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  • 1. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Gurukripa’s Guideline Answers to Nov 2013 Exam Questions CA Inter (IPC) Group I Accounting Question No.1 is compulsory (4 X 5 = 20 Marks). Answer any five questions from the remaining six questions (16 X 5 = 80 Marks). [Answer any 4 out of 5 in Q.7] Working Notes should form part of the answer. Wherever necessary, suitable assumptions should be made and indicated in answer by the Candidates. Question 1(a): AS – 10 (5 Marks) Amna Ltd contracted with a Supplier to purchase a specific Machinery to be installed in Department A in two months time. Special Foundations were required for the Plant, which were to be prepared within this supply lead time. The cost of site preparation and laying foundations were ` 47,290. These activities were supervised by a Technician during the entire period, who is employed for this purpose of ` 15,000 per month. The Technician’s Services were given to Department A by Department B, which billed the services at ` 16,500 per month after adding 10% profit margin. The Machine was purchased at ` 52,78,000. Sales Tax was charged at 4% on the Invoice. ` 18,590 Transportation Charges were incurred to bring the Machine to the Factory. An Architect was engaged at a fee of ` 10,000 to supervise machinery installation at the Factory Premises. Also, payment under the invoice was due in 3 months. However, the Company made the payment in the 2nd month. The Company operates on Bank Overdraft @ 11%. Ascertain the amount at which the asset should be capitalized under AS 10. Solution: Similar to Page No.B.7.5, Q.No.17 Cost of Fixed Asset (i.e. Machine) is calculated as under – Particulars Add: Note: Purchase Price Given Sales Tax at 4% ` 52,78,000 × 4% (See Note 1) Site Preparation Cost Given Technician’s Salary Specific / Attributable AOH for 2 months (See Note 2) Initial Delivery Cost Transportation Professional Fees for Installation Architect’s Fees Total Cost of Asset 1. It is assumed that Sales Tax is not subject to VAT Credit / Refund / Rebate. 2. Internally Booked Profits should be eliminated in arriving at the cost of Fixed Assets. 3. Interest on Bank Overdraft for earlier payment of invoice is not relevant under AS – 10 or AS – 16. ` 52,78,000 2,11,120 47,290 30,000 18,590 10,000 55,95,000 Question 1(b): AS – 6 (5 Marks) Narmada Ltd purchased an existing Bottling Unit from Kaveri Ltd. Kaveri Ltd followed Straight Line Method of charging depreciation on machinery of the sold unit whereas Narmada Ltd followed Written Down Value Method on its other units. The Directors of Narmada Ltd want to continue to charge depreciation for the acquired unit in Straight Line Method which is not consistent with the WDV Method followed in other units. Discuss the contention of the Directors with reference to the AS 6. Further during the year, Narmada Ltd set up a new plant on coastal land. In view of the corrosive climate, the Company felt that its machine life is reducing faster. Can the Company charge a higher rate of depreciation? Solution: 1. 2. 3. Similar to Page No.B.4.4, B.4.5 Q.No.18, 21 F (Aud) – N 97, N 94 CASE A Principle: The ICAI’s Guidance Note on Accounting for Depreciation in Companies provides that a Company may adopt or follow different methods of depreciation, for different types of assets, provided the same methods are consistently adopted every year in terms of Sec.205 (2) of the Companies Act. Selection of method: The factors to be considered while selecting a method of depreciation are – (a) Type of asset, (b) Nature of its use, and (c) Circumstances prevailing in the business. Under AS – 6, a combination of more than one method may be used. So, Business Units in different geographical locations can follow different methods of depreciation on machinery provided the same are consistently followed. Conclusion: The Company can continue to follow the previous method of charging depreciation for the acquired bottling unit, even if it is not in agreement with the method presently followed in its other units. However, it is advisable to disclose this Accounting Policy separately, to understand and appreciate the Financial Statements better. Nov 2013.1  
  • 2. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting 1. 2. 3. CASE B Where the Statute has prescribed a certain rate of depreciation and the Management’s assessment of Useful Life is shorter than that envisaged by the Statute, the Company can adopt a higher rate of depreciation. In the given case, the Company can charge depreciation based on its estimate of the useful life of machinery, provided that such estimate is not less than the rate prescribed by the Companies Act, for that class of assets. Such higher depreciation rates and / or the reduced useful lives of the assets should be disclosed by way of Notes to the accounts in the Financial Statements. Question 1(c): AS – 9 (5 Marks) A Ltd entered into a contract with B Ltd to despatch goods valuing ` 25,000 every month for 4 months upon receipt of entire payment. B Ltd accordingly made the payment of ` 1,00,000 and A Ltd started despatching the goods. In third month, due to a natural calamity, B Ltd requested A Ltd. not to despatch goods until further notice, though A Ltd is holding the remaining goods worth ` 50,000 ready for despatch. A Ltd accounted ` 50,000 as Sales and transferred the balance to Advance Received against Sales. Comment upon the treatment of balanced amount with reference to the provisions of AS–9. Solution: Similar to Page No.B.6.8, Q.No.23, P (Aud) – N 06, F (Aud) – N 01 1. Analysis: The transfer of property in goods results in or coincides with the transfer of significant risks and rewards of ownership to the Buyer. Also, the sale price has been recovered by the Seller. Hence, the sale is complete in the given case, but delivery has been postponed at Buyer’s request. 2. Conclusion: The Seller Company should recognise the entire income of ` 1 Lakh as Income (` 25,000 p.m. for 4 months) and no part of the same is to be treated as Advance Receipt against Sales. Question 1(d): AS – 14 (5 Marks) A Ltd is amalgamating with B Ltd. They are undecided on the method of accounting to be followed. You are required to advice the management of B Ltd, on the method of accounting that can be adopted under AS–14. Solution: Method 1. 2. 3. 4. 5. 6. Refer Page No.A.11.3 Q.No.7 Pooling of Interests Method Purchase Method Generally used in amalgamations in the nature of Normally used in amalgamations in the nature of Used in Merger. Purchase. Assets, Liabilities and Reserves of the Transferor Assets and Liabilities are recorded either at their – Recording of Company are recorded at their existing (a) existing Carrying Amounts, or (b) by allocating Assets and Carrying Amounts, subject to adjustments for the consideration to individual assets on the basis of Liabilities uniformity in accounting policies. their Fair Values. Balance of the Profit & Loss Account of the Transferor Company should be – Profit & Loss Balance in the Profit & Loss Account appearing in the Account of the • aggregated with the corresponding balance Financial Statements of the Transferor Company, in P&L A/c of the Transferee Company, OR Transferor whether debit or credit, loses its identity. Company • transferred to the General Reserve, if any, of the Transferee Company. Treatment of Capital or Revenue Reserves should be recorded Capital or Revenue Reserves (other than Non–Statutory at their existing Carrying Amounts and in the Statutory Reserves) should not be included in the Reserves same form as at the date of amalgamation. Financial Statements of the Transferee Company. Statutory Reserves are retained at the existing Carrying Amount by the entry – Treatment of Statutory Reserves are retained at the existing Amalgamation Adjustment Account Dr. Statutory Carrying Amount, in the books of the Transferee To Statutory Reserve (by name) A/c Reserves Company. When the Statutory Reserve is no longer required to be maintained, the above entry should be reversed. Difference between the amount recorded as Excess Consideration over the value of the net assets Share Capital issued (plus any additional of the Transferor Company should be recognised in consideration in the form of cash or other the Transferee Company’s Financial Statements as Goodwill / assets), and the amount of Share Capital of the Goodwill, which should be amortised to income on a Capital Transferor Company should be adjusted in systematic basis over its useful life. (normally 5 yrs.) Reserve Reserves, in the Financial Statements of the If the consideration is lower than the value of the Transferee Company. Net Assets acquired, the difference should be treated as Capital Reserve. Nov 2013.2  
  • 3. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Method Pooling of Interests Method 7. Adjustments to Assets and Liabilities Adjustments become necessary only when both Companies have conflicting accounting policies. The effect of changes in accounting policies must be disclosed, as per AS – 4. 8. Management Intervention There is no domination by the Management of either of the amalgamating Companies in recording Assets and Liabilities. Purchase Method Adjustments become necessary to – (a) ensure uniformity in accounting policies, or, (b) record assets not recorded in the books of the Transferor Company, e.g. Knowhow or other Intangible Asset, or, (c) record liability not recorded in the books of the Transferor Company, e.g. provision for planned employee termination or plant relocation costs. The Management of the Transferee Company may influence the determination of Fair Values for Assets and Liabilities. Question 2: Partnership – Retirement cum Admission (16 Marks) Pathak, Quereshi and Ranjeet were Partners sharing Profits in the ratio of 7 : 5 : 3 respectively. On 31st March 2013, Quereshi retired when the Firm’s Balance Sheet was as follows: Capital and Liabilities Properties and Assets ` ` Capital Account: Land & Building 10,00,000 – Pathak 8,50,000 Plant & Machinery 4,65,000 – Quereshi 6,20,000 Furniture, Fixture & Fittings 2,30,100 – Ranjeet 3,70,000 Stock 1,82,200 General Reserve 2,25,000 Trade Debtors 2,00,000 Trade Creditors 1,13,000 Less: Provision for Bad Debts 6,000 1,94,000 Cash at Bank 1,06,700 Total 21,78,000 Total 21,78,000 It was agreed that: (i) Land & Buildings be appreciated by 20%. (ii) Plant & Machinery be depreciated by 10%. (iii) Provision for Bad Debts be made equal to 4% of Trade Debtors. (iv) Outstanding Repairs Bill amounting to ` 1,500 be recorded in the books of account. (v) Goodwill of the Firm be valued at ` 3,00,000, and Quereshi’s Capital Account be credited with his share of goodwill without raising Goodwill Account. (vi) Half of the amount due to Quereshi be immediately paid to him by means of a cheque, and the balance be treated as a Loan bearing interest @ 12% per annum. After Quereshi’s retirement, Pathak and Ranjeet admitted Swamy as new Partner with effect from 1st April 2013. Pathak, Ranjeet and Swamy agreed to share profits in the ratio of 2 : 1 : 1 respectively. Swamy brought Patents valued at ` 20,000 and ` 3,80,000 in cash including payment for his share of Goodwill as valued by the Old Firm. The entire amount of ` 4,00,000 was credited to Swamy’s Capital Account. Adjustments were made in the Capital Account for Swamy’s share of goodwill. (a) Pass Journal Entries for all the above transactions without any narration, and (b) Prepare the Capital Account of all the Partners. Solution: S.No 1. 2. 3. Similar to Illustration 24, 25 Page A.6.35 and A.6.37 Journal Entries Particulars Land and Building A/c (10,00,000 × 20%) Dr. To Revaluation A/c (Being Land and Buildings appreciated by 20%) Revaluation A/c Dr. To Plant & Machinery A/c (4,65,000 × 10%) (Being Plant and Machinery depreciated by 10%) Revaluation A/c Dr. To Provision for Bad Debts A/c (4% of ` 2,00,000 – 6,000) (Being Provision for Bad Debts made equal to 4% of Debtors) Nov 2013.3   Dr. (`) 2,00,000 Cr. (`) 2,00,000 46,500 46,500 2,000 2,000
  • 4. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting S.No 4. 5. 6. 7. 8. 9. Particulars Revaluation A/c To Outstanding Repair Bills A/c (Being Outstanding Repair Bills recorded in the Books of Accounts) Revaluation A/c (WN 2) To Pathak’s Capital A/c To Quereshi’s Capital A/c To Ranjeet’s Capital A/c (Being Gain on Revaluation transferred to Partner’s Capital A/c) Note: Net Gain on Revaluation as per Effect of Journal Entries 1,2,3 & 4 = 2,00,000 (–) 46,500 (–) 2,000 (–) 1,500 = ` 1,50,000. Alternatively, Revaluation Account can be prepared to ascertain the Net Gain. Pathak’s Capital A/c Ranjeet’s Capital A/c Swamy’s Capital A/c To Quereshi’s Capital A/c (WN 1) (Being Adjustment made for Goodwill) General Reserve A/c (Distribution in 7:5:3) To Pathak’s Capital A/c To Quereshi’s Capital A/c To Ranjeet’s Capital A/c (General Reserve transferred to the Old Partners in Old Profit Sharing Ratio) Quereshi’s Capital A/c To Bank A/c To Quereshi’s Loan A/c (Being settlement made to Quereshi and Balance treated as Loan) Patents A/c Cash A/c To Swamy’s Capital A/c (Being Capital Brought in by the new Partner) Details To Quereshi’s Pathak Quereshi 10,000 – Capital A/c To Bank A/c To Quereshi’s Loan A/c To bal c/d 4,22,500 10,15,000 4,22,500 – Total 10,25,000 8,45,000 Working Notes Particulars Creation of Goodwill (7:5:3) Goodwill Written Off (2:1:1) Net Effect Partners’ Capital Accounts Ranjeet Swamy Details Pathak By bal.b/d 8,50,000 15,000 75,000 By General Reserve 1,05,000 By Cap A/c – Pathak – Ranjeet – Swamy By Revln. 70,000 4,30,000 3,25,000 By Patents By Cash A/c 4,45,000 4,00,000 Total 10,25,000 1. Adjustment for Goodwill Pathak Quereshi 1,40,000 Cr. 1,00,000 Cr. 1,50,000 Dr. – 10,000 Dr. 1,00,000 Cr. Question 3(a): Single Entry – Statement of Affairs The details of Assets and Liabilities of Mr. ‘A’ as on 31–3–2012 and 31–3–2013 are as follows: Nov 2013.4   Dr. Dr. (`) 1,500 Cr. (`) 1,500 Dr. 1,50,000 70,000 50,000 30,000 Dr. Dr. Dr. 10,000 15,000 75,000 1,00,000 Dr. 2,25,000 1,05,000 75,000 45,000 Dr. 8,45,000 4,22,500 4,22,500 Dr. Dr. 20,000 3,80,000 4,00,000 Quereshi 6,20,000 Ranjeet 3,70,000 75,000 45,000 10,000 15,000 75,000 50,000 30,000 8,45,000 4,45,000 Ranjeet 60,000 Cr. 75,000 Dr. 15,000 Dr. Swamy 20,000 3,80,000 4,00,000 Swamy – 75,000 Dr. 75,000 Dr. (8 Marks)
  • 5. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Particulars 31–3–2012 ` 31–3–2013 ` Furniture 50,000 Building 1,00,000 Stock 1,00,000 2,50,000 Sundry Debtors 60,000 1,10,000 Cash in hand 11,200 13,200 Cash at Bank 60,000 75,000 Liabilities: Loans 90,000 70,000 Sundry Creditors 50,000 80,000 Mr. ‘A” decided to provide depreciation on Buildings by 2.5% and Furniture by 10% for the period ended on 31–3–2013. Mr. ‘A’ purchased jewellery for ` 24,000 for his daughter in December 2012. He sold his car on 30–3–2013 and the amount of ` 40,000 is retained in the business. You are required to: (i) Prepare Statement of Affairs as on 31–3–2012 & 31–3–2013. (ii) Calculate the Profit received by ‘A’ during the year ended 31–3–2013. Assets: Solution: Similar to Illus 10 Page A.3.9 1. Statement of Affairs (amts in `) Capital and Liabilities 31.03.2012 31.03.2013 Properties and Assets Capital (bal.fig) 2,41,200 4,40,700 Fixed Assets: Furniture Non–Current Liabilities: Building Loan 90,000 70,000 Current Assets: Current Liabilities: Stock in Trade Sundry Creditors 50,000 80,000 Sundry Debtors Cash in Hand Cash at Bank Total 3,81,200 5,90,700 Total 31.03.2012 50,000 1,00,000 31.03.2013 45,000 97,500 1,00,000 60,000 11,200 60,000 3,81,200 2,50,000 1,10,000 13,200 75,000 5,90,700 By Balance b/d By Additional Capital (Sale Proceeds of Car) By Profits for the year (bal.fig) 2,41,200 40,000 1,83,500 4,64,700 2. Computation of Profit (balancing figure in Capital A/c of A) Particulars Particulars ` To Drawings (Jewellery) To balance c/d Total 24,000 4,40,700 4,64,700 ` Question 3(b): Cash Flow from Operating Activities (8 Marks) Surya Ltd has provided you the following details. Prepare Cash Flow from Operating Activities by Indirect Method in accordance with AS 3: Profit & Loss Account of Surya Ltd for the year ended 31st March, 2013 Particulars Particulars ` ` To Depreciation 86,700 By Operating Profit before depreciation 11,01,600 To Patents written off 35,000 By Profit on Sale on Investments 10,000 To Provision for Tax 1,25,000 By Refund of Tax 3,000 To Proposed dividend 72,000 By Insurance Claim–Major Fire Settlement 1,00,000 To Transfer to Reserve 87,000 To Net Profit 8,08,900 Total 12,14,600 Total 12,14,600 Additional Information: (in `) Particulars 31–3–2012 31–3–2013 Stock 1,20,000 1,60,000 Trade Debtors 7,500 75,000 Trade Creditors 23,735 87,525 Provision for Tax 1,18,775 1,25,000 Prepaid Expenses 15,325 12,475 Marketable Securities 11,775 29,325 Cash Balance 25,325 35,340 Nov 2013.5  
  • 6. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Solution: Cash Flow Statement (Extract) of Surya Ltd for the year ending 31.3.2013 Particulars ` A. CASH FLOWS FROM OPERATING ACTIVITIES Net Profit before Tax & Extraordinary Items (WN 1) 9,89,900 Adjustments for: Depreciation 86,700 Patents written off 35,000 Profit on Sale of Investments (Non Operating Income) (10,000) Cash Flow before Working Capital Changes 11,01,600 Adjustments for Working Capital Changes – Increase in Creditors [87,525 – 23,735] 63,790 Decrease in Prepaid Expenses [15,325 – 12,475] 2,850 Increase in Trade Debtors [7,500 – 75,000] (67,500) Increase in Stock [1,20,000 – 1,60,000] (40,000) Cash Generated from Operations Before Income Tax & Extraordinary Items 10,60,740 Less: Income Tax Paid (WN 2) [1,18,775 – Refund of Tax 3,000] (1,15,775) Cash Flow Before Extraordinary Items 9,44,965 Add: Extraordinary Items (Insurance Claim – Major Fire Settlement) 1,00,000 Net Cash Flow from / (used in) Operating Activities 10,44,965 Note: Marketable Securities are classifiable under Cash Equivalents and hence not considered for Working Capital Changes. Working Note 1: Add: Particulars Net Profit after Taxation & Extraordinary items Transfer to General Reserve Proposed Dividend Provision for Taxation Less: Extraordinary Item – Income (Insurance Claim) ` 8,08,900 87,000 72,000 1,25,000 (1,00,000) Refund of Tax Net Profit before Taxation & Extraordinary Items Working Note 2: Particulars (3,000) 9,89,900 Provision for Taxation A/c To Cash / Bank (B/F) (Tax paid during the year) To balance c/d Total Particulars ` 1,18,775 1,25,000 2,43,775 By balance b/d By P & L A/c (Provision made during the year) Total ` 1,18,775 1,25,000 2,43,775 Question 4: NPOs – Corrected R & P A/c, Income 7 Expenditure A/c & Balance Sheet (16 Marks) Highend Club appointed a new Accountant for maintaining books of account. He prepared following Receipts and Payments A/c for the year ended as on 31st March 2013. Receipts and Payments Account Receipts Payments ` ` To balance b/d 9,000 By Printing & Stationery 21,000 To Annual Subscription for current yr 9,18,000 By Telephone Expenses 45,000 By Repair & Maintenance Expenses (incl 1,26,000 Add: Outstanding of last year received this yr 36,000 Payment for Sports Material ` 54,000) 9,54,000 Less: Subscription received in Advance as By Garden Upkeep 55,000 on 31–03–2012 18,000 9,36,000 By Electricity Charges 36,000 To Sale of Old Newspaper 36,000 By Loss on Sale of Furniture 36,000 To 5% Interest on Investments 27,000 (Cost as per Books ` 90,000) To Entrance Fees 68,000 To Donation for Building 18,00,000 By balance c/d 25,57,000 Total 28,76,000 Total 28,76,000 Nov 2013.6  
  • 7. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Additional Information: Highend Club had balances Furniture Stock of Sports Material Subscription Receivable Subscription Received in Advance Outstanding Printing & Stationery Expenses Outstanding Electricity Charges 50% Entrance Fees is to be capitalized. 01–04–2012 ` 3,60,000 1,33,200 01–04–2013 ` 1,500 36,000 54,000 18,000 2,500 3,200 Do you agree with above Receipts and Payment Account? If not, prepare correct Receipts and Payments Account and Income and Expenditure Account for the year ended 31st March 2013, and Balance Sheet as on that date. Solution: Similar to Page No.A.4.41, Q.No.25 A. Receipts & Payments Account for the year ended 31st March 2013 Payments Receipts ` To To To To To To To balance b/d Subscription Received (WN 2) Sale of Old Newspaper 5% Interest on Investments Entrance Fees Donation for Building Sale Proceeds of Furniture (90,000 – 36,000) Total 9,000 9,00,000 36,000 27,000 68,000 18,00,000 54,000 28,94,000 By By By By By By By Printing & Stationery Expenses Telephone Expenses Garden Upkeep Repairs & Maint. (1,26,000 – 54,000) Sports Material Electricity Charges balance c/d (bal. fig) Total ` 21,000 45,000 55,000 72,000 54,000 36,000 26,11,000 28,94,000 2. Subscription Account Particulars 36,000 9,18,000 18,000 9,72,000 By balance b/d (Opg Bal of Subs. Recd in Adv.) By Cash / Bank (balancing figure) (received) By balance c/d (Subs. Rec’ble at the year–end) Total 3. Printing & Stationery Expenses Particulars ` Particulars To Cash / Bank A/c (paid given) To Closing Balance (Closing o/s Exps) Total 4. Sports Material Consumed Particulars ` To balance b/d (Subscription rec’ble opg Bal) To Income and Expenditure A/c (for the yr given) To balance c/d (Clg Bal of Subs. Recd in Adv) Total 21,000 2,500 23,500 By Opening Balance (Opg O/s Exps) By P & L A/c (bal. fig) Exps for the year Total ` 18,000 9,00,000 54,000 9,72,000 ` 1,500 22,000 23,500 = Opening Stock + Purchases – Closing Stock = 1,33,200 + 54,000 – 36,000 = ` 1,51,200. B. Income & Expenditure Account for the year ended 31st March 2013 Expenditure Income ` To To To To To To To To Printing & Stationery (WN 3) Telephone Expenses Garden Upkeep Repairs & Maintenance Loss on Sale of Furniture Electricity Charges (paid + p’ble) = 36,000 + 3,200 Sports Material Consumed (WN 4) Surplus (excess of Income over Expenditure) Total 22,000 45,000 55,000 72,000 36,000 39,200 1,51,200 5,94,600 10,15,000 Nov 2013.7   By By By By Subscription for the year (given) Sale of Old Newspapers 5% Interest on Investments Entrance Fees (50% of 68,000) Total ` 9,18,000 36,000 27,000 34,000 10,15,000
  • 8. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Working Note 1. Balance Sheet as on 1st April 2012 (to ascertain OB of Capital Fund) Properties and Assets Capital and Liabilities ` Capital Fund (balancing figure) Current Liabilities: Subscription received in Advance Printing & Stationery Expenses o/s 10,58,700 18,000 1,500 Total Capital and Liabilities 10,78,200 Non–Current Assets: A. Fixed Assets – Furniture (given) B. Investments (27,000 ÷ 5%) Current Assets: Stock of Sports Material (given) Subscription Receivable Cash and Bank Balances Total C. Balance Sheet as @ 31st March 2013 Properties and Assets ` Capital Fund Capital Fund 10,58,700 Add: Surplus 5,94,600 Entrance Fees 50% 34,000 Building Fund (Donation for Building) Current Liabilities: Subscription Received in Advance Expenses Payable – Printing & Stationery Expenses 2,500 – Electricity Charges 3,200 Total 16,87,300 18,00,000 18,000 Non–Current Assets: A. Fixed Assets Furniture (3,60,000 – 90,000) B. Investments (same as OB) Current Assets: Stock of Sports Materials (given) Subscription Receivable (given) Cash and Bank Balances 5,700 35,11,000 Total ` 3,60,000 5,40,000 1,33,200 36,000 9,000 10,78,200 ` 2,70,000 5,40,000 36,000 54,000 26,11,000 35,11,000 Question 5: Balance Sheet as per Revised Schedule VI (16 Marks) On 31st March 2013 Bose and Sen Ltd provides to you the following Ledger Balances after preparing its Profit and Loss Account for the year ended 31st March 2013: Credit Balances Debit Balances ` ` 70,00,000 Calls in Arrears 7,000 Equity Share Capital, fully paid Shares of ` 10 each General Reserve 15,49,100 Land 14,00,000 Loan from State Finance Corporation 10,50,000 Buildings 20,50,000 Plant & Machinery 36,75,000 Secured by hypothecation of P & M (repayable within 1 yr ` 2,00,000) Loans: Unsecured (Long Term) 8,47,000 Furniture & Fixtures 3,50,000 Sundry Creditors for Goods & Expenses (Payable within 6 months) 14,00,000 Stocks: Finished Goods 14,00,000 Profit & Loss Account 7,00,000 Raw Materials 3,50,000 Provision for Taxation 3,25,500 Sundry Debtors 14,00,000 Proposed Dividend 4,20,000 Advances: Short–Term 2,98,900 Provision for Dividend Distribution Tax 71,400 Cash in Hand 2,10,000 Balances with Banks 17,29,000 Preliminary Expenses 93,100 Patents & Trade Marks 4,00,000 Total 1,33,63,000 Total 1,33,63,000 The following additional information is also provided: (i) 4,20,000 fully paid Equity Shares were allotted as consideration for Land & Buildings. (ii) Cost of Building ` 28,00,000 Cost of Plant & Machinery ` 49,00,000 Cost of Furniture & Fixtures ` 4,37,500 (iii) Sundry Debtors for ` 3,80,000 are due for more than 6 months. (iv) The amount of Balances with Bank includes ` 18,000 with a Bank which is not a Scheduled Bank, and the deposits of ` 5 Lakhs are for a period of 9 months. (v) Unsecured Loan includes ` 2,00,000 from a Bank and ` 1,00,000 from Related Parties. Nov 2013.8  
  • 9. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting You are not required to give previous year figures. You are required to prepare the Balance Sheet of the Company as on 31st March 2013, as required under Revised Schedule VI of the Companies Act, 1956. Solution: I (1) (2) (3) II (1) (2) Similar to Illustration 1 Page A.8.23 Balance Sheet of Bose and Sen Ltd as on 31st March 2013 Note Particulars as at 31st March EQUITY AND LIABILITIES: Shareholders’ Funds: (a) Share Capital 1 (b) Reserves and Surplus 2 Non–Current Liabilities: Long Term Borrowings 3 Current Liabilities: (a) Trade Payables (b) Other Current Liabilities 4 (c) Short Term Provisions 5 Total ASSETS Non–Current Assets Fixed Assets: Tangible Assets 6 Intangible Assets – Patents and Trade Marks Other Non Current Assets – Preliminary Expenses 7 Current Assets: (a) Inventories 8 (b) Trade Receivables 9 (c) Cash and Cash Equivalents 10 (d) Short Term Loans and Advances Total This Year Prev. Yr 69,93,000 22,49,100 16,97,000 14,00,000 2,00,000 8,16,900 1,33,56,000 74,75,000 4,00,000 93,100 17,50,000 14,00,000 19,39,000 2,98,900 1,33,56,000 Note 1: Share Capital Particulars …………………Equity Shares of …… each …………………Preference Shares of …… each Issued, Subscribed & Paid up: 7,00,000 Equity Shares of ` 10 each Out of the above, 4,20,000 Shares of `10 each are allotted for Non Cash Consideration Less: Calls in Arrears Total This Year Prev. Yr Authorised: 70,00,000 (7,000) 69,93,000 Note 2: Reserves and Surplus (showing appropriations and transfers) (all figures for this year) Particulars Opg. Bal. Additions Deductions General Reserve – – Clg. Bal 15,49,100 Surplus (P & L A/c) – – 7,00,000 Total – – 22,49,100 Note 3: Long Term Borrowings Particulars (a) Term Loans from Banks: Secured against Hypothecation of Plant and Machinery (10,50,000 less Amount Repayable within one year shown under Other Current Liabilities = (10,50,000 – 2,00,000) Unsecured (b) Loans from Related Parties Unsecured (c) Loans from Other Parties Unsecured Total Nov 2013.9   This Year 8,50,000 2,00,000 1,00,000 5,47,000 16,97,000 Prev. Yr
  • 10. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Note 4: Other Current Liabilities Particulars Current Maturities of Long Term Debt – Loan from State Finance Corporation Total This Year 2,00,000 2,00,000 Prev. Yr This Year 3,25,500 4,20,000 71,400 8,16,900 Prev. Yr Note 5: Short Term Provisions Particulars Provision for Taxation Proposed Dividend Provision for Dividend Distribution Tax Total Note 6: Tangible Fixed Assets (Note: In the absence of data, Other Columns are not filled up in this Table). Item Gross Block / Cost Depreciation Net Block / WDV Opg Addns / Opg Addns / As at Yr As at Yr Clg Bal Clg Bal Bal. (Dedns) Bal. (Dedns) Beginning End Tangible Assets Land 14,00,000 0 14,00,000 Building 28,00,000 (b/f) 7,50,000 20,50,000 Furniture 4,37,500 (b/f) 87,500 3,50,000 Plant & M/c 49,00,000 (b/f) 12,25,000 36,75,000 Total 95,37,500 20,62,500 74,75,000 Intangible Assets Patents & Trademarks 4,00,000 4,00,000 Note 7: Other Non Current Assets As per AS 26 on Intangible Assets, Intangible Assets can be recognized in the Balance Sheet only when there is a future economic benefit expected out of the Assets. Considering this view point, Preliminary Expenses cannot be retained in the Balance Sheet as an Asset and can be adjusted against P&L A/c [Reserves and Surplus Schedule]. However, as per Guidance Note on Revised Schedule VI, Share Issue Expenses, Discount on Issue of Shares, Borrowing Costs can be retained in the Balance Sheet and can be amortised over a period of time. Till such time, the same shall be disclosed either as “Other Non Current Assets” or “Other Current Assets”, as the case may be. Note 8: Inventories Particulars This Year 3,50,000 14,00,000 17,50,000 Raw Materials Finished Goods Total Note 9: Trade Receivables (assumed as Secured and considered good) Particulars Sundry Debtors (a) Debt Outstanding for a period exceeding 6 months from the date they are due for payment (b) Other Debts (balancing figure) Total Prev. Yr This Year Prev. Yr 3,80,000 10,20,000 14,00,000 Note 10: Cash and Cash Equivalents Particulars This Year Prev. Yr Balances with Banks – Scheduled Banks (17,29,000 – 18,000) 17,11,000 – Other Banks 18,000 17,29,000 Cash on Hand 2,10,000 Total 19,39,000 Out of the above, Bank Balances to the extent of ` 5,00,000 have Maturity Period less than 12 Months, and Bank Balances to the extent of `12,29,000 have Maturity Period more than 12 Months. Nov 2013.10  
  • 11. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Question 6: Insurance Claim – Loss of Profit Monalisa & Co runs plastic goods shop. Following details are available from quarterly sales tax return filed. Sales 2009 2010 2011 st January to 31st March From 1 1,80,000 1,70,000 2,05,950 From 1st April to 30th June 1,28,000 1,86,000 1,93,000 From 1st July to 30th September 1,53,000 2,10,000 2,31,000 st October to 31st December From 1 1,59,000 1,47,000 1,90,000 Total 6,20,000 7,13,000 8,19,950 Period Sales from 16.09.2011 to 30.09.2011 Sales from 16.09.2012 to 30.09.2012 Sales from 16.12.2011 to 31.12.2011 Sales from 16.12.2012 to 31.12.2012 (16 Marks) (`) 2012 1,62,000 2,21,000 1,75,000 1,48,000 7,06,000 ` 34,000 Nil 60,000 20,000 A Loss of Profit Policy was taken for ` 1,00,000. Fire occurred on 15st September 2012. Indemnity Period was for 3 months. Net Profit was ` 1,20,000 and Standing charges (all insured) amounted to ` 43,990 for year ending 2011. Determine the Insurance Claim. Solution: Similar to Page No.A.5.24, Q.No.30 1. Period of Indemnity (given) = 3 months (15.09.2012 to 15.12.2012) 2. Computation of GP Ratio 1,20,000 + 43,990 Net Profit + Insured Standing Charges × 100 = GP Rate for Claim purposes = Sales 8,19,950 20% 3. Computation of Insurable Amount Particulars Add: ` Annual Turnover, i.e. Turnover for 12 months preceding the date of Fire (Note 1 below) Adjustment for Increase in Turnover (15% of ` 7,82,000) (Note 2 below) Adjusted Annual Turnover GP on Adjusted Annual Turnover at 20% on ` 8,99,300 = Insurable Amount 7,82,000 1,17,300 8,99,300 1,79,860 Note 1: Computation of Turnover for 12 months preceding the date of Fire (from 15.09.2011 to 15.09.2012) Particulars ` Sales from 16.09.2011 to 31.09.2011 (Given) 34,000 Sales from 01.10.2011 to 31.12.2011 (Given) 1,90,000 Sales from 01.01.2012 to 31.03.2012 (Given) 1,62,000 Sales from 01.04.2012 to 30.06.2012 (Given) 2,21,000 Sales from 01.07.2012 to 30.09.2012 (Given) 1,75,000 Sales from 16.09.2012 to 30.09.2012 Nil Turnover for 12 months preceding the date of Fire 7,82,000 Note 2: Trend Increase in Sales Year ending Sales for the year Percentage Increase in Sales 31st Dec 2009 6,20,000 31st Dec 2010 7,13,000 7,13,000 - 6,20,000 = 15% 6,20,000 31st Dec 2011 8,19,950 8,19,950 - 7,13,000 = 15% 7,13,000 Observation: Average Trend Increase in Sales is taken as 15% Nov 2013.11  
  • 12. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting 4. Computation of Short Sales Particulars Add: Less: ` Std Turnover from 16.09.2011 to 15.12.2011 (previous year corresponding to Indemnity Period) (A) Adjustment for Increase in Turnover (` 1,64,000 × 15%) 1,64,000 24,600 Adjusted / Expected Turnover during Indemnity Period Actual Turnover during Indemnity Period, i.e. for the period 16.09.2012 to 15.12.2012 Sales for the period 16.09.2012 to 30.09.2012 (Given) Nil Sales for the period 01.10.2012 to 31.12.2012 (Given) 1,48,000 Less: Sales for the period 16.12.2012 to 31.12.2012 (Given) (20,000) Short Sales 1,88,600 (1,28,000) 60,600 (A) Computation of Actual Sales for the period 16.09.2011 to 15.12.2011 Particulars Sales for the period 16.09.2011 to 30.09.2011 Sales for the period 01.10.2011 to 31.12.2011 Sales for the period 16.12.2011 to 31.12.2011 ` (Given) (Given) (Given) Total 34,000 1,90,000 (60,000) 1,64,000 5. Computation of Allowable Additional Expenses = Not Applicable in this Question. 6. Computation of Claim Particulars ` 12,120 Net Claim for Loss of Profit = Gross Profit on Short Sales = 20% on ` 60,600 Admissible Claim (based on Average Clause) = Net Claim × 1,00,000 Policy Amount = ` 12,120 × 1,79,860 Insurable Amount 6,739 Question 7(a): Investment A/c’s – Equity Shares (4 Marks) On 01.05.2012, Mr. Mishra purchased 800 Equity Shares of ` 10 each in Fillco Ltd at ` 50 each from a Broker who charged 5%. He incurred 20 paisa per ` 100 as Cost of Share Transfer Stamps. On 31.10.2012, Bonus was declared in the ratio 1 : 4. The Shares were quoted at ` 110 and ` 60 per share before and after the record date of Bonus Shares respectively. On 30.11.2012, Mr. Mishra sold the Bonus Shares to a Broker who charged 5%. Prepare Investment A/c in the books of Mr. Mishra for the year ending 31.12.2012, and Closing Value of Investment shall be made at Cost or Market Value whichever is lower. Solution: Similar to Page No.A.5.55, Q.No.10 1. Basic Computations Particulars (a) Cost of Shares purchased on 01.05.2012 (b) Sale Proceeds of Shares sold on 30.11.2012 (c) Profit on Sale of Bonus Shares on 30.11.2012 (d) Valuation of Equity Shares of 31.12.2012 Computation (800 × 50 = 40,000) + (5% of 40,000) + 0.2% of 40,000 (200 × ` 60) – 5% Brokerage Sale Proceeds = 11,400 200 Less: Average Cost 42,080 × = (8,416) 1,000 42,080 × Cost: Market Value: 800 Shares of Date 01.05.2012 31.10.2012 31.12.2012 800 1,000 ` 60 = 33,664 = 48,000 2. Investment (Equity Shares of Fillco Limited) Account (in Mishra’s Books) Particulars FV Cost Date Particulars FV To Bank 8,000 42,080 30.11.2012 By Bank 2,000 To Bonus Issue (1:4) 2,000 6,000 ⎯ 31.12.2012 By balance c/d To P&L (Profit) 2,984 ⎯ Total 45,064 Total Nov 2013.12   1,50,000 ` 42,080 11,400 2,984 Least of the two 33,664 Cost 11,400 (b/f) 33,664 45,064
  • 13. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Question 7(b): Internal Reconstruction – Journal Entries (4 Marks) Pass Journal Entries for the following transactions: (i) Conversion of 2 Lakh fully paid Equity Shares of ` 10 each into Stock of ` 1,00,000 and balance as 12% Fully Convertible Debenture. (ii) Consolidation of 40 Lakh fully paid Equity Shares of ` 2.50 each into 10 Lakh fully paid Equity Share of `10 each. (iii) Sub–Division of 10 Lakh fully paid 11% Preference Shares of ` 50 each into 50 Lakh fully paid 11% Preference Shares of ` 10 each. (iv) Conversion of 12% Preference Shares of ` 5,00,000 into 14% Preference Shares ` 3,00,000 and remaining balance as 12% Non–Cumulative Preference Shares. Solution: S.No 1. 2. 3. 4. Similar to Illustration 1 and 2, Page A.10.4 Journal Entries Particulars Equity Share Capital A/c (` 10 each) To Equity Stock A/c To 12% Fully Convertible Debentures A/c (Being Equity Shares of ` 10 each fully paid converted into Stock, and 12% fully Convertible Debentures) Equity Share Capital A/c (` 25 each) To Equity Share Capital A/c (` 10 each) (Being 40 Lakh Equity Shares of Face Value ` 2.50 each converted into Equity Shares of face value ` 10 each) 11% Preference Share Capital A/c (11% Preference Shares ` 50 each) To Preference Share Capital A/c (11% Preference Shares of ` 10 each) (Being 10 Lakh 11% Preference Shares of ` 50 each converted into 50 Lakh 11% Preference Shares of ` 10 each) 12% Preference Share Capital A/c To 14% Preference Share Capital A/c To 12% Non – Cumulative Preference Share Capital A/c (Being 12% Preference Share Capital of ` 5,00,000 converted into 14% Preference Shares of ` 3,00,000 and remaining into 12% Non Cumulative Preference Shares) Dr. Dr. (`) 20,00,000 Cr. (`) 1,00,000 19,00,000 Dr. 1,00,00,000 1,00,00,000 Dr. 5,00,00,000 5,00,00,000 Dr. 5,00,000 3,00,000 2,00,000 Question 7(c): Account Current – Partnership Firm (4 Marks) Roshan has a Current Account with Partnership Firm. It has a Debit Balance of ` 75,000 as on 01.07.2012. He has further deposited the following amounts: Date Amount (`) 14.07.2012 1,38,000 18.08.2012 22,000 He withdrew the following amounts: Date Amount (`) 29.07.2012 97,000 09.09.2012 11,000 Show Roshan’s A/c in the Ledger of the Firm. Interest is to be calculated at 10% on Debit Balance and 8% on Credit Balance. You are required to prepare Current Account as on 30th September 2012. Solution: Date 01–07–2012 14–07–2012 29–07–2012 18–08–2012 09–09–2012 Particulars To Balance b/d By Cash / Bank To Cash / Bank By Cash / Bank To Cash / Bank Roshan Current Account with Partnership Firm Dr. / Net Cum Dr. Cr. Days Cr. Balance 75,000 – Dr. 75,000 14 – 1,38,000 Cr. 63,000 15 97,000 – Dr. 34,000 20 – 22,000 Dr. 12,000 22 11,000 – Dr. 23,000 21 Nov 2013.13   Debit Product 10,50,000 – 6,80,000 2,64,000 4,83,000 Credit Product – 9,45,000 – – –
  • 14. Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting Date 30–09–2012 Particulars Dr. 472 To Interest Dr. / Cr. Dr. Cr. – Net Cum Balance 23,472 Days – Debit Product – 24,77,000 Credit Product – 9,45,000 Note: Interest is computed as follows: 1 1 = 207 On Debit Products = ` 24,77,000 × 10% × = 679 365 365 So, Net Interest Debit = 679 – 207 = 472 On Credit Products: ` 9,45,000 × 8% × Question 7(d): Average Due Date (4 Marks) The following transactions took place between Thick and Thin. They desire to settle their account on Average Due Date. Particulars Particulars ` ` Purchases by Thick from Thin Sales by Thick to Thin 9th July, 2013 7,200 15th July, 2013 18,000 th August, 2013 st August, 2013 14 12,200 31 16,500 Calculate Average Due Date and the amount to be paid or received by Thick. 1. Computation of Products for Thick’s payment (Base Date = 9th July) No. of Days from Base Date Product (Rs.) Amount (`) (2) (3) (4) = (2) × (3) 0 7,200 0 36 (22+14) 12,200 4,39,200 19,400 4,39,200 Solution: Due Date (1) 9th July 14th Aug Due Date (1) 15th July 31st Aug 2. Computation of Products for Thin’s payment (Base Date = 9th July) No. of Days from Base Date Product (Rs.) Amount (`) (2) (3) (4) = (2) × (3) 6 18,000 1,08,000 53 (22+31) 16,500 8,74,500 24,500 9,82,500 Average Due Date = Base Date + Difference in Products Difference in Amounts = 9th July + th = 9 July + 36 days = 14th Aug 2013. 9,82,500 - 4,39,200 5,43,300 = 9th July + 34,500 - 19,400 15,100 Note: Thick has to receive `15,100 from Thin on 14.8.2013. Question 7(e): Accounting in e–environment (4 Marks) Explain the reasons due to which the manual accounting system was replaced by the computerized accounting system in modern time. Solution: Refer Page No.A.1.5, Q.No.2, Point A. Nov 2013.14