Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting

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


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

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

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)


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 `)
31.03.2012 31.03.2013
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

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


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

Working Note
1. Balance Sheet as on 1st April 2012 (to ascertain OB of Capital Fund)
`
Capital Fund
(balancing figure)
Subscription received in Advance
Printing & Stationery Expenses o/s

10,58,700
18,000
1,500

Total

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
`

Capital Fund
Capital Fund
10,58,700
Add:
Surplus
5,94,600
Entrance Fees 50%
34,000
Building Fund (Donation for Building)
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
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


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
(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

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
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


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:


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

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
(Given) 1,48,000
Less:
(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

`

(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:

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


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
–
–
–

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

Gurukripa’s Guideline Answers for Nov 2013 CA Inter (IPC) Group I Accounting

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