c) All (I), (II), (III) and (IV) above (d) Only (IV) above
4. Amit Ltd. purchased a machine on 01.01.2013 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual
value after 5 years Rs 5,000. On 01.07.2013, expenses for repairs were incurred to the extent of Rs 2,000.
Depreciation is provided under straight line method.
Depreciation rate = 10%. Annual Depreciation =
(a). 13,000 (b). 17,000 (c). 21,000 (d). 25,000
5. Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the fourth year under sum of
year’s digits method will be
(a) Rs.6,000 (c) Rs. 12,000 (c) Rs. 18,000 (d) Rs. 24,000
6. Amit Ltd. purchased a machine on 01.01.2013 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual
value after 5 years Rs 5,000. On 01.07.2013, expenses for repairs were incurred to the extent of Rs 2,000.
Depreciation is provided under straight line method. Annual Depreciation =
(a). 13,000 (b). 17,000 (c.) 21,000 (d.) 25,000
7. Which of the following statements is/are false?

I. The term 'depreciation', 'depletion’ and 'amortization' convey the same meaning.
II. Provision for depreciation a / c is debited when provision for depreciation a / c is created.
III. The main purpose of charging the profit and loss a/ c with the amount of depreciation is to spread the cost of an asset
over its useful life for the purpose of income determination.
(a) Only (I) above (b) Only (II) above
(c) Only (III) above (d) All (I) (II) above
8. Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ Units of Production Method, if
units produced in 2nd year was 5,000 and total estimated production 50,000.
(a). 10,800 (b). 11,340 (c). 12,600 (d). 12,000
9. The number of production or similar units expected to be obtained from the use of an asset by an enterprise is
called as
(a) Unit life (b) Useful life
(c) Production life (d) Expected life
10. Which of the following is not true with regard to fixed assets?
(a) They are acquired for using them in the conduct of business operations
(b) They are not meant for resale to earn profit
(c) They can easily be converted into cash
(d) Depreciation at specified rates is to be charged on most of the fixed asset
11. Original cost Rs 1,26,000. Salvage value 6,000. Useful Life 6 years. Annual depreciation under SLM =
(a) 21,000 (b) 20,000 (c) 15,000 (d) 14,000
12. Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ 10% p.a. under WDV method =
a. 10,800 b. 11,340 c. 15,000 d, 14,000
13. Which of the following expenses is not included in the acquisition cost of a plant and equipment?
(a) Cost of site preparation
(b) Delivery and handling charges
(c) Installation costs
(d) Financing costs incurred subsequent to the period after plant and equipment is put to use.

14. For charging depreciation, on which of the following assets, the depletion method is adopted?
(a) Plant & machinery (b) Land & building
(c) Goodwill (d) Wasting assets like mines and quarries
15. If a concern proposes to discontinue its business from March 2012 and decides to dispose off all its assets within a
period of 4 months, the Balance Sheet as on March 31, 2012 should indicate the assets at their
(a) Historical cost (b) Net realizable value
(c) Cost less depredation (d) Cost price or market value, whichever is lower
16. In the case of downward revaluation of an asset which is for the first time revalued, the account to be debited is
(a) Fixed Asset (b) Revaluation Reserve
(c) Profit & Loss account (d) General Reserve
17. In which of the following methods, is the cost of the asset written off in equal proportion, during its useful
economic life?
(a) Straight line method (b) Written down value method
(c) Units-of-production method (d) Sum-of-the-years'-digits method
18. The portion of the acquisition cost of the asset, yet to be allocated is known as
(a) Written down value (b) Accumulated value
(c) Realisable value (d) Salvage value
19. Original Cost = Rs 1,00,000. Life = 5 years. Expected salvage value = Rs 2,000.
(i) Depreciation for 3rd year as per straight line method is
(a). Rs 12,800 (b). Rs 19,600 (c). Rs 20,000 (d). Rs 20,400
(ii). rate of depreciation p.a. =

(a). 20.0% (b). 19.8% (c). 19.6% (d). 19.4%
20. In the books of D Ltd. the machinery account shows a debit balance of Rs.60,000 as on
April 1,2003.The machinery was sold on September 30,2004 for Rs.30,000. The company
charges depreciation @20% p.a. on diminishing balance method.
(i) Depreciation for 2003-04 =

(a). 6,000 (b). 9,000 (c). 4,800 (d). 12,000
(ii) Depreciation for 2004-05 =
(a). 6,000 (b). 9,000 (c). 4,800 (d). 12,000
(iii) Profit / Loss on sale -
(a). 13,200 Profit ( b). 13,200 loss (c). 6,800 profit (d). 6,800 loss
21. Consider the following data pertaining to M/s. E Ltd. who constructed a cinema house:
Particulars Rs.
Cost of second hand furniture 90,000
Cost of repainting the furniture 10,000
Wages paid to employees for fixing the furniture 2,000
Fire insurance premium 1,000
The amount debited to furniture account is
(a) Rs.90,000 (b) Rs.91,000 (c) Rs.1,00,000 (d) Rs.1,02,000
22. H Ltd. purchased a machinery on April 01, 2000 for Rs.3,00,000. It is estimated that the machinery will have a
useful life of 5 years after which it will have no salvage value. If the company follows sum-of-the-years'-digits
method of depreciation, the amount of depreciation charged during the year 2004-05 was
(a) Rs.1,00,000 (b) Rs.80,000 (c) Rs.60,000 (d) Rs.20,000.
23. Akhil Ltd. imported a machine on 01.07.2002 for Rs 1,28,000, paid customs duty and freight Rs 64,000 and incurred
erection charges Rs 48,000. Another local machinery costing Rs 80,000 was purchased on 01.01.2003. On
01.07.2004, a portion of the imported machinery { value one-third ) got out of order and was sold for Rs 27,840.
Another machinery was purchased to replace the same for Rs 40,000. Depreciation is to be calculated at 20% p.a.
by WDV Method
(i) Profit / Loss on sale =

(a). 20,160 (Profit) ( b). 19,600 (Profit) (c). 23840 (Loss) ( d). 20,160 (Loss)
(ii) Closing balance of Machinery on 31.3.05=

(a). 1,32,000 (b). 1,69,680 (c). 1,96,000 (d). 2,28,000
24. Glass, Cutlery etc. Balance on 01.01.2004 is Rs 28,000. Glass, Cutlery, etc. purchased during the year Rs 16,000.
Depreciation is to be charged on the above assets as follows - l/5th of their values is to be written off in the year of

purchase and 2/5th in each of the next 2 years. Of the stock of Glass, Cutlery, etc. as on 01.01.2004, 1/2 was one
year old and 1/2 was 2 years old. Purchases are made on 1st January.
(i) Depreciation for the year =
(a). Rs 7,000 ( b). Rs 17,500 (c.) Rs 20,200 (d). Rs 24,200
(ii) Closing Balance in Glass, Cutlery A/c =
(a). Rs 18,000 (b). Rs 18,500 (c). Rs 19,800 (d). Rs 20,400
25. Which of the following is correct? Depreciable assets are those assets which -
a. Are expected to be used for more than 1 accounting period
b. Have unlimited useful life
c. for the purpose of re-sale
d. None of the above
26. Which of the following is of a capital nature?

(a) Purchase of a truck (b) Cost of repair
(c) Wages (d) Road tax paid
27. In which of the following methods, the cost of the asset is spread over in equal proportion during its useful
economic life?
(a) Straight line method (b) Written down value method
(c) Units-of-production method (d) All of the above
28. Which of the following statements is false?

(a) Depreciation provision is of the discretion of the management
(b) Depreciation is a charge against profit
(c) Depreciation is provided only when there is profit
(d) Depreciation is charged on depreciable value of assets.
29. Which of the following assets is usefully assumed to be not depreciating?

(a) Land (b) Building (c) Plant (d) furniture
ANSWERS
1.d 2.d 3.c 4.a 5.c 6.d 7.d 8.d 9.b 10.c 11.b 12.b 13.d 14.d
15.b,16.c,17.a 18.a 19.(i)-b, (ii)-c , 20.(i)d, (ii)c, (iii)b 21.d 22.d 23.(i)-c, (ii)-b, 24.(i)-d, (ii)-c 25.a,
26.a 27.a 28.c 29.a

CHAPTER 5. RECTIFICATION OF ERRORS

1. Whenever errors are noticed in the accounting records, they should be rectified _____
(a) At the time of preparation of trial balance
(b) Without waiting the accounting year to end
(c) After the preparation of final accounts
(d) In the next accounting year
2. A trial balance will not tally if ________

(a) Correct journal entry is posted twice
(b) Credit purchase debited to purchases and credited to cash
(c) 5000 cash paid to creditors is debited to creditors for 500 and credited to cash as 5000
3. Sales to shyam of 500 not recorded in the books would affect __

(a) Shyam’s account
(b) Sales account
(c) Sales account and shyam’s account
(d) Cash account
4. Errors of carry forward from one year to another affects __
(a) Personal account
(b) Real account
(c) Nominal account
(d) Both a and b
5. Goods worth Rs. 272 returned by Lala passed through the books as Rs. 722. The rectification entry is
(a) Lala will be debited by Rs.450
(b) Lala will be debited by Rs.272
(c) Lala will be credited by Rs.722
(d) Lala will be credited by Rs.272
6. If a receipt of Rs. 200 from rajesh (debtor) has not been recorded in the books, the profits would show
(a) An increase of Rs. 2,000
(b) A decrease of Rs. 200
(c) Neither an increase nor a decrease
7. A credit purchase of Rs. 950 from sudhir was recorded in purchases book as Rs. 590. The rectification entry is __
(a) Purchases account will be debited by Rs. 360
(b) Sudhir will be credited by Rs. 590
(c) Purchases account will be debited by Rs. 950
(d) Sudhir will be credited by Rs. 950
8. Which of these errors affect only one account
(a) Errors of casting (b) Errors of carry forward
(c) Errors of posting (d) All the three
9. If goods worth 1750 returned to supplier is wrongly entered in sales returns book as 1570, then ___.
(a) Net profit will decrease by 3140
(b) Gross profit will increase by 3320
(c) Gross profit will decrease by 3500
(d) Gross profit will decrease by 3320
10. Which of the following is one sided error
(a) Rs. 500 purchase of old equipment not recorded in the books of account at all
(b) Rs. 500 being expense on travelling expense credited to travelling expenses
(c) Both
(d) None
11. Which of the following errors affects the agreement of a trial balance?
(a) Mistake in balancing an account
(b) Omitting to record a transaction entirely in the subsidiary books
(c) Recording of a wrong entry in the subsidiary books
(d) Posting an entry on the correct side but in the wrong account

12. Which of the these errors affect only one account

(a) Errors of casting
(b) Errors of carry forward
(c) Errors of posting
(d) All the three
13. Which of these errors affect two or more accounts?
(a) Errors of complete omission
(b) Errors of principle
(c) Errors of posting to wrong account
(d) All the three
14. Which of the following error is an error of principle

(a) Rs. 5,000 received from sham credited to Ram A/c.
(b) Rs. 5,000 incurred on installation of new plant debited to travelling expenses A/c/ installation expenses.
(c) Rs. 500 paid for wages debited to salary A/c
(d) Rs. 500 being purchase of raw material debited to purchase A/c by50
15. Rs. 200 paid as wages for erecting a machine should be debited to
(a) Repair account
(b) Machine account
(c) Capital account
(d) Furniture account
16. Debiting overhauling expenses after purchase of a second hand car to Repairs A/c is an error of __.?
(a) Commission
(b) Omission
(c) Principle
(d) Not an error
17. In the course of locating the reason for the difference in the trial balance, it has been found that an amount received from a
customer has been debited to his account. The error may be classified as _________________ .
(a) Errors of commission
(b) Errors of omission
(c) Errors of principle
(d) Both errors of commission and omission
18. Errors can be detected ____:
(a) Before the preparation of Trial Balance
(b) After the preparation of Trial Balance, but before the preparation of final accounts
(c) After the preparation of Final accounts (next accounting year)
19. Rent received from a tenant Rs. 10,000 was correctly entered in the cash book but posted to the debit of Rent a/c. The effect
of this error on the trial balance will be
(a) Debit total will be Rs. 20,000 more than the credit total
(b) Debit total will be Rs. 10,000 more than the credit total
(c) Subject to other entries being correct, the total will agree
(d) None of these
20. The suspense A/c facilities the preparation of _____even if the ____has not been balanced
(a) Trial Balance and Financial Statements
(b) Ledger and Trial Balance
(c) Trial Balance and Ledger
(d) Financial Statements and Trial Balance
Answer:- 1.(b) 2.(c) 3.(c) 4.(d) 5.(a) 6.(c) 7.(a) 8.(d) 9.(d) 10.(b)
11.(a) 12.(d) 13.(d) 14.(b) 15.(b) 16.(c) 17.(a) 18.(d) 19.(a) 20.(d)

CHAPTER 6. FINANCIAL STATEMENT OF PROFIT MAKING ORGANISATIONS

1. The purpose of preparing final accounts is to ascertain ____.
(a) Profit or loss
(b) Capital
(c) The value of assets
(d) Profit or loss and financial position
2. If the manager is entitled to a commission of 5% on profits before deduction this commission, he will get a commission of ___
on a profit of 8400 before commission..
(a) 400
(b) 442.11
(c) 420
(d) None of these
3. The balance of the petty cash is
(a)An expense
(b) An income
(c) An asset
(d) A liability
4. Fixed assets are
(a) Kept in the business for use over a long time for earning income
(b) Meant for resale
(c) Meant for conversion into cash as quickly as possible
5. The manufacturing account is prepared
(a) To ascertain the profit or loss on the goods produced
(b) To ascertain the cost of the manufactured goods
(c) To show the sale proceeds from the goods produced during the year
(d) Both (b) and (c)
6. A company wishes to earn a 20% profit margin on selling price. Which of the following is the
profit mark up on cost, which will achieve the required profit margin?
(a)33%
(b) 25%
(c) 20%
7. At the time of preparation of financial accounts, bad debts recovered account will be transferred to
(a) Debtors A/c
(b) Profit & Loss A/c
(c) Profit & loss Adjustment A/c
(d) Profit & loss Appropriation A/c
8. Depreciation appearing in the Trial Balance should be
(a) Debited to P & L A/c
(b) Shown as liability in balance sheet
(c) Reduced from related asset in balance sheet
(d) Both (a) and (c) above
9. Gross profit is equal to
(a) Sales – Cost of goods sold
(b) Sales – Closing stock + purchase
(c) Opening stock + Purchases – Closing stock
10. The profit and loss Account shows the
(a) Financial results of the concern for a period
(b) Financial position of the concern on particular date
(c) Financial results of the concern on a particular date
(d) Cost of goods sold during the period
11. Which of the following is not a financial statement?

(a) Profit and loss account
(b) Balance sheet

(c) cash flow statement

(d) Trial balance
12. Based on which of the following concepts, share capital is shown on the liabilities side of a balance sheet?
(a) Business entity concept
(b) Money measurement concept
(c) Going concern concept
(d) Matching concept
13. Closing stock appearing in the trial balance is shown in –
(a) Trading A/c and Balance sheet (b) Profit and Loss a/c
(c) Balance Sheet only (d) Trading A/c only
14. Consider the following data and identify the amount which will be deducted from sundry debtors in Balance sheet: Bad
debts (from trial balance)= 1,600, Provision for doubtful debts (old) 1200
Current year’s provision (new) 800.
(a) 400 (b) 800 (c) 2,000 (d) 2,400
15. Inventory is ______________________
(a) Included in the category of fixed assets (b) An investment
(c) A part of current assets (d) An intangible fixed asset.
16. For goods distributed as free samples in the market, the journal entry will be _________
(a) Drawing Dr. To Purchase A/c
(b) Sales A/c Dr. To Cash A/c
(c) Advertisement A/c Dr. To Purchase A/c
(d) No entry
17. At the time of finalization of Financial statements, Bad debts written off are to be transferred to
(a) Provisions
(b) Reserves
(c) Capital A/c
(d) Profit and Loss A/c
18. General Manager gets 6% commission on net profit after charging such commission. Gross profit Rs. 1,20,000 and other
indirect expenses other than manager's commission are Rs. 14,000. Commission amount will be:
(a) Rs. 6,000
(b) Rs. 8000
(c) Rs. 7,500
19. Discount received Rs.2,000 Provision for discount on creditors(old) = Rs. 3200. It is desired to make a provision of Rs.2200
on creditors. Find out the amount to be transferred to Profit & Loss A/c:
a) Rs. 1000 b) Rs. 7000 c) Rs. 2,000 d) Rs. 1600
20. Amount recovered from debtor, which was earlier written off as bad debt is debited to Cash A/c and credited to _________
A/c:
(a) Bad Debts
(b) Bad debts recovered
(c) Debtors
(d) Sales
Answer:-1.(d) 2.(c) 3.(c) 4.(a) 5.(b) 6.(b) 7.(b) 8.(a) 9.(a) 10.(a)
11.(d) 12.(a) 13.(c) 14.(b) 15.(c) 16.(c) 17.(d) 18.(a) 19.(a) 20.(b)

MCQ BASED QUESTION- PRACTICE SESSION 2
1. (i) The balance of the petty cash is
(a) an expense, (b) income, (c) an asset. (d) liability
(ii) Fixed assets are
(a) kept in the business for use over a long time for earning income
(b) meant for resale
(c) meant for conversion into cash as quickly as possible
(iii) Goodwill is
(a) a current asset (b) an intangible fixed asset
(c) a tangible fixed asset (d) an investment,
(iv) Stock is
(a) included in the category of fixed assets

(b) an investment.
(c) a part of current assets
(d) an intangible fixed asset
(v) The manufacturing account is prepared:
(a) to ascertain the profit or loss on the goods produced
(b) to ascertain the cost of the manufactured goods
(c) to show the sale proceeds from the goods produced during the year
(d) both (b) and (c).
2. (i) A new firm commenced business on 1st January, 2006 and purchased goods costing Rs. 90,000 during the year.
A sum of Rs. 6,000 was spent on freight inwards. At the end of the year the cost of goods still unsold was Rs.
12,000. Sales during the year Rs. 1,20,000. What is the gross profit earned by the firm?
(a) Rs. 36,000 (b) Rs. 30,000 (c) Rs. 42,000 (d) Rs. 38,000
(ii) From the following figures ascertain the gross profit:
Rs.
Opening Stock (1.1.2012) 25,000
Goods Purchased during 2012 1,30,000
Freight and packing on above 5,000
Closing Stock (31.12.2012) 15,000
Sales 1,90,000
Selling expenses on sales 9,000
(a) Rs.36,000 (b) Rs. 45,000 (c) Rs. 50,000 (d) Rs.59,000
(iii) A prepayment of insurance premium will appear in the Balance Sheet and in the Insurance Account respectively
as:
(a) a liability and a debit balance. (b) an asset and a debit balance.
(c) an asset and a credit balance. (d) None of the above
(iv) Under-statement of closing work in progress in the period will
(a) Understate cost of goods manufactured in that period.

(b) Overstate current assets.
(c) Overstate gross profit from sales in that period.

(d) Understate net income in that period.

[Ans : 2 : (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
3. (i) If sales revenues are Rs. 4,00,000; cost of goods sold is Rs. 3,10,000 and operating expenses are Rs. 60,000, the
gross profit is
(a) Rs. 30,000. (b) Rs. 90,000. (c) Rs. 3,40,000. (d) Rs. 60,000
(ii) Sales are equal to
(a) Cost of goods sold - Gross profit. (b) Cost of goods sold + Gross profit.
(c) Gross profit - Cost of goods sold. (d) Cost of goods sold + Net profit.
(iii) A Company wishes to earn a 20% profit margin on selling price. Which of the following is the profit mark up on
cost, which will achieve the required profit margin?
(a) 33%. (b) 25%. (c) 20%. (d) None of the above.
(iv) If sales are Rs. 2,000 and the rate of gross profit on cost of goods sold is 25%, then the cost of goods sold will be
(a) Rs. 2,000. (b) Rs. 1,500. (c) Rs. 1,600. (d) None of the above.
(v) Sales for the year ended 31st March, 2005 amounted to Rs. 10,00,000. Sales included goods sold to Mr. A for Rs.
50,000 at a profit of 20% on cost. Such goods are still lying in the godown at the buyer's risk. Therefore, such
goods should be treated as part of
(a) Sales. (b) Closing stock, (c) Goods in transit, (d) Sales return.
4. (i) The capital of a sole trader would change as a result of:
(a) a creditor being paid his account by cheque.

(b) raw materials being purchased on credit.
(c) fixed assets being purchased on credit.
(d) wages being paid in cash.
(ii) Rent paid on 1 October, 2020 for the year to 30 September, 2021 was Rs. 1,200 and rent paid on 1 October,
2021 for the year to 30 September, 2022 was Rs. 1,600. Rent payable, as shown in the profit and loss account
for the year ended 31 December 2021, would be:
(a) Rs. 1,200. (b) Rs. 1,600. (c) Rs. 1,300. (d) Rs. 1,500.
(iii) A decrease in the provision for doubtful debts would result in:
(a) an increase in liabilities. (b) a decrease in working capital.
(c) a decrease in net profit. (d) an increase in net profit.
5. Rs. Rs.
Opening Stock 20,000 Carriage on sales 3,000
Closing Stock 18,000 Rent of Office 5,000
Purchases 85,800 Sales 1,40,700
Carriage on purchases 2,300
(i) Gross profit will be
(a) Rs. 50,000 (b) Rs. 47,600 (c) Rs. 42,600 (d) Rs. 50,600
(ii) Net profit will be
(a) Rs. 42,600 (b)Rs. 50,600 (c) Rs. 45,600 (d) Rs. 47,600
6. The Zed Company, a whole seller estimates the following sales for the indicated months:
June July August
2021 2021 2021
Rs. Rs. Rs.

Opening stock 4,08,000 4,34,400 4,60,800
Credit Sales 15,00,000 16,00,000 17,00,000
Cash Sales 2,00,000 2,10,000 2,20,000
Total Sales 17,00,000 18,10,000 19,20,000
Selling price is 125% of the purchase price.
(i) The cost of goods sold for the month of June, 2021 is:
(a) Rs. 15,20,000 (b) Rs. 14,02,500 (c) Rs. 12,75,000 (d) Rs. 13,60,000
(ii) Stock purchased in July, 2021 is :
(a) Rs. 16,05,000 (b) Rs. 14,74,400 (c) Rs. 14,40,000 (d) Rs. 13,82,500
7. Considering the following information, answer the question given below:
1st January 31st December
Stock of raw materials 17,400 18,100
Work-in-progress 11,200 11,400
Stock of finished goods 41,500 40,700
During the year manufacturing overhead expenses amounted to Rs. 61,100, manufacturing wages to Rs. 40,400
and purchase of raw materials to Rs. 91,900. There were no other direct expenses.
(i) The cost of raw materials consumed, issued and used were:
(a) Rs. 1,09,300 (b) Rs. 91,200 (c) Rs. 91,900 (d) Rs. 92,600.
(ii) The manufacturing cost of finished goods produced were:
(a) Rs. 1,31,600 (b) Rs. 1,93,300 (c) Rs. 1,91,900 (d) Rs. 1,92,500.
(iii) The manufacturing cost of finished goods sold was:
(a) Rs. 1,91,700 (b) Rs. 1,92,500 (c) Rs. 1,94,000 (d) Rs. 1,93,300.
8. Match the following items from column A with column B
S. No. Column A Column B
1. Capital is the difference between (a) cost of good sold from sales
2. Gross profit is ascertained by deducting (b) cost of goods produced.
3. Wages paid for erecting machines are (c) Assets and liabilities
4. The manufacturing account is prepared: (d) debited to machinery account
ANSWERS
1. (i)c, (ii)a, (iii)b, (iv)c, (v)b 2. (i)a, (ii)b, (iii)c, (iv)d 3. (i)b, (ii)b, (iii)b, (iv)c, (v)a
4. (i)d, (ii)c, (iii)d 5.(i)-d, (ii)-a 6.(i)-d, (ii)-b 7.(i)-b, (ii)-d (iii)-d 8. 1-c; 2-a; 3-d; 4-b

CHAPTER 7. FINAL ACCOUNT OF NOT FOR PROFIT ORGANISATIONS

1. Endowment fund receipt is treated as –
(a) Capital Receipt
(b) Revenue Receipt
(c) Loss
(d) Expenses
2. Which one of the following is not prepared by non-profit organizations
(a) Profit and loss account
(b) Income & Expenditure account
(c) Receipts and payments account
(d) Balance sheet
3. Legacy are generally –
(a) Capitalized
(b) Treated Loss
(c) Revenue Expenses
(d) Deferred Revenue expenses
4. Any donation received for a specific purpose is a
(a) Assets
(b) Revenue receipts
(c) Capital receipts
5. The receipts and payments account of a non-profit organization is a
(a) Nominal Account
(b) Real Account
(c) Income Statement Account
(d) Financial Account
6. The capital of a non-profit organization is generally known as
(a) Equity
(b) Accumulated Fund/Capital Fund
(c) Finance Reserve
(d) Cash Fund
7. If Rs 1,500 was outstanding at the beginning of the year towards subscription and 10,000 is received
during the year, with 2,500 still outstanding at the end of the year. The amount to be taken to receipts
and payments account is:
(a) 11,000
(b) 8,500
(c) 10,000
8. Any revenue expenses for which a separate fund is available will be
(a) Debited to the separate fund
(b) Debited to income and expenditure account
(c) Capitalized and shown in the balance sheet
9. Sale of old materials must be shown on the credit side of
(a) Cash Book
(b) Income and expenditure account
(c) Balance Sheet
10. The information for the preparation of receipts and payments account is taken from
(a) Cash Book
(c) Cash Book and Balance Sheet
(d) None
11. Any donation received for a specific purpose is a
(a) Capital Expenditure
(b) Revenue receipt
(c) Liability

12. The receipts and payments account shows the following details: Subscription Arrears Rs.500 Current
Rs.10,500 Advance Rs. 800 There are 1,200 members each paying an annual subscription of Rs10.
The amount to be credited to income and expenditure account will be
(a) Rs. 11,800 (b) Rs. 11,300
(c) Rs. 12,000 (d) None of the above
13. Any income arising from special fund will be credited to
(a) Special fund in the balance sheet
(c) General fund in the Balance Sheet
14. Income and expenditure account shows subscriptions at Rs.10,000. Subscriptions accrued in the
beginning of the year and at the end of the year were Rs 1,000 and Rs. 1,500 respectively. The figure
of subscriptions received appearing in receipts and payments account will be
(a) Rs. 9,500
(b) Rs. 11,000
(c) Rs.10,000
15. Which of the following item(s) is (are) shown in the income and expenditure account
(a) Only items of capital nature
(b) Only items of revenue nature which are received during the period of accounts
(c) Only items of revenue nature pertaining to the period of accounts
(d) Both the items of capital and revenue nature
16. Subscription received in advance is a/an
(a) Asset
(b) Liability
(c) Income
(d) Expenditure
17. Accrued subscription is a/an
(a) Asset
(b) Liability
(c) Income
(d) Expenditure
18. Income and Expenditure account is prepared under
(a) Accrual basis (b) Cash basis
(c) Either of the two (d) Neither of the two
19. Receipt and Payment Account is prepared under
(a) Accrual basis (b) Cash basis
(c) Either of the two (d) Neither of the two
20. Donation not received for any specific purpose is transferred to
(a) Reserve fund
(b) Capital fund
(c) Income and expenditure account
21. If Rs 3,000 was outstanding at the beginning of the year towards subscription and 20,000 is received during the year, with
5,000 still outstanding at the end of the year. The amount to be taken to Income and expenditure account is:
a. 22,000 b. 20,000 c. 25,000 d. 23,000
Answer:- 1.(a) 2.(a) 3.(a) 4.(c) 5.(b) 6.(b) 7.(c) 8.(a) 9.(b) 10.(a) 11.(c) 12.(c) 13.(a)
14.(a) 15.(c) 16.(b) 17.(a) 18.(a) 19.(b) 20.(c), 21.(a)

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Cma Inter GR 1 Financial Accounting Ebook June 2021 Onwards

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INDEX – CMA INTER GROUP 1- FINANCIAL ACCOUNTING

NOTE: FOLLOW THE SEQUENCE GIVEN BELOW WHILE STUDYING

CHAPTER NAME PAGE NO.

CHAPTER 0. ACCOUNTING FOR GST 02--04

CHAPTER 1. JOINT VENTURE ACCOUNTS 05- 10

CHAPTER 2. BILLS OF EXCHANGE 11-17

CHAPTER 3. CONSIGNMENT ACCOUNTING 18- 31

CHAPTER 4. ACCOUNTING FOR DEPRECIATION 32- 42

CHAPTER 5. RECTIFICATION OF ERRORS 43-50

CHAPTER 6. FINANCIAL STATEMENTS OF PROFIT MAKING ORGANISATIONS 51- 72

CHAPTER 7. FINANCIAL STATEMENTS OF NON PROFIT ORGANISATIONS 73- 97

CHAPTER 8. FINANCIAL STATEMENTS FROM INCOMPLETE RECORDS 98-116

CHAPTER 9. INSURANCE CLAIM 117-130

CHAPTER 10. PARTNERSHIP (ADMISSION, RETIREMENT AND DEATH) 131-146

CHAPTER 12. BRANCH ACCOUNTS 185-- 220

CHAPTER 13. DEPARTMENTAL ACCOUNTS 221--229

CHAPTER 14. ROYALTY ACCOUNTS 230-- 232

CHAPTER 15. SELF BALANCING LEDGER 233-- 246

CHAPTER 16. HIRE PURCHASE AND INSTALLMENT SYSTEM 247-- 250

CHAPTER 17. ACCOUNTING STANDARDS 251-- 261

CHAPTER 18. FUNDAMENTAL OF ACCOUNTING THEORY 262-- 306

CHAPTER 19. ACCOUNTING IN COMPUTERISED ENVIRONMENT 307-- 310

PRACTICE OF MCQ 311- 351

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Characteristics of Goods And Services Tax (GST)

Objective Of Goods And Services Tax (GST):-

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Classification OF GST :- GST in levied under following three categories:

ACCOUNTING OF GST PAID (INPUT GST):-

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GST paid (Input GST) is reversed in the following cases:

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CHAPTER 1. JOINT VENTURE ACCOUNT

Main features of a Joint Venture:

1. Two or more persons join together for a single venture.

(2) Accounts in the Books of each Co-venturer:

1. Memorandum Joint Venture Account

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This account is prepared in the following manner: --

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When transactions are recorded in the book of either party

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Advertisement Rs. 3,000

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Solicitors fees Rs. 3,500

MEMORANDUM JOINT VENTURE METHOD

Question:14 Solve question no 6 by memorandum joint venture method.

Question:15. Solve question no 7 by memorandum joint venture method.

Question:16. Solve question no 8 by memorandum joint venture method.

1. Memorandum joint venture account, and

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Question:20. (Memorandum Joint Venture Account)

01.02.2004 10 damaged motors @ Rs. 1,700 each

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CHAPTER 2. BILLS OF EXCHANGE

Essential features of Bill of Exchange are as follows:-