Cma Inter GR 1 Financial Accounting Marathon Part - 2

COCEDUCATION.
COM CMA INTER GR -1 MARATHON PART -2 CA/CMA Santosh Kumar
CHAPTER- 1 DEPRECIATION ACCOUNTING

Certain Useful Terms:
(i) Depreciation: Depreciation means gradual decrease in the value of an asset due to normal wear and tear, obsolescence.
Amortization – Is used for writing off Intangible assets such as goodwill, trademarks and patents . The term
amortization is also used for writing off leasehold premises.
Obsolescence – The term ‘Obsolescence’ refers to loss of usefulness arising from such factors as technological
changes, improvement in production methods, change in market demand for the product output of the asset or service
or legal or medical or other restrictions.
Characteristics of Depreciation: - The Characteristics of Depreciation are: -
(i) It is a charge against profit.
(ii) It indicates diminution in service potential.
(iii) It is an estimated loss of the value of an asset. It is not an actual loss.
(iv) It depends upon different assumptions, like effective life and residual value of an asset.
(v) It is a process of allocation and not of valuation.
(vi) It is charged on tangible fixed assets. It is not charged on any current asset.
Methods of Charging Depreciation: -

There are mainly three methods of charging depreciation as per AS 10.
I. Straight Line Method: -

II. Reducing Balance Method/ diminishing value method/ written down method.
III. Unit of production method (sum of unit’s method) – In this method depreciation is charged on the basis of expected
use or unit of production.
Other method covered in ICMAI Study material:

(i) Sum of Years’ Digit Method.
(ii) Sinking fund method
(iii) Annuity method
(iv) Insurance policy method
Change in method of charging depreciation; -
➢ 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.
Note: - According to AS-6, change in method of depreciation is applied on all existing assets with retrospective effect.
It is treated as change in accounting policies.
COCEDUCATION.COM For Enquiry No. 9999631597, 7303445575, 8448322142

COCEDUCATION.COM CMA INTER GR -1 MARATHON PART -2 CA/CMA Santosh Kumar
Important note for solving practical questions: -

1. Depreciation is charged on all depreciable asset on its depreciable value during its depreciable life.
2. All first-time expenses incurred till asset has been put in a running condition are added to the cost of the asset. For
example, commission / brokerage on purchase, Taxes on purchase, carriage/freight on transportation of such asset,
insurance in transit etc.
Important Note: Insurance of transit:- Added to the cost of asset.
Regular Insurance charges: Not added to the cost of asset.
3. Cost of asset does not include interest paid in instalments, if purchased on credit basis.
4. We start charging depreciation from the date on which asset has been put in a running condition.
Revision question 1: On 1st April, 2019, Som Ltd. purchased a machine for Rs 66,000 and spent Rs 5,000 on shipping
and forwarding charges, Rs 6,000 as import duty, Rs 1,000 for carriage and installation, Rs 1,000 for insurance in
transit, Rs 500 as brokerage and Rs 500 for an iron pad. It was estimated that the machine will have a scrap value of
Rs 5,000 at the end of its useful life which is 15 years. On1st January, 2020 repairs and renewals of Rs 3,000 were
carried out. On 1st October, 2021 this machine was sold for Rs 50,000. Calculate profit or loss on sale of machinery.
Solution: Calculation of profit or loss on sale of machinery:
Purchase price of machinery 66,000

Add: shipping and forwarding charges 5,000
Add: Import duty 6,000
Add: carriage and installation charges 1,000
Add: insurance in transit 1,000
Add: brokerage 500
Add: iron pad 500
Cost of machinery: 80,000
Less: Depreciation upto date of sale [( 80,000- 5,000) X

𝟐.𝟓
] -12,500
𝟏𝟓
Book value on the date of sale 67,500

Less: sold for 50,000
Loss on sale 17,500
Practice question 2. On 1st April 2023, COC EDUCATION Pvt ltd purchased a machine for ₹2,00,000. On 1st October
2023, a new machine was purchased for ₹1,00,000. On 1st April 2024, Company purchased another machine for
₹50,000 and on the same date first machine was sold for ₹1,10,000.
On 31st March.2025, a new machine was purchased for ₹1,50,000. On 1 st May 2025, second machine became obsolete
and sold for ₹30,000. Rate of deprecation 10% p.a. on WDV. Accounts are closed on 31st March every Year.
On 31st March 2026, company decided to change the method of charging depreciation from WDV to SLM @ 15%
P.A. Prepare machinery A/c for 4 years.

COCEDUCATION.COM CMA INTER GR-1 MARATHON PART - 2 CA/CMA Santosh Kumar
Solution: Machinery account

Date Particulars Amount (₹) Date Particulars Amount (₹)
1.4.23 To bank account (M1) 2,00,000 31.3.24 By depreciation a/c
1.10.23 To bank account (M2) 1,00,000 M1- 20,000
M2- 5,000 25,000
31.3.24 By balance C/d
M1- 1,80,000
M2- 95,000 2,75,000
3,00,000 3,00,000
1-4-24 To balance b/d 2,75,000 1-4-24 By depreciation Nil
By bank account 1,10,000
1-4-24 To bank account (M3) 50,000 By profit & loss a/c 70,000
31-3-25 By depreciation a/c
31-3-25 To bank account (M4) 1,50,000 M2- 9,500
M3- 5,000
M4- nil 14,500
31-3-25 By balance C/d
M2- 85,500
M3- 45,000
M4- 1,50,000 2,80,500
4,75,000 4,75,000
1-4-25 To balance b/d 2,80,500 1-5-25 By depreciation 713
By bank account 30,000
By profit & loss a/c 54,787
31-3-26 By depreciation a/c
M3- 4,500
M4- 15,000 19,500
By balance C/d
M3- 40,500
M4- 1,35,000 1,75,500
2,80,500 2,80,500
1-4-26 To balance b/d 1,75,500 31-3-27 By depreciation a/c
M3- 7,500
M4- 22,500 30,000
By balance C/d
M3- 33,000
M4- 1,12,500 1,45,500
1,75,500 1,75,500
Working notes 1: Computation of profit & loss on sale of M1:
Book value of M2 as on 1-4-24 1,80,000

Less: depreciation up to date of sale (NIL)
Book value of the asset on the date of sale 1,80,000
Less: sold for (1,10,000)
Loss on sale 70,000

Working notes 2: Computation of profit & loss on sale of M2:
Book value of M2 as on 1-4-25 85,500

𝟏𝟎 𝟏
Depreciation upto the date of sale ( 85,500 X X (713)
𝟏𝟎𝟎 𝟏𝟐
Book value of the asset on the date of sale 84,787

Less: sold for (30,000)
Loss on sale 54,787
Practice question 3. On 1st April 2022 a firm purchased machinery for ₹2,00,000. On 1 st October in the same
accounting year, additional machinery costing ₹1,00,000 was purchased. On 1st October 2023,
the machinery purchased on 1st April, 2022 having become obsolete, was sold for ₹90,000. On 1 st October 2024,
new machinery was purchased for ₹2,50,000 while the machinery purchased on 1stOctober 2022 was sold for
₹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,
2025.
Solution: Machinery account

1-4-22 To bank account(M1) 2,00,000 31-3-23 By balance c/d
1-10-22 To bank account (M2) 1,00,000 M1- 2,00,000
M2- 1,00,000 3,00,000
3,00,000 3,00,000
1-4-23 To balance c/d 3,00,000 1-10-23 By machine sold a/c (M1) 2,00,000
31-3-24 By balance c/d(M2) 1,00,000

3,00,000 3,00,000
1-4-24 To balance b/d 1,00,000 1-10-24 By machine sold a/c(M2) 1,00,000
1-10-24 To bank account(M3) 2,50,000 31-3-25 By balance c/d(M3) 2,50,000

Provision for depreciation account

31-3-23 By depreciation
M1 20,000
31-3-23 To balance c/d 25,000 M2 5,000 25,000
25,000 25,000
1-4-23 By balance b/d
1-10-23 To machine sold a/c (M1) 30,000 M1 20,000
M2 5,000 25,000
1-10-23 By depreciation (M1) 10,000

31-3-24 To balance c/d (M2) 15,000
45,000 45,000
1-4-24 By balance b/d (M2) 15,000

32,500
Machine sold (M1) account

1-10-23 To machine account 2,00,000 1-10-23 By prov. for dep 30,000
By bank account 90,000
By profit & loss a/c 80,000

2,00,000 2,00,000
Machine sold (M2) account

1-10-24 To machine account 1,00,000 1-10-23 By prov. for dep 20,000
By profit & loss a/c 5,000 By bank account 85,000

1,05,000 1,05,000
IMPORTANT NOTE 1: Must revise question 11 and 16 from my book.
Note 2. If rate of depreciation is not given in question, we charge depreciation on the basis of their scrap
value and their life.
Practice question 4: M/s. Hot and Cold commenced business on 01.07.2017. When they purchased a new
machinery at a cost of ₹ 8,00,000. On 01.01.2019 they purchased another machinery for ₹6,00,000 and again on
01.10.2021 machinery costing ₹15,00,000 was purchased. They adopted a method of charging depreciation
@ 20% p.a. on diminishing balance basis.
On 01.07.2021, they changed the method of providing depreciation and adopted the method of writing off the
Machinery Account at 15% p.a. under straight line method with retrospective effect from 01.07.2017, the
adjustment being made in the accounts for the year ended 30.06.2020.
The depreciation has been charged on time basis. You are required to calculate the difference in depreciation
to be adjusted in the Machinery on 01.07.2021, and show the Machinery Account for the year ended 30.06.2022.

Solution: - In the books of M/s Hot and Cold
Machinery Account
Date Particular Amount (₹) Date Particular Amount (₹)
01.07.21 To, Balance b/d 6,73,280 30.06.22 By Depreciation A/c 3,78,750
To, Profit and Loss A/c 21,720 By Balance c/d 18,16,250
(Depreciation Overcharged)
01.10.21 To, Bank A/c (Purchase) 15,00,000

21,95,000 21,95,000
Working Notes 1: Statement of Depreciation:
Date Particulars Machine -1 (₹) Machine -2 (₹) Total

depreciation (₹)
01.07.2017 Book Value 8,00,000
30.06.2018 Depreciation @ 20% 1,60,000 1,60,000
01.07.2018 W.D.V. 6,40,000
01.01.2019 Bank (Purchase) 6,00,000
30.06.2019 Depreciation @ 20% 1,28,000 60,000 1,88,000
01.07.2019 W.D.V. 5,12,000 5,40,000
30.06.2020 Depreciation @ 20% 1,02,400 1,08,000 2,10,400
01.07.2020 W.D.V. 4,09,600 4,32,000
30.06.2021 Depreciation @ 20% 81,920 86,400 1,68,320
01.07.2021 W.D.V. 3,27,680 3,45,600
6,73,280 7,26,720
2. Now depreciation under Straight Line Method: -
On ₹8,00,000 @ 15% = ₹1,20,000 × 4 years (from 01.07.2017 to 30.06.2021) ₹4,80,000

On ₹6,00,000 @ 15% = ₹90,000 × 2.5 years (from 01.01.2019 to 30.06.2021) ₹2,25,000
₹7,05,000
2. Depreciation Overcharged:
Depreciation overcharged = Reducing Balance Basis – Straight Line Basis
= ₹ (7,26,720 – 7,05,000) = ₹21,720
3. Depreciation for the year: -
On 14,00,000 @ 15% for the year ₹2,10,000

On 15,00,000 @ 15% for the 9 months ₹1,68,750
₹3,78,750

SUM OF YEAR’S DIGIT METHOD
Practice question 5:
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.
𝟓 𝐗 (𝟓+𝟏)
Solution: Sum of year’s digit = = 15
𝟐
𝟐,𝟎𝟎,𝟎𝟎𝟎−𝟓𝟎,𝟎𝟎𝟎
Depreciation for first year = x 5 = 50,000.
𝟏𝟓
Some important points for 1 mark questions/ MCQ
1. MATCH THE FOLLOWINGS:

1. Expired cost of fixed assets Depreciation
2. Depletion Wasting assets

3. Conglomerated value of all old depreciation Provision for depreciation
4. Diminishing Balance Method Rate of allocation is constant
5. Straight Line Method a fixed portion of the cost of fixed asset is allocated
6. AS-6 Retrospective effect, change in accounting policy.

7. AS-10 Prospective effect, change in accounting estimates.
2. Fill in the blanks for MCQ:

i. The gradual decline in the value of a tangible asset is termed as…………...
ii. Depreciation is a part of cost of tangible fixed asset which has …… because of its usage, lapse of time etc.
iii. Depreciation is charged on all fixed assets except………….
iv. Depreciation is an allocation of cost of fixed asset as expense over its……………….
v. Amortisation is a gradual and systematic writing-off of … … … . over its estimated useful life.
vi. ……………….is the collected value of all depreciation.
vii. Under Written Down Value method, the rate of allocation is constant but the amount allocated for every
year gradually…………..
viii. When an asset is sold because of obsolescence or inadequacy, the cost of the asset is transferred to a
temporary account called “…………………….”
answer:
i. Depreciation ii. expired iii.Freehold land iv-estimated useful life
v.intangible asset vi. Provision of depreciation vii. Decreases viii.Asset Disposal Account

3. MULTIPLE CHOICE QUESTIONS:

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. Depreciation is not provided for which of the following asset?
(a) Goodwill (b) Land
(c) Inventory of goods (d) Both b & c
3. 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
4. Purchase price of machine 8,90,000, freight and cartage 7,000, 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) 1,77,400 (b) 1,81,400 (c) 1,97,400 (d) 1,77,900

5. 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
6. 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) 19.6% (d) 5%
7. 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
8. A plant was purchased on 01-04-2023 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%

9. A machine was purchased on 01-01-2022 for 3,00,000. Depreciation is charged at 15% p.a. under SLM
method. The machine was sold on 01-07-2025 for 1,60,000. Calculate the profit.
(a) 2,400 (b) 17,500 (c) 1,500 (d) 3,000

10. 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
11. 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
th
Rs 2,000. Depreciation is provided @ 10% p.a. under written down value method. Depreciation for the 4
year = …

(a.) 25,000 (b). 13,000 (c). 10,530 (d). 9,477
12. Consider the following data pertaining to M/s. E Ltd. who constructed a cinema house:
Cost of second hand Truck 90,000
Cost of repainting the Truck 10,000
Labour charges for repairing the truck 2,000
Fire insurance premium 1,000 P.A
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
Answer:
1-b 2-d 3-d 4-b 5-d 6-c 7-b 8-a 9-b 10-d
11- d 12-d

CHAPTER -2 FINANCIAL STATEMENT OF PROFIT-MAKING ORGANISATIONS

➢ The financial statements of a non-corporate commercial organisation broadly includes the Income
Statement, Balance Sheet, and Cash Flow Statement.
➢ The term ‘Income Statements’ is a generic term which refers to those components of financial states which
are associated with determination of operating result i.e. ascertainment or profit earned or loss suffered.
➢ The components of income statements of non-corporate commercial organisations are:
(a) Trading Account
(b) Profit & Loss Account
(c) Profit & Loss Appropriation Account
Format of trading account
Particulars Amount Particulars Amount

To Opening stock xxxx By sales xxx
To Purchases xxxx Less: sales return xxx xxxx
Less: return xxxx xxxx
To Direct expenses xxxx By closing stock xxxx
To Gross profit (Bal fig) By Gross loss ( bal fig)
Profit and loss account

To indirect expenses xxxx By Gross profit xxx
( expenses related to office,
administration, sales) xxxx By indirect income ( e.g sale of scrap, xxx
commission, dividend, interest,
To abnormal losses ( fire/ theft/flood) discount received etc)
To Net profit ( bal fig)
Profit and loss appropriation account

To appropriation of By net profit xxxx
profit among partners
(e.g Interest on capital, By interest on drawings
salary to partners, share
in profit)
Note: 1. Transfer to general reserve is done through profit & loss account in case of sole proprietor and
through profit and loss appropriation account in case of partnership firm.
Treatment of adjustments:
1. Closing stock –
(a) If given in adjustments – credited to trading account and shown in assets side of balance sheet.
(b) If given in trial balance - it is shown in assets side of balance sheet.
2. Prepaid expenses:

Expenses paid xx
less: prepaid expenses xx
Balance sheet
Liability Amount Assets Amount

prepaid expenses xxx
3. Outstanding expenses: it is added in the related expenses in income statement and shown in liability side
of balance sheet.

Expenses paid xx
Add: outstanding expenses xx
Balance sheet

outstanding expenses xxx
4. Accrued income:

Income received xx
Add: accrued income xx xx
Balance sheet

accrued income xxx
5. Advance income received

Income received xx
less: advance income xx xx
Balance sheet

Advance income xxx
6. Treatment of goods distributed as free sample/ charity/ advertisement
Trading account

Purchases xx
Less: distributed as free sample xx
Less: charity/ donation xx
Less: advertisement xx xx

Goods distributed as free sample Xx
Goods used for charity/ donation Xx
Goods used for advertisement xx
7. Treatment of goods withdrawn by the proprietor
Trading account

Purchases xx
Less: drawings made xx xx
Balance sheet

Capital
Less: drawings xxx
8. treatment of normal loss of goods:-- No treatment
9. Treatment of abnormal loss of goods:--

Trading account

Purchases xx
Less: abnormal loss xx xx

Abnormal loss of Goods xx
10. Treatment of cash lost due to theft/ fire etc.

Abnormal loss of cash xx
Balance sheet

Cash xx
Less: loss by theft xx xx
11. Treatment of outstanding expenses, prepaid expenses, advance income, accrued income given in
trial balance –
➢ They will be shown only in balance sheet of the firm.

➢ No adjustments are required in income statement.
12. Treatment of abnormal loss of goods, goods distributed as free sample/ charity etc given in trial
balance –
➢ it will be shown only profit and loss account.

➢ No adjustment required in trading account.
13. Treatment of cash lost by fire/theft given in trial balance –
-- it will be shown only profit and loss account. No adjustment required in cash balance shown in
balance sheet.
14. Goods sent on approval basis:
Case 1. Approval received --- no treatment required
Case 2. Approval not received --

• Reduce sales from the amount of approval not received at selling price.
• Reduce debtors from the amount of approval not received at selling price.
• Stock with customer should be credited to trading account at its cost price.
• Stock with customer should be shown in balance sheet at its cost price.
15. Treatment of provision for doubtful debts and provision for discount on debtors:
Practice question 1. Prepare bad debts account, provision for bad debts account, extract of profit & loss
account and balance sheet.
01-01-2022 Provision for bad debts 5,000

31-12-2022 Bad debts written off 3,000
Sundry debtors 1,25,000
31-12-2033 Bad debts written off 2,500

Sundry debtors 1,00,000
Provision for doubtful debts to be provided @ 5% for 2022 and 2.5% for 2033.
Solution: Method 1:
Bad debts account

31-12-22 To debtors account 3,000 31-12-22 By profit & loss account 3,000
3,000 3,000
31-12-23 To debtors account 2,500 31-12-23 By profit & loss account 2,500
2,500 2,500
Provision for doubtful debts
Date Particulars Amount Date Particulars Amount

1-1-22 By balance b/d 5,000
31-12-22 To balance c/d 6,250 31-12-22 By profit & loss a/c 1,250
(1,25,000 X 5%) ( bal fig)
6,250 6,250
31-21-23 To profit & loss a/c 2,750 1-1-23 By balance b/d 6,250
( bal fig)
31-21-23 To balance c/d 2,500
(1,00,000 X 2.5%)
6,250 6,250
Method 2.
Bad debts account

To debtors account 3,000 By Provision for doubtful debts 3,000
3,000 3,000
To debtors account 2,500 By Provision for doubtful debts 2,500
2,500 2,500
Provision for doubtful debts

31-12-2012 To bad debts 3,000 1-1-2012 By balance b/d 5,000
31-12-2012 To balance c/d 6,250 31-12-2012 By profit & loss a/c 4,250
(1,25,000 X 5%) ( bal fig)
6,250 6,250
31-12-13 To bad debts 2,500 1-1-2013 By balance b/d 6,250
31-12-13 profit & loss a/c 1,250
( bal fig)
31-21-13 To balance c/d 2,500
(1,00,000 X 2.5%)
6,250 6,250
16. Treatment of manager’s commission:
Case 1. If it to be given @ 10% of net profit before charging such commission :-

𝒏𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒄𝒐𝒎𝒎𝒊𝒔𝒔𝒊𝒐𝒏
𝟏𝟎𝟎
X 10
Case 2. If it to be given @ 10% on net profit after charging such commission :-

𝒏𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒄𝒐𝒎𝒎𝒊𝒔𝒔𝒊𝒐𝒏
𝟏𝟏𝟎
X 10
➢ Calculated manager’s commission is debited to profit and loss account and should be shown as outstanding
commission in the liability side of the balance sheet.
Important Note:
➢ Commission of Manager of sales department/ administration dept should be shown in profit & loss account.
➢ But commission of works/factory department should be debited to trading account.
17. Treatment of wrong valuation of opening stock.
Trial balance as on 31st March 2023
Particulars Debit Credit

Purchases 2,10,000
Stock 45,000
Capital 3,00,000
(a) It was the practice of the owner to value stock at 10% below cost.
(b) The closing stock on 1-04-2022 was Rs 49,500.
Solution: Trading account

𝟒𝟓,𝟎𝟎𝟎 50,000
To opening stock ( x 100)
𝟗𝟎
2,10,000 𝟒𝟗,𝟓𝟎𝟎 55,000

To purchases Closing stock ( x 100)
𝟗𝟎
Balance sheet
Capital and liabilities Amount Assets Amount

Capital 3,00,000 Stock 55,000
Less: over valuation of closing 5,000
stock of last year
18 TREATMENT OF SOME TYPICAL ADJUSTMENTS IN FINAL ACCOUNT:
(i) Goods purchased for Rs 6,000 on 29th March, 2022, but still lying in-transit, not at all recorded in the books.
Market value of such goods at the end of the year Rs 5,800.
Solution:
✓ add in purchases by Rs 6,000

✓ increase creditors by Rs 6,000
✓ stock in transit should be credited in trading account by Rs 5,800
✓ stock in transit should be shown as asset in the balance sheet at Rs 5,800
(ii) Goods worth Rs 19,000 were purchased on 24th March 2023 and sold on 29th March 2023 for 23,750.
Sales were recorded correctly, but purchase invoice was missed out.
Answer: make entry for purchase and show its treatment in final account.
(iii) Purchase returns of Rs 1,500 were routed through sales return. Party’s A/c was correctly posted.
Solution: Trading account

To purchases xxxx Sales xxxx
Less: purchase return xxx Less: sales returm xxxx
Add: error rectified xx
(iv) Purchase book was over-cast by Rs 1,000. Posting to suppliers’ A/c is correct.
➢ Reduce purchases in trading account by Rs 1,000
➢ Reduce suspense account balances in balance sheet by Rs 1,000.
(v) Advertising will be useful for generating revenue for 5 years. Advertisement expenses given in trial balance
Rs 1,00,000.
Solution:

Advertisement 1,00,000
(vi) Salaries include Rs 10,000 towards renovation of Proprietor’s residence.


Salary xxxx
Less: drawings xxx
Balance sheet

Capital xxxx Stock 55,000
Less: renovation expenses xxx
(vii) Cash received from Debtors Rs 5,600 was omitted to be posted in the ledger.
(viii) Sales included Rs 30,000 as goods sold for cash on behalf of Mr. Thakurlal, who allowed 15% commission on
such sales for which effect is to be given.
Answer:
Correct entry Cash account Dr 30,000
To Thakural account 30,000
Thakural account Dr 4,500
To commission account 4,500
Wrong entry Cash account Dr 30,000
To sales account 30,000
Rectifying entry Sales account Dr 30,000
To commission account 4,500
To Thakural account 25,500
Trading account

By sales xxxx
Less: sales on behalf of thakural 30,000

Commission 4,500
Balance sheet
Thakural 25,500
(ix) Sales includes Rs 60,000 towards goods sold for cash on account of a joint venture with Mr. Reddy who
incurred RS 800 as forwarding expenses. The joint venture earned a profit of Rs 15,000 to which Mr. Reddy
is entitled to 60%.
Answer:
1. Correct entry should be
Cash account Dr 60,000
To Reddy account 60,000
2. wrongly entry passed :
Cash account Dr 60,000
3. rectifying entry:
Sales account Dr 60,000
To Reddy account 60,000
4. additional entry is required to pass:
Reddy account Dr 6,000
To profit on Joint venture ( 15,000 X 40%) 6,000
Treatment in final account:

➢ Decrease sales by Rs 60,000
➢ Show profit on joint venture Rs 6,000 in credit side of profit & loss account.
➢ Show Reddy as liability in balance sheet at Rs 54,000 ( 60,000 – 6,000)
(x) Trial balance as on 31st March 2023

Motor car 56,000
Purchases 6,80,000
i. The motor car account represents an old motor car which was replaced on 1.4.2022 by a new motor car
costing Rs 1,20,000 with an additional cash payment of Rs 40,000 laying debited to Purchase Account.
ii. Depreciation to be provided on motor car @ 20% (excluding sold item).
Answer:
Correct entry :
Motor car (new) account Dr 1,20,000
To Motor car ( old) 56,000
To Cash account 40,000
To profit on exchange 24,000
Wrong entry:
Purchase account Dr 40,000

To cash account 40,000
Trading account

Purchases 6,80,000
Less: motor car purchased 40,000 6,40,000

Depreciation on motor car 24,000 By profit on exchange of 24,000
motor car
Balance sheet

Motor car ( given) 56,000
Add: new motor car purchased 1,20,000
Less: old car exchanged (56,000)
Less: depreciation (24,000) 96,000
(xi) (solve yourself)

(a) An old furniture which stood at Rs 12,000 in the books on Jan 1, 2021 was disposed of at Rs 5,800 on June
30, 2021, in part exchange of a new furniture costing Rs 10,400. A net invoice of Rs 4,600 was passed through
the Purchase Day Book.
(b) Depreciate Furniture @ 10% p.a
Answer:
Correct entry:
Furniture account(New) Dr 10,400
Depreciation account Dr 600
Loss on exchange account Dr 5,600
To Furniture ( old) account 12,000

To creditor for furniture 4,600
Wrong entry passed:

Purchase account Dr 4,600
To creditor account 4,600
(xii) Sales include Rs 36,000 hire-purchase sales. Hire-purchase sales prices are determined after adding 25% on
Hire-Purchase price.
30% of the instalments have not fallen due yet. Profit or loss on hire-purchase sales isto be shown in the
Profit and Loss Account.
Solution: Rectifying entry:
1. Sales account Dr 36,000

To debtors account 36,000
2. H.P Debtors account Dr 25,200
Stock with customer a/c Dr 8,100
To purchase account 27,000
To profit on H.P 6,300
Trading account

To purchases xxx By sales xxxx
Less: cost of goods sold oh H.P 27,000 Less: H.P sales 36,000 36,000

Profit on H.P 6,300
Balance sheet

Debtors xxxx
Less: H.P sales 36,000
H.P Debtors
25,200
Stock with customer 8,100
H.P Trading account

Cost of goods sold on H.P 27,000 H.P Sales ( H.P Debtors) 25,200
(36,000 X 75%)
By Installment not due 8,100
Profit on H.P ( Bal fig) 6,300 ( Stock with customer)
33,300 33,300
(xiii) Bank Overdraft from PP Bank (Given in trial balance) Rs 60,000
Adjustment: PP Bank has allowed an overdraft limit against hypothecation of stocks keeping a margin of
20%. The present balance is the maximum as permitted by the Bank.
𝟔𝟎,𝟎𝟎𝟎
Answer: value of closing stock at the end = x 100 = 75,000
𝟖𝟎
(xiv) Trial Balance as on 31.12.2023
Debit Credit
Debtors 1,04,000
Suspense A/c 8,000
GST 6,000
1. Debtors were shown after deduction of Provision for Doubtful Debt of Rs 2,000. It was decided that this
debt was considered to be bad and should be written off and a provision of Rs 1,000 should be made which was
considered doubtful.
2. Suspense account represents money advanced to sales manager who was sent to Mumbai in August,
2023 for sales promotion. On returning to Kolkata submitted a statement disclosing that Rs 2,000 was
incurred for travelling, Rs 1,200 for legal expenses and Rs 1,800 for miscellaneous expenses. The balance
lying with him is yet to be refunded.
Solution: Explanation of point no-2
Entry passed earlier Suspense account Dr 8,000

Adjustment entry Travelling expense Dr 2,000
Legal expense Dr 1,200
Misc expense Dr 1,800
Sales manager Dr 3,000
To suspense account 8,000
Trading account

To provision for bad debts 1,000 By provision for bad debts 2,000
To Travelling expense 2,000

To Legal expense 1,200
To Misc expense 1,800
To GST 6,000
Balance sheet

Debtors (1,04,000 + 2,000) 1,06,000
Less: provision for bad debts -1,000 1,05,000
Suspense account Nil Sales manager 3,000
Important Note : Must solve question number 26 of my book based on cash

basis of accounting.
1. MATCH THE FOLLOWINGS (IMPORTANT FOR MCQ):
1. Income Statement A. Partnership firm

2 Gross operating results B. Financial position
3. Balance Sheet C. vertical format
4. Top-down order D. determination of operating result
5. Profit & Loss Appropriation Account E. Trading Account
6. Abnormal losses F. Conservatism
7. Closing Stocks G. Profit & Loss Account
Answer:
1-D 2-E 3-B 4-C 5-A 6-G 7-F
2. FILL IN THE BLANKS:
i. The financial statements of a non-corporate commercial organisation broadly includes the Income
Statement, Balance Sheet, and……………….
ii. According to convention of conservatism, stock is valued at cost or …………..whichever is lower.
iii. Balance Sheet is the financial statement that is prepared to show the financial position of the
organisation on …………….
iv. In the……………., the Liabilities appear on the left-hand side, while the Assets appear on the right-
hand side of the Balance Sheet.
v. ……….. refers to the order in which the various assets and liabilities are shown in the balance sheet.
vi. ……… is passed in the journal to record the closing balances of various assets and liabilities at the
end of previous year as the opening balances in the beginning of the new year.
Answer:
i. Cash flow statement iii. A specific date

ii. Net realizable value iv. Horizontal format
v. Marshalling vi. Opening entry
3. MULTIPLE CHOICE QUESTIONS:

1. 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 84,000 before commission.
a. 4,200 b. 4,000 c. 4421 d. None
2. The balance of the petty cash is:

(a) An expense
(b) An income
(c) An asset
(d) A liability
3. 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)
4. 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
5. Depreciation appearing in the Trial Balance should be:

(a) Debited to P & L A/c
(b) Debited to P & L A/c
(c) Reduced from related asset in balance sheet
(d) Both (a) and (c) above
6. Gross profit is equal to

(a) Sales – Cost of goods sold
(b) Sales – Closing stock + purchase
(c) Opening stock + Purchases – Closing stock
7. Which of the following is not a financial statement?

(a) Profit and loss account
(b) Balance sheet
(c) cash flow statement
(d) Trial balance
8. 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
9. 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

10. 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
11. 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
12. 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) 6,360 (b) 6,000 (c) 6,766 (d) 7,200
13. 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
14. 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
15. A prepayment of insurance premium will appear in the Balance Sheet and in the Insurance Account
respectively as:
(a) a liability and a debit side. (b) an asset and a debit side.
(c) an asset and a credit side. (d) None of the above
16. 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.
17. 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.
18. Sales for the year ended 31st March, 2023 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.
19. The capital of a sole trader would change as a result of:
(a) a creditor being paid his account by cheque.

(b) Fixed assets being purchased on credit.
(c) fixed assets being purchased on Cash.
(d) wages being paid in cash.
20. Rent paid on 1 October, 2023 for the year to 30 September, 2024 was Rs. 1,200 and rent paid on 1 October,
2024 for the year to 30 September, 2025 was Rs. 1,600. Rent payable, as shown in the profit and loss account for
the year ended 31 December 2024, would be:
(a) Rs. 1,200. (b) Rs. 1,600. (c) Rs. 1,300. (d) Rs. 1,500.
Answer:
1-a 2-c 3-b 4-b 5-a 6-a 7-d 8-a

9-c 10-b 11-c 12-b 13-a 14-b 15-c 16-d
17-c 18-a 19-d 20-c
CHAPTER -3 FINANCIAL STATEMENT OF NON-PROFIT MAKING ORGANISATIONS

Organisations:
(a) Profit making organisations: E.g TATA, Reliance, Wipro etc
(b) Non- profit-making organisations: E.g Schools, ICMAI, ICAI, Govt colleges, Mandir etc.
Accounts prepared by NPO:
(i) Receipts and payment account
(ii) Income and expenditure account
(iii) Balance sheet
Format of receipts and payment account
Receipts Amount Payments Amount
To balance b/d Nil By Revenue payments (salary paid, 3,20,000
To revenue receipts ( subscription, rent 8,00,000 wages paid)
received, sale of scrap, interest received)
By capital payments (assets purchased) 4,00,000
To capital receipts (bank loan raised,
5,00,000
debentures issued)
By balance c/d 5,80,000
13,00,000 13,00,000
Note : it records all receipts and payment during the current year. It may be related to any period previous,
current or subsequent.
Income and expenditure account

Expenditure Amount Income Amount
To revenue payment( i.e expenses) 3,20,000 By revenue receipts (i.e income) 8,00,000
To surplus ( bal fig) 4,80,000
8,00,000 8,00,000
Balance sheet
Capital receipts (Capital, liabilities) 5,00,000 Capital payments ( assets) 4,00,000
Capital fund nil Cash 5,80,000

Add: surplus 4,80,000 4,80,000
9,80,000 9,80,000
COCEDUCATION.COM For enquiry: 9999631597, 7303445575, 8448322142,7011668629

2. Classification of items of revenue and capital nature:

Revenue nature Capital nature
(a) recurring nature (a) Non- recurring nature
(b) small amount (b) big amount
(c) receipts- general purpose (c) receipts – specific purpose
(d) payment – benefit in current year (d) payment – benefit in future
3. Treatment of some special items:

(i) Donations :- it is a gift in cash or kind from some person. It may be of two types:
(a) Specific Donation: Capitalised and shown in liability side of the balance sheet.
(b) General donation:-
Small amount Big amount

Credit side of income and expenditure a/c Liability side of the balance sheet
If not mentioned in question – assume it is of small amount.
(ii) Entrance fees/ admission fees :-
If one time payment received If received every year

Shown in liability side of the balance sheet Credit side of income and expenditure a/c
Note: If not mentioned in question – assume it revenue receipt.
(iii) Subscription:
If for specific purpose If it is for general purpose

Shown in liability side of the balance sheet Credit side of income and expenditure a/c
(iv) life membership fees – Treated as capital receipts -- Shown in liability side of the balance sheet.
Treatment:
Method 1 Method 2
Entire amount may be carried forward in a Entire amount will be carried forward in a special
special account in the liability side of the balance account in the liability side of the balance sheet.
sheet until the member dies.
After which the same will be transferred to the An amount calculated according to average life,
credit of capital fund. will be credited to income & expenditure account
annually.

(v) Legacy:-
➢ Received as per will after death of a person.
➢ Treated as Capital receipts.
➢ Added to the capital fund in the balance sheet.
(vi) Endowment fund donation:

➢ Capital receipts, shown in the liability side of the balance sheet.
➢ Income from investment of such donation is to be used for certain specific purpose.
➢ Such income is also added to the fund.
➢ All specific expenses incurred are deducted from such fund.
(vii) sale of old news paper and periodicals, scraps – revenue receipts.
(viii) sale of old fixed assets:
➢ Capital receipts.
➢ Profit or loss on sale is transferred to income and expenditure account.
(ix) Honorarium: paid to someone for receiving their services who are not the employee of the NPO.
Revision question 1. Prepare income and expenditure account and balance sheet from the given receipts and
payment account.
Receipts and payment account

To subscription 6,00,000 By rent 1,10,000
To sale of scrap 40,000 By salary 60,000
To commission 80,000 By advertisement 35,000
To donation 1,00,000 By match expenses 45,000
To donation for match fund 1,40,000 By building 2,00,000
To legacy 2,00,000 By furniture 3,00,000
To entrance fees 1,20,000 By honorarium 20,000
To life membership fees 80.000
To endowment fund 3,00,000
To bank loan 5,00,000 By balance c/d 14,10,000
21,80,000 21,80,000


To rent 1,10,000 By subscription 6,00,000
To salary 60,000 By sale of scrap 40,000
To advertisement 35,000 By commission 80,000
To honorarium 20,000 By donation 1,00,000
To surplus ( bal fig) 7,35,000 By entrance fees 1,20,000
9,60,000 9,60,000
Balance sheet at the end of the year

Donation for match fund 1,40,000 Building 2,00,000
Less: match expenses - 45,000 95,000 Furniture 3,00,000
Cash 14,10,000
Capital fund nil
Add: legacy 2,00,000
Add: surplus 7,35,000 9,35,000
Bank loan 5,00,000

Endowment fund 3,00,000
Life membership fees 80,000
19,10,000 19,10,000
Revision of adjustments related to specific fund:

Revision question 2.
Receipts and payment account ( extract)

Donation for match fund 2,00,000 Match expenses 2,30,000
Solution: Income and expenditure account

Match expenses ( 2,30,000 – 2,00,000) 30,000

Donation for match fund 2,00,000
Less: Match expenses 2,00,000 Nil
Receipts and payment account for the year ended on 31st march 2024

Donation for match fund 8,00,000 Match expenses 2,30,000
Interest on match fund investment 35,000 By 12% match fund investments 5,00,000
st
( 1 July 2023)
Solution:

Donation for match fund 8,00,000 12% M.F. Investment 5,00,000
Less: Match expenses - 2,00,000 Cash 1,35,000
Add: interest on M.F Invest + 45,000 6,45,000 Accrued interest on M.F 10,000
Investment
6,45,000 6.45,000
Revision question 4: Receipts and payment account for the year ended on 31st march 2024
To Donation for building 6,00,000 By Building 4,20,000
6,00,000 6,00,000


Donation for building 6,00,000 Building 4,20,000
Less: transfer to capital fund - 4,20,000 1,80,000 Cash 1,80,000
Capital fund nil

Add: transfer from building fund 4,20,000 4,20,000
6,00,000 6,00,000

Revision of adjustments related to subscription:

Receipts and payment account for the year ended on 31 st march 2024

To subscription 6,00,000
6,00,000 6,00,000
Adjustment:
(i) Outstanding subscription at the end of the year Rs 2,00,000.
Solution:
Add: surplus 8,00,000 8,00,000 Outstanding subscription 2,00,000
8,00,000 8,00,000

By subscription ( received + accrued at end) 8,00,000
To surplus 8,00,000
Revision question 6. Receipts and payment account for the year ended on 31 st march 2024

8,00,000 8,00,000
Adjustment:
(i) Outstanding subscription at the end of the year Rs 40,000.

(ii) Advance subscription received during the year Rs 25,000.
Solution:

Add: surplus 8,15,000 8,15,000 Outstanding subscription 40,000
Advance subscription 25,000

8,40,000 8,40,000

By subscription ( 8,00,000+ 40,000 – 25,000) 8,15,000
To surplus 8,15,000

Adjustments:
31-3-2023 31-3-2024
Outstanding subscription 40,000 70,000
Advance subscription 25,000 32,000
Solution: Balance sheet as on 31-3-2023
Advance subscription 25,000 Outstanding subscription 40,000
Balance sheet as on 31-3-2024
Advance subscription 32,000 Outstanding subscription 70,000

By subscription 8,23,000
Working notes: computation of Subscription for the current year
Subscription received during the year 8,00,000

Add: outstanding at the end of the year +70,000

Less: outstanding at the beginning of the year -40,000

Add: prepaid at the beginning of the year +25,000
Less: prepaid at the end of the year -32,000
8,23,000
Revision question 8. Receipts and payment account for the year ended on 31 st march 2024

To subscription:
22-23 25,000
23-24 6,40,000
24-25 20,000 6,85,000
Adjustments: i.
31-3-2023 31-3-2024
Outstanding subscription 40,000 70,000
Advance subscription for
23-24 26,000 ------
24-25 15,000 35,000
ii. Outstanding subscription for the year 22-23 Rs 6,000 is to be written off during the year.
Prepare extract of income and expenditure and balance sheet and prepare subscription account.
Solution: Balance sheet as on 31-3-2023
Advance subscription(26,000 + 15,000) 41,000 Outstanding subscription 40,000
Advance subscription (20,000 +15,000) 35,000 Outstanding subscription 70,000


Subscription written off 6,000 By subscription 7,27,000

Working notes: Computation of Subscription for the current year
Subscription received during the year for current year 6,40,000

Add: outstanding at the end of the year for the current year [70,000 – (40,000-25,000-6,000)] +61,000
Add: Advance at the beginning of the year for the current year +26,000
7,27,000
Subscription account

1-4-23 To outstanding subscription 40,000 1-4-23 By advance subscription 41,000
During the By bank account (R/P A/c) 6,85,000
31-3-24 To income & expenditure A/c 7,27,000 year
31-3-24 By subscription W/off 6,000
31-3-24 To advance subscription 35,000 31-3-24 By outstanding subscription 70,000
8,02,000 8,02,000
Revision of adjustments related to stationary:


By stationary 20,000
Adjustments:
31-3-23 31-3-24
Stock of stationary 6,000 9,000
Solution:

To stationary consumed 17,000
(20,000 + 6000-9,000)

Stock of stationary 6,000

Stock of stationary 9,000
Working notes: Stationary account

To balance b/d 6,000 By stationary consumed ( income & exp a/c) 17,000
To cash 20,000 By balance c/d 9,000
26,000 26,000

By creditors for stationary 80,000
By stationary (for cash) 20,000
Adjustments:
31-3-23 31-3-24
Creditors for stationary 20,000 26,000
Stock of stationary 15,000 21,000

To stationary consumed 1,00,000

Creditors for stationary 20,000 Stock of stationary 15,000

Creditors for stationary 26,000 Stock of stationary 21,000

Working notes: Stationary account

To balance b/d 15,000 By stationary consumed ( trf to income &
To cash 20,000 expenditure a/c) 1,00,000
To creditors for stationary 86,000 By balance c/d 21,000

1,21,000 1,21,000
Creditors for stationary account

By balance b/d 20,000
To bank account 80,000 By stationary purchased ( bal fig) 86,000
To balance c/d 26,000
1,06,000 1,06,000
Revision question 11. Assume in previous question, the following additional information are also given:
31-3-22 31-3-23
Advance for stationary 2,000 3,000
Revision of adjustments related to expenses:


By rent 60,000
Adjustments:
(i) outstanding rent at the end of the year Rs 12,000.
(ii) Advance rent at the end of the year Rs 17,000.
Calculate rent for the current year.

By Salary 80,000
Adjustments:
31-3-22 31-3-23
Outstanding salary 12,000 15,000
Prepaid salary 16,000 18,000

Calculate salary for the current year.
Revision of adjustments related to fixed assets:

Revision question 14:

By Sports and equipments 80,000
Adjustments:
31-3-23 31-3-24
Sports and equipments 50,000 1,10,000
Solution: Sports equipment account

To balance b/d 50,000 By depreciation ( bal fig) 20,000
To cash account 80,000 By balance c/d 1,10,000

1,30,000 1,30,000

To sale of sports equipment 60,000 By Sports and equipments 7,00,000
( Book value 70,000)
Adjustments:
31-3-23 31-3-24
Sports and equipments 2,00,000 6,20,000
Solution:
Sports equipment account

To balance b/d 2,00,000 By cash account 60,000
By loss on sale 10,000
To cash account 7,00,000 By depreciation (bal fig) 2,10,000

9,00,000 9,00,000



To balance b/d ( cash) 20,000 By rent 40,000
By telephone charges 15,000
To interest on investments @ 9% p.a for full 9,000 By furniture 30,000
year By bank lodged 70,000
To bank withdrawal 30,000
Adjustments:
(i) Rent amounting to Rs 40,000 P.A paid upto 30 th June 2024.
(ii) A quarter charge for telephone is outstanding. The amount accrued being Rs 3,000. The charge for
each quarter is same for both 22-23 and 23-24.
(iii) During 2022-23, a furniture was purchased for Rs 2,00,000 and against which Rs 1,70,000 had been paid.
(iv) opening balance of bank Rs 35,000.
Most important things for your exam:

(i) Read question very carefully:
(a) if receipts and payment account is given ---- prepare income and expenditure account.
(b) if income and expenditure account is given – prepare receipts and payment account.
(ii) Must revise concept of bar trading account/ refreshment account.
(iii) must revise concept of balance in bank given as per cash book or pass book.
Revision question 17. Important points for MCQ.
1. Charitable trusts, trade unions, Cultural clubs Non- profit organisations
2. after the demise of the person, the funds pass on to the institution Legacy
3. Endowments capital receipts
4. Receipts and Payments Account Real account
5. Income and Expenditure Account Nominal account

6. Accumulated Fund Capital fund
7. created out of special donation Special Fund

Revision question 18. MULTIPLE CHOICE QUESTIONS:

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. 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
5. 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
6. Sale of old materials must be shown on the credit side of
(a) Cash Book

(b) Income and expenditure account
(c) Balance Sheet
7. The information for the preparation of receipts and payments account is taken from
(a) Cash Book

(b) Income and expenditure account
(c) Cash Book and Balance Sheet
(d) None
8. The receipts and payments account for the year ended on 31st march 2023 shows the following details:
Subscription 21-22 Rs.500

22-23 Rs.10,500
23-24 Rs. 800
There are 1,200 members each paying an annual subscription of Rs 10.
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
9. 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
10. Subscription received in advance is a/an
(a) Asset
(b) Liability
(c) Income
(d) Expenditure
11. Accrued subscription is a/an
(a) Asset
(b) Liability
(c) Income
(d) Expenditure
12. Income and Expenditure account is prepared under
(a) Accrual basis (b) Cash basis
(c) Either of the two (d) Neither of the two
13. Receipt and Payment Account is prepared under
(a) Accrual basis (b) Cash basis
(c) Either of the two (d) Neither of the two
14. Calculate match expenses to be shown in income and expenditure account:
Donation for match fund received during the year = Rs 40,000

Match expenses incurred during the year = Rs 45,000
Answer: 5,000.
15. Calculate Prize expenses to be shown in income and expenditure account:

Donation for prize fund received during the year = Rs 48,000.

Prize fund investment made during the year = Rs 15,000.
Prize awarded during the year = Rs 35,000

(a) 35,000 (b) 2,000 (c) 13,000 (d) nil
16. Calculate Prize expenses to be shown in income and expenditure account:
Opening balance of prize fund = Rs 25,000

Donation for prize fund received during the year = Rs 48,000.
Prize fund investment made during the year = Rs 35,000.
Interest received on prize fund investment = Rs
2,000 Prize awarded during the year = Rs 80,000
(a) 80,000 (b) 32,000 (c) 5,000 (d) 7,000
17. Donation for building received during the year = Rs 20,00,000

Expenditure incurred on construction of building = Rs 13,00,000
Building fund investment made during the year = Rs 5,00,000
Calculate amount to be shown in income and expenditure account --------------
Answer: nil
18. Donation for building received during the year = Rs 24,00,000

Expenditure incurred on construction of building = Rs 9,00,000
Building fund investment made during the year = Rs 12,00,000
Calculate amount to be added in capital fund.
(a) 9,00,000 (b) 12,00,000 (c) 24,00,000 (d) 21,00,000
Answer: 9,00,000
19. subscription received in cash during the year 2023-24 = Rs 8,00,000

Outstanding subscription at the end of the year = Rs 40,000
Outstanding subscription at the beginning of the year = Rs 24,000
Advance subscription at the end of the year = Rs 12,000
Advance subscription at the beginning of the year = Rs 15,000.

Outstanding Subscription of previous year unrecoverable and to be written off during current year = Rs 7,000.
Calculate subscription to be shown as income for the current year in income and expenditure account.
(a) 8,19,000 (b) 8,12,000 (c) 8,00,000 (d) 8,26,000
Answer: 8,26,000

20. 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 (d) None of the above
Answer: 10,000
21. 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 (d) None of the above
Answer : 9,500
22. Income and expenditure account shows subscriptions at Rs. 40,000.
Subscriptions accrued in the beginning of the year and at the end of the year were Rs 1,000 and Rs. 1,500 respectively.
Advance subscriptions in the beginning of the year and at the end of the year were Rs 2,500 and Rs. 3,400 respectively.
The figure of subscriptions received appearing in receipts and payments account will be ………..
Answer : 40,400 ( 40,000+1,000-1,500-2,500+3,400)
23. Receipts & payment account for the year ended 31st December 2023

To Subscriptions:
For 2022 12,500
2023 75,000
2024 14,000 1,02,500
Additional Information:
(a) Subscription outstanding on December 31,2022 13,000
(b) Subscription outstanding for the year ended on December 31,2023 12,500
(c) Subscription Received in Advance on December 31,2022 15,000
(i) You are required to calculate the income from subscriptions for the year ending December 31,2023.
(ii) Total outstanding subscription as on 31st December 2023.
Answer: (i) 1,02,500 ( 75,000+12,500+ 15,000) (ii) 13,000 (12,500 + 500)
24. Receipts & payment account for the year ended 31st December 2023 ( extract)

To Subscriptions:
For 2022 12,000
2023 47,500
2024 2,000 61,500
Additional Information:

(i) There are 500 members each paying an annual subscription of Rs 100. Rs 1,800 are still in arrear for the year 2022.
(ii) 15 members had paid advance subscription during 2022 for the year 2023.
Calculate :
(a) amount of subscription to be shown in income and expenditure account for the year 2023.
(b) outstanding subscription to be shown in balance sheet prepared as on 31-12-2023.
(c) outstanding subscription to be shown in balance sheet prepared as on 31-12-2022.
Answer: (a) 50,000 (500x100)
(b) 2,800 ( 50,000-47,500-1500 + 1800)
(c) 13,800 ( 12,000 + 1800)
25. Calculate the amount of Stationery purchased during the year 2023 from the following data:
Stock of stationery on January 1,2023 24,000

Creditors for stationery on January 1,2023 16,000
Amount paid for stationery during the year 2023 86,000
Stock of stationary on December 31,2023 42,000
Creditors for stationery on December 31,2023 10,000
Answer: 80,000 ( 86,000 + 10,000 – 16,000)
26. Calculate amount of stationary purchased and amount paid for Stationery during the year 2023 from the
following data:

Stationery consumed during the year 2023 60,000
Stock of stationary on December 31,2023 45,000
Answer: stationary purchased = 85,000 (60,000 + 45,000 – 20,000),
Amount paid for stationary = 87,000 (85,000 -10,000 +12,000)
27. Calculate the amount of Stationery Consumed during the year 2023 from the following data:

Advance paid for stationery carried forward from 22020 160
Amount paid for stationery during the year 2023 8,640
Stock of stationary on December 31,2023 400
Advance paid for stationery on December 31,2023 240
(a) 10,000 (b) 8,640 (c) 10,640 (d) None of the above

Answer: 10,000
28. Receipts & payment account for the year ended 31-3-2023 ( extract)
Receipts Amount Payments amount
By rent 3,000
By telephone charges 15,000
Adjustment:
1. At 31-3-2023, the rent was prepaid to the following 31st January. The yearly charge being Rs 3,000.
2. A quarter charge for telephone is outstanding, the amount accrued being Rs 3,000.
Calculate:
(i) Rent to be shown in income and expenditure account. (Answer : 3,000)

(ii) Prepaid rent at the end of the year 2020-21. [Answer: 2,500 (3,000 X 10/12)]
(iii) Calculate telephone charges to be shown in income and expenditure account.
[Answer: 12,000 (3,000X 4)]
(iv) Outstanding telephone charges at the end of 31-3-2020. [Answer: 6,000]

CHAPTER - 4 INSURANCE CLAIM

A fire insurance policy is taken to cover two types of losses:
(a) Loss of stock policy
(b) Loss of profit policy
Lets revise computation of claim for Loss of stock policy
Stock in godown on the date of fire = 5,00,000
Salvage value of stock = 1,00,000
Face value of policy = 3,00,000
Calculate claim for loss of stock under:
(a) General clause
(b) Average clause
Solution:
(a) Claim under general clause:
Lower of
Actual loss of stock Face value of policy
5,00,000 – 1,00,000 = 4,00,000 3,00,000
Claim for loss of stock = 3,00,000
𝒇𝒂𝒄𝒆 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒑𝒐𝒍𝒊𝒄𝒚

(b) Claim under average clause: 𝒕𝒐𝒕𝒂𝒍 𝒔𝒕𝒐𝒄𝒌 𝒊𝒏 𝒈𝒐𝒅𝒐𝒘𝒏 𝒐𝒏 𝒅𝒂𝒕𝒆 𝒐𝒇 𝒇𝒊𝒓𝒆
X Actual loss of stock
𝟑,𝟎𝟎,𝟎𝟎𝟎
= 𝟓,𝟎𝟎,𝟎𝟎𝟎 x 4,00,000
= 2,40,000
Note: Amount of claim can not exceed the amount of actual loss.
Revision question 2: A has taken out a fire policy of Rs. 80,000 covering its stock-in trade. A fire occurred
on 31st March 2024 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, 2023 30,000

Purchases to the date of fire 1,35,000
Goods withdrawn by A for personal use 5,000
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:
(a) Total loss of stock, and
(b) Amount of claim to be made against the insurance company.
Solution: Memorandum trading account for the year ended on 31-3-2024

To opening stock 30,000 By sales 90,000
To purchases(1,35,000 – 5,000) 1,30,000
To commission on purchase 2,600
(1,30,000 x 2%)
To carriage inward 800 By stock on the date of fire 1,03,400
𝟏 30,000 (bal fig)
To gross profit (90,000 X )
𝟑
1,93,400 1,93,400
Loss of stock = 1,03,400 – 20,680 = 82,720

𝟖𝟎,𝟎𝟎𝟎
Claim under average clause = ( x 82,720) = 64,000.
𝟏,𝟎𝟑,𝟒𝟎𝟎
Revision question 3: A fire occurred in the premises of Sri. G. Vekatesh on 1.4.2024 and a considerable part of the
stock was destroyed. The stock salvaged was Rs 28,000. Sri Venkatesh had taken a fire insurance policy for Rs
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 2023 9,38,000 Stock on 1.1.23 1,44,000

Sales for the year 2023 11,60,000 Stock on 31.12.2023 2,42,000
Purchases from 1.1.24 to 1.4.24 1,82,000 Wages paid during 2023 1,00,000
Sales from 1.1.24 to 1.4.24 24,00,000 Wages paid 1.1.24 to 1.4.24 1,80,000
Sri Venkatesh had in June 2023 consigned goods worth Rs 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 2022 had been valued at cost less 10%. From
2023, however there was a change in the valuation of closing stock which was ascertained by adding 10% to its
costs.
Solution: In order to find the rate of gross profit on sales for the year 2021, the following Trading Account
is to be prepared for the same year as:
Trading account for the year ended on 31st December 2023

𝟏𝟎𝟎 1,60,000 By, Sales 11,60,000

To, Opening Stock (1,44,000 × )
𝟗𝟎
9,38,000 By, Stock lost by Accident 50,000
To, Purchases
1,00,000 By, Closing Stock 2,20,000
To, Wages 𝟏𝟎𝟎
2,32,000 (2,42,000 × )
To, Profit & Loss A/c (G.P. transferred) 𝟏𝟏𝟎
14,30,000 14,30,000
𝟐,𝟑𝟐,𝟎𝟎𝟎
Rate of Gross Profit on Sales = ( 𝟏𝟏,𝟔𝟎,𝟎𝟎𝟎× 100) = 20%
Memorandum Trading Account for the period (from 1.1.24 to 1.4.24)
To, Opening Stock 2,20,000 By, Sales 2,40,000

To, Purchases 1,82,000 By Stock on date of fire 2,28,000
(Bal fig)
To, Wages 18,000
To, Profit & Loss A/c
48,000
(G.P. @20% of sales)
4,68,000 4,68,000
Actual loss of stock = Stock destroyed – Stock salvaged

= 2,28,000 – 28,000
= 2,00,000
As the policy amount is less than the value of stock destroyed, average clause is applicable. Here, the
amount of claim will be:
𝐋𝐨𝐬𝐬 𝐨𝐟 𝐒𝐭𝐨𝐜𝐤
Net Claim = × Face value of Policy
𝐒𝐭𝐨𝐜𝐤 𝐚𝐭 𝐭𝐡𝐞 𝐝𝐚𝐭𝐞 𝐨𝐟 𝐟𝐢𝐫𝐞
𝟐,𝟎𝟎,𝟎𝟎𝟎
𝟐,𝟐𝟖,𝟎𝟎𝟎
× 1,71,000
Revision question 4: A fire occurred on 15th December 2024 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, 2023 20,000

Stock at cost on 31st March, 2024 30,000
st
Purchases during the year ended 31 March. 2024 40,000
Purchases from 1st April, 2024 to 15th Dec, 2024 88,000
st
Sales during the year ended 31 March. 2024 60,000
Sales from 1st April. 2024 to 15th December, 2024 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.

Solution: Trading account for the year ended on 31-3-2024

To Opening stock 20,000 By sales 60,000
To Purchases 40,000 By closing stock 30,000
To gross profit ( bal fig) 30,000
90,000 90,000
𝟑𝟎,𝟎𝟎𝟎
G.P Rate during last year = X 100 = 50%
𝟔𝟎,𝟎𝟎𝟎
Since there is change in purchase price and sale price during the current year, hence last year G.P Rate can
not be applied. It can be solved by any of the following two alternative:
Alternative 1: Change all current year affected items based on last year prevailing prices:
Memorandum Trading account for the period ended on 15-12-2024

To Opening stock 30,000 𝟏,𝟎𝟓,𝟎𝟎𝟎 1,00,000
By sales ( x 100)
𝟏𝟎𝟓
𝟖𝟖,𝟎𝟎𝟎 80,000
To Purchases ( x 100) By Stock on date of fire (bal fig) 60,000
𝟏𝟏𝟎
50,000
To gross profit (1,00,000 x 50%)
90,000 90,000
Value of stock on date of fire ( based on last year price) = 60,000

𝟔𝟎,𝟎𝟎𝟎
Value of stock on date of fire (based on current year price) = X 110 = 66,000
𝟏𝟎𝟎
Less: salvaged stock = 2,000
Actual Stock lost due to fire 64,000
Alternative 2: Change all previous year figures based on current year prevailing prices:
(1) Calculation of G.P rate applicable for current year:
Previous year Current year

Selling price/unit 100 105
Purchase price/unit -50 - 55
50 50
G.P Rate 50% 𝟓𝟎
X 100 = 47.91905%
𝟏𝟎𝟓
(2) Memorandum Trading account for the period ended on 15-12-2024


To Opening stock (30,000 x 110%) 33,000 By sales 1,05,000
To Purchases 88,000
To gross profit (1,05,000 x 47.91905%) 50,000 By Stock on date of fire (bal fig) 66,000
90,000 90,000
Revision question 5: On 30.09.2024 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 1.4.2023 75,000 Sales less returns for the year ended 6,30,000
Stock at cost on 31.3.2024 1,04,000 31.3.2024
Purchases less returns for the year Purchase less returns up to 30.09.2024
5,07,500 2,90,000
ended 31.3.2024
Sales less returns up to 30.09.2024 3,68,100
In valuing the stock on 31.03.2024 due to obsolescence 50% of the value of the stock which originally
cost 12,000 had been written-off.
𝟑
In May 2024, th of these stocks had been sold at 90% of original cost and it is now expected that the
𝟒
balance of the obsolete stock would also realize the same price, subject to the above, G.P had remained
uniform throughout the year. The stock to the value of Rs 14,400 was salvaged.
Solution: Computation of G.P Rate of previous year based on normal items:
Trading account for the year ended on 31-3-2024
To Opening Stock 75,000 By Sales (Less: Returns) 6,30,000

To Purchase (Less: Returns) 5,07,500
Less: cost of obsolete stock - 12,000 4,95,500 By Closing Stock(1,04,000-6,000) 98,000
To Gross Profit 1,57,500
7,28,000 7,28,000
𝟏,𝟓𝟕,𝟓𝟎𝟎
G.P Rate = 𝟔,𝟑𝟎,𝟎𝟎𝟎 x 100 = 25%
Memorandum trading account for the period ended on 30-9-2024

To Opening Stock(1,04,000 -6,000) 98,000 By Sales 3,68,100

To Purchase (Less: Returns) 2,90,000 Less: sale of abnormal items 8,100 3,60,000
To Gross Profit(3,60,000 x 25%) 90,000 By stock on date of fire (bal fig) 1,18,000
7,28,000 7,28,000
Computation of total loss of stock:

Loss of normal stock (1,18,000- 14,400) = 1,03,600
Loss of abnormal items (12,000 x ¼ )x 90% = 2,700
Total loss of stock 1,06,300
Lets revise computation of claim for Loss of profit policy

• It is also called consequential loss insurance policy.
Important Definitions:
1. Indemnity period- Indemnity period is any period not exceeding 12 months 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.
3. Actual turnover:- turnover during indemnity period.
4. Short sales - It is the difference between standard turnover and actual turnover or sales.
5. Annual turnover- It is the turnover during the 12months immediately before the date of damage.
PROCEDURE STEPS FOR CALCULATING CLAIM:

Step 1 .Calculation of short sales = Standard sales – actual sales
Step 2. Calculate of gross profit of the financial year preceding the year of fire.
Step 3. Calculation of rate of gross profit of the preceding financial year.
Revision question 6.(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 2024
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 10,000 By Gross profit 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.
𝑵𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕+𝒊𝒏𝒔𝒖𝒓𝒆𝒅 𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒄𝒉𝒂𝒓𝒈𝒆𝒔

Solution: G.P Rate = X 100
𝒔𝒂𝒍𝒆𝒔 𝒐𝒇 𝒑𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒚𝒆𝒂𝒓
𝟏,𝟏𝟎,𝟎𝟎𝟎 + 𝟗𝟎,𝟎𝟎𝟎
= X 100
𝟏𝟎,𝟎𝟎,𝟎𝟎𝟎
= 20%
Note: If not mentioned, we always assume that all standing charges are insured.
Revision question 7.(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 2024
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.
Solution: G.P for the purpose of claim =

𝑰𝐧𝐬𝐮𝐫𝐞𝐝 𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐜𝐡𝐚𝐫𝐠𝐞𝐬 – 𝐩𝐫𝐨𝐩𝐨𝐫𝐭𝐢𝐨𝐧𝐚𝐭𝐞 𝐧𝐞𝐭 𝐥𝐨𝐬𝐬
𝒔𝒂𝒍𝒆𝒔 𝒐𝒇 𝒑𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒚𝒆𝒂𝒓
X 100
𝟔𝟎,𝟎𝟎𝟎− 𝟑𝟎,𝟎𝟎𝟎
= 𝟏𝟎,𝟎𝟎,𝟎𝟎𝟎
X 100
= 3%
𝐧𝐞𝐭 𝐥𝐨𝐬𝐬
Note: proportionate net loss = X insured standing charges
𝒕𝒐𝒕𝒂𝒍 𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒄𝒉𝒂𝒓𝒈𝒆𝒔

𝟒𝟓,𝟎𝟎𝟎
= X 60,000
𝟗𝟎,𝟎𝟎𝟎
= 30,000
Step 4. Calculate loss of profit on short sales.
Revision question 8 . Standard sales = 5,00,000
Actual sales during indemnity period

=1,80,000
Growth rate= 20%
G.P rate for purpose of claim =
25%
Calculate loss of profit
Solution:
𝟏𝟐𝟎
Standard sales for the purpose of claim = 5,00,000 x
𝟏𝟎𝟎
= 6,00,000
Short sales = 6,00,000 – 1,80,000
= 4,20,000
Loss of profit = 4,20,000 x 25%
= 1,05,000
Step 5. Calculate allowed increased working expenses – it will be lower of following

three:
(a) Actual increase in expense.

𝑵𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕+𝒊𝒏𝒔𝒖𝒓𝒆𝒅 𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒄𝒉𝒂𝒓𝒈𝒆𝒔
(b) Additional expenses x
𝒏𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕+𝒂𝒍𝒍 𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒄𝒉𝒂𝒓𝒈𝒆𝒔
(c) G.P rate X sales generated due to increase in working expense.
Step 6. Calculate Saving in expenses (Always given in question- If any)
Total claim Will be = step 4 + step 5 – step 6
Increase in working expense

Rs 60,000
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)
Net profit during the previous year = Rs 50,000
G.P Rate for the purpose of claim = 25%
Calculate allowed increase in working expense.
Solution: it will be lower of the following three:
(a) increase in working expense = 60.000

𝟓𝟎,𝟎𝟎𝟎+𝟕𝟎,𝟎𝟎𝟎
(b) 60,000 X = 48,000
𝟓𝟎,𝟎𝟎𝟎+𝟏,𝟎𝟎,𝟎𝟎𝟎
(c) 25% x 1,20,000 = 30,000
Hence, allowed increase in working expense = 30,000
Revision question 10: From following details, calculate consequential loss claim:
● Date of fire: Sept. 1
● Indemnity period: 6 months
● Period of disruption September 1 to February 1
● Sum insured Rs 1,08,900.
● Sales were Rs 6,00,000 for preceding financial year ended 31st march.
● Net profit for preceding financial year Rs 36,000 plus insured standing charges Rs 72,000.
● Uninsured standing charges = Rs 6,000.
● Rate of gross profit 18%
● Turnover during disruption period Rs 67,500.
● Annual turnover for 12 months immediately preceding the date of fire Rs 6,60,000
● Standard turnover i.e. for corresponding months in the year preceding the date of fire Rs
2,25,000
● Increase in the cost of working capital Rs 12,000 with a saving of insured standing
charges Rs 4,500 during the disruption period;
● Reduced turnover avoided through increase in working capital Rs 30,000
● A special clause stipulated:
 Increase in rate of GP by 2%
 Increase in turnover (standard and annual) 10%
Solution:
GP rate = 18% + 2% = 20%

Short sale = standard turnover – actual turnover for indemnity period.
= (2,25,000 × 110%) – 67,500 = 1,80,000
G P Lost = Short sale × GP rate
= 1,80,000 × 20% = 36,000

Admissible additional expenses for insurance claim:

Least of the following:
i. Actual additional exp. 12,000
ii. Sales due to additional expenses × GP rate ( 30,000 × 20%) 6,000
Net Profit + Insured standing charges
iii. Actual additional expenses ×
Net Profit + All standing charges
36,000 + 72,000
(12000 × ) 11,368
[36,000 + (72,000 + 6,000)]
Admissible additional expenses 6000
Gross claim = GP lost+ admissible expenses for insurance claim–saving in standing charges
= (36,000 + 6,000 – 4,500) = R s 37,500
Policy Value
Net Claim = × Gross claim
Insurable Value
𝟏,𝟎𝟖,𝟗𝟎𝟎
= x 37,500 = Rs 28,125
𝟏 𝟒𝟓 𝟐𝟎𝟎
. ,
Insurable value = adjusted annual turnover × GP rate

= (6,60,000 × 110%) × 20% = 1,45,200
Practice question 11: Mr. X’s godown was destroyed by fire on 1.6.2022 when the goods in stock
were insured for Rs 60,000. The following particulars are given:
Balance sheet (Extract) as at 31st December 2021
Liabilities Amount Assets Amount

Creditors for goods 20,000 Stock ( including goods held by agent Rs 2,000) 36,000
Debtors 70,000
Transactions upto 31st May 2022 include:

Cash received from debtors 3,40,000 Cash paid to creditors 2,20,000
Bad debts written off 3,500 Discount received 1,000
Balance on 31-5-2022:
Debtors 70,000
Creditors 30,000

Additional information:
(a) debtors on 31-5-2022, included an amount owing from the agent from sales to date Rs 4,000 less 10%
commission and his expenses amounting to Rs 100 on 31-5-2022- the agent still held the said goods valued at Rs
3,600 ( at selling price).
(b) Sales (total) for the periods include Rs 1,600 for goods which have the selling price reduced by 50% and also Rs
6,000 reduced by 25%.
(c) The normal mark up is 50% on cost and except the above, all sales can be assumed to be at the full selling price.
(d) All the goods were destroyed and there was no salvage value of the goods. Calculate the amount of claim.
Solution: in the book of X
Debtors account

2022 31st May By cash received 3,40,000
1st Jan To balance b/d 70,000 By bad debts 3,500
31st May To sales ( bal fig) 3,40,000 By balance c/d (excluding from 66,500
agent)
4,10,000 4,10,000
Creditors account
To cash paid 2,20,000 By balance b/d 20,000

To discount received 1,000
To balance c/d 30,000 By purchases ( bal fig) 2,31,000
2,51,000 2,51,000
Godown stock account

2021 To balance b/d By cost of goods sold 2,29,066
31 May (36,000 – 2,000) 34,000 By stock at agent 3,067
By stock destroyed by fire 32,867
To purchases 2,31,000 ( bal fig)
2,65,000 2,65,000
Thus, amount of claim which will be lodged for Rs 32,867.
Working notes:
1. Bad debts:
Sales 4,000
Less: commission @ 10% 400
Less: expenses 100 3,500

2. Cost of goods sold:

Actual sales Normal selling price Cost ( 2/3 of selling price)
1,600 3,200 2,133
6,000 𝟏𝟎𝟎 5,333
8,000 ( 6,000 x )
𝟕𝟓
3,32,400 ( bal fig) ---- 2,21,600
3,40,000 2,29,066
3. Stock at agent:
Sales Cost
4,000 𝟐
2,667 ( 4,000 x )
𝟑
---- 𝟐
2,400 ( 3,600 x )
𝟑
5,067
Less: agent hand at the beginning 2,000
3,067
Practice question 12. IMPORTANT POINTS FOR ONE MARK QUESTIONS/ MCQ
1. Indemnity period The period for which normal activities of the business is
interrupted
2. Loss of Profit policy Consequential Loss policy
3. Annual turnover Turnover during 12 months immediately preceding the date of

damage
4. Standing charges Unavoidable fixed expenses
5. Standard turnover Turnover of the previous year corresponding to the period
of indemnity
6. Short Sales Standard Turnover – Actual Turnover for Indemnity Period
Practice question 13. FILL IN THE BLANKS (IMPORTANT FOR MCQ):
1. Standard turnover corresponds with the period.
2. Under insurance claim ‘Standing charges’ means………………Standing charges only.
3. If the policy value is the value of stock lost, is called over insurance.
4. In case of Loss of Profit Policy, Gross Profit is the sum of Net Profit plus………… Standing Charges.
5. If value of stock on the date of fire is 4,29,000, salvage is 1,57,500 then stock destroyed by fire will be……….
6. Goods costing 1,00,000 were insured for 50,000. Out of these goods, 3/4th are destroyed by fire. The amount of
average clause will be –––––––––––––.
7. Loss of stock is calculated by deducting –––––––––– from book value of stock as on date of fire.
8. The difference between the value of stock on the date of fire and stock salvaged is –––––––––––.
9. A fire insurance policy is usually taken to cover two types of losses: 1. Loss of Stock and 2………...
10. …….is the maximum amount that can be realized by the insured from the insurance company on the
occurrence of the accident.
11. in case of………….., the insured will also have to share a portion of the loss along with the insurance company.

Answer:
1 Indemnity 2 insured
3 more than 4 Insured
5 2,71,500 6 37,500
7 Stock salvaged 8 Claim for loss of stock
9. Loss of Profits 10 Policy Value
11. under-insurance
Practice question 14. MULTIPLE CHOICE QUESTIONS:

1. Goods costing Rs 1,00,000 were insured for Rs 50,000. Out of these goods, 3/4 th is destroyed by fire.
The amount of claim with average clause will be:
(a) 37,500
(b) 50,000
(c) 75,000
(d) 1,00,000
2. Fire insurance claim will be limited to the:
(a) actual loss suffered even though the insured value of the goods may be lower.
(b) proportion of the loss as the insured value bears to the total cost.
(c) both (a) and (b)
(d) none of the above.
3. A plant worth Rs 40,000 has been insured for Rs 30,000, the loss on account of fire is Rs 25,000. The
insurance company will bear the loss to the extent of…….under general clause.
(a) 18,750 (b) 25,000 (c) 40,000 (d) 30,000
4. A fire occurred in the premises of Agni on 15th August, 2023 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, 2023 to August 15,
2023:
Purchases Rs. 85,000

Sales Rs. 90,000.
Manufacturing expenses Rs 10,000.
Goods costing Rs. 5,000 were taken by Agni for personal use.
Cost price of stock on January 1, 2023 was Rs. 40,000.
Over the past few years, Agni has been selling goods at a constant gross profit margin of 33 1/3% on cost.
The insurance policy was for Rs. 50,000. It included an average clause. Calculate claim to be made on the
insurance company.
(a) 62,500 (b) 47,500 (c) 32,500 (d) 38,000
5. A fire occurred on 15th December 2023 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, 2023 30,000

Purchases from 1st April, 2023 to 15th Dec, 2023 88,000
Sales from 1st April. 2023 to 15th December, 2023 1,05,000
Average Gross profit rate was 40% during last 5 years.
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. Face value of policy was 50,000 and subject
to average clause.
(a) 50,000 (b) 55,000 (c) 48,182 (d) None
6. Fire occurred on 1st March,2023. Normalcy was achieved on 1st May 2023. Sales from 1st March to 1st
May, 2023, Rs. 20,000; sales from 1st March to 1st May 2022 (preceding year), Rs. 1,00,000. Company has
shown an increase of 10% during 2023 over the sales of 2022.Calculate short sales.
(a) 90,000 (b) 80,000 (c) 78,000 (d) None
7. Standard sales = 5,00,000

Actual sales during indemnity period = 1,00,000
Growth rate= 20%
G.P rate for purpose of claim = 15%
Calculate loss of profit
(a) 60,000 (b) 75,000 (c) 70,000 (d) None
Answer:
1-a 2-b 3-b 4-d 5-c 6-a 7-b

CHAPTER- 5 RECTIFICATION OF ERRORS

➢ Unintentional omission or commission of amounts and accounts in the process of recording
the transactions are commonly known as errors.
Illustrative cases of errors and their nature: -
(A) Wrong Entry in primary recordings i.e., subsidiary books, Journal Proper and Cash Book may occur.
Practice question 1. Goods purchased from Ram for Rs 20,000 wrongly entered in the book at Rs 2,000.
Solution:
Correct entry Purchases account Dr 20,000
To Ram account 20,000
Wrong entry Purchases account Dr 2,000
Rectifying entry Purchases account Dr 18,000
Practice question 2. Goods sold to Mohan for Rs 25,000 wrongly entered in purchase book.
Solution:
Correct entry Mohan account Dr 25,000
Wrong entry Purchases account Dr 25,000
To Mohan account 25,000
Rectifying entry Mohan account Dr 50,000
To Purchases account 25,000
(B) Wrong casting(totaling) of subsidiary books: Subsidiary books are totaled periodically and posted
to the appropriate ledger accounts. There may arise totaling errors.
Practice question 3: Total of Purchase book for the month of February under casted by Rs 5,000.
OR
Total of one page of sales book Rs 65,000 was carried forward on next page at Rs 60,000.
Solution: Impact on trial balance with assumed figures

Debit Credit
Capital 2,00,000
Liability 3,00,000
Revenue 1,00,000
Assets 4,80,000
Expenses ( other than purchases) 1,15,000
COCEDUCATION.COM For enquiry: 9999631597, 7303445575, 8448322142

Total 5,95,000 6,00,000

Suspense ( to balance) 5,000
R e c t if y i ng e nt ry :
( C ) Wrong posting from subsidiary books: In this case, the wrong amount may be posted to the ledger account
or the amount may posted to the wrong side or to the wrong account.
Practice question 4: Goods sold to Geeta for Rs 45,000 wrongly posted in Geeta account at Rs 42,000.
Solution:
Correct entry Geeta account Dr 45,000
Wrong entry Geeta account Dr 42,000
Suspense account Dr 3,000 45,000
To sales account
Rectifying entry Geeta account Dr 3,000
(D) Wrong casting(totaling) of ledger balances: Any ledger account balance may becasted wrongly.
Practice question 5: Total of Purchase Account over casted by Rs 5,000.
Solution: Impact on trial balance with assumed figures

Debit Credit
Capital 2,00,000
Liability 3,00,000
Revenue 1,00,000
Assets 4,80,000
Expenses ( other than purchases) 1,15,000
Total 5,95,000 6,00,000
Suspense ( to balance) 5,000
Rectifying entry:
Types of errors: Basically, errors are of two types: -
Errors of principle: When a transaction is recorded in contravention of accounting principles, like

treating the purchase of an asset as an expense, it is an error of principle. In this case there is no effect on
the trial balance since the amounts are placed on the correct side, though in a wrong account.

Practice question 1: Machine costing Rs 505 purchased wrongly debited to purchase account.
Correct entry Machinery account Dr 505
To cash account 505
Wrong entry Purchase account Dr 505
To cash account 505
Rectifying entry Machinery account Dr 505
To purchase account 505
(2) Clerical errors: These errors arise because of mistake committed in the ordinary course of the
accounting work. These are of three types:
(i) Errors of Omission: If a transaction is completely or partially omitted from the books of account, it
will be a case of omission.
Practice question 6. Goods worth ₹500 taken by proprietor for personal use had not been recorded at all.
Rectifying entry:
Capital/ drawings account Dr 500
To purchases account 500
Practice question 7. Bad debts aggregating ₹505 written off during the year in the Sales Ledger but were not
recorded inthe general ledger.
Correct entry Bad debts account Dr 505
To debtors account 505
Wrong entry Suspense account Dr 505
To debtors account 505
Rectifying entry Bad debts account Dr 505
To suspense account 505
Errors of Commission: If an amount is posted in the wrong account or it is written on the wrong side or
the totals are wrong or a wrong balance is struck, it will be a case of “errors of commission.”
Practice question 8. ₹1,148 paid for repairs of motor car was debited to motor car account as ₹148.
Correct entry Repair account Dr 1,148
To cash account 1,148
Wrong entry Motor car account Dr 148
Suspense account Dr 1,000

Rectifying entry Repair account Dr 1,148
To motor car account 148
Practice question 9: The returns inward book for March,2023 had been cast ₹1000 short.
Solution: Rectifying entry
Sales return account Dr 1,000
Practice question 10: While carrying forward the total of sales book from one page to the next, the amount was
written as ₹1,76,658 instead of ₹1,67,568.
Solution: Rectifying entry
Sales account Dr 9,090
Compensating Errors: If the effect of errors committed cancel out, the errors will be called compensating
errors. The trial balance will agree.
Distinction between Error of Principal and Error of Omission (most imp.): -
ERRORS OF PRINCIPAL ERRORS OF COMMISSION

This Errors does not affect Trail Balance This error may affect Trail 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
This error will affect value of asset or liability. assets or liability.
STAGES OF RECTIFICATION OF ERROR --- An error can be detected at anyone of the following stages:
(i) Before preparation of Trial Balance.
(ii) After Trial Balance but before the final accounts are drawn.
(iii) After final accounts, i.e., in the next accounting period.

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.
If the debit side is short, the suspense account will be debited saying
“To differences in trial balance” and
Similarly, the suspense account will be credited if the credit side is short.
The difference in trial balance is due to type of mistakes which affect only one account, such as
wrong posting of an account, mistake in totaling a subsidiary book etc. Such types of mistakes are
only reflected in suspense account.
Let’s practice some practical questions:
Practice question 11. A bad debt of ₹1,560 had not been written off and provision for doubtful debts should have
been maintained at 10% of Trade receivables which are shown in the trial balance at ₹23,390 with a credit
provision for bad debts at ₹2,320.
Solution:
Rectifying entry Bad debts account Dr 1,560
To debtors account 1,560
Profit and loss account Dr 1,423
To provision for doubtful debts 1,423
[(23,390-1560) x 10%] + 1560 – 2,320

Practice question 12. A vehicle bought originally for ₹7,000 four years ago and depreciated to ₹1,200 had
been sold for ₹1,500 in the beginning of the year but no entries, other than in the bank account had been
passed through the books.
Solution:
Correct entry Bank account Dr 1,500
To vehicles account 1,200
To profit on sale 300
Wrong entry Bank account Dr 1,500
Rectifying entry Suspense account Dr 1,500
To vehicles account 1,200
To profit on sale 300

Practice question 13. How would you rectify the following errors in the book of Rama & Co. if rectification is
required before preparing trial balance?
(i) The total to the Purchases Book has been undercast by ₹100.
(ii) The Returns Inward Book has been undercast by ₹50.
(iii) A sum of ₹250 written off as depreciation on Machinery has not been debited to Depreciation Account.
(iv) A payment of ₹75 for salaries (to Mohan) has been posted twice to Salaries Account.
Solution: (i) The Purchases Account should receive another debit of ₹100 since it was debited short
previously: “To Under casting of Purchases Book for the month of --- ₹100.”
(ii) Due to this error the Returns Inward Account has been posted short by ₹50: the correct entry will be:
“To Under casting of Returns Inward Book for the month of --- ₹50.”
(iii) The omission of the debit to the Depreciation Account will be rectified by the entry:
“To Omission of posting of ₹250”.
(iv) The excess debit will be removed by a credit in the Salaries Account by the entry:
“By double posting on ₹75”.
Practice question 14. Fill in the blanks:

i. The ……………….are passed at the end of an accounting period.
ii. Unintentional omission or commission of amounts and accounts in the process of recording the
transactions are commonly known as………..
iii. To check the arithmetic accuracy of the journal and ledger accounts, ……………..is prepared.
iv. When a transaction is recorded in contravention of accounting principles, like treating the purchase of
an asset as an expense, it is an …………………
v. ……………..arise because of mistake committed in the ordinary course of the accounting work
vi. …………. are of three types: Errors of Omission, Errors of Commission, Compensating Errors
vii. If the effect of errors committed cancel out, the errors will be called………………..
Answer:
i- adjustment entries ii- errors iii. trial balance iv- error of principle.
v- Clerical errors vi- Clerical errors vii- compensating errors

Practice question 15. MULTIPLE CHOICE QUESTIONS:

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 (d) None of the above
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)
(d) All of the above
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)

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COCEDUCATION.

COM CMA INTER GR -1 MARATHON PART -2 CA/CMA Santosh Kumar

CHAPTER- 1 DEPRECIATION ACCOUNTING

Characteristics of Depreciation: - The Characteristics of Depreciation are: -

(i) It is a charge against profit.

(ii) It indicates diminution in service potential.

(iii) It is an estimated loss of the value of an asset. It is not an actual loss.

(v) It is a process of allocation and not of valuation.

Methods of Charging Depreciation: -

I. Straight Line Method: -

Other method covered in ICMAI Study material:

(ii) Sinking fund method

(iii) Annuity method

(iv) Insurance policy method

Change in method of charging depreciation; -

COCEDUCATION.COM For Enquiry No. 9999631597, 7303445575, 8448322142

Important note for solving practical questions: -

Important Note: Insurance of transit:- Added to the cost of asset.

Regular Insurance charges: Not added to the cost of asset.

Solution: Calculation of profit or loss on sale of machinery:

Purchase price of machinery 66,000

Less: Depreciation upto date of sale [( 80,000- 5,000) X

Book value on the date of sale 67,500

COCEDUCATION.COM For Enquiry No. 9999631597, 7303445575, 8448322142

Solution: Machinery account

Working notes 1: Computation of profit & loss on sale of M1:

Book value of M2 as on 1-4-24 1,80,000

COCEDUCATION.COM For Enquiry No. 9999631597, 7303445575, 8448322142

Working notes 2: Computation of profit & loss on sale of M2:

Book value of M2 as on 1-4-25 85,500

Book value of the asset on the date of sale 84,787

Date Particulars Amount (₹) Date Particulars Amount (₹)

31-3-24 By balance c/d(M2) 1,00,000

1-10-24 To bank account(M3) 2,50,000 31-3-25 By balance c/d(M3) 2,50,000

COCEDUCATION.COM For Enquiry No. 9999631597, 7303445575, 8448322142

Provision for depreciation account

Date Particulars Amount (₹) Date Particulars Amount (₹)

31-3-24 By depreciation (M2) 10,000

1-10-24 By depreciation (M2) 5,000

31-3-25 By depreciation (M3) 12,500

Machine sold (M1) account

By bank account 90,000

By profit & loss a/c 80,000

Machine sold (M2) account

By profit & loss a/c 5,000 By bank account 85,000

IMPORTANT NOTE 1: Must revise question 11 and 16 from my book.

COCEDUCATION.COM For Enquiry No. 9999631597, 7303445575, 8448322142

Solution: - In the books of M/s Hot and Cold

01.10.21 To, Bank A/c (Purchase) 15,00,000

Working Notes 1: Statement of Depreciation:

Date Particulars Machine -1 (₹) Machine -2 (₹) Total

2. Now depreciation under Straight Line Method: -

On ₹8,00,000 @ 15% = ₹1,20,000 × 4 years (from 01.07.2017 to 30.06.2021) ₹4,80,000

3. Depreciation for the year: -

On 14,00,000 @ 15% for the year ₹2,10,000

COCEDUCATION.COM For Enquiry No. 9999631597, 7303445575, 8448322142

SUM OF YEAR’S DIGIT METHOD

Cost of machine= ₹2,00,000

Some important points for 1 mark questions/ MCQ

1. MATCH THE FOLLOWINGS:

2. Depletion Wasting assets

6. AS-6 Retrospective effect, change in accounting policy.

2. Fill in the blanks for MCQ: