Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

Module-1
INSURANCE CLAIMS FOR LOSS OF STOCK & LOSS OF PROFIT
SECTION - A
1. What is Insurance?
It is an agreement between Insured and Insurer to compensate the losses suffered due to
uncertainties in future, for a consideration called Premium.

2. What is meant by Fire Claims? (May/June 2007)

It is a kind of general insurance where an agreement is made between the industry (ie,
insured) and General Insurance Company (ie, insurer) to indemnify the compensation for the
loss of stock or profit due to fire accident, for a consideration called premium.

3. Who is an Insured? (May/June 2007)

Insured is a person/industry/asset, to whom/which the insurance is made. The
compensation shall be received on happening of certain event determined i.e., death of a person
or destroy of asset or properties.

4. Who is Insurer?
Insurer is an insurance company which pays the losses suffered by the insured on
happening of certain event estimated in advance i.e.. death of a person or destroy of asset or
properties.

5. What is Trading Account?

Trading Account is a ledger prepared to find out the Gross Profit of an accounting year. It
includes the trading activities done by an industry during a financial year.

6. When do we have to prepare the previous years' trading account under

insurance? (May/June 2008)
The previous year's trading account is prepared to find out the last year gross profit to help
the calculation of Gross Profit during the year in which fire accident occurred, to find out the
stock on the date of fire accident.
7. What is Gross Profit Ratio?
Gross Profit Ratio is a ratio which shows the relationship between the Gross Profit and
Net Sales, Net saless Total Sales- Return inwards

8. How do you calculate gross profit ratio?

Gross Profit Ratio= Gross Profit X 100
Net Sales
9. What is Memorandum Trading Account? (May/June 2008)
The Memorandum Trading Account is similar to usual Trading Account. It is prepared
from the begin date of accounting year and till the date of fire accident. It is not prepared as
per double entry system of booking.

10. What is meant by Salvage? (April/May 2005)

The value of stock saved from the fire accident is called Salvaged stock. Sometimes it is
also referred as Scrap value or Realizable value of stock. The saved stock should be
deducted from the stock on the date of fire.

Santhosh J. V. MBA, M.com, K-SET 1

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

11. What are abnormal lines of goods?(April/May 2005)

These are also called poor selling line goods. Abnormal lines of goods are those goods
which are sold out at discounted price or below the price quoted on the product. The reason
is the goods are defective goods, outdated style or fashion etc.

12. What are normal lines of goods?

These are also called goods selling at maximum price. Normal lines of goods are those
goods which are not sold out at discounted price or below the price quoted on the product.
The reason is the goods are not defective good, outdated style or fashion etc.

13. Find out sales when cost of goods sold is Rs. 80,000 and gross profit ratio is
20%. (April/May 2005)
Usually, Gross Profit Ratio is on Sales. The gross profit ratio given on sale is 20%. The
cost of goods sold is 80,000. Gross Profit ratio 20% cannot be applied on cost of goods sold,
to calculate Sales. The ratio should be converted into Gross Profit ration on Cost, and then
the sales shall be calculated. Therefore, Gross Profit Ratio on cost is (20/100-20x100) 25%.
Therefore,
Sales=80,000 25/100= 20,000

14 What is the objective of insertion of 'average clause' in fire claims? (April/May

2005)
The objective of insertion of 'average clause' in fire claims is to discourage the
policyholder to do under-insurance. That is to spread awareness to not to take up the policy
below the actual value of stock in the business.

15. What do you mean by Under Insurance?

Under insurance is an agreement made between insured and insurer where the insured
(policyholder) takes up the policy below the actual value of goods or asset. Though it makes
the policyholder to pay
fewer premiums, it pays less compensation to the policyholder on happening of fire accident.

16. What do you mean by Over Insurance?

Over insurance is an agreement made between insured and insurer where the insured
(policyholder) takes up the policy more than the actual value of goods or asset. It attracts
more premium to pay and more amount of compensation on happening of fire accident.

17. What is Average Clause? When it is applicable? (May/June 2007)

Average clause is a special provision provided in the fire insurance policy to discourage
the policyholder to take up the policy below the actual value of stock or asset. It is applicable
when the policyholder does under-insurance to the goods or asset.

18. When the Average Clause does become inapplicable? (May/June 2009)
The average clause does become inapplicable when the policyholder does apply for
under-insurance.

Santhosh J. V. MBA, M.com, K-SET 2

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

19. What is average clause? Why it is included in fire claims? (June-2018, 2013, 2008,
2007, 2006)
In order to discourage under insurance, usually the "average clause" is inserted in all
contracts of fire insurance. The object of inserting such a clause is to limit the liability of the
insurance company to that proportion of actual amount of loss which the insured amount bears
to the actual value of the property. Under the average clause the amount of claim can be
calculated by using the following formula.
Amount of Policy
Claim = Actual loss x Value of Stock on the date of fire

Module-2
HIRE PURCHASE ACCOUNTING
1. Give the meaning of Hire purchase system. (2019, 2018)
It is a method of purchase under which the delivery of the goods is given by the seller to the
buyer on the receipt of down payment, but the ownership of goods will be transferred only
after all the instalments amount are paid by the buyer is known as hire purchase system.

2. Why is hire purchase price greater than cash price? (2019)

the hire purchase price is always more than the cash price as the interest is included along with
the cash price.

3. Mention any two differences between Hire purchase system and Normal sales. (2018)
Sale
 Sale is governed by the sale of goods act 1930.
 The ownership of goods is transferred to the buyer immediately.
Hire Purchase
 Hire purchase is governed by the Hire purchase Act 1972.
 The ownership of goods is transferred to the buyer on payment of all instalments.

4. State two features of Hire purchase system. (2017)

The main features of a hire purchase agreement are as below:
1. The payment is to be made by the hirer (buyer) to the Hiree, usually the vendor, in
installments over a specified period of time.
2. The possession of the goods is transferred to the buyer immediately.
3. The property in the goods remains with the vendor (Hiree) till the last installment is paid.
The ownership passes to the buyer (hirer) when he pays all installments.
4. The Hiree or the vendor can repossess the goods in case of default and treat the amount
received by way of installments as hire charged for that period.
5. The installments in hire purchase include interest as well as repayments of principal.

5. Give the meaning of down payment. (2016)

The down payment means the amount which is required to be paid by hire-purchaser to the
hire vendor at the time of commencement of hire-purchase agreement.

Santhosh J. V. MBA, M.com, K-SET 3

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

Module-3
DEPARTMENTAL ACCOUNTING
SECTION-A
1. What is a department?
Department is a division or unit established by the parent organization to achieve a common
and specified operational functions. Each department is individually responsible to its profit or
loss.

2. What is departmental accounting?

Departmental accounts are set of accounts prepared to measure each department or division's
operational performance and trading results. These are prepared at any given time to measure the
earning capacity and find the operational leakage

3. Mention four advantages of departmental accounting? (June 2008)

The following are the important advantages of departmental accounts.
.i)It helps to make sure whether the department makes profit or suffers a loss.
ii) It makes the management to compare the departments each other to take corrective
actions.
iii) It helps to take a decision of further investment or disinvestment based on the results of each
department.
iv) It helps to reward the manager of each department withincentives and remuneration.

4. Mention important objectives of departmental accounting?(June 2006, 2010)

There are some basic objectives to maintain each departmental account separately.
The following are such objectives of departmental accounts.
• To assess each department on the basis of operational performance.
• To take special care of weak department to improve the performance.
• To decide the further Investment or disinvestment of the fund among the different
departments based on the outcome of the performance assessment.

5. State the two methods of departmental accounts.

The following are the two methods of accounting treatment used for departmental accounts.
Singular Method
Columnar Method

6. What is Independent/Singular method of departmental accounts?

It is also called as Independent Method. Under this method of accounting treatment, each
department is treated like a separate establishments and a separate set of accounts are maintained
to each department to find out trade efficiency.

7. What is columnar method of departmental accounts?

It is said to be a Consolidation Method. Under this method of accounting treatment, common
books of accounts are maintained for all the departments or divisions of the establishment.

8. Why do you prepare departmental trading account?

This account is similar to common trading account. It is prepared to find
out the Gross Profit or loss of respective departments.

Santhosh J. V. MBA, M.com, K-SET 4

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

9. Why do you prepare departmental profit and loss account?

This account also similar to common profit and loss account. It is prepared to find out the net
profit or loss of each department.

10. Mention the basis of apportionment of the following expenses in case of

departmental accounting?
(a) Labour welfare expenses
(b) Advertising
Ans. (a) Number of workers or employees
(b) Net Sales Ratio

11. How do you allocate the following expenses in departmental accounting?

(a) Insurance premium on stocks.
(b) Lighting bills
Ans(a) Net Sales Ratio
(b) Light points

12. How do you allocate the following expenses in departmental accounting?

(a) Carriage in wards.(b) Advertising
Ans.(a) Net Purchase Ratio
(b) Net Sales Ratio

14. Why do you prepare general profit and loss account departmental accounts?
Ans. It is prepared to incorporate general incomes and expenses which are not apportioned to
each department separately. It is also prepared to find out the common net profit or loss of the
entire
Institution

15. When do you prepare profit and loss appropriation account in departmental
accounts?
Ans. It is prepared to show the division of available profit to reserve fund, dividend payment etc
and balance profit or loss to balance sheet. Profit and Loss Appropriation account is prepared
only in case of the institution comes under the establishment of company form.

16. What is inter-departmental transfer of goods? (B.Com, Nov./Dec. 2019, BU)

Ans. It is a transfer or selling of goods from department to another department within the entity.
The Inter Departmental Transfer is made at cost price or loaded price.

17. What is departmental undertaking? (B.Com, May 2016, BU)

Ans. Departmental undertakings are the common and more established form of establishing
public enterprises. These enterprises are formed, operated and part of the department of the
ministry.
Few examples of Government undertakings are a railway, post office etc.,

18. Give the meaning of departmental undertaking? (May 2016)

Ans. Departmental Undertakings are the common and more established form of establishing
public enterprises. These enterprises are formed, operated, and part of the department of the

Santhosh J. V. MBA, M.com, K-SET 5

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

ministry. All the government works and activities are accomplished through this department,
and cannot be entitled as independent or autonomous entities.

Module -4
BRANCH ACCOUNTS
1. What do you mean by load price? (May 2015, May 2019)
Load price refers to head office sends goods to the branch at a price above the cost price,
such price is called the loaded price or the invoice price.
2. What are domestic branches? (May 2016)
Dependent branches refer to the branches which are under the control of head office for its
administration. The accounts of such branches are maintained by the head office.
3. Mention any four features of Dependent branches? (May 2018)
• Branch receives goods from Head Office.
• Goods may be supplied to Head office at Cost price / Invoice price.
• Branch normally makes cash sales.
• Cash sales and collection from debtors are periodically remitted to Head office.
• Branch accounts will be maintained by Head Office.

Module-5
CONVERSION OF SINGLE ENTRY TO DOUBLE ENTRY

SECTION-A

1. State any two features of SES.

Ans. The following are the features of SES:
(a) No complete double entry system of accounting is followed. (b) This method is followed by
the sole traders and the
partnership firms, where there is no legal mandate to maintain the complete books.

2. Mention the types of SES.

Ans. There are three types of SES: Pure SES, Simple SES and Quasi SES.

4. What is Pure SES?

Ans. It is a type of Single Entry System; under this the dual aspect (double entry) of
accounting is ignored. This system maintains only personal accounts of debtors and
creditors and no real and nominal accounts are kept.

5. What is Simple SES?

Ans. It is a type of single entry system, under this Cash book and personal accounts of debtors
and creditors are maintained and no other subsidiary books are maintained.

6. Why do you prepare opening statement of affairs in conversion of SES to DES?

Ans. Opening statement of Affairs is prepared to find out the opening capital balance to use it
while preparing balance sheet with necessary adjustments to show closing capital of the firm.

Santhosh J. V. MBA, M.com, K-SET 6

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

7. Why do you prepare Bills Payable and Bills Receivable ac counts in conversion of SES
to DES?
Ans. Bills Payable account is prepared to find out its Opening Balance/ Closing Balance/Cac!:
paid against bills/Bills issued to Creditors. And Bills Receivable accounting is prepared to find
out its Opening Balance/Closing Balance/Cash received against Bills/Bills received from
Debtors.

8. How do you treat the stocks taken over by Proprietor for personal use from
business, in conversion of SES?
Ans. The value of stock taken over by the Proprietor for personal use from business should be
treated Drawing, it has to be deducted from Total Purchases in Trading account and from Opening
Capital in the Balance sheet.
9. What is Quasi Single Entry System (SES)?
Ans. It is a type of Single Entry System; under this Personal accounts and a few subsidiary books
are also maintained. Compared to the previous two types, under Quasi SES, more books of
accounts are maintained.

10. Ascertain Credit Sales when, Opening debtors 30,800; Cash received from
cusotmers 70,000; B/R dishonoured 1,800;
Bad debts 2,800; Closing Debtors 25,500.
Ans. Credit Sales 65,700

12. Ascertain Opening stock when, Purchase 90,000; Wages 27,000; Sales 1,30,000:
Closing stock 20,000 and Gross Profit on sales is 25%
Ans. Opening stock 500

13. What is Single Entry System (SES)?

(Nov./Dec. 2017)
Ans. Single Entry System refers to unscientific, unsystematic, crude method of books keeping.
It is also defined as method of accounting which does not follow the principle of double entry
system. It considers only one aspect of accounting either debit or credit and other aspect either
debit or credit is ignored.

14.Mention any 2 items appearing on the debit side of a Total Creditors A/c. Ans. Two
items appearing on the debit side of a Total Creditors account are Cash paid to Creditors and
Closing balance of Creditors.

15. Mention any two advantages of converting the books of accounts from SES and DES.
(Nov. 2012, Nov./Dec. 2015, Nov./Dec. 2019)
Ans. The following are the two advantages of converting the books of accounts from SES to
DES: 01. To enjoy the benefits of Double Entry System and 02. To communicate the financial
results on reliable data.

16. Why are total debtors a/c and total creditors a/c prepared under SES?

Santhosh J. V. MBA, M.com, K-SET 7

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

Ans. Total Debtors account is prepared to find out its Opening balance/ Closing balance/Cash
received from debtors/Credit sales. And Total Creditors account is prepared to find out its
Opening balance/
Closing balance/Cash paid to creditors/Credit purchase.

17. State two drawbacks of SES.(Nov./Dec. 2016)

Ans. The following are the two drawbacks of SES: No arithmetical accuracy: arithmetical
accuracy cannot be checked or verified as no trail balance is prepared due to incomplete records.
No Trading and Profit & Loss A/c: Due to absence of nominal accounts, trading and profit and loss
account cannot be prepared. As a result, correct net profit cannot be received.

18. State differences between statement of affairs and balance sheet (Dec. 2013)
Ans. Statement of affairs is a statement which shows the assets and liabilities of a concern on a
given date where as a balance sheet is a statement containing the balance of real and personal
accounts l.e... balance of assets and liabilities of business for a financial year

SECTION-B
1. What is SES? Explain the different types of SES.
Ans. Single Entry System refers to unscientific, unsystematic, crude method of books keeping.
It is also defined as method of accounting which does not follow the principle of double entry
system. It considers only one aspect of accounting either debit or credit and other aspect either
debit or credit is ignored.
The Single Entry System practiced across the industries is grouped into: Pure SES, Simple SES
and Quasi SES.

• Pure Single Entry System: Under this method of SES, the dual aspect (double entry) of
accounting is ignored. This system maintains only personal accounts of debtors and creditors
and no real and nominal accounts are kept.

Simple Single Entry System: Under this method of SES, Cash book and personal accounts of
debtors and creditors are maintained and no other subsidiary books are maintained.

Quasi Single Entry System: under this system of SES, Cash book, Personal accounts and a few
subsidiary books are also maintained. Compared to the previous two types, under Quasi SES,
more books of accounts are maintained.

2. What are the advantages of SES?

Ans. The following are the advantages of Single Entry System
* It is economical, it does create heavy cost burden to the management to install an
accounting system and recruit trained accountants to maintain and record.
* It is suitable to small and medium class industries, where there is no legal compulsion to
maintain complete set of books
*No need of specialized knowledge and skill to maintain books of accounts under SES. It is very
simple to understand and easy to practice.

3. Briefly explain the stages in the conversion of books of accounts from SES.

Santhosh J. V. MBA, M.com, K-SET 8

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

Ans. The following are the steps used in Conversion method of SES to DES:
(1) Preparation of Accounts and Statements to Find out Missing Information
* Cash or Bank Book: It can be either preparation of Cash book or bank book and sometimes
both merged. It depends on the industry which maintains the Cash or Bank book. It is that part of
Current Asset (liquid Asset) needed (in conversion) to use it while preparing Opening Statement
of Affairs (opening balance of Cash or Bank) and while preparing Balance Sheet (Closing
Balance of Cash or Bank).
*Bills Receivable Account: It is also an item of Current Asset, it is prepared only if the item of
Bills Receivable is given in the problem and some possible missing information thereof.
And it always links to the Total Debtors account in passing the entries.
*Total Debtors Account: It is also an item of Current Asset. It is prepared only if the item of
Total Debtors are given in the problem and some possible missing information thereof. And it co-
links to Bills Receivable A/c in accounting treatment.
*Bills Payable Account: It is an item of Current Liability, it is prepared only if the item of Bills
Payable is given in the problem and some possible missing information thereof. And it always
links to the Total Creditors account in passing the entries.
*Total Creditors Account: It is an item of Current Liability, it is prepared only if the item of
Total Creditors are given in the problem and some possible missing information thereof. And it
always links to the Bills Payable account in passing the entries.
* Opening Statement of Affairs: It is prepared to find out the opening capital of the firm with
the help of all opening balance of the assets and liabilities. It is suggested to keep ready of all the
opening balance of assets and liabilities while preparing Opening statement of Affairs. The
outcome of the statement Opening Capital will be used while preparing Balance Sheet under
Liabilities side along with the adjustments of Net Profit or Loss, Drawing- Cash and Goods,
Interest on Capital etc.
*Fixed Asset Account (if any): It is prepared only when there is an adjustment to any fixed asset
or difference between the opening and closing balance of asset given. The missing items could be
-Depreciation- to be used in Profit and Loss A/c Debit side and deducted from the concerned
Asset value in the Balance Sheet.
-Additional Purchase- to be used in the Credit side of Cash or Bank Book and Added to the
concerned Asset value in the Balance sheet.

(ii) Preparation of Financial Statements

*Trading Account and Profit and Loss Accounts: This statement is prepared to know the
Gross Profit and Net Profit of the Business. Sometimes, it is used to find out missing
information too viz., Opening stock, Closing stock, Purchases, Sales etc.. The following the Pro-
forma used to Prepared Trading and Profit & Loss accounts.
*Balance Sheet: It is a final stage, where all the closing balance of assets, liabilities and capital
are brought with necessary adjustments to find out the financial position of the firm, first time,
after the conversion.
4. Mention the features of SES.
Ans. The following are the special features of Single Entry System:
(a) No complete double entry system of accounting is followed.
(b) This method is followed by the sole traders and the partnership firms, where there is no

Santhosh J. V. MBA, M.com, K-SET 9

 Seshadripuram Evening Degree College, # 27, Nagappa Street, Seshadripuram, Bengaluru-560020

legal mandate to maintain the complete books.

(c) Generally, personal accounts are prepared and maintained with limited nominal and real
accounts
(d) No uniformity to maintain the books of accounts amongst the proprietors.
(e) This system is very suitable for small firms.
(f) Both private and business transactions are accounted in a Cash book, which meant for both.
(g) Documentary evidences are maintained to show the business (transactions rather than
preparation of books of accounts.
(h) No Generally accepted principles for recording financial transactions and preparing
different financial statements.

Santhosh J. V. MBA, M.com, K-SET 10